issue-1996-05-09•Federal Register final rules — 1996-05-09
Federal Register final rules — 1996-05-09
issue-1996-05-09Federal Register final rules — 1996-05-09Regulation
Published Federal Register documents, not public-inspection drafts. The GPO XML/text rendition is a research aid; the linked complete official PDF retains the printed layout and all graphics. Graphics are retained in that PDF and are not independently reproduced in this text rendition. Publication does not establish that every provision remains legally in force.
FR Doc. 96-11626 Exemption for Certain California Limited Issues
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21356-21359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11626]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 230
[Release No. 33-7285; File No. S7-15-95]
RIN 3235-AG51
Exemption for Certain California Limited Issues
AGENCY: Securities and Exchange Commission.
ACTION: Final rules.
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SUMMARY: In order to reduce regulatory burdens associated with certain
offers and sales of securities, the Securities and Exchange Commission
(``Commission'') today is adopting a new exemption from its
registration requirements for limited offerings of up to $5 million
that are exempt from qualification under a 1994 California state
securities law.
EFFECTIVE DATE: The effective date of Rule 1001 and the amendment to
Rule 144 will be effective June 10, 1996.
FOR FURTHER INFORMATION CONTACT: Richard K. Wulff, Office of Small
Business Policy, Division of Corporation Finance, at (202) 942-2950 or
James R. Budge, Office of Disclosure Policy, Division of Corporation
Finance, at (202) 942-2910, 450 Fifth Street, N.W., Washington, D.C.
20549.
SUPPLEMENTARY INFORMATION: The Commission today is adopting, as
proposed, new Rule 1001 1 under Section 3(b) 2 of the
Securities Act of 1933 (``Securities Act''). 3 The new rule
exempts from the registration requirements of the Securities Act offers
and sales up to $5 million that are exempt from state qualification
under paragraph (n) of Section 25102 of the California Corporations
Code. 4 Securities Act Rule 144 5 also has been amended to
include securities issued in reliance upon Rule 1001 in the definition
of ``restricted securities.''
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\1\ The rule is being added as Regulation CE (for coordinated
exemptions), 17 CFR 230.1001, rather than as Regulation CA, as
proposed.
\2\ 15 U.S.C. 77c(b).
\3\ 15 U.S.C. 77a et seq.
\4\ Cal. Corporations Code Section 25102(n).
\5\ 17 CFR 230.144.
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I. Introduction
In June 1995, pursuant to its authority to provide exemptions for
small offerings under Section 3(b) of the Securities Act, the
Commission proposed a new rule 6 designed to assist small
businesses' capital raising ability by creating a federal exemption for
offerings of up to $5 million 7 that meet the qualifications of a
California exemption. The California law provides an exemption from
state law registration for offerings made to specified classes of
qualified purchasers that are similar, but not the same as, accredited
investors under Regulation D.8 Certain methods of general
solicitation are permitted under the California law.
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\6\ Release No. 33-7185 (June 27, 1995) [60 FR 35638]
(``proposing release'').
\7\ This is the maximum dollar amount permitted under the
Commission's Section 3(b) exemptive authority.
\8\ 17 CFR 230.501-230.508.
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The Commission received ten comment letters, which generally were
supportive of the proposals.9 The Commission believes that the
California exemption has the potential to facilitate small business
capital raising. It is anticipated that the new rule will result in
compliance cost savings for small businesses and others because
qualifying issuers will be exempt from both state qualification and
federal registration. At the same time, the exemption assures adequate
protections to investors. Therefore, the Commission is exercising its
exemptive authority in Section 3(b) to provide a parallel federal
exemption for the California exemption by adopting new Rule 1001.
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\9\ The letters and comment summary are available for inspection
and copying in the Commission's public reference room. Refer to File
No. S7-15-95.
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II. The California Exemption
On September 26, 1994, an exemption from the issuer transactions
qualification provisions of the California Corporations Code became
effective.10 The provision was specifically designed ``to
facilitate the ability of small companies to raise capital to finance
their growth.'' 11
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\10\ Chapter 828, Statutes of 1994 (Senate Bill 1951--Killea),
adding subdivision (n) to Corporations Code Section 25102.
\11\ Section 3, Senate Bill 1951.
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The exemption generally is limited to issuers that are California
corporations or any other form of business entity organized in that
state, including partnerships and trusts. In addition, non-California
organized businesses may use the exemption if they can attribute more
than 50 percent of property, payroll and sales to California and if
more than 50 percent of outstanding voting securities of the issuer are
held of record by persons having addresses in California. It is not
available for offerings relating to a rollup transaction, nor may it be
used by ``blind pool'' issuers or investment companies subject to the
Investment Company Act of 1940 (the ``Investment Company Act'').
12
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\12\ 15 U.S.C. 80a-1 et seq.
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Sales under the exemption must be effected only to qualified
purchasers who buy for investment purposes and not for redistribution.
A qualified purchaser is defined as:
Designated professional or institutional purchasers or
persons affiliated with the issuer; 13
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\13\ Officers and directors of corporate issuers (or persons
performing similar duties); general partners and trustees, where the
issuer is a partnership or a trust; small business investment
companies; business development companies subject to the Investment
Company Act; private venture capital companies exempted from the
Investment Advisers Act of 1940 [15 U.S.C. 80b-1 et seq.]; entities
comprised of accredited investors; banks; savings and loan
associations; insurance companies; Investment Company Act companies;
non-issuer pension or profit-sharing trusts; and, organizations
(corporations, business trusts or partnerships) described in Section
501(c)(3) of the Internal Revenue Code [26 U.S.C. 501(c)(3)] with
assets of more than $5 million. Individuals with a net worth of $1
million or annual income of more than $200,000 also are qualified
purchasers under the California exemption. All these persons would
qualify as ``accredited investors'' under Rule 501(a) [17 CFR
230.501(a)].
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Certain relatives residing with qualified purchasers;
Promoters;
Any person purchasing more than $150,000 of securities in
the offering; 14
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\14\ These persons must also satisfy one of the following
additional suitability standards: (1) They must have, alone or with
the assistance of a professional advisor, the capacity to protect
their own interests; (2) they must have the ability to bear the
economic risk of the investment; or (3) the investment must not
exceed 10 percent of the person's net worth. These criteria also
apply to individuals who have a net worth of over $1 million or
annual income exceeding $200,000.
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Entities whose equity owners are limited to officers,
directors and any affiliate of the issuer;
Reporting companies under the Securities Exchange Act of
1934 (the ``Exchange Act''), 15 if the transaction
[[Page 21357]]
involves the acquisition of all of an issuer's capital stock for
investment;
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\15\ 15 U.S.C. 78a et seq.
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A natural person whose net worth exceeds $500,000, or a
natural person whose net worth exceeds $250,000 if such purchaser's
annual income exceeds $100,000--in either case the transaction must
involve:
(a) Only a one-class voting stock (or preferred establishing the
same voting rights),
(b) An amount limited to no more than 10 percent of the purchaser's
net worth, and
(c) A purchaser able to protect his or her own interests (alone or
with the help of a professional advisor); 16
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\16\ This provision states that each such natural person, by
reason of his or her business or financial experience, or the
business or financial experience of his or her professional advisor
(who is unaffiliated with and who is not compensated, directly or
indirectly, by the issuer), can be reasonably assumed to have the
capacity to protect his or her interests in connection with the
transaction. The California Department of Corporations has indicated
that qualified investors under this rubric must have business or
financial experience or rely on a professional advisor. Release No.
94-C (September 27, 1994).
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Pension and profit sharing trusts, as well as 401(k) plans
17 and Individual Retirement Accounts of individual qualified
purchasers.
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\17\ 26 U.S.C 401(k).
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Issuers must provide certain purchasers who are natural persons
18 a disclosure document as specified in Rule 502 of Regulation D
19 five days prior to any sale or commitment to purchase.
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\18\ This delivery requirement is limited to those natural
persons designated as qualified purchasers because their net worth
exceeds $500,000, or whose net worth exceeds $250,000 where there is
an annual income of $100,000.
\19\ 17 CFR 230.502(b)(2).
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Offers, oral or written, are generally limited to qualified
purchasers. However, the law does permit general announcements of a
proposed offering to be widely published and circulated, so long as
they contain only specified information. 20 This general
announcement process is modeled on the ``test the waters'' concept
being used by several of the states 21 and by the Commission in
connection with Regulation A.
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\20\ The California provision limits the content of the general
announcement to the following items: the issuer's identity; the full
title of the securities being offered; the suitability standards of
prospective investors; a statement that no money is being sought or
will be accepted, that an indication of interest involves no
commitment to purchase and that under certain circumstances a
disclosure document will be provided prior to purchase; and the
name, address and telephone number of a person who can provide
further information about the offering. Only the following
additional information may be included at the issuer's option: a
brief description of the business, its geographical location and the
offering price or method of determination.
\21\ See CCH NASAA Reports Sec. 7036. Arizona, Colorado, Kansas,
Massachusetts, Oregon, Pennsylvania, Vermont, Virginia and
Washington currently are participating in a pilot program in this
regard, and Indiana has proposed entering this pilot program as
well.
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A notice must be filed with the California Corporations
Commissioner at the initial offer of securities or with the publication
of a general announcement of proposed offering, whichever comes first,
accompanied by a $600 filing fee. A second filing is required within 10
business days after the close or abandonment of the offering, and in no
case later than 210 days after the filing of the initial notice.
III. Regulation CE and Rule 1001
A. Need for a New Exemption
The California exemption combines a form of general solicitation
using a ``test the waters'' concept with a qualified purchaser concept
derived in part from the Uniform Limited Offering Exemption (``ULOE''),
22 an official policy guideline of the North American Securities
Administrators Association, Inc. (``NASAA'') 23 that was adopted
in coordination with the Commission's adoption of Regulation D. 24
California's exemption does not fit well within any current federal
exemption, other than Rule 504, 25 which is limited to $1 million,
or potentially the intrastate offering exemption. 26 Rules 505 and
506 of Regulation D prohibit general solicitations; moreover,
California's definition of qualified purchasers is broader than
Regulation D's. The intrastate offering exemption is available only for
those offerings by issuers incorporated and doing business in
California.
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\22\ See CCH NASAA Reports Sec. 6201.
\23\ NASAA is an association of securities commissioners from
each of the 50 states, the District of Columbia, Puerto Rico, Mexico
and several of the Canadian provinces.
\24\ State statutes and rules based on NASAA's ULOE exempt
offers or sales of securities made in compliance with Rules 501-503,
505 and/or 506 of Regulation D [17 CFR 230.501-230.503, 230.505 and
230.506 respectively], including the prohibition of general
solicitations found in Rule 502(c).
\25\ 17 CFR 230.504.
\26\ Securities Act Section 3(a)(11) [15 U.S.C. 77c(a)(11)] and
Rule 147 [17 CFR 230.147].
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The Commission does not believe that these differences need to be
an impediment to the ability of small businesses to take full advantage
of the California exemption. While the qualified purchaser definition
differs somewhat from the accredited investor definition for
individuals, the California law includes additional suitability
standards. Moreover, the general announcement of proposed offering is
subject to significant limitation, thereby protecting against abuse of
the procedure. The provisions of the California law are consistent with
investor protection and the public interest, and therefore warrant the
Commission's full exercise of its exemptive authority under Section
3(b).
B. The Exemption
New Rule 1001 provides that offers and sales of securities, in
amounts of up to $5 million, that are exempt from registration under
the California securities law pursuant to paragraph (n) of section
25102 of the California Corporations Code 27 are exempt from the
registration requirements of Section 5 of the Securities Act, pursuant
to Section 3(b) of that Act.28 All issuers that qualify for the
state exemption can rely on the Rule 1001 exemption.29 Issuers
should look to the state of California for interpretations relating to
who qualifies for the exemption, since any person who lawfully relies
on the state exemption also could rely on its federal counterpart.
Commenters who spoke to the issue supported the Commission's proposal
not to impose additional qualifying standards.
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\27\ One commenter expressed the view that the Commission should
key the exemption to section 25102(n) as it existed at the time it
originally became effective. The Commission has determined to adopt
Rule 1001 as proposed in order to allow California flexibility to
address concerns relating to its exemption without fear of losing
the federal counterpart. Nevertheless, the Commission will monitor
future changes to the California exemption to assure that the
investor protections are not diminished in a fashion that would
warrant modification of the federal exemption.
\28\ Rule 1001(a). While the transactions would not be subject
to registration under Section 5, the antifraud provisions of the
federal securities laws would continue to be applicable to all
exempt transactions. See preliminary note 1 to Rule 1001. Rule 1001
would provide an exemption only for the transactions in which the
securities are offered or sold by the issuer; it is not an exemption
for the securities themselves.
\29\ As noted above, California law precludes reliance on the
exemption in connection with investment company, blind pool or roll-
up offerings; thus, the Rule 1001 exemption also would be
unavailable in those cases.
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As in the proposal, the final rule does not require issuers to
notify the Commission when they rely on the California exemption in
view of the notification provisions of the California law.
C. Computation of $5 million amount
Rule 1001 exempts offerings up to $5 million, the maximum allowed
under Section 3(b).30 The $5 million limit will apply on an
offering-by-offering basis.31
[[Page 21358]]
Commenters supported this approach, which differs from that applied in
other Section 3(b) rules, where an annual dollar limit for the
aggregate of various Section 3(b) offers has been used.32
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\30\ Where a transaction involves non-cash consideration, the
amount of the offering would be calculated as provided under
California law.
\31\ Standard integration analysis concepts would apply. See
Release No. 33-4552 (November 7, 1962) [27 FR 11316]. These concepts
are currently under review in connection with the work of the Task
Force on Disclosure Simplification and the Advisory Committee on the
Capital Formation and Regulatory Processes. See notes 37 and 37,
below.
\32\ See, e.g., Rule 251(b) [17 CFR 230.251(b)], Rule 504(b)(2)
[17 CFR 230.504(b)(2)] and Rule 505(b)(2)(i) [17 CFR
230.505(b)(2)(i)].
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D. Resale limitations
The new exemption provides that purchasers in the exempt
transaction receive ``restricted securities.'' 33 Consequently,
purchasers must either register subsequent resales of the securities or
have an exemption for such sales. Categorizing the securities offered
and sold pursuant to Rule 1001 as ``restricted'' is consistent with the
California exemption, since the latter requires an investment intent on
the part of purchasers in the offering, and such shares could not be
resold under California law without qualification or some other
exemption under such law. In addition, the treatment is consistent with
other federal exemptions, the availability of which depends on the
sophistication, wealth or institutional character of the
investor.34
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\33\ Rule 1001(c) and amendment to Rule 144.
\34\ See, e.g., Section 4(6) of the Exchange Act [15 U.S.C.
78d(6)] and Securities Act Rule 506.
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IV. Other Matters Addressed in the Proposing Release
A. Exemptions for Other States
The Commission proposed to provide the same exemption for each
state that enacts a transaction exemption incorporating the same
standards used by California. To date, the Commission has not received
any request from a state other than California seeking its own
exemption. The Commission reiterates its desire to cooperate with the
states and repeats its position that it will create an exemption for
any state that adopts an exemption incorporating the same standards
used by California. Separate consideration for a federal exemption will
be given to states that adopt other similar exemptions that protect the
public interest.35
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\35\ Three commenters supported this approach. Two commenters,
however, believed that the Commission should not proceed on a state-
by-state basis; rather, it should take a broader approach by
creating a federal exemption that the individual states could then
use to fashion their own coordinated exemptions. The Commission will
consider this suggestion, together with others put forward by
commenters with respect to facilitating small business capital
formation, in connection with future rulemaking projects.
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B. General Solicitation under Regulation D and ULOE
While not included as a rule proposal, the Commission indicated in
the proposing release that it was considering whether amendments to
Regulation D should be proposed that would facilitate better use of the
exemptions by revising or eliminating the prohibition against general
solicitation for Rule 505 and 506 offerings. This question was prompted
in part by the approach in the California exemption that allows a form
of general solicitation followed by sales only to qualified purchasers.
Comment also was sought as to whether the Commission should consult
with the states and NASAA about modifying ULOE, which also prohibits
general solicitations in these offerings.
A number of commenters supported relaxing the general solicitation
prohibition, believing that it would enhance the utility of Rule 505
and 506 offerings. The Commission has determined to proceed with
adoption of the California exemption at this time while deferring
action on the general solicitation question with respect to other
exemptions, since Section 3(b) does not prohibit general solicitation
for offerings exempt thereunder. However, these comments will be
considered in connection with future initiatives undertaken by the
Commission as it evaluates the reports of the Task Force on Disclosure
Simplification 36 and the Advisory Committee on the Capital
Formation and Regulatory Processes.37 The work of both of these
groups has been dedicated to reassessing and reforming the federal
securities disclosure regime where necessary and appropriate in the
public interest and consistent with investor protection.
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\36\ The Task Force on Disclosure Simplification was organized
in August 1995 to review forms and rules relating to capital-raising
transactions, periodic reporting pursuant to the Exchange Act, proxy
solicitations, and tender offers and beneficial ownership reports
under the Williams Act. Its goal was to identify where the
disclosure process could be simplified and, consistent with investor
protection, to make regulation of capital formation more efficient.
Following a seven-month review, the Task Force completed its report,
including a number of recommendations, which the Commission
authorized for publication on March 5, 1996. This report is
available for inspection and copying at the Commission's public
reference room. It also is available through the Commission's
Internet web site [http://www.sec.gov].
\37\ The Securities and Exchange Commission Advisory Committee
on the Capital Formation and Regulatory Processes was established in
February 1995. See Release No. 33-7135 (February 17, 1995) [60 FR
9415]. The objective of the Committee is to assist the Commission in
evaluating the efficiency of the regulatory process relating to
public offerings of securities, secondary market trading and
corporate reporting. The Committee's focus has been the development
of a company registration system for adoption by the Commission,
which would allow eligible companies to offer and sell securities
relying on a more company-focused, as opposed to transaction-
focused, system. The Committee plans to issue a report containing
its recommendations in the near future.
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V. Cost-Benefit Analysis
The Commission solicited comments to aid in its evaluation of the
costs and benefits that would result from the proposed exemption. It
was expected that compliance burdens would decrease with respect to
issuers who qualify for the proposed exemption, inasmuch as they would
be able to raise up to $5 million in capital without the burden and
expense of compliance with the registration and reporting requirements
of the federal securities laws. Commenters supported that view,
indicating that the exemption would be beneficial to small business by
reducing their capital raising expenses without reducing investor
protection. Consequently, the Commission has determined to adopt the
rule as proposed.
VI. Final Regulatory Flexibility Analysis
A final regulatory flexibility analysis has been prepared in
accordance with 5 U.S.C. 604 concerning the adoption of Rule 1001
exemption and the amendment to Rule 144. A copy of the analysis may be
obtained by contacting James R. Budge, Office of Disclosure Policy,
Division of Corporation Finance, at (202) 942-2910, U.S. Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
VII. Statutory Basis for the Rules
Regulation CE, Rule 1001 and the amendment to Rule 144 are adopted
pursuant to Sections 3(b) and 19 of the Securities Act.
List of Subjects in 17 CFR Part 230
Registration requirements, Securities.
Text of the Amendments
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is amended as follows:
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
1. The authority citation for Part 230 continues to read in part as
follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c,
78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 89a-29, 80a-30, and
80a-37, unless otherwise noted.
* * * * *
[[Page 21359]]
2. By amending Sec. 230.144 by removing the period at the end of
paragraph (a)(3)(iv) and adding ``; or'' in its place and by adding
paragraph (a)(3)(v), to read as follows:
Sec. 230.144 Persons deemed not to be engaged in a distribution and
therefore not underwriters.
* * * * *
(a) * * *
(3) * * *
(v) Securities acquired from the issuer that are subject to the
resale limitations of Regulation CE (Sec. 230.1001).
* * * * *
3. By adding a new undesignated center heading and Sec. 230.1001,
to read as follows:
Regulation CE--Coordinated Exemptions for Certain Issues of Securities
Exempt Under State Law
Sec. 230.1001 Exemption for transactions exempt from qualification
under Sec. 25102(n) of the California Corporations Code.
Preliminary Notes: (1) Nothing in this section is intended to be
or should be construed as in any way relieving issuers or persons
acting on behalf of issuers from providing disclosure to prospective
investors necessary to satisfy the antifraud provisions of the
federal securities laws. This section only provides an exemption
from the registration requirements of the Securities Act of 1933
(``the Act'') [15 U.S.C. 77a et seq.].
(2) Nothing in this section obviates the need to comply with any
applicable state law relating to the offer and sales of securities.
(3) Attempted compliance with this section does not act as an
exclusive election; the issuer also can claim the availability of
any other applicable exemption.
(4) This exemption is not available to any issuer for any
transaction which, while in technical compliance with the provision
of this section, is part of a plan or scheme to evade the
registration provisions of the Act. In such cases, registration
under the Act is required.
(a) Exemption. Offers and sales of securities that satisfy the
conditions of paragraph (n) of Sec. 25102 of the California
Corporations Code, and paragraph (b) of this section, shall be exempt
from the provisions of Section 5 of the Securities Act of 1933 by
virtue of Section 3(b) of that Act.
(b) Limitation on and computation of offering price. The sum of all
cash and other consideration to be received for the securities shall
not exceed $5,000,000, less the aggregate offering price for all other
securities sold in the same offering of securities, whether pursuant to
this or another exemption.
(c) Resale limitations. Securities issued pursuant to this
Sec. 230.1001 are deemed to be ``restricted securities'' as defined in
Securities Act Rule 144 [Sec. 230.144]. Resales of such securities must
be made in compliance with the registration requirements of the Act or
an exemption therefrom.
Dated: May 1, 1996.
By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-11626 Filed 5-8-96; 8:45 am]
BILLING CODE 8010-01-P
Complete official Federal Register PDF
FR Doc. 96-11625 Relief From Reporting by Small Issuers
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21354-21356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11625]
[[Page 21353]]
_______________________________________________________________________
Part VI
Securities and Exchange Commission
_______________________________________________________________________
17 CFR Parts 230, 240 and 249
Relief From Reporting by Small Issuers; Exemption for Certain
California Limited Issues; Final Rules
Federal Register / Vol. 61, No. 91 / Thursday, May 9, 1996 / Rules
Regulations
[[Page 21354]]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 240 and 249
[Release No. 34-37157; File No. S7-16-95]
RIN 3235-AG48
Relief From Reporting by Small Issuers
AGENCY: Securities and Exchange Commission.
ACTION: Final rules.
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SUMMARY: The Commission is announcing the adoption of revisions to
Rules 12g-1, 12g-4 and 12h-3 under the Securities Exchange Act of 1934,
which will increase the number of issuers not subject to the
registration and reporting requirements of the Exchange Act, by
increasing the total assets threshold from $5 million to $10 million.
EFFECTIVE DATE: The rule amendments will be effective on May 9, 1996.
FOR FURTHER INFORMATION CONTACT: Richard K. Wulff, Office of Small
Business Policy, Division of Corporation Finance at (202) 942-2950 or
James R. Budge, Office of Disclosure Policy, Division of Corporation
Finance, at (202) 942-2910.
SUPPLEMENTARY INFORMATION: On June 27, 1995,1 the Commission
published for comment proposed amendments to Rules 12g-1, 12g-4 and
12h-3 2 under the Securities Exchange Act of 1934.3 These
proposals were designed to increase the number of issuers classified as
exempt from the registration and reporting provisions of the Exchange
Act by changing the total asset threshold from $5 million to $10
million. Conforming changes also were proposed to be made to Form
15.4 Having considered the comments received, the Commission is
adopting the revisions as proposed.5
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\1\ Release No. 33-7186 (June 27, 1995) [60 FR 35642]
(``Proposing Release''). The comment letters received are available
for inspection and copying at the Commission's public reference
room, 450 Fifth Street, N.W., Washington, D.C. 20549. Please refer
to File Number S7-16-95.
\2\ 17 CFR 240.12g-1, 240.12g-4 and 240.12h-3.
\3\ 15 U.S.C. 78a et seq.
\4\ 17 CFR 249.323. Form 15 is filed by an issuer to notify the
Commission that it is terminating its registration under Section
12(g) of the Exchange Act [15 U.S.C. 78l(g)] or suspending its
reporting under Section 15(d) [15 U.S.C. 78o(d)].
\5\ As explained more fully below, the proposed changes to
certain of the Commission's definitions of a ``small entity'' for
purposes of the Regulatory Flexibility Act [5 U.S.C. 601-612] have
not been adopted.
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I. Discussion
Under the current rules, an issuer that has 500 or more record
holders of a class of equity securities and total assets of $5 million
or more must register its securities under the Exchange Act.6
Issuers that must register are required to comply with the periodic
reporting and other provisions applicable to public companies contained
in the Exchange Act.7 The asset threshold was originally set at $1
million in Section 12(g). Pursuant to its authority under Section 12(h)
of the Exchange Act,8 the Commission has increased the amount on
two occasions: from $1 million to $3 million in 1982,9 and from $3
million to the current $5 million in 1986.10
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\6\ See Exchange Act Section 12(g) and Rule 12g-1.
\7\ E.g., the proxy requirements of Section 14 [15 U.S.C. 78n]
and the short-swing profit provisions of Section 16 of the Exchange
Act [15 U.S.C. 78p].
In addition, any entity, including an issuer, must register
under the Exchange Act as a transfer agent if it performs the
function of a transfer agent with respect to any security which is
registered under Section 12 of the Exchange Act or which would be
required to be registered except for the exemptions provided by
subsection 12(g)(2)(B) or (g)(2)(G). 15 U.S.C. 78q-1(c)(1). As a
result of the revisions adopted in this release, the number of
entities, including issuers, that can perform transfer agent
functions without registration with the Commission may increase.
\8\ 15 U.S.C. 78l(h).
\9\ Release No. 34-18647 (April 15, 1982) [47 FR 17046].
\10\ Release No. 34-23406 (July 8, 1986) [51 FR 25360].
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The proposal to increase the asset threshold to $10 million was
designed, in part, to increase the utility of the Commission's small
offering exemptions, such as Regulation A, a principal benefit of which
is that companies conducting such offerings do not automatically become
subject to Exchange Act reporting. The Commission has long recognized
that the cost of compliance with Exchange Act reporting requirements is
relatively greater for smaller companies than for larger ones.11
The amendments adopted today are designed to strike the appropriate
balance between such costs and investors' needs for the information
required in Exchange Act reports. Commenters generally agreed that this
change would be beneficial for smaller companies and would be
consistent with investor protection. In light of the foregoing, the
Commission finds that the increase in the asset threshold is not
inconsistent with the public interest or the protection of investors
and is adopting the rule changes as proposed.
---------------------------------------------------------------------------
\11\ See Release No. 33-6605 (September 30, 1985) [50 FR 41162].
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Under today's revision to Rule 12g-1, an issuer now will not be
required to register under Section 12(g) until it has 500 or more
record holders of a class of equity securities and total assets of $10
million or more.12 This revision does not change existing
requirements that securities traded on national exchanges 13 or
the National Association of Securities Dealers Automated Quotation
System (``Nasdaq'')14 be registered pursuant to Section 12 of the
Exchange Act. In addition, a company that conducts a public offering
registered under the Securities Act of 1933 (``Securities Act'')15
will continue to be subject to reporting pursuant to Section 15(d) of
the Exchange Act unless the company becomes eligible to suspend such
reporting. The revisions also raise the asset threshold for termination
of Section 12(g) registration and suspension of Section 15(d) reporting
from $5 million to $10 million, but do not change the other tests for
such termination and suspension.16 Finally, the description of
Form 15 is being amended to indicate that the total assets criterion is
$10 million. These new thresholds should make the exemptive,
termination and suspension provisions more useful to small businesses
and lower their costs of compliance with the federal securities laws.
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\12\ This modification to Rule 12g-1 retains the standard with
respect to foreign private issuers, which provides that if a foreign
private issuer has securities quoted in an automated interdealer
quotation system it remains subject to registration under Section
12(g).
\13\ Securities traded on a national securities exchange must be
registered under the Exchange Act pursuant to Section 12(b) [15
U.S.C. 78l(b)] of that Act.
\14\ Pursuant to Schedule D to the NASD's By-Laws, securities
traded on the Nasdaq system must be registered pursuant to Section
12 of the Exchange Act, CCH NASD Manual para. 1803.
\15\ 15 U.S.C. 77a et seq.
\16\ Rules 12g-4 and 12h-3 currently allow for termination of
registration of a class of securities under Section 12(g) and
suspension of the duty to file reports under Section 15(d) when the
class of securities is held of record by less than 300 persons, or
by less than 500 persons where the total assets of the issuer have
not exceeded $5 million on the last day of each of the issuer's
three most recent fiscal years. Also, the Section 15(d) reporting
obligation cannot be suspended under Rule 12h-3 for a fiscal year in
which a Securities Act registration statement relating to the class
of securities becomes effective. The revisions amend Rules 12g-4 and
12h-3 to change the asset test from $5 million to $10 million.
---------------------------------------------------------------------------
There are approximately 650 issuers with between $5 million and $10
million in total assets that report with the Commission. Had the new
asset threshold previously been in effect, these companies would not
have been required to register and report with the Commission, unless
they had voluntarily decided to do so, either because their securities
are traded on a national securities exchange or Nasdaq, or because they
chose to conduct a Securities Act registered offering. Of
[[Page 21355]]
these 650, approximately 540 are traded on an exchange or Nasdaq, and
approximately 110 are not.
Today's rule changes affect the asset threshold for entering and
exiting reporting, but do not affect the other criteria under the rules
for determining when a company may cease reporting. Consequently, the
effect on currently reporting companies is modest, with approximately
10 companies becoming eligible to cease reporting at this time; 17
about another 20 companies could terminate their reporting obligations
if they decided to delist their securities from an exchange or Nasdaq.
---------------------------------------------------------------------------
\17\ These issuers would be able to terminate their registration
because they have:
--Assets between $5 and $10 million;
--No securities traded on an exchange or Nasdaq;
--No current 15(d) reporting obligation arising from registering
a securities offering in the last year;
--In each of the last three fiscal years, assets not exceeding
$10 million; and
--Between 300 and 500 shareholders.
---------------------------------------------------------------------------
While the number of companies that would be able to stop reporting
is relatively small, the rule should provide significant benefits for
small, growing companies. These companies will have more flexibility to
raise equity capital and grow before becoming subject to the
Commission's reporting requirements.
II. Regulatory Flexibility Act Definitions
The Commission proposed to modify the definitions of ``small
entity'' for purposes of the Regulatory Flexibility Act by raising the
total assets level to $10 million.18 In the intervening period
since the proposals were published, Congress has enacted amendments to
the Regulatory Flexibility Act.19 The Commission has determined
not to adopt these proposed rule revisions at this time, but will give
them further consideration once it has had an opportunity to evaluate
fully these recent statutory changes.
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\18\ The definitions are found at 17 CFR 230.157, 17 CFR 240.0-
10, and 17 CFR 260.0-7.
\19\ See the Small Business Regulatory Fairness Act of 1996,
Pub. L. 104-121, 110 Stat. 847 (1996), signed by the President on
March 29, 1996.
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III. Effective Date
The Commission has determined to make the rule changes effective on
May 9, 1996, the date of publication in the Federal Register. Early
effectiveness is appropriate under the Administrative Procedure Act
inasmuch as the raising of these thresholds ``grants or recognizes an
exemption'' 20 from registration and reporting requirements to a
larger class of companies than existed under previous requirements.
---------------------------------------------------------------------------
\20\ 5 U.S.C. 553(d)(1).
---------------------------------------------------------------------------
IV. Future Initiatives
Some commenters recommended further revision of the reporting
thresholds. For example, one commenter suggested the adoption of an
exemption for small business issuers whose public float or trading
activity is so low as to show insufficient market interest. Another
recommended eliminating the shareholder numerical test from the various
rules. The Commission has considered these suggestions and has
determined to evaluate them further in connection with future
initiatives undertaken by the Commission as it implements
recommendations of the reports of the Task Force on Disclosure
Simplification,21 and the Advisory Committee on the Capital
Formation and Regulatory Processes.22 The work of both of these
groups has been dedicated to reassessing and reforming the federal
securities disclosure regime where necessary and appropriate in the
public interest and consistent with investor protection.
---------------------------------------------------------------------------
\21\ The Task Force on Disclosure Simplification was organized
in August 1995 to review forms and rules relating to capital-raising
transactions, periodic reporting pursuant to the Exchange Act, proxy
solicitations, and tender offers and beneficial ownership reports
under the Williams Act. Its goal was to identify where the
disclosure process could be simplified and, consistent with investor
protection, to make regulation of capital formation more efficient.
Following a seven-month review, the Task Force completed its report,
including a number of recommendations, which the Commission
authorized for publication on March 5, 1996. This report is
available for inspection and copying at the Commission's public
reference room. It also is available through the Commission's
Internet web site [http://www.sec.gov].
\22\ The Securities and Exchange Commission Advisory Committee
on the Capital Formation and Regulatory Processes was established in
February 1995. See Release No. 33-7135 (February 17, 1995) [60 FR
9415]. The objective of the Committee is to assist the Commission in
evaluating the efficiency of the regulatory process relating to
public offerings of securities, secondary market trading and
corporate reporting. The Committee's focus has been the development
of a company registration system for adoption by the Commission,
which would allow eligible companies to offer and sell securities
relying on a more company-focused, as opposed to transaction-
focused, system. The Committee plans to issue a report containing
its recommendations in the near future.
---------------------------------------------------------------------------
V. Cost-Benefit Analysis
The Commission solicited comment to assist in its evaluation of the
costs and benefits that might result from the possible increase in the
assets threshold. Several commenters, while not addressing the
solicitation of comment specifically, supported the proposal as part of
the Commission's efforts to reduce both the regulatory burden and the
costs of raising capital and compliance for small issuers. The
Commission continues to believe that as a result of this action,
compliance burdens will be decreased without significant impact upon
the needs of investors, as it stated in the proposing release. As
required by Section 23(a) of the Exchange Act, the Commission has
specifically considered the impact these rulemaking actions would have
on competition and has concluded that they would not impose a
significant burden on competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act.
VI. Final Regulatory Flexibility Analysis
The Commission has prepared a final regulatory flexibility analysis
in accordance with 5 U.S.C. 603 regarding the changes to Exchange Act
Rules 12g-1, 12g-4, and 12h-3 and the description of Form 15. A summary
of the corresponding Initial Regulatory Flexibility Analysis was
included in the Proposing Release. A copy of the final regulatory
flexibility analysis may be obtained by contacting James R. Budge,
Division of Corporation Finance, U.S. Securities and Exchange
Commission, 450 Fifth Street NW., Washington, DC 20549 at (202) 942-
2910.
VII. Statutory Basis
The amendments to the Commission's rules and form are being adopted
by the Commission pursuant to Sections 12, 13, 15 and 23(a) of the
Securities Exchange Act.
List of Subjects in 17 CFR Parts 240 and 249
Reporting and recordkeeping requirements, Securities.
Text of the Amendments
Accordingly, Title 17, Chapter II of the Code of Federal
Regulations is amended as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
1. The authority citation for Part 240 continues to read, in part,
as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-
37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
2. The authority citation for Part 249 continues to read, in part,
as follows:
[[Page 21356]]
Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;
* * * * *
3. 17 CFR Parts 240 and 249 are amended by removing the reference
to ``$5 million'' and adding in its place ``$10 million'' in the
following sections:
(a) 17 CFR 240.12g-1
(b) 17 CFR 240.12g-4(a)(1)(ii)
(c) 17 CFR 240.12g-4(a)(2)(ii)
(d) 17 CFR 240.12h-3(b)(1)(ii)
(e) 17 CFR 240.12h-3(b)(2)(ii)
(f) 17 CFR 249.323(a)
Dated: May 1, 1996.
By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-11625 Filed 5-9-96; 8:45 am]
BILLING CODE 8010-01-P
Complete official Federal Register PDF
FR Doc. 96-11614 Executive Office for Immigration Review; Motions and Appeals in Immigration Proceedings; Correction
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Page 21065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11614]
=======================================================================
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DEPARTMENT OF JUSTICE
8 CFR Parts 3 and 242
[EOIR 102F]
RIN 1125-AA01
Executive Office for Immigration Review; Motions and Appeals in
Immigration Proceedings; Correction
AGENCY: Department of Justice.
ACTION: Correction to final regulation.
-----------------------------------------------------------------------
SUMMARY: This document contains corrections to the final regulation,
published Monday, April 29, 1996 (61 FR 18900), relating to new motions
and appeals procedures in immigration proceedings.
EFFECTIVE DATE: July 1, 1996.
FOR FURTHER INFORMATION CONTACT:
Margaret M. Philbin, General Counsel, Executive Office for Immigration
Review, Suite 2400, 5107 Leesburg Pike, Falls Church, Virginia 22041,
(703) 305-0470 (not a toll free call).
SUPPLEMENTARY INFORMATION:
Background
The final regulation that is the subject of these corrections
streamlines the motions and appeals practice before the Board of
Immigration Appeals and establishes a centralized procedure for filing
notices of appeal, fees, fee waiver requests, and briefs directly with
the Board. The new regulation also establishes time and number
limitations on motions to reconsider and on motions to reopen and makes
certain changes to appellate procedures to reflect the statutory
directives of section 545 of the Immigration Act of 1990 (Pub. L. 101-
649, 104 Stat. at 4978).
Need for Correction
As published, the final regulation contains errors which may prove
to be misleading and are in need of clarification.
Correction of Publication
Editorial Note: An additional correction to this document
appears elsewhere in the Corrections Section of this issue.
Accordingly, the publication on April 29, 1996, of the final
regulation (EOIR 102F), which was the subject of FR Doc. 96-10157 is
corrected as follows:
Sec. 3.6(b) [Corrected]
1. On page 18907, in the second column, in Sec. 3.6 paragraph (b),
line 9, the reference to ``Sec. 3.23(b)(4)(ii)'' is corrected to read
``Sec. 3.23(b)(4)(iii).''
Sec. 242.22 [Corrected]
2. On page 18909, in the third column, in Sec. 242.22, line 6, the
reference to ``Sec. 3.23(b)(4)(ii)'' is corrected to read
``Sec. 3.23(b)(4)(iii).''
Dated: May 6, 1996.
Rosemary Hart,
Federal Register Liaison Officer.
[FR Doc. 96-11614 Filed 5-8-96; 8:45 am]
BILLING CODE 4410-01-M
Complete official Federal Register PDF
FR Doc. 96-11611 Materials and Processes Authorized for the Production of Wine and for the Treatment of Juice, Wine and Distilling Material (93F-059P)
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21076-21080]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11611]
=======================================================================
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DEPARTMENT OF THE TREASURY
Bureau of Alcohol, Tobacco and Firearms
27 CFR Part 24
[T.D. ATF-371; RE: Notice Nos. 800 and 805]
RIN: 1512-AB26
Materials and Processes Authorized for the Production of Wine and
for the Treatment of Juice, Wine and Distilling Material (93F-059P)
AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), Department of
the Treasury.
ACTION: Final rule (Treasury decision).
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SUMMARY: This final rule amends the wine regulations in 27 CFR Part 24
to add or modify the use of 3 wine treating processes and to add the
use of 1 new wine treating material. The use of these new or modified
wine treating processes and materials has been found to be acceptable
in ``good commercial practice'' in the production, cellar treatment,
and finishing of wine, pursuant to the provisions of Section 5382 of
the Internal Revenue Code of 1986, since their use will not alter
vinous character or pose any health, safety, or consumer deception
problems.
EFFECTIVE DATE: July 8, 1996.
FOR FURTHER INFORMATION CONTACT: Robert White, Coordinator, Wine, Beer
and Spirits Regulations Branch, Bureau of Alcohol, Tobacco and
Firearms, 650 Massachusetts Avenue NW., Washington, DC 20226 (202-927-
8230).
SUPPLEMENTARY INFORMATION:
Background
Several members of the wine industry petitioned ATF for approval of
the use of 3 wine treating processes and 1 wine treating material in
the production, cellar treatment, and/or finishing of wine. Only one of
the processes, the spinning cone column, is new and would be used to
reduce the ethyl alcohol content of wine or to remove off flavors in
wine. The other two processes are not new but either would be used in
combination or would be used for a different purpose or at a different
limitation than previously authorized. The processes to be used in
combination are reverse osmosis and ion exchange
[[Page 21077]]
and would be used to remove excess volatile acidity from wine. The
process which would be used at a different limitation is
ultrafiltration. And finally, the new wine treating material, urease
enzyme, would be used to reduce urea in wine, thereby reducing the
possibility of ethyl carbamate formation during wine storage.
Notice No. 800
On September 30, 1994, ATF published a notice of proposed
rulemaking (Notice No. 800) in the Federal Register requesting that all
interested parties submit written comments by November 29, 1994. Nine
comments were received including 2 comments which requested an
extension of the comment deadline. Due to the requests for an extension
of the comment period, ATF published a reopening notice (Notice No.
805) in the Federal Register on January 18, 1995, which reopened the
comment period for 60 days ending on March 20, 1995. Three comments
were received in response to the reopening notice making a total of 12
comments received in response to the 2 wine treating notices.
Summary of Comments
Six of the commenters stated that they fully support the use of the
spinning cone column to reduce the ethyl alcohol content of wine or to
remove off flavors from wine. One of the six commenters, Mr. Vincent
Indelicato of Delicato Vineyards, also asked that the spirits derived
from the spinning cone column process, if at a minimum proof of 100 or
above, be approved for wine spirits additions without any restrictions.
Mr. Indelicato also asked that spinning cone column de-essenced juice
be allowed in all standard winemaking including the fermenting of this
de-essenced juice into standard wine. Five of the six commenters who
addressed the use of the spinning cone column also stated that they
support the additional requests made by Mr. Indelicato.
One of the six commenters mentioned above, Mr. Robert G. Kalik of
the American Vintners Association (AVA), also stated that the AVA fully
supports the 3 new or modified wine treating processes and the 1 new
wine treating material proposed in Notice No. 800.
Another commenter, Mr. Clark Smith and Mr. Rick Jones of
Vinovation, Inc., submitted a joint comment stating that Vinovation
fully supports the use of reverse osmosis and ion exchange in
combination in a closed system to remove excess volatile acidity from
wine. They also state in a separate comment that it is their
understanding that use of the spinning cone column to remove volatile
acidity from wine is not very practical since such removal of volatile
acidity would result in an equal proportion of ethanol being removed
from the wine.
Two additional commenters in the wine industry state that they
fully support the use of reverse osmosis along with ion exchange to
remove excess volatile acidity in wine. Both state that wine which has
undergone this treatment to remove excess volatile acidity has been
greatly improved in quality. Both commenters believe that adoption of
this wine treating process will represent a real benefit to the wine
industry as well as to the consumer.
Two commenters to Notice No. 800 asked for an extension of the
comment period to give them more time to analyze the wine treating
proposals and to prepare a response. One of these commenters represents
the Delegation of the European Commission (EC) and the other represents
the French government.
The final comment was from the Delegation of the European
Commission in response to Notice No. 805 which reopened the comment
period for 60 days. This commenter states that the comment represents
the views of the European Community. The commenter states that the
European Community is concerned at the possibility of introduction into
regular winemaking of the wine treating processes and materials
mentioned in the notice of proposed rulemaking and considers that their
utilization could be problematic for such wines imported into the
European Union. The commenter also states that approval of such
processes and materials could complicate the ongoing negotiations for
an EC/US wine agreement.
The commenter states that the European Community would like to draw
attention to the fact that the processes and materials described in the
notice are not currently authorized by Council Regulation (EEC) No.
822/87, particularly Title II, which lays down European Community rules
governing oenological practices and processes, and Annex VI, which
lists the practices and processes authorized for wines marketed in the
European Union; nor are these processes and materials included in the
Annex to Council Regulation (EEC) No. 1873/84, which details the
oenological practices authorized for wine imported into the European
Union from the United States.
Moreover, the commenter states that the new materials and processes
described in the notice are not included in the International Code of
Oenological Practices of the International Vine and Wine Office (OIV)
which is approved by the governments of the member countries of the
OIV. The commenter states that except for the use of urease, these
practices have not yet even been the subject of preliminary discussions
nor have they been communicated to this international forum.
In conclusion, this commenter states that the European Community
would suggest that utilization of the materials and processes proposed
in Notice No. 800 would best be considered within the bilateral
framework of the ongoing negotiations for an EC/US wine agreement and
within the multilateral framework of the OIV. Consequently, this
commenter states that the European Commission urges that the U.S.
authorities take no action on approving these materials and processes
until such consultations with the EC and OIV have taken place.
ATF Decision
After careful consideration of the comments, ATF has decided to
approve the 3 wine treating processes and 1 wine treating material
proposed in Notice No. 800. These 3 wine treating processes and 1 wine
treating material have the support of the U.S. wine industry and have
been determined to be in accordance with good commercial practice. Use
of these 3 processes and 1 material will be a significant benefit to
consumers and to the wine industry by enabling industry members to
exercise additional quality control in the production of their wines.
ATF acknowledges that the European Community has not currently
approved the use of these 3 wine treating processes and 1 wine treating
material in their wines. However, we have decided to go ahead and
approve these processes and materials for use by U.S. wine producers
because, after careful review, we have concluded that their use
complies with the statutory standard of good commercial practice.
ATF does not believe that it should prevent the use of new wine
treating processes and materials that have been found to be beneficial
to industry members and consumers alike, since it has determined that
the wine treatments do not alter vinous character or pose any health,
safety, or consumer deception problems. In addition, we feel that the
ongoing wine negotiations with the European Community do not foreclose
or restrict our domestic rulemaking decisions implementing statutory
standards under U.S. laws.
In regard to the requests to use spirits derived from the spinning
cone column process for wine spirits additions and the use of de-
essenced juice derived from the spinning cone column process
[[Page 21078]]
in all standard winemaking, we have determined that we need more time
to thoroughly analyze these requests and will address these issues at a
later time.
Wine Treating Processes
Spinning Cone Column
The spinning cone column (SCC) is a gas-liquid contacting device
which can process a wide range of products including slurries with very
high solids contents. It is a multi-stage mass transfer device
consisting of a series of alternating stationary and rotary truncated
cones. During its operation the product is fed at the top of the column
and then flows down the upper surface of the stationary cones under the
influence of gravity and moves across the upper surface of the rotating
cones in a thin film due to the applied centrifugal force. The
stripping gas enters the bottom of the column and flows counter current
to the liquid phase in the spaces between the fixed and rotating cones.
The SCC is used in the production of low alcohol wine, as well as
to remove off flavors in wine (e.g. volatile acidity, ethyl acetate,
hydrogen sulfide, etc.). In the production of low alcohol wine, the
feed wine is initially run through the SCC to recover the volatile wine
flavor essence. In the second stage of processing, the flavor essence
reduced wine is run through the SCC to reduce the alcohol in the wine
to the desired level. The essence, which has previously been removed,
is then added back to the alcohol reduced wine to produce a low alcohol
wine which retains its original flavor. The alcohol which has been
removed from the wine can then either be used in accordance with law
and regulations or be destroyed.
Treatment of wine utilizing the SCC to remove off flavors, or to
reduce the alcohol content of the wine, may not alter the vinous
character of the wine. Otherwise, the wine will no longer be considered
standard wine.
Since the separation of alcohol from a fermented substance is
considered to be a distilling process, the SCC operations cannot be
conducted at winery premises but must instead take place at distilled
spirits plant premises.
The SCC operations must be conducted in accordance with the
following conditions:
1. The SCC removal of any alcohol from the wine will be done on DSP
premises.
2. Records will be maintained for each lot of wine put through the
SCC and the fractions derived from such wine showing the date,
quantity, and disposition of each fraction.
3. In the production of reduced alcohol standard wines using the
SCC, the same amount of essence will be added back to any lot of wine
as was originally removed.
4. The destruction of any alcohol or other fractions derived from
the SCC process must be in accordance with the provisions of 27 CFR
19.691.
Reverse Osmosis and Ion Exchange
In this process, reverse osmosis and ion exchange are used in
combination to remove volatile acidity (VA) from bulk wine. The process
combines two technologies already widely in use in the wine industry.
The process involves utilizing reverse osmosis to separate wine
into various components and then using ion exchange to remove VA. The
wine components, minus the VA, are then recombined in-line to form the
original wine minus the VA. The whole process takes place in a closed
system.
Regulations at 27 CFR 24.248 were previously broad enough to allow
ion exchange to be used to remove volatile acidity from wine or from
various components of wine. However, those regulations did not
authorize reverse osmosis to be used for anything other than to reduce
the ethyl alcohol content of wine. This regulation change will allow
reverse osmosis to also be used to remove off flavors in wine which
will enable it to be used as part of an overall process in a closed
system to remove VA from wine.
Normally, reverse osmosis must be done on distilled spirits plant
premises because it is considered a distilling process resulting in a
distilled spirits by-product. However, in this case, the various
components of wine will only be created temporarily in a closed system
and will be immediately recombined in-line to reconstitute the original
wine minus VA. Consequently, ATF has concluded that this type of
reverse osmosis may be conducted on bonded winery premises since no
separate distilled spirits product is created as a final product or by-
product.
Accumulation of ethyl alcohol outside the closed system is not
allowed. Any accumulation of an ethanol solution on winery premises may
subject the proprietor to the distilled spirits tax of $13.50 per proof
gallon imposed by Section 5001 of the Internal Revenue Code.
The footnote concerning processes which must be done on distilled
spirits plant premises, located at the end of 27 CFR 24.248, has been
revised to state that under certain limited conditions, reverse osmosis
may be used on bonded winery premises if ethyl alcohol is only
temporarily created within a closed system.
Ultrafiltration
Previous regulations at 27 CFR 24.248 allowed ultrafiltration to be
used for various filtration purposes as long as the following
conditions were met:
(a) Permeable membranes are used which are selective for molecules
greater than 500 and less than 25,000 molecular weight with
transmembrane pressures which do not exceed 100 pounds per square inch
(psi).
(b) Use shall not alter vinous character.
This final rule amends the regulations to allow greater
transmembrane pressures to be used and still be considered
ultrafiltration. The revised regulations allow less than 200 psi in
lieu of the current 100 psi. This more liberal pressure limitation will
provide for greater throughput with no change in the vinous character
of the finished wine. Without this increase in throughput, the process
is not economically viable for many industry members since they can
achieve the same result with other methods at a much lower cost.
The less than 200 psi pressure limitation was chosen as the upper
limit in order to maintain a clear distinction between ultrafiltration
and reverse osmosis in terms of pressure. The two processes are also
differentiated by the fact that the membranes specified for reverse
osmosis have a much smaller pore size than those used in
ultrafiltration.
New Wine Treating Material
Urease Enzyme
The use of urease enzyme derived from Lactobacillus fermentum has
been found to reduce levels of naturally occurring urea in wine thereby
helping to prevent the formation of ethyl carbamate during storage.
The enzyme is derived from the nonpathogenic, nontoxicogenic
bacterium Lactobacillus fermentum. It contains the enzyme urease (CAS
Reg. No. 9002-13-5) which facilitates the hydrolysis of urea to ammonia
and carbon dioxide. It is produced by a pure culture fermentation
process and by using materials that are generally recognized as safe
(GRAS) or are food additives that have been approved for this use by
the Food and Drug Administration (FDA).
Urease enzyme from Lactobacillus fermentum was approved for use in
wine by FDA on December 21, 1992,
[[Page 21079]]
effective January 21, 1993. The FDA regulation cite is 21 CFR 184.1924,
Urease Enzyme Derived From Lactobacillus Fermentum.
The enzyme is standardized with glucose syrup solids and the urease
activity is adjusted to 3.5 units/mg. Urease enzyme meets the general
and additional requirements for enzyme preparations in the ``Food
Chemicals Codex,'' 3rd edition (1981). In addition, the urease enzyme
is used in food at levels not to exceed current good manufacturing
practice as defined in 21 CFR 184.1924.
The composition of the urease enzyme preparation is as follows:
Killed whole cells of Lactobacillus fermentum....................20-35%
Glucose Syrup Solids.............................................65-80%
Due to the low usage level (10-200 ppm) and objective of usage,
addition of glucose syrup solids in this case is not considered
``sweetening'' of the beverage, which is prohibited in the State of
California for table wine.
The use of urease enzyme derived from Lactobacillus fermentum is
economically self-limiting due to the high cost of the material. FDA,
in their approval, did not set a specific numerical limit but rather
limited its use to ``good commercial practice.''
Due to the recommendations from industry and from the ATF
laboratory, we have established an upper limit for the use of urease
enzyme in wine of 200 mg/L, provided that the enzyme is filtered prior
to final packaging of the wine, as a ``good commercial practice.''
Regulatory Flexibility Act
It is hereby certified that this regulation will not have a
significant economic impact on a substantial number of small entities.
This regulation is liberalizing in nature and will allow winemakers
more flexibility when producing their wines with no negative impact on
small entities. Accordingly, a regulatory flexibility analysis is not
required because this final rule is not expected: (1) To have
secondary, or incidental effects on a substantial number of small
entities; or (2) to impose, or otherwise cause a significant increase
in the reporting, recordkeeping, or other compliance burdens on a
substantial number of small entities.
Executive Order 12866
It has been determined that this regulation is not a significant
regulatory action as defined by Executive Order 12866. Accordingly this
final rule is not subject to the analysis required by this Executive
Order.
Paperwork Reduction Act
The provisions of the Paperwork Reduction Act of 1980, Public Law
96-511, 44 U.S.C. Chapter 35, and its implementing regulations, 5 CFR
Part 1320, do not apply to this final rule because no requirement to
collect information is imposed.
Drafting Information: The principal author of this document is
Robert L. White, Wine, Beer and Spirits Regulations Branch, Bureau
of Alcohol, Tobacco and Firearms. ATF Wine Technical Advisor Richard
M. Gahagan has provided significant technical assistance in the
evaluation and review of data pertinent to the preparation of this
document.
List of Subjects in 27 CFR Part 24
Administrative practice and procedure, Authority delegations,
Claims, Electronic funds transfers, Excise taxes, Exports, Food
additives, Fruit juices, Labeling, Liquors, Packaging and containers,
Reporting requirements, Research, Scientific equipment, Spices and
flavorings, Surety bonds, Transportation, Warehouses, Wine and vinegar.
Authority and Issuance
27 CFR Part 24--Wine is amended as follows:
PART 24--WINE
Par. 1. The authority citation for Part 24 continues to read as
follows:
Authority: 26 U.S.C. 5001, 5008, 5041, 5042, 5044, 5061, 5062,
5081, 5111-5113, 5121, 5122, 5142, 5143, 5173, 5206, 5214, 5215,
5351, 5353, 5354, 5356-5357, 5361, 5362, 5364-5373, 5381-5388, 5391,
5392, 5551, 5552, 5661, 5662, 5684, 6065, 6091, 6109, 6301, 6302,
6311, 6651, 6676, 7011, 7302, 7342, 7502, 7503, 7606, 7805, 7851; 31
U.S.C. 9301, 9303, 9304, 9306.
Par. 2. Section 24.246 is amended in the table in Paragraph (b)
revising the entry for enzymatic activity, and by adding the new entry,
``Urease'', immediately after and directly under Protease (Trypsin), to
read as follows:
Sec. 24.246 Materials authorized for treatment of wine and juice.
* * * * *
(b) * * *
------------------------------------------------------------------------
Materials and use Reference or limitation
------------------------------------------------------------------------
* * * *
* * *
Enzymatic activity: Various uses as The enzyme preparation used
shown below. shall be prepared from
nontoxic and nonpathogenic
microorganisms in accordance
with good manufacturing
practice and be approved for
use in food by either FDA
regulation or by FDA advisory
opinion.
* * * *
* * *
Urease: To reduce levels of naturally The urease enzyme activity
occurring urea in wine to help prevent shall be derived from
the formation of ethyl carbamate. Lactobacillus fermentum per 21
CFR 184.1924. Use is limited
to not more than 200 mg/L and
must be filtered prior to
final packaging of the wine.
* * * *
* * *
------------------------------------------------------------------------
Par. 3. Section 24.248 is amended in the table by revising the
entries for ``Reverse osmosis'' and ``Ultrafiltration'', by adding the
entry for ``Spinning cone column'', and by revising the footnote at the
end of the section to read as follows:
Sec. 24.248 Processes authorized for the treatment of wine, juice, and
distilling material.
* * * * *
[[Page 21080]]
----------------------------------------------------------------------------------------------------------------
Processes Use Reference or limitation
----------------------------------------------------------------------------------------------------------------
* * * * * *
Reverse osmosis \1\..................... To reduce the ethyl alcohol Permeable membranes which are selective
content of wine and to for molecules not greater than 500
remove off flavors in molecular weight with transmembrane
wine,. pressures of 200 psi and greater. The
addition of water other than that
originally present prior to processing
will render standard wine ``other than
standard.'' Use shall not alter vinous
character.
Spinning cone column \1\................ To reduce the ethyl alcohol Use shall not alter vinous character. For
content of wine and to standard wine, the same amount of
remove off flavors in essense must be added back to any lot of
wine,. wine as was originally removed.
* * * * * *
*
Ultrafiltration......................... To remove proteinaceous Permeable membranes which are selective
material from wine; to for molecules greater than 500 and less
reduce harsh tannic than 25,000 molecular weight with
material from white wine transmembrane pressures less than 200
produced from white psi. Use shall not alter vinous
skinned grapes; to remove character. 21 CFR 175.300, 177.1520,
pink color from blanc de 177.1550, 177.1630, 177.2440, 177.2600,
noir wine; to separate red and 177.2910.
wine into low color and
high color wine fractions
for blending purposes.
----------------------------------------------------------------------------------------------------------------
\1\ This process must be done on distilled spirits plant premises. However, reverse osmosis, under certain
limited conditions, may be used on bonded winery premises if ethyl alcohol is only temporarily created within
a closed system.
(Sec. 201, Pub. L. 85-859, 72 Stat. 1383, as amended (26 U.S.C.
5381, 5382, 5385, 5386, and 5387)).
Signed: March 11, 1996.
Bradley A. Buckles,
Acting Director.
Approved: April 1, 1996.
John P. Simpson,
Deputy Assistant Secretary (Regulatory, Tariff and Trade Enforcement).
[FR Doc. 96-11611 Filed 5-8-96; 8:45 am]
BILLING CODE 4810-31-U
Complete official Federal Register PDF
FR Doc. 96-11602 Sheep Promotion Research, and Information Program: Rules and Regulations
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21053-21065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11602]
-----------------------------------------------------------------------
DEPARTMENT OF AGRICULTURE
7 CFR Part 1280
[No. LS-95-010]
Sheep Promotion Research, and Information Program: Rules and
Regulations
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule implements provisions of a Sheep and Wool
Promotion, Research, Education, and Information Order (Order), which
will establish a national, industry-funded sheep and wool promotion,
research, and information program. This final rule establishes the
collection and remittance process, puts into effect the reporting
requirements, identifies and establishes the Harmonized Tariff Schedule
(HTS) classification numbers, conversion factors, and assessment rates
for imported sheep, sheep meat, wool, and wool products subject to
assessment, establishes procedures for calculating, collecting, and
remitting assessments on imported sheep, sheep meat, wool, and wool
products and establishes the basis for excluding certain imported sheep
and sheep products from assessment. Because the
[[Page 21054]]
Sheep Promotion, Research, and Information Act of 1994 (Act) provides
that imported raw wool will be exempted from the collecting provisions,
imported raw wool is not subject to assessment.
EFFECTIVE DATE: This final rule will become effective July 1, 1996.
FOR FURTHER INFORMATION CONTACT:
Ralph L. Tapp, Chief; Marketing Programs Branch; Livestock and Seed
Division; Agricultural Marketing Service (AMS), USDA, Room 2606-S; P.O.
Box 96456; Washington, DC 20090-6456, telephone number 202/720-1115.
SUPPLEMENTARY INFORMATION: Prior document in this proceeding: Proposed
Rule--Sheep Promotion and Research Program: Rules and Regulations--60
Federal Register (FR) 51737 (October 3, 1995).
Regulatory Impact Analysis
Executive Orders 12866 and 12778 and the Regulatory Flexibility Act
This final rule has been determined to be not significant for
purposes of Executive Order 12866 and therefore has not been reviewed
by the Office of Management and Budget (OMB).
This final rule has been reviewed under Executive Order 12778,
Civil Justice Reform. It is not intended to have a retroactive effect.
This rule will not preempt any State or local laws, regulations, or
policies unless they present an irreconcilable conflict with this rule.
The Act provides that any person subject to the Order may file with
the Secretary a petition stating that the Order, any provision of the
Order, or any obligation imposed in connection with the Order is not in
accordance with the law, and requesting a modification of the Order or
an exemption from certain provisions or obligations of the Order. The
petitioner will have the opportunity for a hearing on the petition.
Thereafter, the Secretary will issue a decision on the petition. The
Act provides that the district court of the United States in any
district in which the petitioner resides or carries on business has
jurisdiction to review the Secretary's decision, if the petitioner
files a complaint for that purpose not later than 20 days after the
date of the entry of the Secretary's decision. The petitioner must
exhaust his or her administrative remedies before he or she can
initiate any such proceeding in the district court.
Pursuant to requirements set forth in the Regulatory Flexibility
Act (RFA) (5 U.S.C. 601 et seq.), AMS has considered the economic
impact of this final action on small entities. The purpose of RFA is to
fit regulatory actions to the scale of businesses subject to such
actions in order that small businesses will not be unduly burdened.
There are an estimated 87,350 domestic sheep producers and feeders
and an estimated 700 remittance persons who will be subject to the
rules and regulations issued pursuant to the Order. There are also an
estimated 9,000 importers who will become subject to these rules and
regulations. Nearly every sheep producer, feeder, and importer will be
classified as a small business under the criteria established by the
Small Business Administration (13 CFR Sec. 121.601).
The Act provides for the establishment of a coordinated program of
promotion and research designed to strengthen the sheep industry's
position in the marketplace and to maintain and expand foreign and
domestic markets and uses for sheep and sheep products. This program
will be financed by assessments on domestic and imported sheep and
sheep products which includes wool and wool products. Pursuant to the
Act, an Order approved in referendum was published on May 2, 1996, in
the Federal Register (XX FR XXXXX). The final Order became effective on
May 3, 1996, except for provisions concerning assessments. Those Order
provisions become effective July 1, 1996.
This final rule establishes the collection and remittance process,
puts into effect the reporting requirements of an Order, identifies and
establishes HTS classification numbers, conversion factors, and
assessment rates for imported sheep and sheep products (sheep meat,
wool, and wood products) subject to the assessment, establishes
procedures for calculating, collecting, and remitting assessments on
imported sheep, sheep meat, wool, and wool products and establishes the
basis for excluding certain imported sheep and sheep products from
assessment. Because the Act exempts imported raw wool from the
collecting provisions, imported raw wool is not a subject to
assessment.
This final rule will implement applicable Order provisions in the
manner provided therein. Accordingly, the Administrator of AMS has
determined that this rule will not have a significant economic impact
on a substantial number of small entities.
Paperwork Reduction
In accordance with the Paperwork Reduction Act of 1980 (44 U.S.C.
Chapter 35), OMB has approved the information collection and
recordkeeping requirements contained in Part 1280 for domestic
producers, feeders, handlers, and processors of sheep and wool, and
assigned control number 0581-0093.
Based on comparable research and promotion programs, it should
require approximately 0.5 hours per response for producers, feeders,
handlers, and persons other than the person making payment to the
producer, feeder, or handler, to complete a reporting form on a monthly
basis.
For importers, the Department of Agriculture (Department) intends
to rely to a great extent on records maintained by the U.S. Customs
Service (Customs) and by importers under Customs's requirements for its
administration and enforcement of the provisions of the final
regulations.
Any person subject to the assessment, collection, and remittance
provisions of the Act and the Order would be expected to maintain and
make available to the Secretary such books and records as necessary to
carry out the provisions of the Order and these regulations. Such books
and records must be maintained for at least 2 years beyond the fiscal
period of their applicability.
Background
The Act (7 U.S.C. 7101-7111) enacted on October 22, 1994,
authorizes the Secretary to establish a national sheep and wool
promotion, research, education, and information program designed to
strengthen the sheep industry's position in the marketplace, to
maintain and expand existing domestic and foreign markets and uses for
sheep and sheep products and to develop new markets and uses for sheep
and sheep products. The program will be funded by assessments on
domestic sheep producers, sheep feeders, and exporters of live sheep
and greasy wool of 1 cent per pound on live sheep sold and 2 cents per
pound on greasy wool sold. Importers will be assessed 1 cent per pound
on live sheep imported and the equivalent of 1 cent per pound of live
sheep for sheep products imported as well as 2 cents per pound of
degreased wool or the equivalent of degreased wool for wool and wool
products imported. Imported raw wool will be exempt from assessments.
Each person who processes or causes to be processed sheep or sheep
products of that person's own production and markets the processed
products will be assessed the equivalent of 1 cent per pound of live
sheep sold or 2 cents per pound of greasy wool sold. All assessment
rates may be adjusted in accordance with applicable provisions of the
Act.
[[Page 21055]]
The Order requires that each person who makes payment to a sheep
producer, feeder, or handler of sheep or sheep products be a collecting
person who collects the assessment from the producer, feeder, or
handler of sheep or sheep products and passes the collected assessment
on to the subsequent purchaser pursuant to the Act. Any person who buys
domestic live sheep or greasy wool for processing must collect the
assessment from the producer, feeder, or handler and remit it to the
National Sheep Promotion, Research, and Information Board (Board). Any
person who processes or causes to be processed sheep or sheep products
of the person's own production and markets the processed products is
required to pay an assessment and to remit that assessment to the
Board. Any person who exports live sheep or greasy wool is required to
pay an assessment and to remit it to the Board at the time of export.
Finally, each person who imports sheep and sheep products, other than
imported raw wool, is required to pay an assessment. Customs will
collect the assessments on imported sheep and sheep products upon
importation and forward them to AMS for disbursement to the Board.
The Order further defines a collecting person as any person who is
responsible for collecting an assessment pursuant to the Act, the
Order, and these regulations, including processors and any other
persons who are required to remit assessments to the Board, except that
a collecting person who is a market agency, i.e., commission merchant,
auction market, or livestock market in the business of receiving such
sheep or sheep products for sale on commission for or on behalf of a
producer or feeder, shall pass the collected assessment on to the
subsequent purchaser pursuant to the Act, the Order and these
regulations.
For the purposes of the collection of assessments on imported sheep
and sheep products by Customs, the Harmonized Tariff Schedule (HTS)
classification numbers published by the United States International
Trade Commission (USITC) will be used to identify imported sheep and
sheep products that are subject to the assessment. The HTS
classification system identifies each category of imported sheep, sheep
meat, wool, and products that contain wool fiber by a 10-digit
classification number and provides a brief description of the imported
product that corresponds to the various classification numbers.
Additionally, the HTS classification number may be further divided into
multiple fiber categories for products that contain a blend of fibers.
In determining which HTS classification numbers are assessed under
this final rule, the Department's primary objectives were to meet the
intent of the Act by maximizing participation of imported sheep, sheep
meat, wool, and wool products in the assessment collection provisions
of the Act and to minimize the burden of administering those
provisions. To make certain these objectives would be met, the
Department reviewed 5 years, 1989-1993, of historical import data for
sheep, sheep meat, wool and products containing wool fibers from the
Bureau of Census of the U.S. Department of Commerce. These data are
available on CD-ROM, entitled ``International Harmonized System
Commodity Classification by Country by Customs District.'' The
Department analyzed the total volume of imported sheep, sheep meat,
wool, and wool products subject to the assessment by identifying the
HTS classification numbers and corresponding conversion factors.
The Department identified over 700 HTS classification numbers
during a review of the import library published by the Department's
Economic Research Service (ERS). The Department has determined that of
the approximately 700 HTS classification numbers, slightly more than
600 are considered active or potentially subject to assessment. These
numbers are continually updated, deleted, or expanded, thereby
eliminating existing HTS categories or creating new ones. Based on the
projected revenue for imported sheep and sheep products, from the
slightly more than 600 active HTS classification numbers for sheep and
sheep products, the Department identified in the October 3, 1995,
Federal Register (60 FR 51737) 340 HTS classification numbers that
account for over 99 percent of the total projected import revenues.
Accordingly, the Department has limited the collection of assessments
to this lower level, thereby not including a significant number of low-
volume HTS categories.
Limiting the number of imported sheep and sheep products that would
be subject to assessments would reduce the administrative cost and
burden on Customs and importers, and would reduce administrative costs
to the Board, while allowing the Board to collect the vast majority of
potential import assessments consistent with the Act.
The USITC recently published an updated list of all of the HTS
classification numbers. Some HTS classification numbers published in
the October 3, 1995, proposed rule have been changed and one has been
divided into two numbers. In light of the recent update, the Department
has expanded the HTS classification numbers that will be subject to the
assessment from 340, as initially proposed, to 341. Therefore, the
following revisions to Table I, Imported Sheep and Sheep Products
Assessment Table, used in the sheep and wool promotion, research and
information program were necessary:
----------------------------------------------------------------------------------------------------------------
Old number New number Comment
----------------------------------------------------------------------------------------------------------------
5703100000.............................. 5703100020 Use same conversion factor.
5703100080 Do.
5705002010.............................. 5705002005 Do.
6104591000.............................. 6104591005 Do.
6115199020.............................. 6115198020 Do.
6115932910.............................. 6115939010 Do.
6204693020.............................. 6204696020 Do.
----------------------------------------------------------------------------------------------------------------
Because import assessments are based on a live-weight equivalent
for imported sheep meat and degreased wool, or its equivalent for wool
and wool products, the Department has decided to use conversion factors
developed and published by ERS to convert imported sheep products to
the required live-weight equivalents, degreased wool, or degreased wool
equivalents, to determine the amount of assessment due on each HTS
category upon importation. These conversion factors are available for
the over 700 HTS classification numbers and are updated and maintained
as an import library. For sheep meat, these conversion factors take
into account removal of bone, weight lost in processing or cooking, and
the nonsheep components of the sheep products. For wool and products
[[Page 21056]]
containing wool fibers, these conversion factors take into account
fiber loss during processing, fabric trim loss, and cutting loss for
wool, and other non-sheep components of wool and wool products. The
Department has decided to use these conversion factors for calculating
the assessment because calculating carcass equivalents and wool content
for each individual product before entry would be both costly and
impractical.
The factors for calculating the assessment on imported sheep, sheep
meat, wool, and products containing wool fiber include the (1) HTS
classification number, (2) conversion factor, (3) assessment rate as
established under the Act, and (4) dressing percentage. Based on a 9-
year average, 1980-1989, the average dressing percentage for sheep in
the United States is 50.2 percent, as published by ERS in the 1992
edition of Conversion Factors, Weights and Measures of Agricultural
Commodities and Their Products.
Imported live sheep require no conversion because each animal will
be assessed based on its live weight.
Examples of calculating the assessment on sheep, sheep meat, wool,
and products containing wool fibers are as follows:
Example I
Live Sheep
To calculate the assessment for live sheep, an importer would
multiply the total weight of imported live sheep by 1 cent per pound.
The following example illustrates a typical calculation for imported
live sheep:
HTS 0104100000, Live sheep:
Live Weight........................... 125 lbs
Assessment rate....................... x $0.01/lb
--------------------------
Assessment........................ $1.25
Examples II and III
Sheep Meat
To calculate the assessment for imported sheep meat, an importer
would (1) multiply the total weight of imported sheep meat by the
conversion to determine the total carcass weight equivalent, then (2)
divide the total carcass weight equivalent by 50.2 percent to calculate
the live animal equivalent, and (3) multiply the live animal equivalent
by 1 cent per pound. The following examples illustrate two typical
sheep meat calculations:
1. Sheep Meat (Bone-in)
HTS 0204100000, Carcasses and half
carcasses of lamb, fresh or chilled:
Net Weight........................... 1,000 lbs
Conversion factor.................... x 1.00
---------------------------
Carcass weight equivalent............ = 1,000 lbs
Average dressing percent.............
Complete official Federal Register PDF
FR Doc. 96-11548 Groundfish of the Gulf of Alaska; Pacific cod in the Central Regulatory Area
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Page 21104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11548]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
50 CFR Part 672
[Docket No. 960129018-6018-01; I.D. 050396B]
Groundfish of the Gulf of Alaska; Pacific cod in the Central
Regulatory Area
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Closure.
-----------------------------------------------------------------------
SUMMARY: NMFS is prohibiting retention of Pacific cod in the Central
Regulatory Area of the Gulf of Alaska (GOA). NMFS is requiring that
catches of Pacific cod in the Central Regulatory Area be treated in the
same manner as prohibited species and discarded at sea with a minimum
of injury. This action is necessary because the total allowable catch
(TAC) of Pacific cod in this area has been reached.
EFFECTIVE DATE: 12 noon, Alaska local time (A.l.t.), May 5, 1996, until
12 midnight A.l.t., December 31, 1996.
FOR FURTHER INFORMATION CONTACT: Mary Furuness, 907-586-7228.
SUPPLEMENTARY INFORMATION: The groundfish fishery in the GOA exclusive
economic zone is managed by NMFS according to the Fishery Management
Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North
Pacific Fishery Management Council under authority of the Magnuson
Fishery Conservation and Management Act. Fishing by U.S. vessels is
governed by regulations implementing the FMP at 50 CFR parts 620 and
672.
In accordance with Sec. 672.20(c)(1)(ii)(B), the TAC for Pacific
cod in the Central Regulatory Area was established by the Final 1996
Harvest Specifications of Groundfish (61 FR 4304, February 5, 1996) as
42,900 metric tons (mt).
The Director, Alaska Region, NMFS, has determined, in accordance
with Sec. 672.20(c)(3), that the TAC for Pacific cod in the Central
Regulatory Area of the GOA has been reached. Therefore, NMFS is
requiring that further catches of Pacific cod in the Central Regulatory
Area of the GOA be treated as prohibited species in accordance with
Sec. 672.20(e).
Classification
This action is taken under 50 CFR 672.20 and is exempt from review
under E.O. 12866.
Authority: 16 U.S.C. 1801 et seq.
Dated: May 3, 1996.
Richard W. Surdi,
Acting Director, Office of Fisheries Conservation and Management,
National Marine Fisheries Service.
[FR Doc. 96-11548 Filed 5-3-96; 4:47 pm]
BILLING CODE 3510-22-F
Complete official Federal Register PDF
FR Doc. 96-11547 Groundfish of the Gulf of Alaska; Pacific cod in the Western Regulatory Area
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Page 21104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11547]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
50 CFR Part 672
[Docket No. 960129018-6018-01; I.D. 050396C]
Groundfish of the Gulf of Alaska; Pacific cod in the Western
Regulatory Area
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Closure.
-----------------------------------------------------------------------
SUMMARY: NMFS is prohibiting retention of Pacific cod in the Western
Regulatory Area of the Gulf of Alaska (GOA). NMFS is requiring that
catches of Pacific cod in the Western Regulatory Area be treated in the
same manner as prohibited species and discarded at sea with a minimum
of injury. This action is necessary because the total allowable catch
(TAC) of Pacific cod in this area has been reached.
EFFECTIVE DATE: 12 noon, Alaska local time (A.l.t.), May 5, 1996, until
12 midnight A.l.t., December 31, 1996.
FOR FURTHER INFORMATION CONTACT: Mary Furuness, 907-586-7228.
SUPPLEMENTARY INFORMATION: The groundfish fishery in the GOA exclusive
economic zone is managed by NMFS according to the Fishery Management
Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North
Pacific Fishery Management Council under authority of the Magnuson
Fishery Conservation and Management Act. Fishing by U.S. vessels is
governed by regulations implementing the FMP at 50 CFR parts 620 and
672.
In accordance with Sec. 672.20(c)(1)(ii)(B), the TAC for Pacific
cod in the Western Regulatory Area was established by the Final 1996
Harvest Specifications of Groundfish (61 FR 4304, February 5, 1996) as
18,850 metric tons (mt).
The Director, Alaska Region, NMFS, has determined, in accordance
with Sec. 672.20(c)(3), that the TAC for Pacific cod in the Western
Regulatory Area of the GOA has been reached. Therefore, NMFS is
requiring that further catches of Pacific cod in the Western Regulatory
Area of the GOA be treated as prohibited species in accordance with
Sec. 672.20(e).
Classification
This action is taken under 50 CFR 672.20 and is exempt from review
under E.O. 12866.
Authority: 16 U.S.C. 1801 et seq.
Dated: May 3, 1996.
Richard W. Surdi,
Acting Director, Office of Fisheries Conservation and Management,
National Marine Fisheries Service.
[FR Doc. 96-11547 Filed 5-3-96; 4:47 pm]
BILLING CODE 3510-22-F
Complete official Federal Register PDF
FR Doc. 96-11546 Pacific Coast Groundfish Fishery; Closure and Trip Limit Reduction
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21102-21104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11546]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric Administration
50 CFR Part 663
[Docket No. 951227306-5306-01; I.D. 043096A]
Pacific Coast Groundfish Fishery; Closure and Trip Limit
Reduction
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Closure; fishing restrictions; request for comments.
-----------------------------------------------------------------------
SUMMARY: NMFS announces the closure of the open access fishery for
thornyheads taken and retained north of Point Conception, CA
(34 deg.27' N. lat.), and a further restriction to the open access
fishery for sablefish taken with nontrawl gear north of the Conception
subarea (36 deg.00' N. lat.). This action is authorized by the Pacific
Coast Groundfish Fishery Management Plan
[[Page 21103]]
(FMP), which governs the groundfish fishery off Washington, Oregon, and
California. The closure and trip limit are designed to keep landings as
close as possible to the 1996 open access allocations for these
species.
DATES: Effective from 0001 hours (local time) May 3, 1996, until the
effective date of the 1997 annual specifications and management
measures for the Pacific Coast groundfish fishery, which will be
published in the Federal Register. Comments will be accepted through
May 24, 1996.
ADDRESSES: Submit comments to William Stelle, Jr., Director, Northwest
Region (Regional Director), National Marine Fisheries Service, 7600
Sand Point Way NE., BIN-C15700, Seattle, WA 98115-0070; or Hilda Diaz-
Soltero, Regional Director, Southwest Region, National Marine Fisheries
Service, 501 West Ocean Blvd., Suite 4200, Long Beach, CA 90802-4213.
FOR FURTHER INFORMATION CONTACT: William L. Robinson at 206-526-6140;
or Rodney McInnis at 310-980-4040.
SUPPLEMENTARY INFORMATION: Management measures for the open access
fishery apply to any vessel that takes and retains groundfish and that
does not have a valid limited entry permit for the Pacific coast
groundfish fishery with an endorsement for the gear used to harvest the
groundfish. Open access gear includes longline, trap, pot, hook and
line (fixed or mobile), set net (south of 38 deg. N. lat. only), and
trawls used to target non-groundfish species (pink shrimp or prawns
and, south of Pt. Arena, CA (38 deg.57'30'' N. lat.), California
halibut or sea cucumbers). The following changes to routine management
measures in the open access fisheries for thornyheads and sablefish
were recommended by the Pacific Fishery Management Council (Council) at
its April 8-12, 1996, meeting in San Francisco, CA.
Open Access Thornyhead Fishery. Thornyheads consist of two species
(shortspine and longspine thornyheads) that often are caught together.
Because of difficulties in identifying and monitoring the two species
separately in the open access fishery, this fishery has been managed
for both species combined. Through 1995, separate open access and
limited entry allocations had not been implemented for shortspine
thornyheads because landings were thought to be negligible in the open
access fishery. However, at its October 1995 meeting, the Council
concluded that the best available information indicated that about 24
metric tons (mt) had been taken north of Pt. Conception in 1995,
indicating expansion in the fishery since the 1984-88 window period
used to determine open access and limited entry allocations. The
Council responded by recommending that limited entry and open access
allocations be implemented for shortspine thornyheads for 1996. The
1996 open access allocation for shortspine thornyheads is only 4 mt,
and applies north of Pt. Conception (34 deg.27' N. lat.). To keep
landings close to the open access allocation, a coastwide daily trip
limit of 50 lb (23 kg) (round weight) was applied for both species of
thornyheads combined on January 1, 1996 (61 FR 279, January 4, 1996). A
daily trip limit is the maximum amount that may be taken and retained,
possessed, or landed per vessel in 24 consecutive hours, starting at
0001 hours local time, and only one landing of the trip-limit species
may be made in that 24-hour period. Daily trip limits may not be
accumulated.
The best available information at the April 1996 Council meeting
indicated that landings of thornyheads in the open access fishery had
reached 18.7 mt north of Pt. Conception by the end of March 1996. Of
this, about 11 mt was shortspine thornyheads taken in California,
exceeding the 1996 open access allocation for shortspine thornyheads
north of Pt. Conception. The Council recommended that the open access
fishery for thornyheads be closed north of Pt. Conception as soon as
practicable for the rest of the year. Closure means taking and
retaining, possessing, or landing thornyheads caught north of Pt.
Conception with any open access gear (including open access trawl gear)
is prohibited, and offloading must begin before the time the fishery
closes. The 50-lb (23-kg) daily trip limit on thornyheads remains in
effect south of Pt. Conception because the harvest guideline does not
apply in that area. This daily trip limit is believed to be too small
to encourage effort shifts into the area.
Open Access Sablefish Fishery. In 1995, the daily trip limits for
sablefish in the open access nontrawl fishery were 300 lb (136 kg) per
day north of the Conception subarea (36 deg.00' N. lat.) and 350 lb
(159 kg) per day in the Conception subarea (36 deg.00' N. lat. to the
U.S.-Mexican border). The best available information at the April 1996
Council meeting indicated that 119 mt of sablefish had been taken in
the open access fishery in California by the end of March and that the
rate of landings would need to be reduced by 40 percent to avoid
reaching the 463-mt open access allocation before the end of the year.
After hearing considerable testimony that a target fishery for less
than 300 lb (136 kg) of sablefish per day would result in substantial
discards, or would be too low to sustain a viable fishery, the Council
agreed to maintain the current daily trip limit. However, it
recommended further constraining landings by adding a cumulative trip
limit of 2,100 lb (952 kg) north of 36 deg. N. lat. per vessel per
month. A cumulative trip limit is the maximum amount that may be taken
and retained, possessed, or landed per vessel in a specified period of
time (in this case, 1 month). Landings made under the daily trip limits
count toward the cumulative limit. This cumulative monthly limit would
accommodate seven daily landings at 300 lb (136 kg). Any open access
landings of sablefish made in May 1996 (even if made before this
closure is filed with the Office of the Federal Register) will be
counted toward the 2,100-lb (952-kg) cumulative limit for the month.
This cumulative monthly limit does not apply to open access trawl
fisheries because they target on non-groundfish species (pink shrimp,
prawns, California halibut, and sea cucumbers) and are constrained by
other limits.
For the above reasons, NMFS concurs with the Council's
recommendations and modifies the annual management measures announced
at 61 FR 279 (January 4, 1996), as amended, as follows:
1. Paragraph IV.I(1)(c)(ii) is revised to read as follows:
``(ii) A daily trip limit of 50 lb (23 kg) of thornyheads taken and
retained south of Pt. Conception, CA.''
2. A new paragraph IV.I(1)(e) is added to read as follows:
``(e) Closure - thornyheads north of Pt. Conception. The open
access fishery for thornyheads (shortspine or longspine) north of Pt.
Conception, CA is closed. This closure applies to thornyheads taken and
retained with all open access gear. Open access gear is gear used to
take and retain groundfish that does not have a valid limited entry
permit for the Pacific coast groundfish fishery with an endorsement for
the gear used to harvest the groundfish, including longline, trap, pot,
hook-and-line (fixed or mobile), set net (south of 38 deg. N. lat.
only), and trawls used to target non-groundfish species (pink shrimp or
prawns, and, south of Pt. Arena, CA (38 deg.57'30'' N. lat.),
California halibut or sea cucumbers).''
3. Paragraph IV.I.(2)(a) is revised to read as follows:
``(a) North of 36 deg.00' N. lat. The cumulative trip limit for
sablefish taken and retained north of 36 deg.00' N. lat. is 2,100 lb
(952 kg) per month. The daily trip limit for sablefish taken and
retained north of 36 deg.00' N. lat., which
[[Page 21104]]
counts toward the cumulative limit, remains at 300 lb (136 kg).''
Classification
These actions are authorized by the FMP, which governs the harvest
of groundfish in the U.S. exclusive economic zone off the coasts of
Washington, Oregon, and California. The determination to take these
actions is based on the most recent data available. The aggregate data
upon which the determinations are based are available for public
inspection at the office of the Regional Director (see ADDRESSES)
during business hours. Because of the need for immediate action to
reduce the harvest of shortspine thornyheads, and because the public
had an opportunity to comment on the action at the April 1996 Council
meeting, NMFS has determined that good cause exists for this document
to be published without affording a prior opportunity for public
comment or a 30-day delayed effectiveness period. These actions are
taken under the authority of 50 CFR 663.23(c)(1)(i)(E), (G), and (L),
and are exempt from review under E.O. 12866.
Authority: 16 U.S.C. 1801 et seq.
Dated: May 2, 1996.
Richard W. Surdi,
Acting Director, Office of Fisheries Conservation and Management,
National Marine Fisheries Service.
[FR Doc. 96-11546 Filed 5-3-96; 4:47 pm]
BILLING CODE 3510-22-F
Complete official Federal Register PDF
FR Doc. 96-11532 Sheep and Wool Promotion, Research, Education, and Information: Certification and Nomination Procedures for the National Sheep Promotion, Research, and Information Board
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21049-21053]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11532]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 61, No. 91 / Thursday, May 9, 1996 / Rules
and Regulations
[[Page 21049]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 1280
[No. LS-94-015A]
Sheep and Wool Promotion, Research, Education, and Information:
Certification and Nomination Procedures for the National Sheep
Promotion, Research, and Information Board
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule outlines the procedures for determining the
eligibility of sheep producer organizations, sheep feeder
organizations, and organizations of importers of sheep and sheep
products to make nominations for appointment to the National Sheep
Promotion, Research, and Information Board (Board), and also outlines
the procedures for making such nominations to the Board as provided for
in the Sheep Promotion, Research, and Information Act of 1994. The
Board would administer an industry-funded promotion, research and
information order authorized by the Act.
EFFECTIVE DATE: May 10, 1996.
FOR FURTHER INFORMATION CONTACT: Ralph L. Tapp, Chief, Marketing
Programs Branch; Livestock and Seed Division; Agricultural Marketing
Service (AMS), USDA, Room 2606-S; P.O. Box 96456; Washington, D.C.
20090-6456, telephone number 202/720-1115.
SUPPLEMENTARY INFORMATION: Prior document: Proposed Rule--Sheep and
Wool Promotion, Research, Education, and Information Order (Order)
published June 2, 1995, (60 FR 28747).
Regulatory Impact Analysis
Executive Orders 12866 and 12778 and the Regulatory Flexibility Act
This final rule has been determined to be not significant for
purposes of Executive Order 12866 and therefore has not been reviewed
by the Office of Management and Budget (OMB).
This final rule has been reviewed under Executive Order 12778,
Civil Justice Reform. It is not intended to have a retroactive effect.
This rule would not preempt any State or local laws, regulations, or
policies unless they present an irreconcilable conflict with this rule.
The Act provides that any person subject to the Order may file with
the Secretary a petition stating that the Order, any provision of the
Order, or any obligation imposed in connection with the Order is not in
accordance with the law, and request a modification of the Order or an
exemption from certain provisions or obligations of the Order. The
petitioner will have the opportunity for a hearing on the petition.
Thereafter the Secretary will issue a decision on the petition. The Act
provides that the district court of the United States in any district
in which the petitioner resides or carries on business has jurisdiction
to review a ruling on the petition, if the petitioner files a complaint
for that purpose not later than 20 days after the date of the entry of
the Secretary's decision. The petitioner must exhaust his or her
administrative remedies before he or she can initiate any such
proceedings in the district court.
Pursuant to requirements set forth in the Regulatory Flexibility
Act (RFA) (5 U.S.C. 601 et seq.), AMS has considered the economic
impact of this final action on small entities. This rule pertains only
to (1) the procedures for establishing the eligibility of organizations
to nominate sheep producers, sheep feeders and importers of sheep and
sheep products for appointment to the Board; and (2) the procedures for
submitting such nominations. AMS has determined that this action will
not have a significant impact on a substantial number of small
entities.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1980 (44 U.S.C.
Chapter 35), the information collection requirements contained herein
were submitted to OMB for approval, and were assigned OMB Number 0581-
0093. This action sets forth the procedures for establishing the
eligibility of organizations to nominate sheep producers, sheep
feeders, and importers of sheep and sheep products to the initial
Board, and the procedures for submitting such nominations. The
information collection required by this action and necessary for
implementation of these procedures includes the following:
(1) An application for certification of organization, to be
completed by eligible organizations that request certification in order
to be eligible to nominate producers, feeders, or importers to the
Board. The estimated number of respondents is 70 (with each
organization submitting one response), and the estimated average
reporting burden is 0.5 hour per response;
(2) A nomination form by which certified organizations will
nominate producers, feeders, or importers for membership on the Board.
The estimated number of respondents is 60 for the first year of the
Order and 20 each year thereafter. Each respondent would submit one
response per year, and the estimated average reporting burden is 0.5
hour per response; and
(3) An advisory committee membership background information form,
to be completed by candidates nominated by certified organizations for
appointment to the Board. The estimated number of respondents is 240
during the first year of the Order and 80 each year thereafter. Each
respondent would submit one response per year, and the estimated
average reporting burden is 0.5 hour per response.
Background
The Act (7 U.S.C. 7101-7111) provides for the establishment of a
coordinated program of promotion, research, education, consumer
information, industry information, and producer information designed to
strengthen the sheep industry's position in the marketplace, maintain
and expand existing markets and develop new markets and uses for sheep
and sheep products.
The program would be funded by a mandatory assessment on domestic
producers, feeders, and exporters of live sheep and greasy wool of 1
cent per pound on live sheep sold and 2 cents per pound on greasy wool
sold. Importers would be assessed 1 cent per
[[Page 21050]]
pound on live sheep, the equivalent of 1 cent per pound of live sheep
for sheep products as well as 2 cents per pound of degreased wool or
the equivalent of degreased wool for wool and wool products. Imported
raw wool would be exempt from assessments. Each person who processes or
causes to be processed sheep and sheep products of his or her own
production, and who markets the processed products, would be assessed
the equivalent of 1 cent per pound of live sheep sold or 2 cents per
pound of greasy wool sold. All assessments may be adjusted in
accordance with the applicable provisions of the Act.
The Board would be comprised of 85 sheep producers, 10 feeders and
25 importers. The duties and responsibilities of the Board would be
specified in the Order.
The Act provides that the Secretary shall certify or otherwise
determine the eligibility of producer, feeder and importer
organizations to nominate members to the Board to ensure that nominees
represent the interests of sheep producers, sheep feeders and importers
of sheep and sheep products. The Act also provides that States that are
represented by only 1 producer member may have an alternate producer
member appointed to the Board to ensure representation at Board
meetings. Certification procedures are set forth in this final rule.
The certification of sheep producer organizations will be based on a
factual report containing information required by the Act, including
but not limited to (1) the geographic territory covered by the active
membership of the organization; (2) the nature and size of the active
membership of the organization, including the proportion of the total
number of active producers represented by the organization; (3)
evidence of stability and permanency of the organization; (4) sources
from which the operating funds of the organization are derived; (5) the
functions of the organization; and (6) the ability and willingness of
the organization to further the aims and objectives of the Act. A
primary consideration in determining eligibility shall be whether the
membership of the organization consists primarily of producers who own
a substantial quantity of sheep and an interest of the organization is
in the production of sheep.
The certification of feeder and importer organizations will also be
based on a factual report containing information required by the Act.
The criteria for determining eligibility for certification are (1) that
the organization's active membership includes a significant number of
feeders or importers in relation to the total membership of the
organization; (2) that there is evidence of stability and permanency of
the organization; and (3) that the organization has a primary and
overriding interest in representing the feeder or importer segment of
the sheep industry.
The Secretary will have the authority to require verification of
any information submitted to determine the eligibility to nominate
persons for membership on the Board.
Information obtained by the Secretary will be kept confidential,
except that the Secretary can release general statements based upon
data obtained from a number of organizations.
The proposed certification and nomination rule was published on
June 2, 1995, in the Federal Register (60 FR 28747) as part of the
proposed Sheep and Wool Promotion, Research, Education Information
Order with a request for public comments to be submitted by July 17,
1995. The Department received four written comments concerning the
proposed certification and nomination procedures from individual sheep
producers and sheep feeders and an importer organization. The
commenters generally supported the proposed rule with certain
qualifications. One commenter specifically supported the certification
and nomination process as published on June 2, 1995.
The substantive changes suggested by commenters are discussed
below. Also, the Department has made other minor changes of a
nonsubstantive nature for purposes of clarity and accuracy including
clarification of Sec. 1280.403 (a) and (b) by changing references to
``State producer organizations'' to read ``sheep producer
organizations.'' For the reader's convenience, the discussion is
organized by topic heading of the final rule.
Section 1280.403 Certification of Eligibility
One commenter stated that the requirements for importer
certification described in section 1280.403(c) in the proposed rule
would not permit importer organizations to be certified, because most
importer organizations do not include (1) * * *a significant number of
importers in relation to the total membership of the organization * * *
and (2) most organizations or associations, would not meet the
requirement to have * * * a primary and overriding interest in
representing the importer segment of the sheep industry because of the
diverse nature of their membership. The commenter suggests that the
requirements be clarified to permit any organization to be certified as
eligible to nominate importers to the Board if it shows that its
membership includes importers of sheep or sheep products who have an
interest in representing the importer segment of the sheep industry.
The Act establishes the criteria for certifying organizations as
eligible to nominate importers to the Board. The Department will follow
that criteria in certifying organizations. If the Secretary does not
certify any importer organization, this final rule permits the
Secretary to use alternative means to obtain importer nominations for
Board appointment. Accordingly, we have not adopted this suggestion.
One commenter suggested that section 1280.403(c)(1) in the proposed
Order should be clarified to ensure that only sheep industry
organizations that are made up predominantly of feeders can make feeder
nominations. The Act provides the criteria for the Secretary to use in
determining whether sheep feeder organizations are eligible to submit
nominations for appointment to the Board. The Act requires that (1) the
organization's active membership include a significant number of
feeders in relation to the total membership of the organization; (2)
there be evidence of stability and permanency of the organization; and
(3) the organization have a primary and overriding interest in
representing the feeder segment of the sheep industry. The Department
believes that the commenter's suggestion would require an organization
to have a higher concentration of feeders than the Act requires in
order to qualify for certification and that this could reduce the
opportunity for some feeder organizations to be certified. Accordingly,
we have not adopted this suggestion.
Section 1280.409 Initial Board Membership.
One commenter suggested that the industry representatives on the
Board be elected by the members of each industry segment rather than be
appointed by the Secretary, because the Secretary is unfamiliar with
the abilities of individuals in the various industries. The Act
requires the Secretary to appoint the Board. Furthermore, the
Department believes that the certification and nomination process would
give the Secretary the opportunity to appoint members who best
represent each industry segment because certified organizations
comprised of members of those segments will submit nominations for
appointment. The commenter also
[[Page 21051]]
suggested that the Board should be realigned based on the sheep numbers
in and contributions made by each industry segment. The Act establishes
the membership of the Board, which consists of 85 producers, 10 feeders
and 25 importers. The Act does not authorize realignment of the Board
to be based on sheep numbers or contributions made by each industry
segment. Accordingly, we have not adopted these suggestions.
In summary, this final rule adopts provisions of the proposed rule
with only minor changes made for purposes of clarity and accuracy.
Pursuant to 5 U.S.C. 553, it is also found and determined that good
cause exists for not postponing the effective date of this action until
30 days after publication in the Federal Register because (1) the Act
requires implementation of the Order if the Order is approved by sheep
and wool industry; (2) the sheep and wool industry approved the Order
in the February 6, 1996, referendum; (3) the Secretary must appoint the
initial Board to administer the program. Because these rules implement
the certification and nomination procedures for Board appointments,
this final rule should become effective on the day following the date
of publication to permit the Board to be appointed as quickly as
possible. Accordingly, no useful purpose would be served in delaying
the effective date. Additionally, these rules were published as part of
a proposed rule in the June 2, 1995, Federal Register (60 FR 28747) and
interested persons were afforded a 30 day comment period on the
proposed certification and nomination procedures. This final rule is
effective on the day following the date of publication in the Federal
Register.
List of Subjects in 7 CFR Part 1280
Administrative practice and procedure, Advertising, Agricultural
research, Marketing agreements, Sheep and sheep products, Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, 7 CFR Part 1280 is
amended as follows:
PART 1280--SHEEP PROMOTION, RESEARCH, AND INFORMATION
1. The authority citation for Part 1280 continues to read as
follows:
Authority: 7 U.S.C. 7101-7111.
2. In Part 1280, Subpart C is added to read as follows:
Subpart C--Procedures for Certification of Organizations and
Nominations of Sheep Producers, Sheep Feeders and Importers of Sheep
and Sheep Products for Appointment to the National Sheep Promotion,
Research, and Information Board
Sec.
1280.400 General.
1280.401 Definitions.
1280.402 Administration.
1280.403 Certification of eligibility.
1280.404 Application for certification.
1280.405 Review of certification.
1280.406 Notification of certification and the listing of certified
organizations.
1280.407 Solicitation of nominations for appointment to the Board.
1280.408 Nominations of members for appointment to the Board.
1280.409 Initial Board membership.
1280.410 Length of appointment to the initial Board.
1280.411 Acceptance of appointment.
1280.412 Verification.
1280.413 Confidential treatment of information.
1280.414 Paperwork Reduction Act assigned number.
Subpart C--Procedures for Certification of Organizations and
Nominations of Sheep Producers, Sheep Feeders, and Importers of
Sheep and Sheep Products for Appointment to the National Sheep
Promotion, Research, and Information Board
Sec. 1280.400 General.
The Secretary shall determine which organizations are certified as
eligible to nominate sheep producers and producer alternates, sheep
feeders, and importers of sheep and sheep products (excluding importers
that import only raw wool), for appointment to the Board. The making
and receiving of the nominations shall be conducted in accordance with
this subpart and the Order.
Sec. 1280.401 Definitions.
As used in this subpart:
(a) The term Act means the Sheep Promotion, Research, and
Information Act of 1994, 7 U.S.C. 7101-7111, Public Law 103-407, 108
Statute 4210, enacted October 22, 1994, and any amendments thereto.
(b) The term Board means the National Sheep Promotion, Research,
and Information Board.
(c) The term carbonized wool means wool that has been immersed in a
bath, usually of mineral acids or acid salts, that destroys vegetable
matter in the wool, but does not affect the wool fibers.
(d) The term Department means the U.S. Department of Agriculture.
(e) The term feeder means any person who feeds lambs until the
lambs reach slaughter weight.
(f) The term importer means any person who imports sheep or sheep
products into the United States.
(g) The term Livestock and Seed Division means the Livestock and
Seed Division of the Department's Agricultural Marketing Service.
(h) The term National feeder organization means any organization of
feeders that has been certified by the Secretary pursuant to the Act
and this part as being eligible to submit nominations for membership on
the Board.
(i) The term person means any individual, group of individuals,
partnership, corporation, association, cooperative, or any other legal
entity.
(j) The term producer means any person, other than a feeder, who
owns or acquires ownership of sheep.
(k) The term raw wool means greasy wool, pulled wool, degreased
wool, or carbonized wool.
(l) The term Secretary means the Secretary of Agriculture of the
United States or any officer or employee of the Department to whom
authority has been delegated, or to whom authority may be delegated to
act in the Secretary's stead.
(m) The term sheep means ovine animals of any age, including lambs.
(n) The term sheep products means products produced in whole or in
part from sheep, including wool and products containing wool fiber.
(o) The term State means each of the 50 States.
(p) The term unit means each State, group of States or class
designation that is represented on the Board.
(q) The term United States means the 50 States and the District of
Columbia.
(r) The term wool means the fiber from the fleece of a sheep.
(s) The term wool products means products produced, in whole or in
part, from wool and products containing wool fiber.
Sec. 1280.402 Administration.
The Livestock and Seed Division shall have the responsibility of
administering the provisions of this subpart.
Sec. 1280.403 Certification of eligibility.
(a) Sheep producer organizations. Requirements for certification.
The Secretary shall certify any sheep producer organization that the
Secretary determines meets the criteria established under paragraphs
(a) and (b) of this section to be eligible for certification to
nominate producer members and alternate producer members to the Board.
Certification for sheep producer organizations shall be based upon:
[[Page 21052]]
(1) The geographic territory covered by the active membership of
the organization;
(2) The nature and size of the active membership of the
organization, including the proportion of the total number of active
producers represented by the organization;
(3) Evidence of stability and permanency of the organization;
(4) Sources from which the operating funds of the organization are
derived;
(5) The functions of the organization; and
(6) The ability and willingness of the organization to further the
aims and objectives of the Act.
(b) Primary considerations. A primary consideration in determining
the eligibility of a producer organization under this paragraph shall
be whether:
(1) The membership of the organization consists primarily of
producers who own a substantial quantity of sheep; and
(2) An interest of the organization is in the production of sheep.
(c) Feeder and importer organizations. Requirements for
certification. The Secretary shall certify any national feeder
organization and qualified importer organization that the Secretary
determines meets the following criteria as eligible to nominate feeders
or importers to the Board:
(1) The organization's active membership includes a significant
number of feeders or importers in relation to the total membership of
the organization;
(2) There is evidence of stability and permanency of the
organization; and
(3) The organization has a primary and overriding interest in
representing the feeder or importer segment of the sheep industry.
(d) The Secretary may also consider additional information that the
Secretary deems relevant and appropriate. The Secretary's determination
as to eligibility shall be final.
Sec. 1280.404 Application for certification.
Any organization that meets the eligibility criteria for
certification specified in Sec. 1280.403 is entitled to apply to the
Secretary for certification of eligibility to nominate sheep producers,
sheep feeders, or importers of sheep and sheep products for appointment
to the Board. The Secretary may require third-party verification of
information submitted by organizations, in determining their
eligibility. To apply, an organization must submit a completed
``Application for Certification of Organization'' form. Copies may be
obtained from the Livestock and Seed Division; AMS-USDA, Room 2606-S;
P.O. Box 96456; Washington, D.C. 20090-6456. (Telephone: 202/720-1115)
Sec. 1280.405 Review of certification.
The Secretary may terminate or suspend certification or eligibility
of any organization or association if it ceases to comply with the
certification or eligibility criteria set forth in this subpart. The
Secretary may require additional information in order to ascertain
whether the organization may remain certified or eligible to make
nominations, and may require third-party verification of information
submitted by organizations in determining their eligibility to continue
making nominations.
Sec. 1280.406 Notification of certification and the listing of
certified organizations.
Organizations shall be notified in writing whether they are
eligible to nominate sheep producers, feeders, or importers as members
to the Board or not. A copy of the certification or eligibility
determination shall be furnished to certified organizations. Copies
shall also be available for inspection in the Livestock and Seed
Division.
Sec. 1280.407 Solicitation of nominations for appointment to the
Board.
In general, as soon as practicable after this subpart becomes
operational, the Secretary shall solicit and obtain nominations for
appointment to the initial Board from certified producer, feeder, and
importer organizations.
(a) Initially established board. (1) Producer and alternate
nominations. The Secretary shall solicit from organizations certified
under Sec. 1280.403 (a) and (b) nominations for each producer or
alternate member seat on the initially established Board to which a
unit is entitled. If no such organization exists, the Secretary shall
solicit nominations for appointments in such manner as the Secretary
determines appropriate.
(2) Feeder and importer nominations. The Secretary shall solicit,
from organizations certified under Sec. 1280.403(c), nominations for
each feeder or importer member on the initially established Board to
which a unit is entitled. If no such organization exists, the Secretary
shall solicit nominations for appointment in such manner as the
Secretary determines is appropriate.
(b) [Reserved]
Sec. 1280.408 Nomination of members for appointment to the Board.
(a) In general. All nominations to the Board shall be made in the
following manner:
(1) Producers. The Secretary shall appoint sheep producer and
alternate members to represent units as specified under Sec. 1280.409
(a) and (b) of this subpart, from nominations submitted by
organizations certified under Sec. 1280.403. A certified organization
may only submit nominations for producer representatives and
alternates, if appropriate, from the membership of the organization for
the unit in which the organization operates. To be represented on the
Board, each certified organization must submit to the Secretary at
least 1.5 nominations for each seat on the Board for which the unit is
entitled to representation. If a unit is entitled to only one seat on
the Board, the unit shall submit at least two nominations for the
appointment. If a producer member and a producer alternate member are
to be appointed to represent the unit, at least three nominations must
be submitted for the two positions.
(2) Feeders. The Secretary shall appoint representatives of the
feeder sheep industry to seats established under Sec. 1280.409(c), from
nominations submitted by qualified national organizations certified
under Sec. 1280.403 that represent the feeder sheep industry. To be
represented on the Board, the industry shall provide at least 1.5
nominations for each appointment to the Board for which the feeder
sheep industry is entitled to representation.
(3) Importers. The Secretary shall appoint importers to seats
established under Sec. 1280.409(d) from nominations submitted by
qualified organizations certified under Sec. 1280.403 that represent
importers of sheep and sheep products. To be represented on the Board,
the industry shall provide at least 1.5 nominations for each
appointment to the Board for which importers are entitled to
representation.
(4) After the establishment of the initial Board, the Department
shall announce when a vacancy does or will exist. The Secretary will
solicit nominations for subsequent appointments, and the Board will
secure the nominations from certified producer organizations. Certified
feeder and importer organizations shall submit the names of feeder and
importer nominees directly to the Secretary. Nominations should be
initiated not less than 6 months before the expiration of the terms of
the members whose terms are expiring, in the manner described in this
section. In the case of vacancies caused by the death, removal,
[[Page 21053]]
resignation, or disqualification of any member of the Board, the
Secretary will appoint a successor from the most recent list of
nominations for the position, from nominations submitted by the Board
for producers or from certified feeder or importer organizations, for
feeders and importers.
(5) Where there is more than one eligible organization that
represents producers in a State or unit, or represents feeders, or
importers, they may caucus and jointly nominate qualified persons for
each position representing that State or unit on the Board for which a
producer, feeder or importer member is to be appointed. If they cannot
agree on any such nominations, or if no caucus is held, each eligible
producer, feeder or importer organization may submit to the Secretary
nominations for each seat on the Board for which the unit is entitled
to representation. If a unit is entitled to only one seat on the Board,
the unit shall submit at least two nominations for the appointment to
represent that unit.
(6) Nominations should be submitted in order of preference and, for
the initial Board, in order of preference for staggered terms. If the
Secretary rejects any nominations submitted and there are insufficient
nominations submitted from which appointments can be made, the
Secretary may request additional nominations under paragraphs (a), (b),
or (c) of this section.
(b) Official nomination forms. A ``Nomination for Appointment to
the National Sheep Promotion, Research, and Information Board'' must be
used to nominate producers, feeders, or importers for appointment to
the Board. An ``Advisory Committee Membership Background Information''
form must be completed by each nominee listed on the ``Nomination for
Appointment to the National Sheep Promotion, Research, and Information
Board'' form and must be attached to that form. Official nomination
forms and additional information on nominations are available from the
Marketing Programs Branch; Livestock and Seed Division; AMS-USDA, Room
2606-S; P.O. Box 96456; Washington, D.C. 20090-6456 (Telephone: 202/
720-1115).
(c) The Secretary may reject any nomination submitted under
paragraph (a) of this section. If there are insufficient nominations
from which to appoint members to the Board because the Secretary
rejected the nominations submitted by a State or unit, the State or
unit shall submit additional nominations, as provided in paragraph (a)
of this section.
Sec. 1280.409 Initial Board membership.
(a) Base membership. The number of producer members appointed to
the Board from each State or unit shall be allocated.
Alabama 1; Alaska 1; Arizona 1; Arkansas 1; California 5; Colorado
4; Connecticut 1; Delaware 1; Florida 1; Georgia 1; Hawaii 1; Idaho 2;
Illinois 1; Indiana 1; Iowa 2; Kansas 1; Kentucky 1; Louisiana 1; Maine
1; Maryland 1; Massachusetts 1; Michigan 1; Minnesota 2; Mississippi 1;
Missouri 1; Montana 5; Nebraska 1; Nevada 1; New Hampshire 1; New
Jersey 1; New Mexico 2; New York 1; North Carolina 1; North Dakota 2;
Ohio 1; Oklahoma 1; Oregon 2; Pennsylvania 1; Rhode Island 1; South
Carolina 1; South Dakota 4; Tennessee 1; Texas 10; Utah 3; Vermont 1;
Virginia 1; Washington 1; West Virginia 1; Wisconsin 1; and Wyoming 5.
(b) Alternate members. A unit represented by only one producer
member may have an alternate producer member appointed to ensure
representation at meetings of the Board.
(c) Feeders. The feeder sheep industry shall be represented by ten
members.
(d) Importers. Importers shall be represented by 25 members.
Sec. 1280.410 Length of appointment to the initial Board.
When the Secretary appoints the members to the initial Board, the
Secretary shall also specify the term of office for each member. To the
extent practicable, one-third of the members shall serve for one year,
one-third shall serve for two years, and one-third shall serve for
three years. No person may serve more than two consecutive three year
terms, except that elected officers shall not be subject to the term
limitation while they hold office.
Sec. 1280.411 Acceptance of appointment.
Producers, feeders and importers nominated to the Board must
confirm in writing their intention to serve if appointed, to disclose
any relationship with any organization that operates a qualified State
or regional program or has a contractual relationship with the Board
and to withdraw from participation in deliberations, decision-making,
or voting on matters that concern such disclosed relationships.
Sec. 1280.412 Verification.
The Secretary shall have the right to examine at any time the
books, documents, papers, records, files, and facilities of nominating
units as the Secretary deems necessary to verify the information
submitted and to procure such other information as may be required to
determine whether the unit is eligible to nominate sheep producers,
feeders, or importers for appointment to the Board.
Sec. 1280.413 Confidential treatment of information.
All documents submitted in accordance with this subpart shall be
kept confidential by all employees of the Department. Nothing in this
section shall be deemed to prohibit the disclosure of such information
so furnished or acquired as the Secretary deems relevant and then only
in the issuance of general statements based upon the reports of a
number of persons subject to the Order or statistical data collected
therefrom, when such a statement or data does not identify the
information furnished by any one person.
Sec. 1280.414 Paperwork Reduction Act assigned number.
The control number assigned to the information collection
requirements in part 1280 by OMB pursuant to the Paperwork Reduction
Act of 1980 is OMB 0581-0093.
Dated: May 2, 1996.
Lon Hatamiya,
Administrator.
[FR Doc. 96-11532 Filed 5-8-96; 8:45 am]
BILLING CODE 3410-02-P
Complete official Federal Register PDF
FR Doc. 96-11516 Food Labeling: Nutrient Content Claim for ``Extra''; Correction
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21074-21075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11516]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Food and Drug Administration
21 CFR Part 101
[Docket No. 94P-0216]
Food Labeling: Nutrient Content Claim for ``Extra''; Correction
AGENCY: Food and Drug Administration, HHS.
ACTION: Final rule; correction.
-----------------------------------------------------------------------
SUMMARY: The Food and Drug Administration (FDA) is correcting a final
rule that appeared in the Federal Register of March 22, 1996 (61 FR
11730). The document authorizes the use, on food labels and in food
labeling, of the term ``extra'' as a synonym for the term ``added.''
The document was published with some errors. This document corrects
those errors.
EFFECTIVE DATE: March 22, 1996.
FOR FURTHER INFORMATION CONTACT: Joyce J. Saltsman, Center for Food
Safety and Applied Nutrition (HFS-165), Food and Drug Administration,
200 C St. SW., Washington, DC 20204, 202-205-5916.
In FR Doc. 96-6942, appearing on page 11730 in the Federal Register
of Friday, March 22, 1996, the following corrections are made:
1. On page 11730, in the third column, in the first full paragraph,
in the first line, the date ``March 21, 1995'' is corrected to read
``March 21, 1994''.
2. On page 11731, in the first column, under section ``V. Public
Comment'', in the second paragraph, the fifth line, the first word,
``proposal'', is corrected to read ``final rule.''
[[Page 21075]]
Dated: May 1, 1996.
William K. Hubbard,
Associate Commissioner for Policy Coordination.
[FR Doc. 96-11516 Filed 5-8-96; 8:45 am]
BILLING CODE 4160-01-F
Complete official Federal Register PDF
FR Doc. 96-11514 New Animal Drugs For Use In Animal Feeds; Halofuginone Hydrobromide, Bacitracin Methylene Disalicylate
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21075-21076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11514]
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
21 CFR Part 558
New Animal Drugs For Use In Animal Feeds; Halofuginone
Hydrobromide, Bacitracin Methylene Disalicylate
AGENCY: Food and Drug Administration, HHS.
[[Page 21076]]
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Food and Drug Administration (FDA) is amending the animal
drug regulations to reflect approval of a new animal drug application
(NADA) filed by Hoechst-Roussel Agri-Vet Co. The NADA provides for
using approved single ingredient Type A medicated articles to make Type
C medicated turkey feeds containing halofuginone hydrobromide and
bacitracin methylene disalicylate.
EFFECTIVE DATE: May 9, 1996
FOR FURTHER INFORMATION CONTACT: James F. McCormack, Center for
Veterinary Medicine (HFV-128), Food and Drug Administration, 7500
Standish Pl., Rockville, MD 20855, 301-594-1607.
SUPPLEMENTARY INFORMATION: Hoechst-Roussel Agri-Vet Co., Route 202-206,
P.O. Box 2500, Somerville, NJ 08876-1258, has filed NADA 140-919, which
provides for use of approved Stenorol (2.72 grams of
halofuginone hydrobromide per pound of Type A article) and approved
BMD (30, 50, or 60 grams of bacitracin methylene disalicylate
per pound) to make Type C medicated turkey feeds containing 1.36 to
2.72 grams per ton (g/t) halofuginone hydrobromide and 10 to 50 g/t
bacitracin methylene disalicylate, for prevention of coccidiosis in
growing turkeys caused by Eimeria adenoeides, E. meleagrimitis, and E.
gallopavonis, and for increased rate of weight gain.
The NADA 140-919 is approved as of May 9, 1996, and the regulations
are amended in Sec. 558.265(c)(2)(ii) (21 CFR 558.265(c)(2)(ii)) to
reflect the approval. The basis of approval is discussed in the freedom
of information summary.
In accordance with the freedom of information provisions of part 20
(21 CFR part 20) and Sec. 514.11(e)(2)(ii) (21 CFR 514.11(e)(2)(ii)), a
summary of safety and effectiveness data and information submitted to
support approval of this application may be seen in the Dockets
Management Branch (HFA-305), Food and Drug Administration, 12420
Parklawn Dr., rm. 1-23, Rockville, MD 20857, between 9 a.m. and 4 p.m.,
Monday through Friday.
This approval is for use of single ingredient Type A medicated
articles to make Type C medicated feeds. Halofuginone hydrobromide is a
Category II drug which, as provided in Sec. 558.4, requires an approved
form FDA 1900 for making a Type C medicated feed. Therefore, use of
halofuginone hydrobromide and bacitracin methylene disalicylate Type A
medicated articles to make a combination drug Type C medicated feed as
provided in NADA 140-919 requires an approved form FDA 1900.
The agency has determined under 21 CFR 25.24(d)(1)(ii) that this
action is of a type that does not individually or cumulatively have a
significant effect on the human environment. Therefore, neither an
environmental assessment nor an environmental impact statement is
required.
Under section 512(c)(2)(F)(ii) of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 360b(c)(2)(F)(ii)), this approval for use in
food-producing animals qualifies for 3 years of marketing exclusivity
beginning May 9, 1996, because the application contains reports of new
clinical or field investigations (other than bioequivalence or residue
studies) essential to the approval and conducted or sponsored by the
applicant.
List of Subjects in 21 CFR Part 558
Animal drugs, Animal feeds.
Therefore, under the Federal Food, Drug, and Cosmetic Act and under
authority delegated to the Commissioner of Food and Drugs and
redelegated to the Center for Veterinary Medicine, 21 CFR part 558 is
amended as follows:
PART 558--NEW ANIMAL DRUGS FOR USE IN ANIMAL FEEDS
1. The authority citation for 21 CFR part 558 continues to read as
follows:
Authority: Secs. 512, 701 of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 360b, 371).
2. Section 558.265 is amended by adding new paragraph (c)(2)(ii) to
read as follows:
Sec. 558.265 Halofuginone hydrobromide.
* * * * *
(c) * * *
(2) * * *
(ii) Amount per ton. Halofuginone hydrobromide 1.36 to 2.72 grams
plus bacitracin methylene disalicylate 10 to 50 grams.
(A) Indications for use. For prevention of coccidiosis caused by
Eimeria adenoeides, E. meleagrimitis, and E. gallopavonis, and for
increased rate of weight gain in growing turkeys.
(B) Limitations. Feed continuously as sole ration. Withdraw 7 days
before slaughter. Do not feed to laying chickens or water fowl. Keep
out of lakes, ponds, and streams. Halofuginone is toxic to fish and
aquatic life. Halofuginone is an irritant to eyes and skin. Avoid
contact with skin, eyes, or clothing.
Dated: April 26, 1996.
Stephen F. Sundlof,
Director, Center for Veterinary Medicine.
[FR Doc. 96-11514 Filed 5-8-96; 8:45 am]
BILLING CODE 4160-01-F
Complete official Federal Register PDF
FR Doc. 96-11511 Animal Drugs, Feeds, and Related Products; Medetomidine Hydrochloride Injection; Change of Sponsor Name
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Page 21075]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11511]
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
21 CFR Parts 510 and 522
Animal Drugs, Feeds, and Related Products; Medetomidine
Hydrochloride Injection; Change of Sponsor Name
AGENCY: Food and Drug Administration, HHS.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Food and Drug Administration (FDA) is amending the animal
drug regulations to reflect approval of a new animal drug application
(NADA) filed by Orion Corp. ORION-FARMOS. The NADA provides for the use
of medetomidine hydrochloride injection in dogs for its sedative and
analgesic properties. The regulations are also amended to reflect a
change of sponsor name.
EFFECTIVE DATE: May 9, 1996.
FOR FURTHER INFORMATION CONTACT: Sandra K. Woods, Center for Veterinary
Medicine (HFV-114), Food and Drug Administration, 7500 Standish Pl.,
Rockville, MD 20855, 301-594-1616.
SUPPLEMENTARY INFORMATION: Orion Corp. ORION-FARMOS, (formerly Orion
Corp. FARMOS), P.O. Box 425, SF-20101 Turku, Finland, filed NADA 140-
999, which provides for intravenous or intramuscular use of
Domitor (medetomidine hydrochloride) injection as a sedative
and analgesic in dogs over 12 weeks of age to facilitate clinical
examinations, clinical procedures, minor surgical procedures not
requiring muscle relaxation, and minor dental procedures not requiring
intubation. The drug product is available by prescription. The
application is approved as of March 19, 1996, and the regulations are
amended in part 522 (21 CFR part 522) by adding new Sec. 522.1335 to
reflect the approval. The basis of approval is discussed in the freedom
of information summary.
Additionally, the firm has informed FDA that it has changed its
corporate name from Orion Corp. FARMOS to Orion Corp. ORION-FARMOS.
Accordingly, the agency is also amending 21 CFR 510.600(c)(1) and
(c)(2) to reflect the change of sponsor name.
In accordance with the freedom of information provisions of part 20
(21 CFR part 20) and Sec. 514.11(e)(2)(ii) (21 CFR 514.11(e)(2)(ii)), a
summary of safety and effectiveness data and information submitted to
support approval of this application may be seen in the Dockets
Management Branch (HFA-305), Food and Drug Administration, 12420
Parklawn Dr., rm. 1-23, Rockville, MD 20857, between 9 a.m. and 4 p.m.,
Monday through Friday.
Under section 512(c)(2)(F)(i) of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 360b(c)(2)(F)(i)), this approval qualifies for
5 years of marketing exclusivity beginning March 19, 1996, because no
active ingredient (including any ester or salt of the active
ingredient) of the drug has been approved in any other application
under section 512(b)(1) of the act.
The agency has carefully considered the potential environmental
effects of this action. FDA has concluded that the action will not have
a significant impact on the human environment, and that an
environmental impact statement is not required. The agency's finding of
no significant impact and the evidence supporting that finding,
contained in an environmental assessment, may be seen in the Dockets
Management Branch (address above) between 9 a.m. and 4 p.m., Monday
through Friday.
List of Subjects
21 CFR Part 510-
Administrative practice and procedure, Animal drugs, Labeling,
Reporting and recordkeeping requirements.
21 CFR Part 522-
Animal drugs.
Therefore, under the Federal Food, Drug, and Cosmetic Act and under
authority delegated to the Commissioner of Food and Drugs and
redelegated to the Center for Veterinary Medicine, 21 CFR parts 510 and
522 are amended as follows:
PART 510--NEW ANIMAL DRUGS
1. The authority citation for 21 CFR part 510 continues to read as
follows:
Authority: Secs. 201, 301, 501, 502, 503, 512, 701, 721 of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321, 331, 351, 352,
353, 360b, 371, 379e).
Sec. 510.600 [Amended]
2. Section 510.600 Names, addresses, and drug labeler codes of
sponsors of approved applications is amended in the table in paragraph
(c)(1) by removing the sponsor name ``Orion Corp. FARMOS, Research and
Development, Pharmaceuticals,'' and by adding in its place ``Orion
Corp. ORION-FARMOS'', and in the table in paragraph (c)(2) in the entry
for ``052483'' by removing the sponsor name ``Orion Corp. FARMOS,
Research and Development, Pharmaceuticals,'' and adding in its place
``Orion Corp. ORION-FARMOS''.
PART 522--IMPLANTATION OR INJECTABLE DOSAGE FORM NEW ANIMAL DRUGS
3. The authority citation for 21 CFR part 522 continues to read as
follows:
Authority: Sec. 512 of the Federal Food, Drug, and Cosmetic Act
(21 U.S.C. 360b).
4. New Sec. 522.1335 is added to read as follows:
Sec. 522.1335 Medetomidine hydrochloride injection.
(a) Specifications. Each milliliter of sterile aqueous solution
contains 1.0 milligram of medetomidine hydrochloride.
(b) Sponsor. See 052483 in Sec. 510.600(c) of this chapter.
(c) Conditions of use--(1) Amount. 750 micrograms intravenously
(IV) or 1,000 micrograms intramuscularly per square meter of body
surface. The IV route is more efficacious for dental care.
(2) Indications for use. As a sedative and analgesic in dogs over
12 weeks of age to facilitate clinical examinations, clinical
procedures, minor surgical procedures not requiring muscle relaxation,
and minor dental procedures not requiring intubation. The intravenous
route of administration is more efficacious for dental care.
(3) Limitations. Do not use in dogs with cardiac disease,
respiratory disorders, liver or kidney diseases, dogs in shock, dogs
which are severly debilitated, or dogs which are stressed due to
extreme heat, cold, or fatigue. Allow agitated dogs to rest quietly
before administration. Do not repeat dosing in dogs not responding
satisfactorily to treatment. Do not use in breeding or pregnant
animals. Federal law restricts this drug to use by or on the order of a
licensed veterinarian.
Dated: April 15, 1996.
Stephen F. Sundlof,
Director, Center for Veterinary Medicine.
[FR Doc. 96-11511 Filed 5-8-96; 8:45 am]
BILLING CODE 4160-01-F
Complete official Federal Register PDF
FR Doc. 96-11499 Great Lakes Pilotage Rate Methodology
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21081-21084]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11499]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Office of the Secretary
46 CFR Parts 403 and 404
[OST Docket No. 50248]
RIN 2105-AC21
Great Lakes Pilotage Rate Methodology
AGENCY: Office of the Secretary, DOT.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Department of Transportation (the Department) is
responding to comments to a final rule published April 11, 1995,
establishing new procedures and methodology for determining Great Lakes
pilotage rates and making corresponding changes to the financial
reporting requirements required of Great Lakes pilot associations.
Based on these comments, the Department has made minor changes to the
rule. This final rule does not change the existing Great Lakes pilotage
rates and charges.
EFFECTIVE DATE: This rule is effective on June 10, 1996.
ADDRESSES: Unless otherwise indicated, documents referred to in this
preamble are available for inspection or copying at the office of the
Docket Clerk, OST Docket No. 50248, U.S. Department of Transportation,
400 7th St. SW., room PL-401, Washington, DC 20590 from 9 a.m. to 5:30
p.m., Monday through Friday.
FOR FURTHER INFORMATION CONTACT: Scott A. Poyer, Project Manager, St.
Lawrence Seaway Development Corporation, 400 Seventh St. SW, Room 5421,
Washington, DC 20590, 1-800-785-2779, or Steven B. Farbman, Office of
the Assistant General Counsel for Regulation and Enforcement, 400 7th
St. SW., room 10424, Washington, DC 20590, (202) 366-9306.
SUPPLEMENTARY INFORMATION:
Regulatory History
On December 7, 1988, the Department of Transportation published the
Great Lakes Pilotage Study Final Report (1988 DOT Pilotage Study). The
study revealed weaknesses in accounting for the expenses incurred by
the pilot associations and the need to formally establish the factors
used in establishing pilotage rates. On April 25, 1990, the Coast Guard
published a final rule (55 FR 17580) establishing improved audit
requirements and general guidelines and procedures to be followed in
ratemaking (CGD 92-072).
In May 1990, the Inspector General (IG) for the Department of
Transportation initiated an audit of Coast Guard oversight of Great
Lakes pilotage. The final report of the audit (Audit of the U.S. Coast
Guard's Oversight and Management of the Great Lakes Pilotage Program),
detailing further issues affecting the basis for Great Lakes pilotage
rates, was issued on December 14, 1990.
On August 2, 1991, a DOT Task Force was formed to: (1) Develop an
interim rate adjustment; and (2) establish a new pilotage ratemaking
methodology. On June 5, 1992, an interim rate increase was published
(CGD 89-104). The DOT Task Force then developed a new pilotage
ratemaking methodology, which the Coast Guard published in a notice of
proposed rulemaking (NPRM) (59 FR 17303) dated April 12, 1994.
THE NPRM proposed to amend the Great Lakes pilotage regulations by
establishing new procedures for determining Great Lakes pilotage rates
and revising the financial reporting requirements mandated for Great
Lakes pilot associations (CGD 92-072). The NPRM also announced a public
hearing which was held in Cleveland, OH on May 20, 1994. The comment
period for the NPRM ended on July 11, 1994.
In response to the NPRM and the public hearing, the Coast Guard
received 31 comments and two requests for additional public meetings to
explain the proposals contained in the NPRM. In the Federal Register
(59 FR 18774) on April 20, 1994, the Coast Guard announced that it
would conduct two public meetings. The first public meeting was held in
Chicago, IL on May 3, 1994. The second public meeting was held in
Massena, NY on May 5, 1994.
The Coast Guard also received one request to extend the comment
period for the NPRM. Because the comment period for the NPRM was 90
days, the Coast Guard and the Department determined that there was
sufficient time to submit comments. Therefore, the comment period was
not extended.
On April 11, 1995, the Department published a final rule with
request for comments (60 FR 18366) (1995 final rule) establishing
improved procedures for determining Great Lakes pilotage rates, and
revised financial reporting requirements mandated for Great Lakes pilot
associations. The comment period ended on May 11, 1995. Although the
Coast Guard issued the NPRM under authority delegated to the Commandant
by the Secretary, the Secretary issued the 1995 final rule. On December
11, 1995, the Secretary transferred authority to administer the Great
Lakes Pilotage Act of 1960 (Public Law 86-555, 46 U.S.C. 9301 et seq.)
(the Act) to the Administrator of the SLSDC. Nevertheless, the
Secretary is issuing this final rule. Under 49 CFR 1.43(a), the
Secretary may exercise powers and duties delegated or assigned to
officials other than the Secretary.
Several commenters requested that the comment period for the
rulemaking be extended. Because all late-filed comments were
considered, and because this rulemaking has already been the subject of
extensive public comment, the Department determined that there was
sufficient time to submit comments regarding this 1995 final rule.
Therefore, the comment period was not extended.
Background and Purpose
Under the Act, vessels of the United States operating on register
and foreign vessels must engage a U.S. or Canadian registered pilot
when traversing the waters of the Great Lakes. The Act vests the
Secretary of Transportation with responsibility for setting pilotage
rates. Section 9303(f) of the Act provides that the Secretary shall
prescribe by regulation rates and charges for pilotage services, giving
consideration to the public interest and the costs of providing the
services.
Currently, the navigable waters of the great Lakes are divided into
eight pilotage areas. United States registered pilots, along with their
Canadian counterparts, provide pilotage services in areas 1, 2, 4, 5,
6, 7, and 8. Pilotage area 3 (the Welland Canal) is currently a wholly-
Canadian area where only Canadian pilots provide services. Pilotage
areas 2, 4, 6, and 8 are
[[Page 21082]]
``undesignated waters.'' Pilotage areas 1, 5, and 7 are ``designated
waters.'' Pilots are required to direct the navigation of vessels in
designated waters. Pilots are required to be on board and available to
direct the navigation of vessels in undesignated waters. The seven U.S.
pilotage areas are grouped together into three pilotage districts.
District 1 consists of areas 1 and 2. District 2 consists of areas 4
and 5. District 3 consists of areas 6, 7, and 8. Each district has its
own pilot association.
Section 9305 of the Act provides that the Secretary of
Transportation, subject to the concurrence of the Secretary of State,
may make arrangements with the appropriate agency of Canada to
prescribe joint or identical rates and charges. The latest Memorandum
of Arrangements between the United States and Canada, dated January 18,
1977, specifies that the Secretary of Transportation of the United
States of America and the Minister of Transport of Canada will
establish regulations imposing identical rates. A copy of this
Memorandum of Arrangements is available in the docket and may also be
obtained by writing to Scott A. Poyer, at the address listed under FOR
FURTHER INFORMATION CONTACT, above. In the past, consultations between
the United States and Canada resulted in nominally identical U.S. and
Canadian rates.
However, there are differences in the cost bases and in the
operating organizations of the U.S. and Canadian pilots, particularly
with regard to pilot compensation. These differences need to be takes
into account in reaching identical U.S. and Canadian rates. As a
result, the ratemaking methodology contained in this final rule would
not translate directly into new rates, but rather would form the basis
for proposals to be negotiated with Canada.
Discussion of Comments and Changes
The Department received nine comments and thirteen endorsements of
one of the nine comments. Comments came from one Great Lakes pilot
association, three Great Lakes Registered Pilots, one professional
association representing pilots, one professional association
representing vessel operators and steamship agents on the Great Lakes,
one labor organization, one professional auditor, and the comptroller
of one Great Lakes pilot association with thirteen endorsements by
individual members of that association. Some of the comments addressed
issues that were not the subject of the 1995 final rule. The Department
is responding only to those comments relating to this rulemaking.
Three comments were generally supportive of the 1995 final rule and
characterized it as an improvement over the NPRM, but with some areas
that still need improvement. These comments were made by one pilot
group, one professional organization representing pilots, and one labor
organization. Six comments objected to the 1995 final rule because it
was considered to be confusing, not viable, or not in concurrence with
the DOT IG's intentions. These comments were made by one professional
organization representing vessel agents, one professional auditor,
three Great Lakes Registered pilots, and one comptroller of a Great
Lakes pilot association with thirteen endorsements. The Department
believes most of the methodology presented in the 1995 final rule
represents a workable compromise between the disparate interests
involved. Therefore, the ratemaking methodology presented in the 1995
final rule is substantially retained in this final rule.
Four commenters objected to what they perceived as the 1995 final
rule's ``elimination of annual audits.'' The two types of audits
discussed in the Great Lakes pilotage regulations (i.e., audits by
pilot associations, and audits by the Director) are discussed in 46 CFR
Secs. 403.300(b) and 404.1(b). Commenters believed that the amended
wording of these sections eliminated a requirement that pilot
associations and/or the Director conduct annual audits of the pilot
associations. Commenters believed the elimination of these annual audit
requirements would weaken financial oversight of pilot associations and
encourage spending abuse.
In fact, the 1995 final rule did not eliminate annual audits. Pilot
associations were still required to obtain an annual audit by an
independent certified public accountant.
However, the Department agrees that the wording of the audit
requirements was not as clear as it could have been. To make this
requirement more clear, the language of section 403.300(b) has been
amended to reinforce the requirement that pilot associations be audited
by an independent CPA every year, and to require that the audit results
be forwarded to the Director every year. Section 404.1(b) has been
amended to reinforce the requirement that the Director review the
annual association audits every year, and conduct a thorough audit of
pilot association expenses at a minimum of once every five years.
One commenter stated that certification of financial reports by an
association officer, as required by 46 CFR Sec. 403.300(a)(3), is
redundant and ``prejudicial'' to the association's regular financial
reporting. The Department does not understand how certification of
financial documents could in any way be ``prejudicial,'' and the
commenter did not elaborate on this point. The Department agrees that
there is a certain amount of redundancy in requiring an association
officer such as a Treasurer, to review the work of a bookkeeper or
accountant who prepares the financial reports. However, this redundancy
is standard procedure in most well-managed businesses, and is an
important safeguard against waste, fraud, and abuse. For these reasons,
section 403.300(a)(3) is retained.
One commenter objected to section 404.5(a)(2) which requires the
Director to determine the reasonableness of pilot association expenses
by comparing them to comparable expenses paid by others in the maritime
industry. The commenter believes that there are no industries on the
Great Lakes comparable to Great Lakes pilotage, as pilotage is ``vastly
different'' from other industries. The department disagrees. The
commenter did not elaborate on how pilotage was different from all
other industries. Pilots operate in the same marketplace as other
maritime industries on the Great Lakes, and incur many of the same
types of expenses. The Department does not believe there is any basis
for the claim that pilotage expenses cannot be compared with anything
else; therefore section 404.5(a)(2) is retained.
One commenter stated that the provisions of 46 CFR Sec. 404.5(a)(5)
are unclear, inappropriate, and unfair. This section requires that
profits, but not losses, from non-pilotage transactions be included in
ratemaking calculations. The Department designed this section as a
disincentive to pilot association speculation in non-pilotage related
businesses, since the Department does not consider these types of
transactions to be in the public interest. As such, section 404.5(a)(5)
accomplishes its intended objective, and is therefore retained.
One commenter objected to 46 CFR Sec. 404.5(a)(8)(ii), which
provides that lobbying expenses will not be allowed for ratemaking
purposes. The Department has no objection to pilot associations who
wish to expend money for lobbying purposes. However, it does not seem
reasonable to make others, i.e., those members of the public who pay
pilotage rates, pay for these expenses. Therefore, section
404.5(a)(8)(ii) is retained.
Four sets of comments from pilots and their representatives
questioned the
[[Page 21083]]
methods used to compute pilot compensation targets and pilot work hour
targets, which are used to set the number of pilots for ratemaking
purposes. These methods are contained in Step 2 of Appendix A to Part
404, and section 404.5(a). This section continues the Department policy
of maintaining income comparability between Great Lakes Registered
Pilots, and masters/chief mates on Great Lakes vessels, and the
Department's pilot work hour targets of 1000 hours in designated waters
and 1800 hours in undesignated waters. These policies were established
as a result of the 1988 DOT Pilotage Study, which examined many
alternatives and selected the master/chief mate targets and the work
hour targets. Commenters believed pilots should earn more than masters/
chief mates, and/or pilots should work fewer hours. Commenters proposed
several alternatives including income comparability with State pilots,
and inclusion of travel time in the calculation of pilot work hours.
After considering all the alternatives, the Department is keeping this
section of the final rule unchanged. This is fully consistent with the
recommendation in the 1988 DOT Pilotage Study, which states, ``The
study team believes that pilot compensation should be tied to the local
economy. The use of local masters and mates pay scales has the
important impact of tying pilot compensation to the regional industry
pay levels. Salaries of pilots, like those of teachers, physicians,
lawyers, and other professionals, are tied to the fluctuations of
supply and demand for their services in their particular locality. In
this fashion, Great Lakes pilots share in the fortunes of the Great
Lakes.'' Commenters offered no new information that alters this
assessment. Therefore Step 2 of Appendix A to Part 404, and section
404.5(a) are retained.
One commenter objected to the Return on Investment (ROI) provisions
detailed in Step 5 of Appendix A to Part 404. The commenter believed a
ROI is not applicable or feasible for Great Lakes pilot associations
because: (a) Pilot associations have no inventory, or investment in
inventory, and accounts receivable are systematically collected within
a 12 month period; (b) the value of fixed assets on the organizations'
balance sheets is immaterial and all equipment is leased from related
parties; (c) there is no stockholder's equity in two associations and
in the third association it is not owned by all the pilots; and (d) the
ROI would not have a significant impact on pilotage rates. As stated by
the Department in the 1995 final rule, a return element is an important
component of cost-based rate methodologies. Rates that have been set
without a return element have been vulnerable to legal challenge and do
not meet the goals of the investigations and audits that underlie this
rulemaking. Also, in order to negotiate with the Canadians we must have
rates that can withstand scrutiny as to their conformity to sound
ratemaking principles. The Department believes it is only fair to allow
pilots a return on the capital they invest. If, as the commenter
asserts, it is true that pilot associations have little or no capital
investments, then it is true that the return on these investments will
be small. However, this does not invalidate the principle that pilots
should receive a return on the capital they invest. Whether their
capital be small or large, individuals who invest in a business have a
right to expect a return on that capital. Therefore the ROI provisions
of section 404.5(a)(4), step 5 of appendix A, and the formulas
contained in appendix B are retained.
Two commenters believe the 1995 final rule should address the
business structure of pilot associations. Currently two pilot
associations are structured as partnerships and one pilot association
is structured as a corporation. One commenter believes that the rule
should better equalize for the differences in association structure.
The other commenter recommends that the 1995 final rule require all
associations to adopt the same business structure. At the present time,
it is Department policy that each pilot association should be permitted
to adopt the business structure that best suits its needs, and it is
incumbent on each association to live with the costs and benefits
inherent in its choice. This policy allows pilots the freedom to run
their own businesses to the maximum extent practicable, with no
discernably negative consequences for the public. The Department is not
aware of any abuses of this policy at the present time. However, if it
becomes necessary to reverse this policy, this matter would be the
subject of a future rulemaking, subject to public input and comment.
One commenter recommends that the Great Lakes pilotage ratemaking
methodology should be clear and easy to implement, and any future
changes to the methodology should be made with the participation of the
pilot associations and a committee of independent and professional
individuals. The Department agrees. The Department has endeavored to
make the ratemaking methodology contained in this rule as clear and
easy as practical. In that regard, three commenters agree that the
methodology contained in the 1995 final rule is an improvement over the
methodology proposed in the NPRM. Any changes to the Great Lakes
pilotage ratemaking methodology that may be the subject of future
rulemakings will involve input and comments from the pilot associations
and other members of the public.
Four commenters believe the 1995 final rule granted the Director of
Great Lakes Pilotage too much authority and would allow the Director to
micro-manage activities of the pilot associations of which the Director
is not sufficiently knowledgeable. The Department disagrees. The
incumbent Director of Great Lakes Pilotage is extremely knowledgeable
of pilotage and other maritime activities. He has been involved in the
performance of Great Lakes Pilotage Act functions for approximately 11
years. He is a licensed merchant mariner, and the former Head of the
Navigation Department at the Maritime Institute of Technology and
Graduate Studies, the advanced training facility of the International
Organization of Masters, Mates and Pilots. Moreover, every previous
Director of Great Lakes Pilotage has had an extensive maritime
background, as well as experience in dealing with merchant mariners and
pilots. The position description for the Director of Great Lakes
Pilotage position requires a substantial maritime background. In
addition, the remaining pilotage staff have extensive maritime
backgrounds and their positions require maritime, economic, and
ratesetting knowledge and experience. Therefore, the sections of the
1995 final rule related to the Director's authority and discretion are
retained.
Two commenters believe the U.S. Government should cease oversight
of Great Lakes Pilotage, including the ratemaking and financial
oversight regulations contained in this rulemaking. The Department is
making no changes pursuant to this comment. As stated earlier, the Act
requires the Secretary to prescribe by regulation rates and charges for
pilotage services.
Executive Order 12866
This rule is a significant regulatory action under section 3(f) of
Executive Order 12866 and has been reviewed by the Office of Management
and Budget under that order. It is significant under the regulatory
policies and procedures of the Department of Transportation (44 FR
11040; February 26, 1979) because rulemaking affecting the setting of
pilotage rates has been controversial and of significant interest to
the public.
[[Page 21084]]
The Department expects the economic impact of this rule to be
minimal. This rule does not represent a significant departure from the
current ratemaking process, and there are no expected increases in
costs. Therefore, a full regulatory evaluation is not necessary.
Small Entities
Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), the
Department must consider whether this final rule will have a
significant economic impact on a substantial number of small entities.
``Small entities'' include independently owned and operated small
businesses that are not dominant in their field and that otherwise
qualify as ``small business concerns'' under section 3 of the Small
Business Act (15 U.S.C. 632). One commenter believes that this rule
will have a significant economic impact on a substantial number of
small entities. However, the commenter did not elaborate on why this
impact would occur. Since this rule is not a major change from past
rulemaking practices, and only three pilot associations with a total of
approximately 40 members will be directly affected by this rule, this
final rule should have little or no impact on small entities that pay
pilotage rates or that receive income from pilotage rates. Because it
expects the impact of this proposal to be minimal, the Department
certifies under 5 U.S.C. 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.) that this final rule will not have a significant
economic impact on a substantial number of small entities.
Collection of Information
This rule contains collection-of-information requirements. The
Department has submitted the requirements to the Office of Management
and Budget (OMB) for review under section 3504(h) of the paperwork
Reduction Act (44 U.S.C. 3501 et seq.), and OMB has approved them. The
part numbers are parts 401 and 403 and the corresponding OMB approval
number is OMB Control Number 2115-0616.
Federalism
The Department has analyzed this final rule under the principles
and criteria contained in Executive Order 12612, and has determined
that this rule does not have sufficient federalism implications to
warrant the preparation of a Federalism Assessment. State action
addressing pilotage regulation is preempted by 46 U.S.C. 9306, which
provides that a State or political subdivision of a State may not
regulate or impose any requirement on pilotage on the Great Lakes.
Environment
The Department considered the environmental impact of this final
rule and concluded that this rule is categorically excluded from
further environmental documentation under section 2.B.2 of Commandant
Instruction M16475.1B. The rule is procedural in nature because it
deals exclusively with ratemaking and accounting procedures. Therefore,
this is included in the categorical exclusion in subsection 2.B.2.1,--
Administrative actions or procedural regulations and policies which
clearly do not have any environmental impact. A Categorical Exclusion
Determination has been placed in the docket.
List of Subjects in 46 CFR Parts 403 and 404
Administrative practice and procedure, Great Lakes, Navigation
(water), Penalties, Reporting and recordkeeping requirements, Seamen.
For reasons set out in the preamble, the Department proposes to
amend Parts 403 and 404 of Title 46 of the Code of Federal Regulations
as follows:
PART 403--[AMENDED]
1. The authority citation for part 403 continues to read as
follows:
Authority: 46 U.S.C. 8105, 9303, 9304; 49 CFR 1.46.
2. Section 403.300(b) is revised to read as follows:
Sec. 403.300 Financial reporting requirements.
* * * * *
(b) Required Reports:
(1) By April 1 of each year, each Association shall obtain an
annual unqualified long form audit report for the preceding year,
audited and prepared in accordance with generally accepted auditing
standards by an independent certified public accountant.
(2) Each Association shall forward their annual unqualified long
form audit report, and any associated settlement statements, to the
Director no later than April 7 of each year.
PART 404--[AMENDED]
3. Section 404.1(b) is revised to read as follows:
Authority: 46 U.S.C. 8105, 9303, 9304, 49 CFR 1.46.
Sec. 404.1 General ratemaking provisions.
* * * * *
(b) Great Lakes pilotage rates shall be reviewed annually in
accordance with the procedures detailed in Appendix C to this part. The
Director shall review Association audit reports annually and, at a
minimum, the Director shall complete a thorough audit of pilot
association expenses and establish pilotage rates in accordance with
the procedures detailed in Sec. 404.10 of this part at least once every
five years. An interested party or parties may also petition the
Director for a review at any time. The petition must present a
reasonable basis for concluding that a review may be warranted. If the
Director determines, from the information contained in the petition,
that the existing rates may no longer be reasonable, a full review of
the pilotage rates will be conducted. If the full review shows that
pilotage rates are within a reasonable range of their target, no
adjustment to the rates will be initiated.
Issued at Washington, DC this 2nd day of May, 1996.
Federico Pena,
Secretary of Transportation.
[FR Doc. 96-11499 Filed 5-8-96; 8:45 am]
BILLING CODE 4910-62-P
Complete official Federal Register PDF
FR Doc. 96-11478 Standards of Performance for New Stationary Sources; Supplemental Delegation of Authority to Mississippi
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21080-21081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11478]
=======================================================================
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 60
[FRL-5502-4]
Standards of Performance for New Stationary Sources; Supplemental
Delegation of Authority to Mississippi
AGENCY: Environmental Protection Agency (EPA).
ACTION: Delegation of authority.
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SUMMARY: On March 7, 1996, the state of Mississippi, through the
Department of Environmental Quality, requested that EPA delegate
authority for implementation and enforcement of eight (8) ammended
categories of the New Source Performance Standards (NSPS). Since EPA's
review of Mississippi's pertinent laws, rules, and regulations showed
them to be adequate and effective procedures for the implementation and
enforcement of these Federal standards, EPA has made the delegation as
requested.
EFFECTIVE DATE: The effective date of the delegation of authority is
April 15, 1996.
ADDRESSES: Copies of the request for delegation of authority and EPA's
letter of delegation are available for public inspection during normal
business hours at the following locations:
Environmental Protection Agency, Region 4, Air Programs Branch, 345
Courtland Street, Atlanta, Georgia 30365
Mississippi Department of Environmental Quality, Bureau of Pollution
Control, Air Quality Division, P.O. Box 10385, Jackson, Mississippi
39289-0385.
Effective immediately, all requests, applications, reports and
other correspondence required pursuant to the newly delegated standards
should not be submitted to the Region 4 office, but should instead be
submitted to the following address: Office of Pollution Control,
Mississippi Department of Environmental Quality, P.O. Box 10385,
Jackson, Mississippi 39289-0385.
FOR FURTHER INFORMATION CONTACT: Scott M. Martin, Regulatory Planning
and Development Section, Air Programs Branch, United States
Environmental Protection Agency, Region 4, 345 Courtland Street N.E.,
Atlanta, Georgia 30365, (404) 347-3555, x4216.
SUPPLEMENTARY INFORMATION: Section 301, in conjunction with Sections
110 and 111(c)(1) of the Clean Air Act as amended November 15, 1990,
authorizes EPA to delegate authority to implement and enforce the
standards set out in 40 CFR Part 60, (NSPS).
On November 10, 1981, EPA initially delegated the authority for
implementation and enforcement of the NSPS programs to the state of
Mississippi. On March 7, 1996, Mississippi requested a delegation of
authority for implementation and enforcement of the following NSPS
categories found in 40 CFR Part 60.
1. Subpart A--General Provisions Except Sec. 60.8(b) (1) Thru (5);
Sec. 60.11(e) (7) and (8); Sec. 60.13(g) (i) and (j)(2)
2. Subpart Cb--Municipal Waste Combustors Constructed On or before
December 19, 1995
3. Subpart Cd--Sulfuric Acid Production Units
4. Subpart Ea--Municipal Waste Combustors Constructed After
December 20, 1989 and On or Before September 20, 1994
5. Subpart Eb--Municipal Waste Combustors For Which Construction is
Commenced After September 20, 1994
6. Subpart NNN--Volatile Organic Compound (VOC) Emissions From
Synthetic Organic Chemical Manufacturing Industry (SOCMI)
Distillation Operations
7. Subpart RRR--Volatile Organic Compound (VOC) Emissions From
Synthetic Organic Chemical Manufacturing Industry (SOCMI) Reactor
Process
8. Appendix A--Test Methods
After a thorough review of the request, the Regional Administrator
determined that such a delegation was appropriate for this source
category with the conditions set forth in the original delegation
letter of November 30, 1981. Mississippi sources subject to the
[[Page 21081]]
requirements of this subpart will now be under the jurisdiction of
Mississippi.
Since review of the pertinent Mississippi laws, rules, and
regulations showed them to be adequate for the implementation and
enforcement of the aforementioned category of NSPS, the EPA hereby
notifies the public that it has delegated the authority for the source
category listed above on October 30, 1995. The Office of Management and
Budget has exempted this rule from the requirements of section 6 of
Executive Order 12866.
Authority: This notice is issued under the authority of sections
101, 111, and 301 of the Clean Air Act, as Amended (42 U.S.C. 7401,
7411, and 7601).
Dated: April 24, 1996.
A. Stanley Meiburg,
Acting Regional Administrator.
[FR Doc. 96-11478 Filed 5-8-96; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 96-11464 Ocean Thermal Energy Conversion Licensing Program
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21073-21074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11464]
=======================================================================
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DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric Administration
15 CFR Part 981
[Docket No. 951213299-6096-02]
RIN: 0648-AI42
Ocean Thermal Energy Conversion Licensing Program
AGENCY: Office of Ocean and Coastal Resource Management (OCRM),
National Ocean Service (NOS), National Oceanic and Atmospheric
Administration (NOAA), Department of Commerce (DOC).
ACTION: Final rule; removal.
-----------------------------------------------------------------------
SUMMARY: The National Oceanic and Atmospheric Administration (NOAA) is
removing Part 981 from Title 15 of the Code of Federal Regulations
(Part 981). Part 981 implements the Ocean Thermal Energy Conversion
(OTEC) Licensing Program, which was established under the Ocean Thermal
Energy Conversion Act of 1980, as amended, (OTEC Act), 42 U.S.C. 9101
et seq. No applications under Part 981 for licenses of commercial OTEC
facilities or plantships have yet been received by NOAA, and there has
been a low level of NOAA activity under the OTEC Act. During this 15
year period of time, the availability and relatively low price of
fossil fuels, coupled with the risks to potential investors, has
limited the interest in the commercial development of OTEC projects.
Removal of Part 981 at this time will allow NOAA to evaluate the
appropriateness of these, or any other, regulations at such time as
interest in the commercial development of OTEC projects occurs.
EFFECTIVE DATE: June 10, 1996.
ADDRESSES: Karl Jugel, Chief, Ocean Minerals and Energy Division,
Office of Ocean and Coastal Resource Management, National Ocean
Service, National Oceanic and Atmospheric Administration, 1305 East-
West Highway, 11th Floor, Silver Spring, MD 20910.
FOR FURTHER INFORMATION CONTACT:
James Lawless, Deputy Director, Office of Ocean and Coastal Resource
Management, at (301) 713-3155.
SUPPLEMENTARY INFORMATION:
I. Regulatory Review
The National Oceanic and Atmospheric Administration (NOAA) is
removing Part 981 of 15 CFR, pursuant to the Regulatory Reform
Initiative of President Clinton and the Ocean Thermal Energy Conversion
Act of 1980, as amended.
In March 1995, President Clinton issued a directive to federal
agencies regarding their responsibilities under his Regulatory Reform
Initiative. This initiative is part of the National Performance Review
and calls for immediate, comprehensive regulatory reform. The President
directed all agencies to undertake, as part of this initiative, an
exhaustive review of all their regulations--with an emphasis on
eliminating or modifying those that are obsolete or otherwise in need
of reform.
The Ocean Thermal Energy Conversion Act of 1980, as amended, (OTEC
Act), 42 U.S.C. 9101 et seq., also requires that NOAA periodically
review the regulations that apply to the licensing of OTEC facilities
and plantships. The fundamental purpose of the review is to determine
if the regulations themselves impose an adverse impact on the
development and commercialization of OTEC technology.
On January 30, 1996, NOAA published a notice in the Federal
Register in which it proposed removing Part 981 and requested all
interested persons to comment on the proposal (61 FR 2969-2971).
Comments were in particular invited on whether the OTEC regulations, or
their removal at this time, impose an adverse impact on the development
and commercialization of OTEC technology. NOAA received no comments on
its proposed removal of Part 981.
II. Ocean Thermal Energy Conversion Licensing Program
The OTEC Act established a licensing and permitting system for the
development of OTEC as a commercial energy technology. Part 981
implements the OTEC Licensing Program. The proposed rule preceding this
rulemaking summarizes the development of Part 981 (61 FR 2969-2971). No
applications under Part 981 for licenses of commercial OTEC facilities
or plantships have yet been
[[Page 21074]]
received by NOAA, and there has been a low level of NOAA activity under
the OTEC Act. During this 15 year period of time, the availability and
relatively low price of fossil fuels, coupled with the risks to
potential investors, has limited the interest in the commercial
development of OTEC projects.
NOAA is authorized, consistent with the purposes and provisions of
the OTEC Act, to amend or rescind the OTEC regulations. In particular,
section 117 of the OTEC Act requires NOAA to review the regulations on
a periodic basis. NOAA is authorized and directed to revise the
regulation as necessary and appropriate to ensure that the regulations
do not impede the development, evolution, and commercialization of OTEC
technology.
Given that a commercial OTEC industry has yet to develop, Part 981
remains unused for the most part. Removal of Part 981 at this time is
consistent with the purposes and provisions of the OTEC Act in that it
will allow NOAA to evaluate the suitability of these regulations at
such time as interest in the commercial development of OTEC projects
occurs. At such time, NOAA will issue a proposed rule appropriate to
the then current regulatory needs. Potential Licensees will therefore
be assured that any future OTEC regulations will be up to date, and
will continue to provide innovation and flexibility necessary for an
emerging OTEC industry.
NOAA is mindful of its responsibility for licensing of commercial
OTEC facilities and plantships under the OTEC Act, however, and will
take appropriate steps to review and process an application should one
be made. For particular inquiries into the licensing of OTEC projects
in the interim period, NOAA will provide copies of the provisions of
these OTEC regulations in response to such inquiries. Thus, NOAA will
provide actual and timely notice of applicable procedures and
requirements to particular individuals. See 5 U.S.C. 552(a).
Accordingly, NOAA is removing Part 981, the OTEC regulations, from
Title 15 of the CFR.
III. Miscellaneous Rulemaking Requirements
Executive Order 12612: Federalism Assessment
NOAA has concluded that this regulatory action does not have
federalism implications sufficient to warrant the preparation of a
Federalism Assessment under Executive Order 12612.
Executive Order 12866: Regulatory Planning and Review
This regulatory action is not significant for purposes of Executive
Order 12866.
Regulatory Flexibility Act
No licenses have been issued for OTEC projects under 15 CFR Part
981. When commercial interest in OTEC projects occurs, NOAA will issue
a proposed rule appropriate to the regulatory needs at that time. For
particular inquiries into the licensing of OTEC projects in the interim
period, NOAA will provide actual and timely notice of applicable
procedures and requirements to particular individuals. See 5 U.S.C.
552(a). For these reasons, the removal of Part 981 is not expected to
have a significant economic impact on a substantial number of small
entities, and the Assistant General Counsel for Legislation and
Regulation of the Department of Commerce has so certified to the Chief
Counsel for Advocacy of the Small Business Administration. As such, a
Regulatory Flexibility Analysis was not prepared.
Paperwork Reduction Act
This regulatory action does not contain an information collection
requirement subject to review and approval by OMB under the Paperwork
Reduction Act of 1980, 44 U.S.C. 3500 et seq.
National Environmental Policy Act
NOAA has concluded that this regulatory action does not constitute
a major federal action significantly affecting the quality of the human
environment. No applications for licenses of commercial OTEC facilities
or plantships have yet been received by NOAA, and Part 981 remains
unused for the most part. When commercial interest in OTEC projects
occurs, NOAA will issue a proposed rule appropriate to the regulatory
needs at that time. For particular inquiries into the licensing of OTEC
projects in the interim period, NOAA will provide actual and timely
notice of applicable procedures to particular individuals. See 5 U.S.C.
552(a). Therefore, and environmental impact statement is not required.
Authority: Ocean Thermal Energy Conversion Act of 1980, as
amended, 42 U.S.C. 9101 et seq.
List of Subjects in 15 CFR Part 981
Administrative practice and procedures, Energy, Environmental
protection, Intergovernmental relations, Marine resources, Penalties,
Reporting and recordkeeping requirements.
Dated: May 2, 1996.
David Evans,
Acting Deputy Assistant Administrator for Ocean Services and Coastal
Zone Management.
Accordingly, for the reasons set forth above, Chapter IX of Title
15 of the Code of Federal Regulations is amended as follows:
PART 981--OCEAN THERMAL ENERGY CONVERSION LICENSING PROGRAM--
[REMOVED]
1. Under the authority of the Ocean Thermal Energy Conversion Act
of 1980, Part 981 is removed.
[FR Doc. 96-11464 Filed 5-8-96; 8:45 am]
BILLING CODE 3510-08-M
Complete official Federal Register PDF
FR Doc. 96-11408 Airworthiness Directives; McDonnell Douglas Model MD-11 Series Airplanes
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21065-21068]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11408]
=======================================================================
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[[Page 21066]]
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. 96-NM-77-AD; Amendment 39-9612; AD 96-10-07]
RIN 2120-AA64
Airworthiness Directives; McDonnell Douglas Model MD-11 Series
Airplanes
AGENCY: Federal Aviation Administration, DOT.
ACTION: Final rule; request for comments.
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SUMMARY: This amendment adopts a new airworthiness directive (AD) that
is applicable to certain McDonnell Douglas Model MD-11 series
airplanes. This action requires inspections to detect damage of the
support brackets and clamps of the transfer pipe of the tail tank, and
of the transfer pipe assembly; and replacement of damaged parts, or
installation of a doubler, if necessary. This amendment is prompted by
reports of cracking of the support brackets in the refuel and fuel
transfer lines of the tail fuel tank and damage to the nylon clamps and
transfer pipe assembly; such damage is due to flexing of the brackets
and subsequent contact of the transfer pipe assembly with adjacent
structure. The actions specified in this AD are intended to prevent
such cracking and damage, which could result in further damage to the
transfer pipe assembly and possible fuel leakage.
DATES: Effective May 24, 1996.
The incorporation by reference of certain publications listed in
the regulations is approved by the Director of the Federal Register as
of May 24, 1996.
Comments for inclusion in the Rules Docket must be received on or
before July 8, 1996.
ADDRESSES: Submit comments in triplicate to the Federal Aviation
Administration (FAA), Transport Airplane Directorate, ANM-103,
Attention: Rules Docket No. 96-NM-77-AD, 1601 Lind Avenue, SW., Renton,
Washington 98055-4056.
The service information referenced in this AD may be obtained from
McDonnell Douglas Corporation, 3855 Lakewood Boulevard, Long Beach,
California 90846, Attention: Technical Publications Business
Administration, Department C1-L51 (2-60). This information may be
examined at the FAA, Transport Airplane Directorate, 1601 Lind Avenue,
SW., Renton, Washington; or at the FAA, Los Angeles Aircraft
Certification Office, Transport Airplane Directorate, 3960 Paramount
Boulevard, Lakewood, California; or at the Office of the Federal
Register, 800 North Capitol Street, NW., suite 700, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Raymond Vakili, Aerospace Engineer,
Airframe Branch, ANM-140L, FAA, Los Angeles Aircraft Certification
Office, 3960 Paramount Boulevard, Lakewood, California 90712; telephone
(310) 627-5262; fax (310) 627-5210.
SUPPLEMENTARY INFORMATION: The FAA has received reports of cracking of
the support brackets in the refuel and fuel transfer lines of the tail
fuel tank on McDonnell Douglas Model MD-11 series airplanes. In
addition, the nylon clamps and transfer pipe assembly have been found
to be damaged. Investigation revealed that this cracking and damage was
caused by flexing of the brackets during refueling and transfer
operations of the tail fuel tank. When this flexing occurs, the
transfer pipe assembly can sustain damage due to contact with adjacent
structure. Such cracking and damage, if not corrected, would result in
further damage to the fuel transfer pipe assembly and possible fuel
leakage.
Explanation of Relevant Service Information
The FAA has reviewed and approved McDonnell Douglas Alert Service
Bulletin MD11-28A083, dated March 13, 1996, which describes procedures
for repetitive visual inspections to detect cracking, bending, or
stress of the support brackets, and any damage to the clamps of the
transfer pipe of the tail tank; and replacement of any damaged bracket
or clamp with a serviceable part. The alert service bulletin also
describes procedures for repetitive visual inspections to detect damage
of the transfer pipe assembly of the tail tank; and procedures for
installation of a doubler on the pipe assembly, or replacement of the
pipe assembly with a serviceable assembly, if necessary.
Explanation of the Requirements of the Rule
Since an unsafe condition has been identified that is likely to
exist or develop on other McDonnell Douglas Model MD-11 series
airplanes of the same type design, this AD is being issued to prevent
cracking of the support brackets in the refuel and fuel transfer lines
of the tail fuel tank and damage to the nylon clamps and transfer pipe
assembly, which if not corrected, could result in further damage to the
transfer pipe assembly and possible fuel leakage. This AD requires
repetitive visual inspections for cracking, bending, or stress of the
support brackets, and any damage to the clamps of the transfer pipe of
the tail tank; and replacement of any damaged bracket or clamp with a
serviceable part. This AD also requires repetitive visual inspections
for damage of the transfer pipe assembly of the tail tank; and
installation of a doubler on the pipe assembly, or replacement of the
pipe assembly with a serviceable assembly, if necessary. The actions
are required to be accomplished in accordance with the service bulletin
described previously.
Interim Action
This AD is considered to be interim action. The manufacturer has
advised that it currently is developing a modification that will
positively address the unsafe condition addressed by this AD. Once this
modification is developed, approved, and available, the FAA may
consider additional rulemaking.
Difference Between this Rule and the Relevant Service Information
Operators should note that the McDonnell Douglas alert service
bulletin recommends accomplishment of the initial inspection at ``the
earliest practical maintenance period, but not to exceed 600 flight
hours from the date of issuance of the alert service bulletin.''
However, the FAA has determined that, since maintenance intervals vary
from operator to operator, and since the time of receipt of the alert
service bulletin also may vary from operator to operator, the
compliance time for this AD must be less subjective in order to ensure
that the actions are accomplished by all affected operators in a timely
manner. This AD requires compliance within 90 days after the effective
date of the rule. In developing an appropriate compliance time for this
AD, the FAA considered not only the manufacturer's recommendation, but
the degree of urgency associated with addressing the subject unsafe
condition, the average utilization of the affected fleet, and regularly
scheduled maintenance intervals for the affected airplanes. In light of
all of these factors, the FAA finds that a 90-day compliance time for
accomplishment of the initial inspection is appropriate in that it
represents the maximum interval of time allowable for affected
airplanes to continue to operate without compromising safety.
Operators also should note that the effectivity listing in the
McDonnell Douglas alert service bulletin includes certain airplanes
designated as ``Group 2 airplanes.'' The initial visual inspection
(required by this AD) was
[[Page 21067]]
accomplished and a temporary doubler was installed on these airplanes
during production. For these airplanes, the alert service bulletin
suggests an inspection interval of 15 months for accomplishment of the
visual inspection. The FAA has determined that this inspection interval
for Group 2 airplanes is appropriate, and is considering additional
rulemaking action to address the requirements for Group 2 airplanes.
However, a 15-month compliance time for the planned requirements is
sufficiently long so that notice and time for prior public comment will
be practicable.
Determination of Rule's Effective Date
Since a situation exists that requires the immediate adoption of
this regulation, it is found that notice and opportunity for prior
public comment hereon are impracticable, and that good cause exists for
making this amendment effective in less than 30 days.
Comments Invited
Although this action is in the form of a final rule that involves
requirements affecting flight safety and, thus, was not preceded by
notice and an opportunity for public comment, comments are invited on
this rule. Interested persons are invited to comment on this rule by
submitting such written data, views, or arguments as they may desire.
Communications shall identify the Rules Docket number and be submitted
in triplicate to the address specified under the caption ADDRESSES. All
communications received on or before the closing date for comments will
be considered, and this rule may be amended in light of the comments
received. Factual information that supports the commenter's ideas and
suggestions is extremely helpful in evaluating the effectiveness of the
AD action and determining whether additional rulemaking action would be
needed.
Comments are specifically invited on the overall regulatory,
economic, environmental, and energy aspects of the rule that might
suggest a need to modify the rule. All comments submitted will be
available, both before and after the closing date for comments, in the
Rules Docket for examination by interested persons. A report that
summarizes each FAA-public contact concerned with the substance of this
AD will be filed in the Rules Docket.
Commenters wishing the FAA to acknowledge receipt of their comments
submitted in response to this rule must submit a self-addressed,
stamped postcard on which the following statement is made: ``Comments
to Docket Number 96-NM-77-AD.'' The postcard will be date stamped and
returned to the commenter.
Regulatory Impact
The regulations adopted herein 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 Executive Order 12612, it is determined that this final
rule does not have sufficient federalism implications to warrant the
preparation of a Federalism Assessment.
The FAA has determined that this regulation is an emergency
regulation that must be issued immediately to correct an unsafe
condition in aircraft, and that it is not a ``significant regulatory
action'' under Executive Order 12866. It has been determined further
that this action involves an emergency regulation under DOT Regulatory
Policies and Procedures (44 FR 11034, February 26, 1979). If it is
determined that this emergency regulation otherwise would be
significant under DOT Regulatory Policies and Procedures, a final
regulatory evaluation will be prepared and placed in the Rules Docket.
A copy of it, if filed, may be obtained from the Rules Docket at the
location provided under the caption ADDRESSES.
List of Subjects in 14 CFR Part 39
Air transportation, Aircraft, Aviation safety, Incorporation by
reference, Safety.
Adoption of the Amendment
Accordingly, pursuant to the authority delegated to me by the
Administrator, the Federal Aviation Administration amends part 39 of
the Federal Aviation Regulations (14 CFR part 39) as follows:
PART 39--AIRWORTHINESS DIRECTIVES
1. The authority citation for part 39 continues to read as follows:
Authority: 49 U.S.C. 106(g), 40113, 44701.
Sec. 39.13 [Amended]
2. Section 39.13 is amended by adding the following new
airworthiness directive:
96-10-07 McDonnell Douglas: Amendment 39-9612. Docket 96-NM-77-AD.
Applicability: Model MD-11 series airplanes; specified as Group
1 airplanes and listed in McDonnell Douglas Alert Service Bulletin
MD-11-28A083, dated March 13, 1996; certificated in any category.
Note 1: This AD applies to each airplane identified in the
preceding applicability provision, regardless of whether it has been
otherwise modified, altered, or repaired in the area subject to the
requirements of this AD. For airplanes that have been modified,
altered, or repaired so that the performance of the requirements of
this AD is affected, the owner/operator must request approval for an
alternative method of compliance in accordance with paragraph (b) of
this AD. The request should include an assessment of the effect of
the modification, alteration, or repair on the unsafe condition
addressed by this AD; and, if the unsafe condition has not been
eliminated, the request should include specific proposed actions to
address it.
Note 2: Airplanes specified as Group 2 airplanes and listed in
McDonnell Douglas Alert Service Bulletin MD-11-28A083, dated March
13, 1996, are not subject to this AD.
Compliance: Required as indicated, unless accomplished
previously.
To prevent cracking of the support brackets in the refuel and
fuel transfer lines of the tail fuel tank and damage to the nylon
clamps and transfer pipe assembly, which, if not corrected, could
result in further damage to the transfer pipe assembly and possible
fuel leakage, accomplish the following:
(a) Within 90 days after the effective date of this AD,
accomplish the requirements of paragraphs (a)(1) and (a)(2) of this
AD in accordance with Paragraph 3. of the Accomplishment
Instructions of McDonnell Douglas Alert Service Bulletin MD-11-
28A083, dated March 13, 1996.
(1) Perform a visual inspection for cracking, bending, or stress
of the support brackets and damage to the nylon clamps of the
transfer pipe of the tail tank, in accordance with the alert service
bulletin. If any damaged bracket or clamp is detected, prior to
further flight, replace it with a serviceable part in accordance
with the alert service bulletin.
(2) Perform a visual inspection for chafing and/or denting of
the transfer pipe assembly of the tail tank, in accordance with the
alert service bulletin.
(i) Condition 1. If no damage to the fuel pipe assembly is
detected, accomplish the requirements of either paragraph
(a)(2)(i)(A) or (a)(2)(i)(B) of this AD at the times specified in
that paragraph.
(A) Option 1. Thereafter, repeat the visual inspections required
by paragraph (a) of this AD at intervals not to exceed 600 flight
hours; or
(B) Option 2. Install a temporary doubler on the fuel pipe
assembly in accordance with the alert service bulletin and,
thereafter, repeat the visual inspections required by paragraph (a)
of this AD at intervals not to exceed 15 months.
(ii) Condition 2. If damage is found that is within the limits
specified by the alert service bulletin, prior to further flight,
install a temporary doubler on the fuel pipe assembly. Thereafter,
repeat the visual inspections required by paragraph (a) of this AD
at intervals not to exceed 15 months.
(iii) Condition 3. If damage is found that is outside the limits
specified by the alert service bulletin, prior to further flight,
replace the fuel pipe assembly with a new or
[[Page 21068]]
serviceable assembly; and accomplish the requirements of either
paragraph (a)(2)(iii)(A) or (a)(2)(iii)(C) of this AD at the time
specified in that paragraph.
(A) Option 1. Thereafter, repeat the visual inspections required
by paragraph (a) of this AD at intervals not to exceed 600 flight
hours; or
(B) Option 2. Install a temporary doubler on the fuel pipe
assembly; and repeat the visual inspections required by paragraph
(a) of this AD, thereafter, at intervals not to exceed 15 months.
(Replacement of the fuel pipe assembly with a serviceable pipe
assembly that has been repaired by welding a doubler in the area of
potential damage, does not require the installation of a temporary
doubler.)
(b) An alternative method of compliance or adjustment of the
compliance time that provides an acceptable level of safety may be
used if approved by the Manager, Los Angeles Aircraft Certification
Office (ACO), FAA, Transport Airplane Directorate. Operators shall
submit their requests through an appropriate FAA Principal
Maintenance Inspector, who may add comments and then send it to the
Manager, Los Angeles ACO.
Note 3: Information concerning the existence of approved
alternative methods of compliance with this AD, if any, may be
obtained from the Los Angeles ACO.
(c) Special flight permits may be issued in accordance with
sections 21.197 and 21.199 of the Federal Aviation Regulations (14
CFR 21.197 and 21.199) to operate the airplane to a location where
the requirements of this AD can be accomplished.
(d) The actions shall be done in accordance with McDonnell
Douglas Alert Service Bulletin MD-11-28A083, dated March 13, 1996.
This incorporation by reference was approved by the Director of the
Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part
51. Copies may be obtained from McDonnell Douglas Corporation, 3855
Lakewood Boulevard, Long Beach, California 90846, Attention:
Technical Publications Business Administration, Department C1-L51
(2-60). Copies may be inspected at the FAA, Transport Airplane
Directorate, 1601 Lind Avenue SW., Renton, Washington; or at the
FAA, Los Angeles Aircraft Certification Office, Transport Airplane
Directorate, 3960 Paramount Boulevard, Lakewood, California; or at
the Office of the Federal Register, 800 North Capitol Street NW.,
suite 700, Washington, DC.
(e) This amendment becomes effective on May 24, 1996.
Issued in Renton, Washington, on May 1, 1996.
Darrell M. Pederson,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 96-11408 Filed 5-8-96; 8:45 am]
BILLING CODE 4910-13-U
Complete official Federal Register PDF
FR Doc. 96-11407 Airworthiness Directives; Boeing Model 737 Series Airplanes
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21068-21070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11407]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
14 CFR Part 39
[Docket No. 96-NM-84-AD; Amendment 39-9611; AD 96-10-06]
RIN: 2120-AA64
Airworthiness Directives; Boeing Model 737 Series Airplanes
AGENCY: Federal Aviation Administration, DOT.
ACTION: Final rule; request for comments.
-----------------------------------------------------------------------
SUMMARY: This amendment adopts a new airworthiness directive (AD) that
is applicable to certain Boeing Model 737 series airplanes. This action
requires repetitive inspections to detect cracks of the lower gate
hinge of the forward galley service door, and replacement of any
cracked hinge. This action also provides an optional terminating
replacement for the repetitive inspections. This amendment is prompted
by reports of fatigue cracks found in the lower gate hinge on the
forward galley service door. The actions specified in this AD are
intended to prevent such fatigue cracking, which could lead to the
failure of the lower gate hinge on the forward galley service door and
subsequent loss of cabin pressure. If the hinge fails, the hinge and
its associated mechanisms and the emergency escape slide could separate
from the airplane and be ingested into the engine, or could strike and
damage the flight control surfaces.
DATES: Effective May 24, 1996.
The incorporation by reference of certain publications listed in
the regulations is approved by the Director of the Federal Register as
of May 24, 1996.
Comments for inclusion in the Rules Docket must be received on or
before July 8, 1996.
ADDRESSES: Submit comments in triplicate to the Federal Aviation
Administration (FAA), Transport Airplane Directorate, ANM-103,
Attention: Rules Docket No. 96-NM-84-AD, 1601 Lind Avenue, SW., Renton,
Washington 98055-4056.
The service information referenced in this AD may be obtained from
Boeing Commercial Airplane Group, P.O. Box 3707, Seattle, Washington
98124-2207. This information may be examined at the FAA, Transport
Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington; or at
the Office of the Federal Register, 800 North Capitol Street, NW.,
suite 700, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Roy Boffo, Aerospace Engineer,
Airframe Branch, ANM-120S, FAA, Seattle Aircraft Certification Office,
1601 Lind Avenue, SW., Renton, Washington; telephone (206) 227-2780;
fax (206) 227-1181.
SUPPLEMENTARY INFORMATION: The FAA has received several reports of
cracks found in the lower gate hinge on the forward galley service door
on Boeing Model 737 series airplanes. In two of these cases, the hinge
was severed completely and the lower gate separated from the airplane
while in flight, which resulted in loss of cabin pressure. In one of
these cases, the emergency escape slide was slowly pulled through the
gate opening, and, subsequently, it separated from the airplane. These
airplanes had accumulated between 13,700 and 66,000 total flight
cycles. Investigation revealed that the cause of such cracking was due
to fatigue. The effects of such fatigue cracking could lead to the
failure of the lower gate hinge on the forward galley service door and
subsequent loss of cabin pressure. If the hinge fails, the hinge and
its associated mechanisms and the emergency escape slide could separate
from the airplane and be ingested into the engine, or could strike and
damage the flight control surfaces.
Explanation of Relevant Service Information
The FAA has reviewed and approved Boeing Alert Service Bulletin
737-52A1124, dated January 11, 1996, which describes procedures for
repetitive detailed visual inspections to detect cracks of the lower
gate hinge of the forward galley service door, and replacement of any
cracked hinge found. The service bulletin also describes procedures for
replacement of the lower gate hinge of the forward galley service door
with an improved hinge, which will eliminate the need for the
repetitive inspections.
Explanation of the Requirements of the AD
Since an unsafe condition has been identified that is likely to
exist or develop on other Boeing Model 737 series airplanes of the same
type design, this AD is being issued to prevent fatigue cracking and
subsequent failure of the lower gate hinge on the forward galley
service door. This AD requires repetitive detailed visual inspections
to detect cracks of the lower gate hinge of the forward galley service
door, and replacement of any cracked hinge found. This AD also provides
for an optional replacement of the lower gate hinge of the forward
galley service door with an improved hinge, which constitutes
terminating action for the repetitive inspection requirements. The
actions are required to be accomplished
[[Page 21069]]
in accordance with the alert service bulletin described previously.
Differences Between the AD and the Relevant Service Information
Operators should note that, unlike the various recommended
compliance times specified in the alert service bulletin for
accomplishing the initial inspection of airplanes (specified as 1,200
flight cycles after receipt of the service bulletin for airplanes with
10,000 to 12,000 total flight cycles; 800 flight cycles after receipt
for airplanes with 12,000 to 13,000 total flight cycles; and 400 flight
cycles after receipt for airplanes with 13,000 or more total flight
cycles), this AD requires that all airplanes be inspected within 400
flight cycles after the effective date of the AD. In consideration of
not only the manufacturer's recommendation, but the degree of urgency
associated with addressing the subject unsafe condition, the average
utilization of the affected fleet, and the time necessary to perform
the inspection (3 hours), the FAA has determined that the various
intervals specified in that alert service bulletin would not address
the identified unsafe condition in a timely manner. In addition, the
FAA has reviewed the available data and determined that the length of
cracking is not necessarily related to the airplane's flight cycles,
but instead is related to the number of door cycles. In light of all of
these factors, the FAA finds that a 400-flight cycle compliance time
for initiating the required actions is warranted, in that it represents
an appropriate interval of time allowable for affected airplanes to
continue to operate without compromising safety.
Determination of Rule's Effective Date
Since a situation exists that requires the immediate adoption of
this regulation, it is found that notice and opportunity for prior
public comment hereon are impracticable, and that good cause exists for
making this amendment effective in less than 30 days.
Comments Invited
Although this action is in the form of a final rule that involves
requirements affecting flight safety and, thus, was not preceded by
notice and an opportunity for public comment, comments are invited on
this rule. Interested persons are invited to comment on this rule by
submitting such written data, views, or arguments as they may desire.
Communications shall identify the Rules Docket number and be submitted
in triplicate to the address specified under the caption ADDRESSES. All
communications received on or before the closing date for comments will
be considered, and this rule may be amended in light of the comments
received. Factual information that supports the commenter's ideas and
suggestions is extremely helpful in evaluating the effectiveness of the
AD action and determining whether additional rulemaking action would be
needed.
Comments are specifically invited on the overall regulatory,
economic, environmental, and energy aspects of the rule that might
suggest a need to modify the rule. All comments submitted will be
available, both before and after the closing date for comments, in the
Rules Docket for examination by interested persons. A report that
summarizes each FAA-public contact concerned with the substance of this
AD will be filed in the Rules Docket.
Commenters wishing the FAA to acknowledge receipt of their comments
submitted in response to this rule must submit a self-addressed,
stamped postcard on which the following statement is made: ``Comments
to Docket Number 96-NM-84-AD.'' The postcard will be date stamped and
returned to the commenter.
Regulatory Impact
The regulations adopted herein 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 Executive Order 12612, it is determined that this final
rule does not have sufficient federalism implications to warrant the
preparation of a Federalism Assessment.
The FAA has determined that this regulation is an emergency
regulation that must be issued immediately to correct an unsafe
condition in aircraft, and that it is not a ``significant regulatory
action'' under Executive Order 12866. It has been determined further
that this action involves an emergency regulation under DOT Regulatory
Policies and Procedures (44 FR 11034, February 26, 1979). If it is
determined that this emergency regulation otherwise would be
significant under DOT Regulatory Policies and Procedures, a final
regulatory evaluation will be prepared and placed in the Rules Docket.
A copy of it, if filed, may be obtained from the Rules Docket at the
location provided under the caption ADDRESSES.
List of Subjects in 14 CFR Part 39
Air transportation, Aircraft, Aviation safety, Incorporation by
reference, Safety.
Adoption of the Amendment
Accordingly, pursuant to the authority delegated to me by the
Administrator, the Federal Aviation Administration amends part 39 of
the Federal Aviation Regulations (14 CFR part 39) as follows:
PART 39--AIRWORTHINESS DIRECTIVES
1. The authority citation for part 39 continues to read as follows:
Authority: 49 USC 106(g), 40113, 44701.
Sec. 39.13 [Amended]
2. Section 39.13 is amended by adding the following new
airworthiness directive:
96-10-06 Boeing: Amendment 39-9611. Docket 96-NM-84-AD.
Applicability: Model 737 series airplanes, as listed in Boeing
Alert Service Bulletin 737-52A1124, dated January 11, 1996; on which
the actions specified in Boeing Service Bulletin 737-52-1097,
Revision 1, dated April 6, 1989, or Revision 2, dated January 11,
1990, have not been accomplished; certificated in any category.
Note 1: This AD applies to each airplane identified in the
preceding applicability provision, regardless of whether it has been
otherwise modified, altered, or repaired in the area subject to the
requirements of this AD. For airplanes that have been modified,
altered, or repaired so that the performance of the requirements of
this AD is affected, the owner/operator must request approval for an
alternative method of compliance in accordance with paragraph (c) of
this AD. The request should include an assessment of the effect of
the modification, alteration, or repair on the unsafe condition
addressed by this AD; and, if the unsafe condition has not been
eliminated, the request should include specific proposed actions to
address it.
Compliance: Required as indicated, unless accomplished
previously.
To prevent fatigue cracking of the lower gate hinge on the
forward galley service door, accomplish the following:
(a) Within 400 flight cycles after the effective date of this
AD, perform a detailed visual inspection to detect cracks of the
lower gate hinge of the forward galley service door, in accordance
with Boeing Alert Service Bulletin 737-52A1124, dated January 11,
1996.
(1) If no cracks are detected, repeat the inspection thereafter
at intervals not to exceed 4,500 flight cycles.
(2) If any crack is detected, prior to further flight, replace
the lower gate hinge with a new hinge, in accordance with the alert
service bulletin. Accomplishment of the replacement constitutes
terminating action for this AD.
[[Page 21070]]
(b) Replacement of the lower gate hinge of the forward galley
service door with an improved hinge, in accordance with Boeing Alert
Service Bulletin 737-52A1124, dated January 11, 1996, constitutes
terminating action for the requirements of this AD.
(c) An alternative method of compliance or adjustment of the
compliance time that provides an acceptable level of safety may be
used if approved by the Manager, Seattle Aircraft Certification
Office (ACO), FAA, Transport Airplane Directorate. Operators shall
submit their requests through an appropriate FAA Principal
Maintenance Inspector, who may add comments and then send it to the
Manager, Seattle ACO.
Note 2: Information concerning the existence of approved
alternative methods of compliance with this AD, if any, may be
obtained from the Seattle ACO.
(d) Special flight permits may be issued in accordance with
sections 21.197 and 21.199 of the Federal Aviation Regulations (14
CFR 21.197 and 21.199) to operate the airplane to a location where
the requirements of this AD can be accomplished.
(e) The inspection and replacement shall be done in accordance
with Boeing Alert Service Bulletin 737-52A1124, dated January 11,
1996. This incorporation by reference was approved by the Director
of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR
part 51. Copies may be obtained from Boeing Commercial Airplane
Group, P.O. Box 3707, Seattle, Washington 98124-2207. Copies may be
inspected at the FAA, Transport Airplane Directorate, 1601 Lind
Avenue, SW., Renton, Washington; or at the Office of the Federal
Register, 800 North Capitol Street, NW., suite 700, Washington, DC.
(f) This amendment becomes effective on May 24, 1996.
Issued in Renton, Washington, on May 1, 1996.
Darrell M. Pederson,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 96-11407 Filed 5-8-96; 8:45 am]
BILLING CODE 4910-13-U
Complete official Federal Register PDF
FR Doc. 96-11400 Exemption, Approval, Registration and Reporting Procedures; Miscellaneous Provisions
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21084-21102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11400]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Research and Special Programs Administration
49 CFR Parts 107, 171, 173 and 178
[Docket No. HM-207C, Amdt. Nos. 107-38, 171-141, 173-249, and 178-113]
RIN 2137-AC63
Exemption, Approval, Registration and Reporting Procedures;
Miscellaneous Provisions
AGENCY: Research and Special Programs Administration (RSPA), DOT.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: In this final rule, RSPA revises procedures for applying for
exemptions and establishes procedures for applying for approvals, and
registering and filing reports with RSPA. In addition, RSPA amends
certain provisions, mostly procedural, in the Hazardous Materials
Regulations. This rulemaking action is intended to expedite processing
of applications and to promote clarity and program consistency. It is
part of the President's Regulatory Reinvention Initiative to revise all
agency regulations that are in need of reform.
DATES: Effective date: The effective date of these amendments is
October 1, 1996.
Compliance date: Voluntary compliance with the regulations, as
[[Page 21085]]
amended herein, is authorized as of July 12, 1996.
FOR FURTHER INFORMATION CONTACT: Kathleen Stokes Molinar, Office of the
Chief Counsel, (202) 366-4400, or Diane LaValle, Office of Hazardous
Materials Standards, (800) 467-4922, RSPA, Department of
Transportation, 400 7th Street, SW, Washington, DC 20590-0001.
SUPPLEMENTARY INFORMATION:
I. Background
The Federal hazardous material transportation law (Federal hazmat
law; 49 U.S.C. 5101-5127) directs the Secretary of Transportation to
prescribe regulations for the safe transportation of hazardous
materials in commerce. RSPA is the agency within the Department of
Transportation primarily responsible for implementing the Federal
hazmat law. RSPA does so through the Hazardous Materials Regulations
(HMR; 49 CFR Parts 171-180). Under 49 U.S.C. 5117(a), RSPA is
authorized to issue an exemption from specific requirements of the
Federal hazmat law or the HMR if an applicant demonstrates that public
safety will not be compromised. The procedures governing application
for an exemption and the manner in which the application is processed
are found at 49 CFR part 107, subpart B.
In numerous instances, the HMR require approval by, or registration
with, RSPA before a person may engage in particular hazmat
transportation-related activities in areas such as manufacturing and
certifying hazardous material packagings, offering hazardous materials
for transportation, and transporting hazardous materials. The HMR also
impose reporting requirements on persons engaging in certain hazardous
materials transportation activities. A significant portion of the
regulated community is subject to one or more of these requirements.
Procedures to be followed in seeking an approval from RSPA, registering
with RSPA, or reporting to RSPA are often found in the HMR provision
establishing the particular requirement, but in many cases these
procedures are absent or incomplete.
This final rule revises procedures for exemptions in subpart B of
part 107 and establishes procedures for approvals, registrations and
reports in subpart H of part 107. Establishment of formal procedures
for approval, registration, and reporting activities provides uniform
and consistent guidance to all those who may be subject to these
requirements in the HMR, and fosters consistency in RSPA's handling of
these matters. Additionally, this final rule minimizes RSPA's need to
seek additional information from applicants in order to complete the
processing of these matters.
The procedures adopted in this final rule for approvals,
registrations, and reports are limited in their application. Other
Federal agencies (e.g., the United States Coast Guard (USCG) and the
Federal Railroad Administration (FRA)) issue approvals or receive
registrations or reports under the HMR. For example, under
Sec. 176.415, persons are required to obtain approvals from the USCG
before loading or unloading certain explosives onto or from vessels.
The procedures established in this rule apply only with respect to
those matters under the HMR that are handled by RSPA. Those matters for
which the HMR assign responsibility to other entities will continue to
be handled according to the procedures of those entities.
II. Regulatory Reinvention Initiative
In a March 4, 1995 memorandum, the President directed Federal
agencies to review all agency regulations and eliminate or revise those
that are outdated or in need of reform. On April 4, 1995 (60 FR 17049),
and July 28, 1995 (60 FR 38888), RSPA issued notices requesting
comments on regulatory reform and announcing several public meetings
nationwide to identify obsolete and burdensome regulations that can be
eliminated from the HMR and techniques to improve RSPA's customer
services. Some of the commenters responding to those notices and
participating in the public meetings identified the exemption and
approval procedures as areas in need of clarification and reform. This
rule is consistent with the goals of the President to clarify and
revise Federal agency regulations to relieve unnecessary regulatory
burdens and to clarify regulatory requirements.
III. Summary of Comments and Regulatory Changes
On September 14, 1995, RSPA published a notice of proposed
rulemaking (NPRM) under Docket HM-207C (60 FR 47723). In the NPRM, RSPA
proposed to revise the exemption procedures of subpart B of part 107
and adopt new procedures in subpart H of part 107 for approvals,
registration, and reporting information to RSPA.
RSPA received 16 comments to the NPRM from offerors and carriers of
hazardous materials, chemical and packaging manufacturers, consulting
firms, and the United States Department of Energy. Commenters were
generally supportive of RSPA's effort to revise and clarify the
procedures for exemptions and establish procedures for approvals,
registration, and reporting. The comments and RSPA's response to them
are discussed below.
Part 107
Subpart A--General Provisions
Sec. 107.3 Definitions.
Commenters requested clarification of the difference between
approvals and exemptions and, further, requested that RSPA explain the
difference between an approval and a competent authority approval. An
approval is a written authorization to take some action delineated in a
particular regulation (e.g., Sec. 173.21) in the HMR and is
specifically authorized in that regulation. Approvals generally are
limited in scope, such as in Sec. 178.604(b)(2) that authorizes an
applicant to apply for an approval to deviate from the number of
samples used in conducting a leakproofness test. Because issuance of
all approvals is specifically recognized in the HMR and almost all
approval documents can be made available for public review,
applications are not published in the Federal Register.
Sections 171.11 and 171.12 authorize compliance with international
standards (i.e., the International Civil Aviation Organization's
Technical Instructions for the Safe Transport of Dangerous Goods by Air
(ICAO Technical Instructions) and the International Maritime Dangerous
Goods Code (IMDG Code)) as an alternative to compliance with certain
provisions of the HMR. For certain types of activities, both the ICAO
Technical Instructions and the IMDG Code have provisions which require
that the activity be approved by the competent authority of the country
of origin. The Associate Administrator for Hazardous Materials Safety
(Associate Administrator), RSPA, is the competent authority for the
United States of America (see the definition of ``competent authority''
in 49 CFR Sec. 171.8).
A competent authority approval means an approval by the competent
authority which is required under the provisions of international
regulations, such as the ICAO Technical Instructions or the IMDG Code.
To the extent that it satisfies the requirement of the international
regulations, any of the following may serve as a competent authority
approval: a specific regulation of subchapter A or C, an exemption or
approval issued under the provisions of subchapter A or C, or a
separate document issued to one or more persons by the Associate
Administrator. In other words, if an activity is authorized for
international transport under the HMR,
[[Page 21086]]
then the HMR serves as the competent authority approval. An exemption
or approval may serve as a competent authority approval provided the
exemption or approval does not prohibit any international transport. To
facilitate international commerce, for a function that relates only to
a requirement of an international standard, and not to the HMR, the
Associate Administrator may issue a competent authority approval as a
separate document that is not related to either an approval or an
exemption under the HMR.
An exemption allows an applicant to perform a function which is not
authorized under the HMR and which, in fact, would be a violation of
the HMR in the absence of the exemption. An exemption may involve an
authorization to engage in a function for which there is no provision
in the regulations. A ``manufacturing exemption'' is an exemption
issued to a manufacturer of packagings who does not offer for
transportation or transport hazardous materials in packagings subject
to the exemption.
The process of applying for an exemption, as provided by the
Federal hazardous materials transportation law (49 USC 5117), requires
that the applicant provide documentation demonstrating that the
proposed process or activity will meet a level of safety at least
equivalent to that provided by the HMR or, if the regulations do not
contain a specified level of safety, will be consistent with the public
interest. Notice of most exemption applications is published in the
Federal Register for public comment prior to their being granted or
denied.
For clarity, RSPA is adopting definitions in Sec. 107.3 for
``approval,'' ``competent authority approval,'' ``exemption,'' and
``manufacturing exemption'' to differentiate between approvals and
exemptions and clarify the types of exemptions and approvals that are
issued.
One commenter requested that the proposed term ``accident'' be
replaced with ``incident'' to avoid confusion. The commenter stated
that the word ``incident'' is currently used in the HMR and has the
same connotation as the proposed definition of accident. The commenter
also stated that other modal agencies within DOT use the term
``accident'' to mean a collision between moving vehicles (e.g., the
FHWA expressly defines ``accident'' as a motor vehicle collision). RSPA
agrees and is adopting the term ``incident'' to refer to an event
resulting in the unintended or unanticipated release of hazardous
material or an event which meets incident reporting requirements in
171.15 or 171.16.
Another commenter suggested that RSPA define the term
``registration'' to describe what the term includes, rather than what
it does not include. The commenter recommended that the wording ``
`registration' does not include registration under Subpart F or G of
this part'' be removed. RSPA agrees that providing examples of the
types of registration covered under this definition is beneficial and
is adding several examples. RSPA has not granted the commenter's
request to delete the language referencing specific registration
requirements that are not included in the definition. RSPA believes
that this exclusionary language provides as much guidance as a
description of what types of ``registration'' are included in the
definition.
No comments were received concerning other proposed definitions,
and those definitions are adopted as proposed.
Subpart B--Exemptions
Sec. 107.101 Purpose and scope. One commenter requested that all
exemptions be described as ``competent authority approvals'' to provide
for greater acceptance outside the United States since competent
authority approvals are accepted internationally. An exemption concerns
a variance from the HMR and not the international regulations. As
previously indicated, an exemption may be used as competent authority
approval to the extent that it is suitable for international transport
and satisfies the approval requirement of the applicable international
regulation. However, a number of exemptions, such as those applicable
to transportation by motor vehicle only, are not applicable under
international regulations. Therefore, RSPA is not adopting the
commenter's suggestion.
Another commenter suggested that RSPA adopt only two procedures:
one for approvals and exemptions, and the other for registrations and
reports. The commenter contended that the requirements, procedures, and
justifications related to exemptions and approvals are sufficiently
different that users of the regulations are better served by RSPA
providing separate, self-contained provisions for exemptions and
approvals. This commenter added that since applicants are not always
sure whether to submit an application requesting an exemption, approval
or registration, RSPA should be responsible for determining the
appropriate action since the data required for each is the same. RSPA
is not adopting the commenter's suggestion that RSPA determine the
appropriate action for submitted applications because it is the
applicant's responsibility to make this determination and the
requirements are different. By defining the terms ``exemption,''
``approval,'' and ``registration,'' as well as clarifying the
procedures for obtaining each, RSPA is assisting applicants in
determining the appropriate action.
One commenter stated that the exemption procedures do not provide
for carrier exemptions. The commenter requested that more general
procedures be adopted for carrier exemptions because the application
information differs from that required for shippers and packaging
manufacturers. For consistency, RSPA utilizes the same exemption
application procedure for all applicants (e.g., packaging
manufacturers, shippers, and carriers). In this final rule, RSPA is
clarifying the types of information required of an exemption applicant
(see preamble discussion under Sec. 107.105). Additionally, RSPA is
including language in the rule under the ``emergency processing''
provisions of Sec. 107.117 which should assist carriers by directing an
applicant to seek an emergency exemption through the modal office for
the proposed initial mode of transportation.
One commenter strongly recommended that RSPA incorporate more
exemptions into the HMR to allow industry more flexibility and reduce
the number of exemptions. The commenter requested that RSPA explain the
standards which it utilizes to determine which exemptions are
incorporated into the HMR. The commenter stated that ``making this
information [the standards which RSPA utilizes] public would provide a
clearer picture of the need for a more flexible regulatory scheme and
give a benchmark on which to assess efforts to incorporate existing
exemptions.''
Although RSPA has no formal set of standards for selecting
exemptions to be converted to regulations of general applicability,
RSPA periodically reviews existing exemptions to prioritize them as to
their suitability for conversion to regulations. Whether a specific
exemption is a candidate for regulatory action depends on any number of
factors, such as the expressed interest of the exemption holder or
others, the suitability of the exemption for conversion, rulemaking
activity in related areas, agency priorities, and whether the process,
packaging or activity authorized by the exemption has provided a
clearly demonstrated
[[Page 21087]]
level of safety equivalent to that which is provided by the HMR.
Another commenter recommended that RSPA automatically incorporate
exemptions into the HMR after the second renewal of the exemption. RSPA
agrees that if an exemption of general applicability demonstrates a
level of safety equivalent to the HMR, the provisions of the exemption
ultimately may be suitable for incorporation into the HMR. However,
RSPA is not adopting the commenter's recommendation. As previously
discussed, a number of factors influence whether an exemption is
proposed for conversion to a regulation.
Sec. 107.105 Application for exemption. Commenters supported
RSPA's proposal to require that applicants submit exemption
applications in duplicate, rather than triplicate. Commenters stated
that this amendment would reduce the burden on applicants, and RSPA is
adopting the requirement as proposed.
One commenter requested that applicants be required to submit the
application information in numerical order consistent with the
application procedures so that RSPA can quickly determine if any
information is missing. While RSPA encourages applicants to follow the
format utilized in the rule when submitting application materials, RSPA
believes that its personnel can expeditiously determine the
completeness of an application. Further, RSPA does not want to place
another requirement on applicants; therefore, RSPA recommends but is
not mandating use of this commenter's suggestion.
Another commenter suggested that proposed Sec. 107.105 (a)(2) and
(a)(4) be combined. Proposed paragraph (a)(2) requires that an
applicant who is not an individual (i.e., the applicant is a
corporation, partnership, or the like) designate an agent pursuant to
the laws of the United States. Proposed paragraph (a)(4), however,
requires a foreign applicant to designate an agent within the United
States. This paragraph applies to both individuals and legal entities.
To avoid confusion between an agent for a U.S. applicant that is not an
individual and an agent for a foreign applicant, RSPA is keeping the
two requirements as separate paragraphs (a)(2) and (a)(3),
respectively, in this final rule.
One commenter suggested that RSPA require applicants to provide a
Material Safety Data Sheet (MSDS) or emergency response information for
hazardous materials in an application to confirm that this information
is consistent with the Emergency Response Guidebook. RSPA agrees that
an MSDS may contain useful information, such as hazard properties of a
commodity, for inclusion in an application and this information may be
needed to justify an application. RSPA believes that an MSDS is not
necessary in most instances and did not propose to require MSDS' or
emergency response information with exemption applications. Therefore,
RSPA is not adopting the commenter's suggestion.
Several commenters expressed concern regarding what they perceive
as the increased quantity and detail of information required to be
included in an exemption application. Some commenters stated that
supplying this information would place an undue burden on applicants
and make it more difficult or even impossible to obtain an exemption or
approval. Without providing any supporting statistics or financial
data, one commenter stated that trying to meet some of these
requirements could substantially increase the paperwork burdens for
both the applicant and RSPA, and the U.S. Department of Energy (DOE)
stated that the new requirements would impose severe economic impacts
on applicants who use contractors because the contractors would have to
perform extensive analyses and compilation of information to satisfy
the new requirements.
RSPA believes that the administrative burden on applicants remains
unchanged under proposed Sec. 107.105 and under the provisions adopted
in this final rule. The information and analyses set forth in this
final rule for exemption applications are essentially what is required
under the Federal hazmat law and what RSPA historically has requested,
often during the processing of the exemption. By clearly specifying
this information in the regulations, RSPA hopes to minimize delays in
application processing and requests for extra submissions from
applicants occasioned by RSPA's having to obtain additional information
from exemption applicants at a later time. Additionally, the commenters
who raised these ``increased burden'' arguments have not submitted
supporting documentation demonstrating that exemption applicants'
paperwork or economic burdens will be increased by this regulatory
change. Finally, RSPA notes that an applicant is not required to submit
information which is inapplicable to the exemption request or which is
impracticable for the applicant to obtain. Therefore, RSPA does not
believe that paperwork and economic burdens upon an exemption applicant
will increase, and is adopting the regulatory change essentially as
proposed.
Several commenters requested that RSPA clarify certain information
required in the proposed application procedures. Specifically, one
commenter recommended that RSPA consolidate and clarify the information
required in proposed paragraphs (a)(14) through (a)(18). Another
commenter requested clarification of what is meant in proposed
Sec. 107.105(a)(16) by ``any increased risk to safety or property that
may result if the exemption is granted.'' The commenter stated that
RSPA needs to specify the extent of analysis an applicant is required
to provide in the application. Another commenter requested that RSPA
add language in proposed paragraphs (a)(16) and (a)(18) that applicants
provide risks that ``are known or could reasonably have been expected
to be known'' to clarify that a ``full-blown'' risk assessment is not
intended by RSPA. Another commenter added that it is unclear whether an
applicant is required to include the information in proposed paragraph
(a)(18). The commenter requested that RSPA add some examples to clarify
when the provision is required.
The Federal hazmat law requires each person seeking an exemption to
provide a safety analysis that justifies the exemption (49 U.S.C.
5117(b)). The information required under Sec. 107.105 is intended to
elicit the information and analyses necessary to demonstrate that the
requested exemption provides an equivalent level of safety to that
afforded by the HMR or, if the HMR do not establish a level of safety,
is consistent with the public interest and will adequately protect
against risk to life and property.
The safety analyses required to support exemptions can vary
greatly. The analyses may range from simple comparative analyses relied
upon by an applicant seeking an exemption which will permit minor
variations in packaging, to complex risk analyses for complex packaging
systems involving new technologies or materials of construction. The
risks presented by new technologies and materials are often more
difficult to evaluate, and may require a more extensive safety
analysis.
Successful shipping experience may be useful to support a safety
analysis, but does not necessarily demonstrate that a particular
package or transport practice provides a level of safety equivalent to
that authorized. Successful shipping experience may only indicate that
a package was not subjected to a drop, impact, or fire during
transportation. A safety analysis
[[Page 21088]]
of a package or transport practice that includes exposure to normal and
accident environments is a more valid indication of the level of safety
provided by the package or transport practice, than simply looking to
whether a history of incidents exists. Therefore, RSPA is requiring the
applicant to describe all relevant shipping and incident experience of
which the applicant is aware that relates to the application. The
applicant also must specify safety control measures (e.g., use of a
private carrier or additional packaging) necessary to demonstrate that
the proposed package or transport practice meets a level of safety
equivalent to that afforded by the HMR and is in the public interest.
In response to commenters' requests, RSPA is clarifying the information
specified in proposed paragraphs (a)(16) through (a)(18).
Several commenters stated that certain requested information may be
unavailable to the applicant. One commenter stated that some of the
requested information, such as service life and performance of an
alternative packaging, constitutes reasons for the exemption--to find
these answers by authorizing controlled shipments under an exemption.
Commenters stated that the proposed changes facilitate the ability of
the Associate Administrator to reject an application not deemed
complete. One commenter stated that, if an applicant cannot identify a
potential failure mode and its possibility of an occurrence, the
application would be deemed incomplete and could be denied.
The proposed language of Sec. 107.105 was intended to expedite
processing of exemption applications for the benefit of persons seeking
exemptions. RSPA acknowledges that not all information about a proposed
alternative packaging or activity is available at the time an exemption
is requested. However, an exemption is granted only when an applicant
has provided sufficient information to demonstrate that the requested
variation from the regulatory requirement will afford a level of safety
equivalent to that which is provided by the HMR. This demonstration
must include information relevant to the expected service, performance
and limitations of the packaging.
Commenters also stated that certain information may not be
applicable to some exemptions. For example, some commenters expressed
concern that the requirement to provide detailed commodity information
(proposed Sec. 107.105(a)(12)) may not be necessary or appropriate for
an exemption that authorizes manufacture of a packaging. The commenters
stated that lack of this information could result in the rejection of
the application. Commenters requested that Sec. 107.105 be modified to
indicate that such detailed information must be included in an
application only when appropriate based on the nature of the exemption
being sought. In response to commenters' concerns, RSPA is requiring
the applicant to provide information in the application only when it is
appropriate to demonstrate that the proposal meets the statutory and
regulatory standards. Therefore, this final rule indicates that an
applicant need only submit information that is relevant to an
application.
Other commenters expressed opposition to RSPA's proposal to extend
the recommended time period for filing an exemption application from
120 days to 180 days before the requested effective date of the
exemption. The commenters indicated that this extended deadline
appeared to be contrary to the stated purpose of the rule--reduction of
the processing time of exemption applications and renewals. Another
commenter requested that RSPA also issue or deny an exemption in the
same time period when a properly prepared application is submitted.
RSPA's proposal was intended to parallel the Federal hazmat law
requirement, 49 U.S.C. 5117, that the Secretary of Transportation issue
or renew an exemption for which an application was filed, or deny such
issuance or renewal, within 180 days after the first day of the month
following the date of the filing of such application. RSPA understands
that many parties requesting exemptions cannot anticipate their needs
beyond four months. Therefore, RSPA is addressing the needs of its
customers by retaining the 120-day application filing time. However,
RSPA notes that 120 days is often not enough time for processing an
incomplete or very complicated exemption application, and encourages
parties to file an application for an exemption as early as possible.
Another commenter objected to the proposal to limit the use of
manufacturing exemptions to specific plants or locations. The commenter
stated that many shippers are also manufacturers and use more than one
vendor to supply a packaging. The commenter requested the flexibility
to use alternative suppliers of its packaging. RSPA did not propose to
limit the use of manufacturing exemptions to particular plants, but to
require applicants to identify the location of each facility where an
exemption would be used. It was RSPA's intention to limit the
application and definition of a manufacturing exemption to a
manufacturer of packagings who does not offer for transportation or
transport hazardous materials in the exemption packagings it produces
(i.e., a business entity engaged in the manufacturing and marketing
packagings for use by other entities). A person who manufacturers,
marks and sells packagings under an exemption may do so at dozens of
facilities without restriction; however, RSPA is retaining the
requirement that applicants for manufacturing exemptions identify the
location of each facility where manufacturing under an exemption will
occur. The requirement does not apply to shippers who produce
packagings for their own use.
Based on the foregoing, RSPA is revising the exemption application
procedures essentially as proposed with modifications as described
above, reformatting of the section and revising of certain provisions
to make them less burdensome.
Sec. 107.107 Application for party status. This section is adopted
essentially as proposed. Paragraph (a)(4) is revised to delete an
information requirement pertaining to consent to U.S. jurisdiction.
Paragraph (c) is revised to reference Sec. 107.113 (e) and (f) for the
manner by which the Associate Administrator grants or denies
applications.
Sec. 107.109 Application for renewal. This section is adopted
essentially as proposed. One commenter requested that one renewal
application suffice for all parties to an exemption. A single renewal
application would not provide all incident experience encountered by
all parties to an exemption. Further, where there are numerous parties
to an exemption and each attained party status on a different date,
issuance of a blanket renewal for all parties becomes unworkable from a
timing perspective. For example, persons who attained party status
close to the date for the blanket renewal may find themselves
immediately faced with renewal. RSPA, therefore, is not adopting this
suggestion.
One commenter encouraged RSPA to extend the exemption renewal
process from two years to five years to alleviate some of the
administrative burdens on RSPA and the regulated industry. The
commenter stated that RSPA could determine whether an exemption should
continue based on any incidents that occur during the life of the
exemption. Another commenter stated that an exemption period of three
years may be more appropriate for the information required in the
revised application procedures. Another
[[Page 21089]]
commenter suggested that RSPA seek a legislative change that allows
exemptions to remain in effect until such time as the Secretary finds
that continuation is no longer in the public interest or the exemption
holder withdraws the exemption. The Federal hazardous materials
transportation law (49 U.S.C. 5117) currently provides that an
exemption can be issued for no more than a two-year maximum period of
time; therefore, RSPA lacks statutory authority to extend the two-year
period. However, on March 27, 1996, a legislative proposal was sent to
Congress which included a request that the two-year exemption
limitation be extended to four years.
Sec. 107.111 Withdrawal. One commenter requested that RSPA clarify
that all documents deemed confidential by the Associate Administrator
in accordance with Sec. 107.5 that are related to an active or inactive
application will remain confidential. RSPA accepts the commenter's
suggestion and is adding a statement in this section clarifying this
point and further clarifying that the time period for which
confidential treatment will be afforded comports with the guidelines of
the Freedom of Information Act (5 U.S.C. 552(b)). Specifically,
submissions which fall within the definition of ``trade secrets'' or
``commercial or financial information obtained from a person and
privileged or confidential'' will remain confidential indefinitely,
unless the party requesting the confidential treatment notifies the
Associate Administrator that the confidential treatment is no longer
desired.
Sec. 107.113 Application processing. Commenters raised concerns
about the proposed language in paragraph (a) with respect to the time
frame in which a determination is made concerning whether an
application is complete. The commenters requested that RSPA remove the
proposed wording ``usually is made'' and retain the current wording
``will be made.'' One commenter stated that the requirement is
reasonable since it is only a determination of the application's
completeness and not a decision on its merits. RSPA agrees with the
commenter and is retaining the current wording in paragraph (a) as
requested.
Seven of the 15 commenters were strongly opposed to RSPA's proposal
to consider the existence of pending or completed enforcement actions
as a factor in determining whether an exemption applicant demonstrates
fitness to conduct an activity that would be authorized under the
exemption. One commenter stated that RSPA's technical experts should be
able to determine the safety of the subject of a proposed exemption
request without reference to enforcement actions on unrelated subjects.
Another commenter stated that, historically, RSPA could deny an
exemption application on any basis. The commenter stated that the
proposed language could create an unnecessarily adversarial situation.
One commenter stated that it objected to consideration of pending or
completed enforcement actions as ``prima facie evidence of an
applicant's capability or integrity.'' The commenter stated that, in
cases where assessed penalties were low, respondents in enforcement
actions may have adopted a ``no contest'' posture in an enforcement
action and paid a penalty, rather than expend the time and money
necessary to litigate an action. If enforcement history is used against
these respondents, the commenter said that a business decision to not
contest the action would have more severe consequences than successful
resistance to an enforcement action by a more litigious respondent. The
commenter also stated that denial of an exemption or approval because
of enforcement history would punish the violator twice for a violation.
The commenter added that Congress, in developing the hazardous
materials transportation legislation, had considered and rejected
adoption of a licensing concept because existing enforcement powers are
sufficiently strong to address violations, without denying authority to
operate under an exemption or approval. The commenter concluded that
the ``enforcement history'' provision should be very narrowly tailored:
only prior violations which indicate flagrant disregard for HMR
compliance should be considered. Another commenter suggested that only
enforcement actions of a ``significant nature'' be considered evidence
of insufficient competence or integrity.
In general, RSPA believes that consideration of completed
enforcement actions and certain pending enforcement actions as evidence
of an applicant's capability and integrity is a legitimate means of
protecting the public. It is not punishment but recognition of relevant
information. Enforcement actions may be indicative of an applicant's
ability or willingness to comply with the applicable regulations.
Because the Associate Administrator is considering whether to authorize
compliance with specific alternatives to the HMR, the likelihood of an
applicant's compliance with those alternatives is relevant to public
safety.
One commenter suggested that RSPA revise paragraph (a)(5) to read
``The application may be denied if the shipping and accident experience
supplied by the applicant in accordance with Sec. 107.105(a) which
directly relates to the exemption being sought demonstrates that
approval of the application poses a potential threat to life or
property.'' Limiting consideration to only an applicant's shipping and
accident experience which directly relates to the exemption sought
fails to protect the public from applicants with poor compliance
histories who seek exemptions to authorize new hazardous materials
transportation activities.
One commenter stated that the rule is unclear as to whether
violations that qualify for the ticketing program are considered
``enforcement actions'' under the proposed rule. The commenter
recommended that RSPA not consider ticketed violations. RSPA will
consider ticketed violations as part of an applicant's compliance
history, using the criteria specified in Sec. 107.331 to assess the
weight to be given to the violation.
DOE requested clarification of the provision concerning
consideration of past violations in determining an applicant's
capability and integrity as it applies to government entities that use
contractors. DOE also asked RSPA to clarify the terms ``pending'' and
``complete'' as used in the proposed regulation and the type of
activity that warrants a determination of ``lack of integrity.''
For purposes of regulatory compliance, RSPA looks to the entity
whose act or omission constitutes a violation of the HMR. In response
to DOE's question regarding the status of an enforcement action as
either ``pending'' or ``complete,'' an enforcement case historically
has been initiated by issuance of a Notice of Probable Violation
(NOPV). However, RSPA recently established a pilot ``ticketing''
program permitting initiation of an enforcement case by issuance of a
ticket. Thus, a case is ``pending'' from the date of issuance of either
the NOPV or the ticket until a final order has been issued and the time
for appeal has expired. If the order has been appealed in a timely
manner, the case is ``pending'' until the RSPA Administrator
(Administrator) issues an Action on Appeal. When an order has become
final or when an order was appealed and the Administrator has issued an
Action on Appeal, the enforcement action is considered to be
``complete.''
RSPA is adopting the proposed rule with several modifications. In
making a determination to grant or deny a request for an exemption,
RSPA will consider information submitted in the
[[Page 21090]]
application package, compliance history of the applicant, and other
information available to the Associate Administrator.
Another commenter objected to the proposed language providing that
an applicant who failed to respond within 30 days to a request for
additional information would have his or her application deemed
incomplete and denied. The commenter stated that, where reasonable and
appropriate, an extension of time should be granted. RSPA understands
the commenter's concern. Currently, if an applicant fails to respond to
a request for additional information for good cause, RSPA grants a 30-
day extension. To clarify this point, RSPA is adding a provision in
this section and Sec. 107.709 (approval application processing) that
allows an applicant to submit a written request for a 30-day extension.
Finally, commenters stated that, while they favored initiating a
rulemaking in addition to issuing an exemption, they did not agree with
initiating a rulemaking in lieu of issuing an exemption. The commenters
stated that the latter penalized an applicant because rulemaking
usually has taken longer than processing of an exemption request. One
of the commenters noted that, in its experience, RSPA staff faced with
this situation would issue an exemption to the applicant, and
concurrently initiate a rulemaking action, which could lead ultimately
to issuance of a rule of general applicability.
RSPA has seldom issued a rulemaking in lieu of processing an
exemption application, and RSPA does not intend to change that policy.
However, RSPA believes that if the subject of an exemption application
is so broad and of such general applicability that it should result in
a rulemaking action, going forward with issuance of the exemption
during the pendency of the rulemaking process may have the effect of
prejudging the rulemaking. A large number of applications for similar
exemptions or ``party to'' status may also adversely impact RSPA's
programs. For these reasons, the Associate Administrator may either
process the exemption application, use the application as a basis for
rulemaking, or do both. When an applicant meets all other regulatory
requirements and demonstrates a compelling necessity for an exemption,
the Associate Administrator may issue an exemption.
Sec. 107.115 Priority processing. Some commenters supported RSPA's
proposal to establish a new priority processing category for
applications that do not qualify for emergency processing but merit
more expeditious consideration than routine processing. One commenter
stated that overall processing time should be reduced. However, other
commenters expressed concern that the processing time of routine and
priority exemption applications would be the same if each must undergo
the same review process as proposed. Some commenters opposed a priority
processing category because it would delay the preparation and
processing of applications for exemptions as each applicant tried to
demonstrate significant economic loss and RSPA evaluated each
application.
One commenter requested that RSPA provide an indication of the time
in which RSPA would respond to a priority exemption application.
Another commenter requested that RSPA provide the Associate
Administrator the flexibility to issue temporary exemptions to
applicants who qualify for priority processing while the application is
being processed to minimize financial burdens on the applicant.
Commenters stated that cases that have the potential for severe
economic harm are already handled by emergency processing.
Another commenter requested that RSPA clarify why current emergency
processing should be replaced by two separate processing categories
that appear to be more complex. The commenter noted that, in the NPRM,
priority processing would be based on economic factors and emergency
processing would be based on life and property criteria. The commenter
stated that, in the current emergency processing procedures, RSPA
considers either endangerment to life or property or serious economic
loss. The commenter asked whether RSPA, by proposing two separate
processing categories, is suggesting that it considers a health threat
to be more important than economic loss, even if the health threat is
remote and the economic loss is substantial.
One commenter objected to the proposed rule requiring non-
government entities to meet higher standards than government entities
to qualify for priority processing. Based on the comments, RSPA has
determined that adding a priority processing category is not warranted.
Therefore, the proposal is not adopted in this final rule.
Sec. 107.117 Emergency processing. Commenters favored the
continued existence of an emergency processing category. One commenter
stated that the current procedures require that ``an applicant need
only show that existing conditions necessitate the transportation of a
hazardous material, or that the protection of life and property would
not be possible if such material is not transported.'' The commenter
objected to the proposed emergency processing procedures in that they
require applicants to demonstrate that such processing is necessary to
prevent ``significant injury'' to persons or property. The commenter
requested that RSPA remove the term ``significant'' because it is
subjective. The current procedures allow only applicants who can show
that a life-threatening situation exists to qualify for emergency
processing. In the proposed rule, RSPA responded to requests of
applicants that a broader standard be utilized in determining that
emergency processing is warranted. At the same time, RSPA proposed to
include the term ``significant'' to set a reasonable limit on the
expanded criteria, and believes that the term is necessary to ensure
fairness to applicants awaiting routine processing by not allowing
applicants to allege ``minor'' injuries or losses as the basis for
emergency processing.
One commenter stated that, under the proposed rule, the Associate
Administrator could deny priority or emergency processing if timely
application could have been made. The commenter requested that RSPA
allow an applicant to explain circumstances that may have contributed
to the applicant not filing an application in a timely manner so that
the applicant may still be considered for priority or emergency
processing. RSPA contemplates that an applicant seeking emergency
processing will provide evidence of circumstances that prevented the
applicant from filing the application in a timely manner.
One commenter stated that it is unlikely that applicants who
request emergency processing will be able to supply the information
specified in proposed Sec. 107.105(a)(17) for analyses, data, or test
results. In response to comments to the proposed application procedures
in Sec. 107.105, RSPA is clarifying the extent to which applicants are
required to supply analyses, data, or test results. See preamble
discussion under Sec. 107.105.
Another commenter stated that the ``emergency processing'' language
appeared to apply only to ``carrier'' exemptions and questioned its
applicability to exemptions issued to shippers. The commenter stated
that the proposed rule directs carriers to send the exemption
application to the office of the modal administration which has
oversight responsibility for the carrier's mode of transportation
(e.g., FHWA, the Federal Railroad Administration, etc.).
[[Page 21091]]
The commenter stated that shippers often utilize more than one mode and
therefore the proposed requirement that an application be sent to only
one modal office requires ``fine tuning.'' Any applicant, including a
shipper, seeking an emergency exemption must submit the application to
the specified modal contact official for the initial mode of
transportation to be utilized.
Some commenters suggested that emergency exemption applications be
submitted directly to RSPA, consistent with other exemption
submissions, and not to the specific modal administration. An emergency
exemption application is most expeditiously handled when submitted to
the applicable modal administration, where an immediate analysis of the
proposed transportation can be performed by personnel having expertise
in the affected mode of transportation. This process will eliminate the
need for RSPA to forward the exemption application to the affected mode
for input, thus allowing for more expeditious application review and
more timely and efficient customer service.
In this final rule the section is adopted essentially as proposed
with editorial changes for clarity. Proposed paragraph (f) is deleted
as unnecessary, and proposed paragraph (g) and (h) are redesignated as
(f) and (g), respectively.
Sec. 107.121 Modification, suspension, or termination of exemption
or grant of party status. One commenter expressed concern that the
proposed rule would allow termination simply ``for no other reason than
if the Department wants it terminated regardless of the shipping and
incident experience * * *.'' The commenter argued that: (1) This
provision appears contrary to the performance-oriented packaging
system; (2) this provision gives no regard to contracts for the supply
of materials between shippers and consignees; (3) the exemption holder
is placed at the mercy of RSPA personnel; (4) it is doubtful that the
proposed rule comported with the intent of Congress; (5) the proposed
rule does not comport with the preamble, which indicates that the
purpose of the NPRM is to expedite processing of applications and
promote program consistency; and (6) based on the foregoing, the
proposed rule is ``significant.''
This rule clarifies standards for exemption modification,
suspension, and termination and gives the Associate Administrator more
flexibility to determine which of the three remedies is appropriate in
a given situation. Presently, the Associate Administrator may modify or
suspend an exemption if its provisions are violated or if new
information suggests that the activity under the exemption creates a
risk to life or property. The Associate Administrator may terminate an
exemption if it is no longer consistent with the public interest, is no
longer necessary due to a change in the regulations, or was granted on
the basis of false or misleading information. The ``public interest''
criterion encompasses all grounds on which the Associate Administrator
may terminate an exemption, but it is vague. Furthermore, the sharp
distinction that the existing regulation draws between those conditions
that justify modifying or suspending an exemption and those that
justify terminating it handicap the Associate Administrator in taking
the action that is most appropriate in a particular circumstance. For
example, the current regulation may require the termination of an
exemption when modification would suffice.
The Associate Administrator's decision to modify, suspend, or
terminate an exemption must be based on the criteria specified in the
proposed regulatory text (see 49 CFR 107.121 (a) and (b)).
In this final rule Sec. 107.121 is adopted essentially as proposed.
Paragraph (d) is added to specify conditions by which the Associate
Administrator may declare a proposed action immediately effective.
Sec. 107.123 Reconsideration. One commenter suggested that RSPA
clarify that applications denied pursuant to Sec. 107.113(d) are
eligible for reconsideration in accordance with this section. RSPA
agrees that they are eligible for reconsideration, but sees no reason
for a rule change. In the NPRM, RSPA specifically stated that
applicants may request reconsideration of decisions made under
Secs. 107.113(g), 107.117(e), and 107.121(c). This section is adopted
as proposed.
Subpart C--Preemption
One commenter suggested that ``Associate Administrator for
Hazardous Materials Safety'' be revised to read ``Associate
Administrator'' for consistency with other sections in part 107. RSPA
agrees and, in the interest of achieving consistency, is modifying the
language of subpart C as suggested in all general references to the
Associate Administrator. Also, RSPA is making other minor modifications
to the regulatory language of subpart C for clarity and consistency.
Sec. 107.205 Notice. One commenter recommended changing ``may
publish notice of an application'' in paragraph (b), to ``will publish
notice of, including an opportunity to comment on, an application.''
RSPA agrees and is revising the paragraph to require publication of the
notice in the Federal Register.
In paragraph (c) and in Secs. 107.211(c), 107.217(c), and
107.223(c), RSPA is adding a sentence, ``Late-filed comments are
considered so far as practicable.'' This sentence reflects the manner
in which RSPA has handled late-filed comments in preemption matters and
is consistent with Sec. 106.23 concerning the handling of late-filed
comments in rulemaking actions. Because this change is merely a
modification to a rule of agency procedure, public notice and an
opportunity to comment on the change are not mandated by the
Administrative Procedure Act.
Sec. 107.209 Determination. Commenters also favored revision of
paragraph (c) to change ``may publish'' to ``will publish''. RSPA
agrees and is making this change.
One commenter disagreed with the proposed deletion of paragraph (b)
to eliminate the Associate Administrator's authority to issue a
preemption determination on his or her own initiative. The commenter
did not agree that the authority was eliminated by the Hazardous
Materials Transportation Uniform Safety Act of 1990 (HMTUSA). The
commenter recommended adding language allowing the Associate
Administrator to issue a preemption determination where he or she is
directly affected by a requirement of a State or political subdivision
or Indian tribe. RSPA disagrees. The pre-HMTUSA regulations authorized
RSPA to issue inconsistency rulings, which were merely advisory in
nature, on its own initiative. However, in enacting HMTUSA, Congress
replaced these advisory inconsistency rulings with authorization to
issue binding preemption determinations and, further, provided for
issuance of preemption determinations only in response to applications
by ``directly affected'' persons. See 49 U.S.C. 5125(d). In light of
these statutory changes, RSPA believes that it is inappropriate for the
Associate Administrator to initiate a preemption determination
proceeding on his or her own initiative. Therefore, paragraph (b) is
eliminated as proposed.
Sec. 107.211 Petition for reconsideration. RSPA proposed to amend
this section by revising paragraph (a) to read ``The petition must be
filed within 20 days of publication of the determination in the Federal
Register.'' A commenter expressed concern about this language in light
of RSPA's proposal to make publication
[[Page 21092]]
optional. As previously stated, RSPA will publish all preemption
determinations and, therefore, this language will not be problematic.
The proposal is adopted in this final rule.
Sec. 107.213 Judicial review. In the NPRM, RSPA proposed to add a
new section to allow a party to a proceeding under Sec. 107.203(a) to
seek review by the appropriate district court of the United States of a
decision of the Administrator by filing a petition with the court
within 60 days after the Administrator's decision becomes final. One
commenter recommended that references to the ``Administrator'' be
changed to the ``Associate Administrator.'' RSPA agrees with this
suggestion and amends this section accordingly. The commenter also
requested that RSPA specify when its decision on a petition for
reconsideration of a preemption determination becomes final. The
Associate Administrator's decision becomes final when it is published
in the Federal Register. RSPA is amending this section to clarify this
issue. In addition, RSPA is revising the wording ``decision'' to read
``determination'' to minimize confusion.
Sec. 107.217 Notice. One commenter suggested that the word
``ruling'' in paragraph (d) be changed to ``outcome of a determination
on the application.'' RSPA agrees with this suggestion, and is making
the change accordingly.
Sec. 107.221 Determination. A commenter asked that, in paragraph
(d), the word ``may'' be changed to ``will'' concerning publication of
determinations in the Federal Register. RSPA agrees and is making this
change.
Sec. 107.223 Petition for reconsideration. One commenter suggested
that the term ``order'' be changed to ``determination.'' For clarity
and consistency, RSPA is making this change.
Sec. 107.227 Judicial review. RSPA is amending this section for
consistency with Sec. 107.213. See preamble discussion under
Sec. 107.213.
Subpart D--Enforcement
Sec. 107.305 Investigations. A commenter opposed the proposal to
authorize RSPA inspectors to issue subpoenas for the production of
documents or other tangible evidence because of the potential for
abuse. RSPA is adopting the provision as proposed. RSPA inspectors are
broadly empowered, through delegations of investigatory authority under
the Federal hazmat law, 49 U.S.C. 5121, to collect evidence reasonably
related to hazardous materials compliance inspections. Their use of a
subpoena without involvement of RSPA's Office of the Chief Counsel will
improve program efficiency by expediting the information-gathering
process. The potential for inspectors to abuse this authority is
minimal because the Director of the Office of Hazardous Materials
Enforcement must approve the issuance of the subpoena and the recipient
of the subpoena may seek review of the subpoena by RSPA's Office of the
Chief Counsel under Sec. 107.13(h).
For clarity, RSPA added the words `also known as ``hazmat
inspectors'' or ``inspectors''' after the words ``Hazardous Materials
Enforcement Specialists.'' This addition was not proposed in the NPRM,
but is added on RSPA's initiative to provide consistency between
Sec. 107.305(b) and subparagraphs (1), (2), and (3) which refer to
``inspectors.''
Sec. 107.315 Admission of violations. Paragraphs (c) and (d) are
revised to delete the recommendation that payment of a civil penalty be
documented by forwarding a photocopy of the respondent's electronic
fund transfer receipt or check to the Office of the Chief Counsel. This
administrative change, not in the NPRM, eliminates a potential
paperwork burden on the regulated industry. Because this change is
merely a modification to a rule of agency procedure, public notice and
opportunity to comment on the change are not required by the
Administrative Procedure Act.
Sec. 107.331 Assessment considerations. This section is adopted
essentially as proposed, with a minor editorial revision.
Subpart H--Approvals, Registrations and Submissions.
Sec. 107.107 Purpose and scope. This section is adopted as
proposed.
Sec. 107.705 Registration and reporting. One commenter recommended
that RSPA develop a standard form in place of general procedures for
registrations and reports. RSPA does not believe that a standard form
is practical, considering the variation in information required for the
numerous approvals, registrations, and reports that would have to be
accommodated by a standard generic form.
Except as discussed in the following paragraph, this section is
adopted as proposed.
Sec. 107.707 Applications. The proposed provisions for renewal of
approvals state that RSPA will issue a written extension to operate
under an expired approval until RSPA makes a final determination on the
application. One commenter requested that the renewal procedures for
approvals be consistent with renewal procedures for exemptions in that
if an application is submitted at least 60 days prior to the expiration
date, the expiration is automatically extended until RSPA makes a final
determination on the application. RSPA agrees with the commenter, and
is adopting the suggestion. Further, since the requirements for
registration and reporting specified in the proposed Sec. 107.705 and
the requirements for an approval application specified in Sec. 107.707
are essentially the same, RSPA is eliminating the separate language of
Sec. 107.707, and combining the ``registration and reporting''
requirements of Sec. 107.707 with the ``approval application''
requirements Sec. 107.705, in a section entitled ``Registrations,
reports, and applications for approval.''
Sec. 107.709 Application processing. Commenters again expressed
opposition to RSPA's proposal to permit the Associate Administrator to
consider pending or completed enforcement actions in determining
whether an approval application is processed or denied. This issue is
discussed under Sec. 107.113 and RSPA is modifying this section
similarly.
Sec. 107.711 Withdrawal. With respect to documents submitted in
conjunction with an exemption application which is later withdrawn, one
commenter requested that RSPA clarify that all documents deemed
confidential by the Associate Administrator in accordance with
Sec. 107.5 that are related to an active or inactive application will
remain confidential. RSPA has agreed to do so, and is extending this
confidential treatment to documents submitted in conjunction with an
approval application. See preamble comments to 49 CFR Sec. 107.111.
Sec. 107.713 Approval modification, suspension, or termination.
One commenter raised the same concerns about the proposed procedures
for modification, suspension, or termination of approvals as he raised
regarding modification, suspension, or termination of exemptions. RSPA
discussed these issues under Sec. 107.121. Paragraph (d) is added to
specify conditions by which the Associate Administrator may declare a
proposed action immediately effective. Otherwise, the section is
adopted as proposed.
Sec. 107.715 Reconsideration. Paragraph (b) is adopted as
proposed.
Sec. 107.717 Appeal. Proposed paragraph (c) is not adopted for the
same reasons as discussed under Sec. 107.715 above. Otherwise, the
section is adopted as proposed.
[[Page 21093]]
Part 171
Sec. 171.1 Purpose and scope. One commenter recommended that the
wording ``in commerce'' be added following ``hazardous materials''
throughout this section for clarity and consistency with the Federal
hazardous material transportation law. RSPA agrees and is modifying
paragraph (a) accordingly.
Additionally, a new paragraph (d) is added, as proposed, to clarify
that the requirements of subchapter C are applicable to the use of
terms and symbols prescribed in this subchapter for marking, labeling,
placarding, and describing hazardous materials and packagings used in
their transport.
Sec. 171.2 General requirements. The modifications of paragraphs
(a) through (d), and the addition of paragraph (h) are adopted
essentially as proposed in the NPRM, with minor modifications to the
regulatory language for accuracy and clarity. Identifications listed in
paragraph (d) have been expanded to include most, if not all, of the
identifications covered by the regulations.
Sec. 171.3 Hazardous waste. A commenter objected to RSPA's
proposal to eliminate paragraph (c) of this section; the commenter
opined that the paragraph implements a requirement of the Resource
Conservation and Recovery Act (RCRA), 42 U.S.C. 6923(b), that all RCRA
rules issued by the Environmental Protection Agency be consistent with
the Federal hazmat law and the HMR. The commenter also stated that
retention of this provision is necessary to inform states implementing
RCRA of the necessity for consistency with the Federal hazmat law and
the HMR. For preemption purposes, RSPA looks at hazardous waste issues
together with issues covering all other hazardous materials. RCRA's
directive that EPA's hazardous waste requirements be consistent with
the Federal hazmat law does not mandate that RSPA establish a separate
preemption provision for hazardous waste. Therefore, RSPA is deleting
paragraph (c), including the note contained therein, as proposed.
Sec. 171.8 Definitions. RSPA is adopting a definition for
``approval'' and revising the definition for ``person'', as proposed.
In addition, RSPA is adding a definition for ``exemption'' for clarity.
Because this latter change is merely informative, public notice and
opportunity to comment on the change are not required by the
Administrative Procedure Act.
Part 172
Sec. 172.302 General marking requirements for bulk packagings. A
commenter requested that RSPA authorize markings for small portable
tanks and intermediate bulk containers (IBC's) to be only one inch
high. The commenter suggested that, instead of incorporating the
minimum height of exemption number markings into Sec. 172.302(c), RSPA
should cross-reference Sec. 172.302(b), which requires exemption
markings to be the same size as other required markings on bulk
packagings and makes the marking size dependent upon the size and
capacity of the packaging. The commenter also requested that width
requirements for exemption markings be specified. RSPA is considering
changes to the marking height and width requirements under a separate
rulemaking action. Therefore, the proposed change in the NPRM and this
commenter's suggested change regarding size of exemption markings are
not adopted as part of this final rule.
Part 173
Sec. 173.22a Use of packagings authorized under exemptions.
Proposed paragraph (c) is revised to refer to ``offeror'' rather than
``shipper.'' Also, a sentence is added to clarify that a carrier shall
maintain a copy of an exemption in the same manner as for a shipping
paper.
Part 178
Sec. 178.3 Marking of packagings. Paragraph (d) is adopted as
proposed.
IV. Rulemaking Analyses and Notices
A. Executive Order 12866 and DOT Regulatory Policies and Procedures
This final rule is not considered a significant regulatory action
under section 3(f) of Executive Order 12866 and, therefore, was not
subject to review by the Office of Management and Budget. The rule is
not significant according to the Regulatory Policies and Procedures of
the Department of Transportation (44 FR 11034).
This final rule will not result in any additional costs to persons
subject to the HMR. Therefore, preparation of a regulatory impact
analysis or regulatory evaluation is not warranted.
B. Executive Order 12612
This final rule has been analyzed in accordance with the principles
and criteria contained in Executive Order 12612 (``Federalism''). The
Federal hazardous materials transportation law (49 U.S.C. 5101-5127)
contains an express preemption provision that preempts State, local,
and Indian tribe requirements on certain covered subjects. Covered
subjects are:
(i) the designation, description, and classification of hazardous
material;
(ii) the packing, repacking, handling, labeling, marking, and
placarding of hazardous material;
(iii) the preparation, execution, and use of shipping documents
pertaining to hazardous material and requirements respecting the
number, content, and placement of such documents;
(iv) the written notification, recording, and reporting of the
unintentional release in transportation of hazardous material; or
(v) the design, manufacturing, fabrication, marking, maintenance,
reconditioning, repairing, or testing of a package or container which
is represented, marked, certified, or sold as qualified for use in the
transportation of hazardous material.
Title 49 U.S.C. 5125(b)(2) provides that if DOT issues a regulation
concerning any of the covered subjects after November 16, 1990, DOT
must determine and publish in the Federal Register the effective date
of Federal preemption. That effective date may not be earlier than the
90th day following the date of issuance of the final rule and not later
than two years after the date of issuance. The effective date of
Federal preemption for this final rule is October 1, 1996. Because RSPA
lacks discretion in this area, preparation of a Federalism assessment
is not warranted.
C. Regulatory Flexibility Act
I certify that this final rule will not have a significant economic
impact on a substantial number of small entities. This final rule
amends existing requirements and adds new procedural provisions to
clarify existing practice. The amendments contained in this rule do not
impose any new requirements on persons subject to the HMR; thus, there
are no direct or indirect adverse economic impacts for small units of
government, businesses, or other organizations.
D. Paperwork Reduction Act
Information collection requirements applicable to applications for
exemptions contained in this final rule are unchanged in substance and
amount of burden from those currently approved by the Office of
Management and Budget (OMB) under OMB control number 2137-0051. RSPA is
requesting revision of the OMB approval to update section references in
accordance with changes made in this final rule. Information collection
requirements applicable to approvals are unchanged in substance and
amount of burden from those previously approved under OMB control
number 2137-0557. RSPA is requesting reinstatement and revision of this
approval from OMB and will
[[Page 21094]]
display, through publication in the Federal Register, the control
number when it is approved by OMB. Public comment on this request has
been invited through publication of a Federal Register notice on March
5, 1996 (61 FR 8706). Under the Paperwork Reduction Act of 1995, no
person is required to respond to a requirement for collection of
information unless the requirement displays a valid OMB control number.
E. Regulation Identification Number (RIN)
A regulation identifier number (RIN) is assigned to each regulatory
action listed in the Unified Agenda of Federal Regulations. The
Regulatory Information Service Center publishes the Unified Agenda in
April and October of each year. The RIN number contained in the heading
of this document can be used to cross-reference this action with the
Unified Agenda.
List of Subjects
49 CFR Part 107
Administrative practice and procedure, Hazardous materials
transportation, Packaging and containers, Penalties, Reporting and
recordkeeping requirements.
49 CFR Part 171
Exports, Hazardous materials transportation, Hazardous waste,
Imports, Incorporation by reference, Reporting and recordkeeping
requirements.
49 CFR Part 173
Hazardous materials transportation, Packaging and containers,
Radioactive materials, Reporting and recordkeeping requirements,
Uranium.
49 CFR Part 178
Hazardous materials transportation, Motor vehicle safety, Packaging
and containers, Reporting and recordkeeping requirements.
In consideration of the foregoing, 49 CFR chapter I is amended as
follows:
PART 107--HAZARDOUS MATERIALS PROGRAM PROCEDURES
1-2. The authority citation for part 107 continues to read as
follows:
Authority: 49 U.S.C. 5101-5127, 44701; 49 CFR 1.45, 1.53.
3. In Sec. 107.3, definitions are added in alphabetical order to
read as follows:
Sec. 107.3 Definitions.
* * * * *
Acting knowingly means acting or failing to act while
(1) Having actual knowledge of the facts giving rise to the
violation, or
(2) Having the knowledge that a reasonable person acting in the
same circumstances and exercising due care would have had.
Administrator means the Administrator, Research and Special
Programs Administration.
Applicant means the person in whose name an exemption, approval,
registration, a renewed or modified exemption or approval, or party
status to an exemption is requested to be issued.
Application means a request under subpart B of this part for an
exemption, a renewal or modification of an exemption, party status to
an exemption, or a request under subpart H of this part for an
approval, or renewal or modification of an approval.
Approval means a written authorization, including a competent
authority approval, from the Associate Administrator to perform a
function for which prior authorization by the Associate Administrator
is required under subchapter C of this chapter.
* * * * *
Associate Administrator means the Associate Administrator for
Hazardous Materials Safety, Research and Special Programs
Administration.
* * * * *
Competent Authority Approval means an approval by the competent
authority which is required under the provisions of an international
standard, such as the International Civil Aviation Organization's
Technical Instructions for the Safe Transport of Dangerous Goods by Air
or the International Maritime Dangerous Goods Code. To the extent that
it satisfies the requirement of the international standard, any of the
following may serve as a competent authority approval: a specific
regulation of this subchapter or subchapter C of this chapter, an
exemption or approval issued under the provisions of this subchapter or
subchapter C of this chapter, or a separate document issued to one or
more persons by the Associate Administrator.
Exemption means a document issued under the authority of 49 U.S.C.
5117 by the Associate Administrator that authorizes a person to perform
a function that is not otherwise authorized under this subchapter,
subchapter C, or other regulations issued under 49 U.S.C. 5101-5127
(e.g., Federal Highway Administration routing).
* * * * *
Filed means received at the Research and Special Programs
Administration office designated in the applicable provision or, if no
office is specified, at the Office of Hazardous Materials Exemptions
and Approvals (DHM-30), Research and Special Programs Administration,
U.S. Department of Transportation, 400 7th Street SW., Washington DC,
20590-0001.
Holder means the person in whose name an exemption or approval has
been issued.
* * * * *
Incident means an event resulting in the unintended and
unanticipated release of a hazardous material or an event meeting
incident reporting requirements in Sec. 171.15 or Sec. 171.16 of this
chapter.
* * * * *
Investigation includes investigations authorized under 49 U.S.C.
5121 and inspections authorized under 49 U.S.C. 5118 and 5121.
Manufacturing exemption means an exemption from compliance with
specified requirements that otherwise must be met before representing,
marking, certifying (including requalifying, inspecting, and testing),
selling or offering a packaging or container as meeting the
requirements of subchapter C of this chapter governing its use in the
transportation in commerce of a hazardous material. A manufacturing
exemption is an exemption issued to a manufacturer of packagings who
does not offer for transportation or transport hazardous materials in
packagings subject to the exemption.
Party means a person, other than a holder, authorized to act under
the terms of an exemption.
* * * * *
Registration means a written acknowledgment from the Associate
Administrator that a registrant is authorized to perform a function for
which registration is required under subchapter C of this chapter
(e.g., registration with RSPA as a cylinder retester pursuant to 49 CFR
173.34(e)(1), or registration in accordance with 49 CFR 178.503
regarding marking of packagings). For purposes of subparts A through E,
``registration'' does not include registration under subpart F or G of
th
FR Doc. 96-11400 Exemption, Approval, Registration and Reporting Procedures; Miscellaneous Provisions
is part.
Report means information, other than an application, registration
or part thereof, required to be submitted to the Associate
Administrator pursuant to this subchapter, subchapter B or subchapter C
of this chapter.
* * * * *
[[Page 21095]]
4. In Sec. 107.5, paragraph (a) is revised to read as follows:
Sec. 107.5 Request for confidential treatment.
(a) If any person filing a document with the Associate
Administrator claims that some or all the information contained in the
document is exempt from the mandatory public disclosure requirements of
the Freedom of Information Act (5 U.S.C. 552), is information referred
to in 18 U.S.C. 1905, or is otherwise exempt by law from public
disclosure, and if that person requests the Associate Administrator not
to disclose the information, that person shall file, together with the
document, a second copy of the document with the confidential
information deleted. The person shall indicate each page of the
original document that is confidential or contains confidential
information by marking or stamping ``confidential'' on each page for
which a claim of confidentiality is made, and may file a statement
specifying the justification for the claim of confidentiality. If the
person states that the information comes within the exception in 5
U.S.C. 552(b)(4) for trade secrets and commercial or financial
information, that person shall include a statement as to why the
information is privileged or confidential. If the person filing a
document does not mark or stamp a document as confidential or submit a
second copy of the document with the confidential information deleted,
the Associate Administrator may assume that there is no objection to
public disclosure of the document in its entirety.
* * * * *
Sec. 107.5 [Amended]
5. In addition, in Sec. 107.5, in paragraph (b), the phrase
``Associate Administrator for Hazardous Materials Safety'' is revised
to read ``Associate Administrator'' both places it appears.
6. Subpart B of part 107 is revised to read as follows:
Subpart B--Exemptions
Subpart B--Exemptions
107.101 Purpose and scope.
107.105 Application for exemption.
107.107 Application for party status.
107.109 Application for renewal.
107.111 Withdrawal.
107.113 Application processing and evaluation.
107.117 Emergency processing.
107.121 Modification, suspension or termination of exemption or
grant of party status.
107.123 Reconsideration.
107.125 Appeal.
107.127 Availability of documents for public inspection.
* * * * *
Sec. 107.101 Purpose and scope.
This subpart prescribes procedures for the issuance, modification
and termination of exemptions from requirements of this subchapter,
subchapter C of this chapter, or regulations issued under chapter 51 of
49 U.S.C.
Sec. 107.105 Application for exemption.
(a) General. Each application for an exemption or modification of
an exemption must--
(1) Be submitted in duplicate and, for timely consideration, at
least 120 days before the requested effective date to: Associate
Administrator for Hazardous Materials Safety, Research and Special
Programs Administration, U.S. Department of Transportation, 400 7th
Street, SW, Washington, DC 20590-0001. Attention: Exemptions, DHM-31;
(2) State the name, street and mailing addresses, and telephone
number of the applicant; if the applicant is not an individual, state
the name, street and mailing addresses, and telephone number of an
individual designated as an agent of the applicant for all purposes
related to the application;
(3) If the applicant is not a resident of the United States, a
designation of agent for service in accordance with Sec. 107.7 of this
part; and
(4) For a manufacturing exemption, a statement of the name and
street address of each facility where manufacturing under the exemption
will occur.
(b) Confidential treatment. To request confidential treatment for
information contained in the application, the applicant shall comply
with Sec. 107.5(a).
(c) Description of exemption proposal. The application must include
the following information that is relevant to the exemption proposal:
(1) A citation of the specific regulation from which the applicant
seeks relief;
(2) Specification of the proposed mode or modes of transportation;
(3) A detailed description of the proposed exemption (e.g.,
alternative packaging, test, procedure or activity) including, as
appropriate, written descriptions, drawings, flow charts, plans and
other supporting documents;
(4) A specification of the proposed duration or schedule of events
for which the exemption is sought;
(5) A statement outlining the applicant's basis for seeking relief
from compliance with the specified regulations and, if the exemption is
requested for a fixed period, a description of how compliance will be
achieved at the end of that period;
(6) If the applicant seeks emergency processing specified in
Sec. 107.117, a statement of supporting facts and reasons;
(7) Identification and description of the hazardous materials
planned for transportation under the exemption;
(8) Description of each packaging, including specification or
exemption number, as applicable, to be used in conjunction with the
requested exemption;
(9) For alternative packagings, documentation of quality assurance
controls, package design, manufacture, performance test criteria, in-
service performance and service-life limitations;
(d) Justification of exemption proposal. The application must
demonstrate that an exemption achieves a level of safety at least equal
to that required by regulation, or if a required safety level does not
exist, is consistent with the public interest. At a minimum, the
application must provide the following:
(1) Information describing all relevant shipping and incident
experience of which the applicant is aware that relates to the
application;
(2) A statement identifying any increased risk to safety or
property that may result if the exemption is granted, and a description
of the measures to be taken to address that risk; and
(3) Either--
(i) Substantiation, with applicable analyses, data or test results,
that the proposed alternative will achieve a level of safety that is at
least equal to that required by the regulation from which the exemption
is sought; or
(ii) If the regulations do not establish a level of safety, an
analysis that identifies each hazard, potential failure mode and the
probability of its occurrence, and how the risks associated with each
hazard and failure mode are controlled for the duration of an activity
or life-cycle of a packaging.
Sec. 107.107 Application for party status.
(a) Any person eligible to apply for an exemption may apply to be
made party to an application or an existing exemption, other than a
manufacturing exemption.
(b) Each application filed under this section must--
(1) Be submitted in duplicate to: Associate Administrator for
Hazardous Materials Safety, Research and Special Programs
Administration, U.S. Department of Transportation, 400 7th Street, SW,
Washington, DC 20590-0001. Attention: Exemptions, DHM-31;
[[Page 21096]]
(2) Identify by number the exemption application or exemption to
which the applicant seeks to become a party;
(3) State the name, street and mailing addresses, and telephone
number of the applicant; if the applicant is not an individual, state
the name, street and mailing addresses, and telephone number of an
individual designated as the applicant's agent for all purposes related
to the application; and
(4) If the applicant is not a resident of the United States,
provide a designation of agent for service in accordance with
Sec. 107.7.
(c) The Associate Administrator grants or denies an application for
party status in the manner specified in Sec. 107.113(e) and (f) of this
subpart.
(d) A party to an exemption is subject to all terms of that
exemption, including the expiration date. If a party to an exemption
wishes to renew party status, the exemption renewal procedures set
forth in Sec. 107.109 apply.
Sec. 107.109 Application for renewal.
(a) Each application for renewal of an exemption or party status to
an exemption must--
(1) Be submitted in duplicate to: Associate Administrator for
Hazardous Materials Safety, Research and Special Programs
Administration, U.S. Department of Transportation, 400 7th Street, SW,
Washington, DC 20590-0001. Attention: Exemptions, DHM-31;
(2) Identify by number the exemption for which renewal is
requested;
(3) State the name, street and mailing addresses, and telephone
number of the applicant; if the applicant is not an individual, state
the name, street and mailing addresses, and telephone number of an
individual designated as an agent of the applicant for all purposes
related to the application;
(4) Include either a certification by the applicant that the
original application, as it may have been updated by any application
for renewal, remains accurate and complete; or include an amendment to
the previously submitted application as is necessary to update and
assure the accuracy and completeness of the application, with
certification by the applicant that the application as amended is
accurate and complete; and
(5) Include a statement describing all relevant shipping and
incident experience of which the applicant is aware in connection with
the exemption since its issuance or most recent renewal. If the
applicant is aware of no incidents, the applicant shall so certify.
When known to the applicant, the statement should indicate the
approximate number of shipments made or packages shipped, as the case
may be, and number of shipments or packages involved in any loss of
contents, including loss by venting other than as authorized in
subchapter C.
(b) If at least 60 days before an existing exemption expires the
holder files an application for renewal that is complete and conforms
to the requirements of this section, the exemption will not expire
until final administrative action on the application for renewal has
been taken.
Sec. 107.111 Withdrawal.
An application may be withdrawn at any time before a decision to
grant or deny it is made. Withdrawal of an application does not
authorize the removal of any related records from the RSPA dockets or
files. Applications that are eligible for confidential treatment under
Sec. 107.5 will remain confidential after the application is withdrawn.
The duration of this confidential treatment for trade secrets and
commercial or financial information is indefinite, unless the party
requesting the confidential treatment of the materials notifies the
Associate Administrator that the confidential treatment is no longer
required.
Sec. 107.113 Application processing and evaluation.
(a) The Associate Administrator reviews an application for
exemption, modification of exemption, party to exemption, or renewal of
an exemption to determine if it is complete and conforms with the
requirements of this subpart. This determination will be made within 30
days of receipt of the application for exemption, modification of
exemption, or party to exemption, and within 15 days of receipt of an
application for renewal of an exemption. If an application is
determined to be incomplete, the applicant is informed of the reasons.
(b) An application, other than a renewal, party to, or emergency
exemption application, that is determined to be complete is docketed.
Notice of the application is published in the Federal Register, and an
opportunity for public comment is provided. All comments received
during the comment period are considered before final action is taken
on the application.
(c) No public hearing or other formal proceeding is required under
this subpart before the disposition of an application. Unless emergency
processing under Sec. 107.117 is requested and granted, applications
are usually processed in the order in which they are filed.
(d) During the processing and evaluation of an application, the
Associate Administrator may request additional information from the
applicant. If the applicant does not respond to a written request for
additional information within 30 days of the date the request was
received, the application may be deemed incomplete and denied. However,
if the applicant responds in writing within the 30-day period
requesting an additional 30 days within which it will gather the
requested information, the Associate Administrator may grant the 30-day
extension.
(e) The Associate Administrator may grant or deny an application,
in whole or in part. In the Associate Administrator's discretion, an
application may be granted subject to provisions that are appropriate
to protect health, safety or property. The Associate Administrator may
impose additional provisions not specified in the application or remove
conditions in the application that are unnecessary.
(f) The Associate Administrator may grant an application on finding
that--
(1) The application complies with this subpart;
(2) The application demonstrates that the proposed alternative will
achieve a level of safety that:
(i) Is at least equal to that required by the regulation from which
the exemption is sought, or
(ii) If the regulations do not establish a level of safety, is
consistent with the public interest and adequately will protect against
the risks to life and property inherent in the transportation of
hazardous materials in commerce;
(3) The application states all material facts, and contains no
materially false or materially misleading statement;
(4) The applicant meets the qualifications required by applicable
regulations; and
(5) The applicant is fit to conduct the activity authorized by the
exemption. This assessment may be based on information in the
application, prior compliance history of the applicant, and other
information available to the Associate Administrator.
(g) An applicant is notified in writing whether the application is
granted or denied. A denial contains a brief statement of reasons.
(h) An exemption and any renewal thereof terminates according to
its terms or, if not otherwise specified, two years after the date of
issuance. A grant of party status to an exemption, unless otherwise
stated, terminates on the date that the exemption expires.
(i) The Associate Administrator, on determining that an application
[[Page 21097]]
concerns a matter of general applicability and future effect and should
be the subject of rulemaking, may initiate rulemaking under part 106 of
this chapter in addition to or instead of acting on the application.
(j) The Associate Administrator publishes in the Federal Register a
list of all exemption grants, denials, and modifications and all
exemption applications withdrawn under this section.
Sec. 107.117 Emergency processing.
(a) An application is granted emergency processing if the Associate
Administrator, on the basis of the application and any inquiry
undertaken, finds that--
(1) Emergency processing is necessary to prevent significant injury
to persons or property (other than the hazardous material to be
transported) that could not be prevented if the application were
processed on a routine basis; or
(2) Emergency processing is necessary for immediate national
security purposes or to prevent significant economic loss that could
not be prevented if the application were processed on a routine basis.
(b) Where the significant economic loss is to the applicant, or to
a party in a contractual relationship to the applicant with respect to
the activity to be undertaken, the Associate Administrator may deny
emergency processing if timely application could have been made.
(c) A request for emergency processing on the basis of potential
economic loss must reasonably describe and estimate the potential loss.
(d) An application submitted under this section must conform to
Sec. 107.105 to the extent that the receiving U.S. Department of
Transportation official deems necessary to process the application. An
application on an emergency basis must be submitted to the U.S.
Department of Transportation modal contact official for the initial
mode of transportation to be utilized, as follows:
(1) Certificate-Holding Aircraft: The Federal Aviation
Administration Civil Aviation Security Office that serves the place
where the flight will originate or that is responsible for the aircraft
operator's overall aviation security program. The nearest Civil
Aviation Security Office may be located by calling the FAA Duty
Officer, 202-267-3333 (any hour).
(2) Noncertificate-Holding Aircraft (Those Which Operate Under 14
CFR Part 91): The Federal Aviation Administration Civil Aviation
Security Office that serves the place where the flight will originate.
The nearest Civil Aviation Security Office may be located by calling
the FAA Duty Officer, 202-267-3333 (any hour).
(3) Motor Vehicle Transportation: Director, Office of Motor Carrier
Research and Standards, Federal Highway Administration, U.S. Department
of Transportation, Washington, DC 20590-0001, 202-366-4001 (day); 202-
267-2100 (night).
(4) Rail Transportation: Staff Director, Hazardous Materials
Division, Office of Safety Assurance and Compliance, Federal Railroad
Administration, U.S. Department of Transportation, Washington, DC
20590-0001, 202-366-0509 or 366-0523 (day); 202-267-2100 (night).
(5) Water Transportation: Chief, Hazardous Materials Standards
Branch, Operating and Environmental Standards Division, United States
Coast Guard, U.S. Department of Transportation, Washington, DC 20593-
0001, 202-267-1577 (day); 202-267-2100 (night).
(e) On receipt of all information necessary to process the
application, the receiving Department of Transportation official
transmits to the Associate Administrator, by the most rapid available
means of communication, an evaluation as to whether an emergency exists
under Sec. 107.117(a) and, if appropriate, recommendations as to the
conditions to be included in the exemption. If the Associate
Administrator determines that an emergency exists under Sec. 107.117(a)
and that, with reference to the criteria of Sec. 107.113(f), granting
of the application is in the public interest, the Associate
Administrator grants the application subject to such terms as necessary
and immediately notifies the applicant. If the Associate Administrator
determines that an emergency does not exist or that granting of the
application is not in the public interest, the applicant immediately is
so notified.
(f) A determination that an emergency does not exist is not subject
to reconsideration under Sec. 107.123 of this part.
(g) Within 90 days following issuance of an emergency exemption,
the Associate Administrator will publish, in the Federal Register, a
notice of issuance with a statement of the basis for the finding of
emergency and the scope and duration of the exemption.
Sec. 107.121 Modification, suspension or termination of exemption or
grant of party status.
(a) The Associate Administrator may modify an exemption or grant of
party status on finding that--
(1) Modification is necessary so that an exemption reflects current
statutes and regulations; or
(2) Modification is required by changed circumstances to meet the
standards of Sec. 107.113(f).
(b) The Associate Administrator may modify, suspend or terminate an
exemption or grant of party status, as appropriate, on finding that--
(1) Because of a change in circumstances, the exemption or party
status no longer is needed or no longer would be granted if applied
for;
(2) The application contained inaccurate or incomplete information,
and the exemption or party status would not have been granted had the
application been accurate and complete;
(3) The application contained deliberately inaccurate or incomplete
information; or
(4) The holder or party knowingly has violated the terms of the
exemption or an applicable requirement of this chapter, in a manner
demonstrating the holder or party is not fit to conduct the activity
authorized by the exemption.
(c) Except as provided in paragraph (d) of this section, before an
exemption or grant of party status is modified, suspended or
terminated, the Associate Administrator notifies the holder or party in
writing of the proposed action and the reasons for it, and provides an
opportunity to show cause why the proposed action should not be taken.
(1) The holder or party may file a written response that shows
cause why the proposed action should not be taken within 30 days of
receipt of notice of the proposed action.
(2) After considering the holder's or party's written response, or
after 30 days have passed without response since receipt of the notice,
the Associate Administrator notifies the holder or party in writing of
the final decision with a brief statement of reasons.
(d) The Associate Administrator, if necessary to avoid a risk of
significant harm to persons or property, may in the notification
declare the proposed action immediately effective.
Sec. 107.123 Reconsideration.
(a) An applicant for exemption, an exemption holder, or an
applicant for party status to an exemption may request that the
Associate Administrator reconsider a decision under Sec. 107.113(g),
Sec. 107.117(e) or Sec. 107.121(c) of this part. The request must--
(1) Be in writing and filed within 20 days of receipt of the
decision;
(2) State in detail any alleged errors of fact and law;
(3) Enclose any additional information needed to support the
request to reconsider; and
[[Page 21098]]
(4) State in detail the modification of the final decision sought.
(b) The Associate Administrator grants or denies, in whole or in
part, the relief requested and informs the requesting person in writing
of the decision. If necessary to avoid a risk of significant harm to
persons or property, the Associate Administrator may, in the
notification, declare the action immediately effective.
Sec. 107.125 Appeal.
(a) A person who requested reconsideration under Sec. 107.123 and
is denied the relief requested may appeal to the Administrator. The
appeal must--
(1) Be in writing and filed within 30 days of receipt of the
Associate Administrator's decision on reconsideration;
(2) State in detail any alleged errors of fact and law;
(3) Enclose any additional information needed to support the
appeal; and
(4) State in detail the modification of the final decision sought.
(b) The Administrator, if necessary to avoid a risk of significant
harm to persons or property, may declare the Associate Administrator's
action effective pending a decision on appeal.
(c) The Administrator grants or denies, in whole or in part, the
relief requested and informs the appellant in writing of the decision.
The Administrator's decision is the final administrative action.
Sec. 107.127 Availability of documents for public inspection.
(a) Documents related to an application under this subpart,
including the application itself, are available for public inspection,
except as specified in paragraph (b) of this section, at the Office of
the Associate Administrator for Hazardous Materials Safety, Research
and Special Programs Administration, Dockets Unit, U.S. Department of
Transportation, 400 7th Street, SW, Washington, DC 20590-0001, Room
8421. Office hours are 8:30 a.m. to 5:00 p.m., Monday through Friday,
except holidays when the office is closed. Copies of available
documents may be obtained as provided in part 7 of this title.
(b) Documents available for inspection do not include materials
determined to be withheld from public disclosure under Sec. 107.5 and
in accordance with the applicable provisions of section 552(b) of title
5, United States Code, and part 7 of this title.
7. In Sec. 107.201, paragraph (d) is revised to read as follows:
Sec. 107.201 Purpose and scope.
* * * * *
(d) Unless otherwise ordered by the Associate Administrator, an
application for a preemption determination which includes an
application for a waiver of preemption will be treated and processed
solely as an application for a preemption determination.
8. In Sec. 107.202, in paragraph (a), the introductory text is
revised to read as follows:
Sec. 107.202 Standards for determining preemption.
(a) Except as provided in Sec. 107.221 and unless otherwise
authorized by Federal law, any requirement of a State or political
subdivision thereof or an Indian tribe, that concerns one of the
following subjects and that is not substantively the same as any
provision of the Federal hazardous material transportation law, this
subchapter or subchapter C that concerns that subject, is preempted:
* * * * *
Sec. 107.202 Amended]
9. In addition, in Sec. 107.202, in paragraph (b)(3), the wording
``49 U.S.C. 5125 (b) or (c)'' is revised to read ``49 U.S.C. 5125(c)''.
Sec. 107.203 [Amended]
10. In Sec. 107.203, the following changes are made:
a. In paragraph (a), the wording ``a State, political subdivision,
or Indian tribe'' is revised to read ``a State or political subdivision
thereof or an Indian tribe'' each place it appears.
b. In paragraphs (a) and (d), the phrase ``for Hazardous Materials
Safety'' is removed immediately following ``Associate Administrator''
each place it appears.
11. Section 107.205 is revised to read as follows:
Sec. 107.205 Notice.
(a) If the applicant is other than a State, political subdivision,
or Indian tribe, the applicant shall mail a copy of the application to
the State, political subdivision, or Indian tribe concerned accompanied
by a statement that the State, political subdivision, or Indian tribe
may submit comments regarding the application to the Associate
Administrator. The application filed with the Associate Administrator
must include a certification that the applicant has complied with this
paragraph and must include the names and addresses of each State,
political subdivision, or Indian tribe official to whom a copy of the
application was sent.
(b) The Associate Administrator will publish notice of, including
an opportunity to comment on, an application in the Federal Register
and may notify in writing any person readily identifiable as affected
by the outcome of the determination.
(c) Each person submitting written comments to the Associate
Administrator with respect to an application filed under this section
shall send a copy of the comments to the applicant and certify to the
Associate Administrator that he or she has complied with this
requirement. The Associate Administrator may notify other persons
participating in the proceeding of the comments and provide an
opportunity for those other persons to respond. Late-filed comments are
considered so far as practicable.
Sec. 107.207 [Amended]
12. In Sec. 107.207, the following changes are made:
a. In paragraph (a), the wording ``or her'' is added immediately
following the word ``his'' each place it appears.
b. In paragraphs (a) and (b), the wording ``for Hazardous Materials
Safety'' is removed immediately following ``Associate Administrator''
each place it appears.
c. In paragraphs (a) and (b), the wording ``or she'' is added
immediately following the word ``he'' each place it appears.
13. In Sec. 107.209, paragraph (b) is removed, and paragraphs (c),
(d), and (e) are redesignated as paragraphs (b), (c), and (d),
respectively, and newly designated paragraph (c) is revised to read as
follows:
Sec. 107.209 Determination.
* * * * *
(c) The Associate Administrator provides a copy of the
determination to the applicant and to any other person who
substantially participated in the proceeding or requested in comments
to the docket to be notified of the determination. A copy of each
determination is placed on file in the public docket. The Associate
Administrator will publish the determination or notice of the
determination in the Federal Register.
* * * * *
Sec. 107.209 [Amended]
14. In addition, in Sec. 107.209, in paragraphs (a) and (b), the
phrase ``for Hazardous Materials Safety'' is removed following
``Associate Administrator'' each place it appears.
15. In Sec. 107.211, paragraph (a) is revised and a sentence is
added at the end of paragraph (c) to read as follows:
[[Page 21099]]
Sec. 107.211 Petition for reconsideration.
(a) Any person aggrieved by a determination issued under
Sec. 107.209 may file a petition for reconsideration with the Associate
Administrator. The petition must be filed within 20 days of publication
of the determination in the Federal Register.
* * * * *
(c) * * * Late-filed comments are considered so far as practicable.
* * * * *
16. A new Sec. 107.213 is added to read as follows:
Sec. 107.213 Judicial review.
A party to a proceeding under Sec. 107.203(a) may seek review by
the appropriate district court of the United States of a decision of
the Associate Administrator by filing a petition with the court within
60 days after the Associate Administrator's determination becomes
final. The determination becomes final when it is published in the
Federal Register.
Sec. 107.215 [Amended]
17. In Sec. 107.215, in paragraph (a), the phrase ``for Hazardous
Materials Safety'' is removed immediately following ``Associate
Administrator'' each place it appears, and the wording ``State,
political subdivision, or Indian tribe'' is revised to read ``State or
political subdivision thereof or an Indian tribe.''
18. In Sec. 107.217, paragraph (d) is revised to read as follows:
Sec. 107.217 Notice.
* * * * *
(d) The Associate Administrator may notify any other persons who
may be affected by the outcome of a determination on the application.
* * * * *
Sec. 107.217 [Amended]
19. In addition, in Sec. 107.217, in paragraphs (a), (b), (c), and
(e), the phrase ``for Hazardous Materials Safety'' is removed
immediately following the wording ``Associate Administrator'' each
place it appears, and the following sentence is added at the end of
paragraph (c):
* * * * *
(c) * * * Late-filed comments are considered so far as practicable.
Sec. 107.219 [Amended]
20. In Sec. 107.219, the following changes are made:
a. In paragraphs (a), (b), (c), and (d), the phrase ``for Hazardous
Materials Safety'' is removed immediately following the wording
``Associate Administrator'' each place it appears.
b. In paragraphs (a) and (b), the wording ``or she'' is added
immediately following ``he,'' each place it appears, and the wording
``or her'' is added immediately following ``his,'' each place it
appears.
c. In paragraphs (c)(1) and (c)(2), the phrase ``State or political
subdivision'' is revised to read ``State or political subdivision
thereof or Indian tribe'' each place it appears.
21. Section 107.221 is revised to read as follows:
Sec. 107.221 Determination.
(a) After considering the application and other relevant
information received or obtained during the proceeding, the Associate
Administrator issues a determination.
(b) The Associate Administrator may issue a waiver of preemption
only on finding that the requirement of the State or political
subdivision thereof or Indian tribe affords the public a level of
safety at least equal to that afforded by the requirements of the
Federal hazardous material transportation law or the regulations issued
thereunder and does not unreasonably burden commerce. In determining if
the requirement of the State or political subdivision thereof or Indian
tribe unreasonably burdens commerce, the Associate Administrator
considers:
(1) The extent to which increased costs and impairment of
efficiency result from the requirement of the State or political
subdivision thereof or Indian tribe.
(2) Whether the requirement of the State or political subdivision
thereof or Indian tribe has a rational basis.
(3) Whether the requirement of the State or political subdivision
thereof or Indian tribe achieves its stated purpose.
(4) Whether there is need for uniformity with regard to the subject
concerned and if so, whether the requirement of the State or political
subdivision thereof or Indian tribe competes or conflicts with those of
other States or political subdivisions thereof or Indian tribes.
(c) The determination includes a written statement setting forth
relevant facts and legal bases and providing that any person aggrieved
by the determination may file a petition for reconsideration with the
Associate Administrator.
(d) The Associate Administrator provides a copy of the
determination to the applicant and to any other person who
substantially participated in the proceeding or requested in comments
to the docket to be notified of the determination. A copy of the
determination is placed on file in the public docket. The Associate
Administrator will publish the determination or notice of the
determination in the Federal Register.
(e) A determination under this section constitutes an
administrative finding of whether a particular requirement of a State
or political subdivision thereof or Indian tribe is preempted under the
Federal hazardous material transportation law or any regulation issued
thereunder, or whether preemption is waived.
22. In Sec. 107.223, paragraph (a) is revised to read as follows,
and the following sentence is added at the end of paragraph (c):
Sec. 107.223 Petition for reconsideration.
(a) Any person aggrieved by a determination under Sec. 107.221 may
file a petition for reconsideration with the Associate Administrator.
The petition must be filed within 20 days of publication of the
determination in the Federal Register.
* * * * *
(c) * * * Late-filed comments are considered so far as practicable.
23. Section 107.227 is revised to read as follows:
Sec. 107.227 Judicial review.
A party to a proceeding under Sec. 107.215(a) may seek review by
the appropriate district court of the United States of a decision of
the Associate Administrator by filing a petition with the court within
60 days after the Associate Administrator's determination becomes
final. The determination becomes final when it is published in the
Federal Register.
Sec. 107.299 [Removed]
24. Section 107.299 is removed.
25. In Sec. 107.305, paragraph (b) is revised to read as follows:
Sec. 107.305 Investigations.
* * * * *
(b) Investigations and Inspections. Investigations under 49 U.S.C.
5121(a) are conducted by personnel duly authorized for that purpose by
the Associate Administrator. Inspections under 49 U.S.C. 5121(c) are
conducted by Hazardous Materials Enforcement Specialists, also known as
``hazmat inspectors'' or ``inspectors,'' whom the Associate
Administrator has designated for that purpose.
(1) An inspector will, on request, present his or her credentials
for examination, but the credentials may not be reproduced.
(2) An inspector may administer oaths and receive affirmations in
any matter under investigation by the Associate Administrator.
[[Page 21100]]
(3) An inspector may gather information by reasonable means
including, but not limited to, interviews, statements, photocopying,
photography, and video- and audio-recording.
(4) With concurrence of the Director, Office of Hazardous Materials
Enforcement, Research and Special Programs Administration, an inspector
may issue a subpoena for the production of documentary or other
tangible evidence if, on the basis of information available to the
inspector, the documents and evidence materially will advance a
determination of compliance with this subchapter or subchapter C.
Service of a subpoena shall be in accordance with Sec. 107.13 (c) and
(d). A person to whom a subpoena is directed may seek review of the
subpoena by applying to the Office of Chief Counsel in accordance with
Sec. 107.13(h). A subpoena issued under this paragraph may be enforced
in accordance with Sec. 107.13(i).
* * * * *
Sec. 107.315 [Amended]
26. In Sec. 107.315, in paragraphs (c) and (d), the last sentence
is removed.
27. In Sec. 107.331, the introductory paragraph and paragraph (d)
are revised to read as follows:
Sec. 107.331 Assessment considerations.
After finding a knowing violation under this subpart, the Office of
Chief Counsel assesses a civil penalty taking the following into
account:
* * * * *
(d) The respondent's prior violations;
* * * * *
28. A new subpart H of part 107 is added to read as follows:
Subpart H--Approvals, Registrations and Submissions
Sec.
107.701 Purpose and scope.
107.705 Registrations, reports, and applications for approval.
107.709 Processing of an application for approval, including an
application for renewal or modification.
107.711 Withdrawal.
107.713 Approval modification, suspension or termination.
107.715 Reconsideration.
107.717 Appeal.
Sec. 107.701 Purpose and scope.
This subpart prescribes procedures for the issuance, modification
and termination of approvals, and the submission of registrations and
reports, as required by this chapter.
(b) The procedures of this subpart are in addition to any
requirements in subchapter C of this chapter applicable to a specific
approval, registration or report. If compliance with both a specific
requirement of subchapter C of this chapter and a procedure of this
subpart is not possible, the specific requirement applies.
(c) Registration under subpart F or G of this part is not subject
to the procedures of this subpart.
Sec. 107.705 Registrations, reports, and applications for approval.
(a) A person filing a registration, report, or application for an
approval, or a renewal or modification of an approval subject to the
provisions of this subpart must--
(1) File the registration, report, or application with the
Associate Administrator for Hazardous Materials Safety, Research and
Special Programs Administration, U.S. Department of Transportation, 400
7th Street, SW, Washington, DC 20590-0001, Attention: Approvals, DHM-
32;
(2) Identify the section of the chapter under which the
registration, report, or application is made;
(3) If a report is required by an approval, a registration or an
exemption, identify the approval, registration or exemption number;
(4) Provide the name, street, mailing address, and telephone number
of the person on whose behalf the registration, report, or application
is made and, if different, the person making the filing;
(5) If the person on whose behalf the filing is made is not a
resident of the United States, provide a designation of agent for
service in accordance with Sec. 107.7;
(6) Provide a description of the activity for which the
registration or report is required; and
(7) Provide additional information as requested by the Associate
Administrator, if the Associate Administrator determines that a filing
lacks pertinent information or otherwise does not comply with
applicable requirements.
(b) In addition to the provisions in paragraph (a) for an approval,
an application for an approval, or an application for modification or
renewal of an approval, the applicant must provide--
(1) A description of the activity for which the approval is
required;
(2) The proposed duration of the approval;
(3) The transport mode or modes affected, as applicable;
(4) Any additional information specified in the section containing
the approval; and
(5) For an approval which provides exceptions from regulatory
requirements or prohibitions--
(i) Identification of any increased risk to safety or property that
may result if the approval is granted, and specification of the
measures that the applicant considers necessary or appropriate to
address that risk; and
(ii) Substantiation, with applicable analyses or evaluations, if
appropriate, demonstrating that the proposed activity will achieve a
level of safety that is at least equal to that required by the
regulation.
(c) For an approval with an expiration date, each application for
renewal or modification must be filed in the same manner as an original
application. If a complete and conforming renewal application is filed
at least 60 days before the expiration date of an approval, the
Associate Administrator, on written request from the applicant, will
issue a written extension to permit operation under the terms of the
expired approval until a final decision on the application for renewal
has been made. Operation under an expired approval is prohibited absent
a written extension. This paragraph does not limit the authority of the
Associate Administrator to modify, suspend or terminate an approval
under Sec. 107.713.
(d) To request confidential treatment for information contained in
the application, the applicant shall comply with Sec. 107.5(a).
Sec. 107.709 Processing of an application for approval, including an
application for renewal or modification.
(a) No public hearing or other formal proceeding is required under
this subpart before the disposition of an application.
(b) At any time during the processing of an application, the
Associate Administrator may request additional information from the
applicant. If the applicant does not respond to a written request for
additional information within 30 days of the date the request was
received, the application may be deemed incomplete and denied. However,
if the applicant responds in writing within the 30-day period
requesting an additional 30 days within which it will gather the
requested information, the Associate Administrator may grant the 30-day
extension.
(c) The Associate Administrator may grant or deny an application,
in whole or in part. At the Associate Administrator's discretion, an
application may be granted subject to provisions that are appropriate
to protect health, safety and property. The Associate Administrator may
impose additional provisions not specified in
[[Page 21101]]
the application, or delete conditions in the application which are
unnecessary.
(d) The Associate Administrator may grant an application on finding
that--
(1) The application complies with this subpart;
(2) The application demonstrates that the proposed activity will
achieve a level of safety that--
(i) Is at least equal to that required by the regulation, or
(ii) If the regulations do not establish a level of safety, is
consistent with the public interest and adequately will protect against
the risks to life and property inherent in the transportation of
hazardous materials in commerce;
(3) The application states all material facts, and contains no
materially false or materially misleading statement;
(4) The applicant meets the qualifications required by applicable
regulations; and
(5) The applicant is fit to conduct the activity authorized by the
approval, or renewal or modification of approval. This assessment may
be based on information in the application, prior compliance history of
the applicant, and other information available to the Associate
Administrator.
(e) Unless otherwise specified in this chapter or by the Associate
Administrator, an approval in which a term is not specified does not
expire.
(f) The Associate Administrator notifies the applicant in writing
of the decision on the application. A denial contains a brief statement
of reasons.
Sec. 107.711 Withdrawal.
An application may be withdrawn at any time before a decision to
grant or deny it is made. Withdrawal of an application does not
authorize the removal of any related records from the RSPA dockets or
files. Applications that are eligible for confidential treatment under
Sec. 107.5 will remain confidential after the application is withdrawn.
The duration of this confidential treatment for trade secrets and
commercial or financial information is indefinite, unless the party
requesting the confidential treatment of the materials notifies the
Associate Administrator that the confidential treatment is no longer
required.
Sec. 107.713 Approval modification, suspension or termination.
(a) The Associate Administrator may modify an approval on finding
that--
(1) Modification is necessary to conform an existing approval to
relevant statutes and regulations as they may be amended from time to
time; or
(2) Modification is required by changed circumstances to enable the
approval to continue to meet the standards of Sec. 107.709(d).
(b) The Associate Administrator may modify, suspend or terminate an
approval, as appropriate, on finding that--
(1) Because of a change in circumstances, the approval no longer is
needed or no longer would be granted if applied for;
(2) The application contained inaccurate or incomplete information,
and the approval would not have been granted had the application been
accurate and complete;
(3) The application contained deliberately inaccurate or incomplete
information; or
(4) The holder knowingly has violated the terms of the approval or
an applicable requirement of this chapter in a manner demonstrating
lack of fitness to conduct the activity for which the approval is
required.
(c) Except as provided in paragraph (d) of this section, before an
approval is modified, suspended or terminated, the Associate
Administrator notifies the holder in writing of the proposed action and
the reasons for it, and provides an opportunity to show cause why the
proposed action should not be taken.
(1) The holder may file a written response with the Associate
Administrator within 30 days of receipt of notice of the proposed
action.
(2) After considering the holder's or party's written response, or
after 30 days have passed without response since receipt of the notice,
the Associate Administrator notifies the holder in writing of the final
decision with a brief statement of reasons.
(d) The Associate Administrator, if necessary to avoid a risk of
significant harm to persons or property, may in the notification
declare the proposed action immediately effective.
Sec. 107.715 Reconsideration.
(a) An applicant or a holder may request that the Associate
Administrator reconsider a decision under Sec. 107.709(f) or
Sec. 107.713(c). The request must:
(1) Be in writing and filed within 20 days of receipt of the
decision;
(2) State in detail any alleged errors of fact and law;
(3) Enclose any additional information needed to support the
request to reconsider; and
(4) State in detail the modification of the final decision sought.
(b) The Associate Administrator considers newly submitted
information on a showing that the information could not reasonably have
been submitted during application processing.
(c) The Associate Administrator grants or denies, in whole or in
part, the relief requested and informs the requesting person in writing
of the decision.
Sec. 107.717 Appeal.
(a) A person who requested reconsideration under Sec. 107.715 may
appeal to the Administrator the Associate Administrator's decision on
the request. The appeal must:
(1) Be in writing and filed within 30 days of receipt of the
Associate Administrator's decision on reconsideration;
(2) State in detail any alleged errors of fact and law;
(3) Enclose any additional information needed to support the
appeal; and
(4) State in detail the modification of the final decision sought.
(b) The Administrator, if necessary to avoid a risk of significant
harm to persons or property, may declare the Associate Administrator's
action effective pending a decision on appeal.
(c) The Administrator grants or denies, in whole or in part, the
relief requested and informs the appellant in writing of the decision
on appeal. The Administrator's decision on appeal is the final
administrative action.
PART 171--GENERAL INFORMATION, REGULATIONS, AND DEFINITIONS
29. The authority citation for part 171 continues to read as
follows:
Authority: 49 U.S.C. 5101-5127; 49 CFR 1.53.
Sec. 171.1 [Amended]
30. In Sec. 171.1, in the introductory text of paragraph (a), the
wording ``in commerce'' is added immediately following the wording
``materials'' and preceding ``by''.
31. Also in Sec. 171.1, a new paragraph (d) is added to read as
follows:
Sec. 171.1 Purpose and scope.
* * * * *
(d) The use of terms and symbols prescribed in this subchapter for
the marking, labeling, placarding and description of hazardous
materials and packagings used in their transport.
32. In Sec. 171.2, paragraphs (a), (b), (c) and (d) are revised and
a new paragraph (h) is added to read as follows:
Sec. 171.2 General requirements.
(a) No person may offer or accept a hazardous material for
transportation in commerce unless that person is registered in
conformance with subpart G of part 107 of this chapter, if applicable,
and the hazardous material is properly classed, described, packaged,
marked, labeled, and in
[[Page 21102]]
condition for shipment as required or authorized by applicable
requirements of this subchapter, or an exemption, approval or
registration issued under this subchapter or subchapter A of this
chapter.
(b) No person may transport a hazardous material in commerce unless
that person is registered in conformance with subpart G of part 107 of
this chapter, if applicable, and the hazardous material is handled and
transported in accordance with applicable requirements of this
subchapter, or an exemption, approval or registration issued under this
subchapter or subchapter A of this chapter.
(c) No person may represent, mark, certify, sell, or offer a
packaging or container as meeting the requirements of this subchapter
or an exemption, approval or registration issued under this subchapter
or subchapter A of this chapter, governing its use in the
transportation in commerce of a hazardous material, whether or not it
is used or intended to be used for the transportation of a hazardous
material, unless the packaging or container is manufactured,
fabricated, marked, maintained, reconditioned, repaired and retested,
as appropriate, in accordance with applicable requirements of this
subchapter, or an exemption, approval or registration issued under this
subchapter or subchapter A of this chapter.
(d) The representations, markings, and certifications subject to
the prohibitions of paragraph (c) of this section include, but are not
limited to--
(1) Specification identifications that include the letters ``ICC,''
``DOT,'' ``MC,'' or ``UN'';
(2) Exemption, approval, and registration numbers that include the
letters ``DOT,'' ``EX,'' ``M,'' or ``R''; and
(3) Test dates associated with specification, registration,
approval, retest or exemption markings indicating compliance with a
test or retest requirement of this subchapter, or an exemption, an
approval or a registration issued under this subchapter or subchapter A
of this chapter.
* * * * *
(h) No person shall--
(1) Falsify or alter an exemption, approval, registration or other
grant of authority issued under this subchapter or subchapter A of this
chapter; or
(2) Offer a hazardous material for transportation or transport a
hazardous material in commerce, or represent, mark, certify, or sell a
packaging or container, under a false or altered exemption, approval,
registration or other grant of authority issued under this subchapter
or subchapter A of this chapter.
Sec. 171.3 [Amended]
33. In Sec. 171.3, paragraph (c) and the Note are removed, and
paragraph (d) is redesignated as paragraph (c).
34. In Sec. 171.8, the definitions of ``Approval'' and
``Exemption'' are added in alphabetical order and the definition of
``Person'' is revised to read as follows:
Sec. 171.8 Definitions and abbreviations.
* * * * *
Approval means a written authorization, including a competent
authority approval, from the Associate Administrator to perform a
function for which prior authorization by the Associate Administrator
is required under subchapter C of this chapter.
* * * * *
Exemption means a document issued under the authority of 49 U.S.C.
5117 by the Associate Administrator that authorizes a person to perform
a function that is not otherwise authorized under this subchapter,
subchapter C, or other regulations issued under 49 U.S.C. 5101-5127
(e.g., Federal Highway Administration routing).
* * * * *
Person means an individual, firm, copartnership, corporation,
company, association, joint-stock association, including any trustee,
receiver, assignee, or similar representative thereof; or government,
Indian tribe, or agency or instrumentality of any government or Indian
tribe when it offers hazardous material for transportation in commerce
or transports hazardous material to further a commercial enterprise,
but such term does not include:
(1) The United States Postal Service;
(2) For the purposes of 49 U.S.C. 5123 and 5124, any agency or
instrumentality of the Federal Government.
* * * * *
PART 173--SHIPPERS--GENERAL REQUIREMENTS FOR SHIPMENTS AND
PACKAGINGS
35. The authority citation for Part 173 continues to read as
follows:
Authority: 49 U.S.C. 5101-5127; 49 CFR 1.53.
36. In Sec. 173.22a, a new paragraph (c) is added to read as
follows:
Sec. 173.22a Use of packagings authorized under exemptions.
* * * * *
(c) When an exemption issued to a person who offers a hazardous
material contains requirements that apply to a carrier of the hazardous
material, the offeror shall furnish a copy of the exemption to the
carrier before or at the time a shipment is tendered. When the
provisions of the exemption require it to be in the possession of a
carrier during transportation in commerce, the carrier shall maintain
the copy of the exemption in the same manner as required for a shipping
paper.
PART 178--SPECIFICATIONS FOR PACKAGINGS
37. The authority citation for Part 178 continues to read as
follows:
Authority: 49 U.S.C. 5101-5127; 49 CFR 1.53.
38. In Sec. 178.3, a new paragraph (d) is added to read as follows:
Sec. 178.3 Marking of packagings.
* * * * *
(d) No person may mark or otherwise certify a packaging or
container as meeting the requirements of a manufacturing exemption
unless that person is the holder of or a party to that exemption, an
agent of the holder or party for the purpose of marking or
certification, or a third party tester.
Issued in Washington, DC on May 2, 1996, under authority
delegated in 49 CFR part 1.
Rose A. McMurray,
Acting Deputy Administrator, Research and Special Programs
Administration.
[FR Doc. 96-11400 Filed 5-8-96; 8:45 am]
BILLING CODE 4910-60-P
Complete official Federal Register PDF
FR Doc. 96-11289 Obligation GuaranteesProgram Administration
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21302-21335]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11289]
[[Page 21301]]
_______________________________________________________________________
Part IV
Department of Transportation
_______________________________________________________________________
Maritime Administration
_______________________________________________________________________
46 CFR Part 298
Obligation Guarantees--Program Administration; Final Rule
Federal Register / Vol. 61, No. 91 / Thursday, May 9, 1996 / Rules
and Regulations
[[Page 21302]]
DEPARTMENT OF TRANSPORTATION
Maritime Administration
46 CFR Part 298
[Docket No. R-154]
RIN 2133-AB14
Obligation Guarantees--Program Administration
AGENCY: Maritime Administration, Department of Transportation.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Maritime Administration (``MARAD'') is issuing this final
rule which amends certain provisions of the existing regulations
implementing Title XI of the Merchant Marine Act, 1936, as amended
(``Act''). This rule is intended to improve administration of the Title
XI program. MARAD administers financial assistance under Title XI of
the Act in the form of obligation guarantees for all types of vessel
construction and shipyard modernization and improvement, except for
fishing vessels. The part of the Title XI program related to fishing
vessels is administered by the National Oceanic and Atmospheric
Administration of the U.S. Department of Commerce, (``NOAA''), pursuant
to NOAA regulations, which appear at 50 CFR part 253.
EFFECTIVE DATE: This final rule is effective on May 9, 1996.
FOR FURTHER INFORMATION CONTACT: David A. Lippold, Senior Financial
Analyst, Division of Capital Assets Management, Office of Ship
Financing, Maritime Administration, Room 8122, 400 Seventh Street SW.,
Washington, DC 20590. Telephone 202-366-1907.
SUPPLEMENTARY INFORMATION: Title XI of the Act, 46 App. U.S.C. 1271 et
seq., authorizes the Secretary of Transportation (``Secretary'') to
provide guarantees of debt (``obligation guarantees'') issued for the
purpose of financing or refinancing the construction, reconstruction or
reconditioning of vessels in United States shipyards for U.S. citizen
owners. Applications for obligation guarantees are made to MARAD acting
under authority delegated by the Secretary to the Maritime
Administrator (``Administrator''). Prior to execution of a guarantee,
MARAD must, among other things, make a determination of economic
soundness of the project, and the financial and operating capability of
the applicant. Prior to amendment by Public Law 103-160, guarantees
could be issued only for debt issued by United States citizens. The
Title XI program enables applicants to obtain long-term financing on
terms and conditions and at interest rates comparable to those
available to large financially sound corporations. Funds secured by the
obligation guarantees are borrowed in the private sector.
Background
On November 30, 1993, the ``National Defense Authorization Act for
Fiscal Year 1994'' (``Authorization Act''), Pub. L. 103-160, was
enacted. Subtitle D of Title XIII of the Authorization Act, cited as
the ``National Shipbuilding and Shipyard Conversion Act of 1993''
(``Shipbuilding Act''), expanded the Title XI program by authorizing
the Secretary to guarantee obligations issued to finance the
construction, reconstruction, or reconditioning of eligible export
vessels and for shipyard modernization and improvement. The
Shipbuilding Act establishes ``a National Shipbuilding Initiative (NSI)
program to be carried out to support the industrial base for national
security objectives by assisting in the reestablishment of the United
States shipbuilding industry as a self-sufficient internationally
competitive industry.''
On March 31, 1994, MARAD published in the Federal Register an
interim final rule, effective on publication, which amended its
regulations implementing Title XI in order to carry out the provisions
of Subtitle D of Public Law 103-160, expanding the authorization for
obligation guarantees to finance the construction, reconstruction, and
reconditioning of eligible export vessels and shipyard modernization
and improvement. A final rule was published on September 16, 1994. The
final rule stated that MARAD would publish at a later date a separate
notice of proposed rulemaking to improve administration of the entire
Title XI program.
MARAD initiated a review of the administration of its Title XI
program regulations with the objective of implementing President
Clinton's ongoing Regulatory Reform Initiative and to reaffirm and
implement the principles of Executive Order 12866--Regulatory Planning
and Review (September 30, 1993). This rulemaking significantly shortens
the time for processing applications for guarantees and reduces the
economic burden on applicants in complying with MARAD requirements for
the submission of information. Accordingly, it is expected to encourage
the construction, reconstruction and/or reconditioning of vessels in
United States shipyards and the modernization and improvement of
general shipyard facilities located in the United States.
NPRM
MARAD published a notice of proposed rulemaking (NPRM) on April 26,
1995, in the Federal Register (60 FR 20592) and is now issuing this
final rule concerning program administration. This rule reflects
consideration of all comments received in response to the NPRM and the
interim final rule. Consideration has been given in the final rule to
all concerns addressed relative to the Title XI program.
In the interim final rule issued to implement the expanded
authorization in Public Law 103-160 for issuing Obligation Guarantees,
MARAD requested and received public comments on two additional issues,
applicable to the entire Title XI program, namely: (1) The issuance by
the Secretary of a Letter of Interest prior to an applicant's
submission of a complete application and the subsequent issuance, if
any, of a Letter Commitment, and (2) the establishment of a deadline,
such as 60 days, by which the Secretary would act on a Title XI
application considered complete by the Secretary. In the final rule of
September 16, 1994, MARAD determined that these two issues would be
addressed in the subsequent NPRM concerning program administration
because they apply to both the export and domestic programs. The reason
is that this would allow MARAD to consider the issues for both the
domestic and export programs at the same time. MARAD advised that
commenters need not resubmit their views on Letters of Interest and the
60 day processing period in response to the new NPRM. The discussion of
the rulemaking text below differentiates between comments received in
response to the interim final rule and the NPRM on these two specific
areas.
These regulations do not require more extensive paperwork or
reporting requirements than exist under the present Title XI
regulations. Exemptions provided herein should substantially lessen the
aggregate reporting burden.
In order to alleviate a potential source of confusion in the
discussion of the regulations by section, when one particular section
pertains to more than one issue, the discussion and MARAD's subsequent
response is divided into individual issues related to the content of
that section.
Discussion of Rulemaking Text
The discussion that follows summarizes the comments submitted to
MARAD by 23 commenters on the NPRM and the commenters on the
[[Page 21303]]
interim final rule, notes where changes have been made to the Title XI
regulations and the rationale therefor, and, where relevant, states why
particular recommendations/suggestions have not been adopted. It is
noted that where the first letter of one or more words is capitalized,
that term is defined in Sec. 298.2. In addition to soliciting comments
on specific amendments to the Title XI regulations proposed in the
NPRM, MARAD solicited industry and other public comments on three
additional issues in general. The first issue is the retention in
Sec. 298.13 of the waiver requirement for foreign components and
services to be included in Actual Cost. MARAD expressed concern about
the potential adverse effect of eliminating the waiver requirement on
the U.S. supplier base, which MARAD recognizes as critical to the
national defense and economy. MARAD stated that it is attempting to
create an environment where both the shipbuilding and ship supply
industries have the opportunity to be competitive based on fair
pricing, quality, and timeliness. All comments received in this area
are in the discussion of Sec. 298.13.
The second issue on which MARAD solicited public comments is
construction period financing. As the Secretary may approve Guarantees
with respect to obligations to be issued for the applicable period of
construction, reconstruction, or reconditioning, MARAD invited comments
on available forms of security, in addition to surety bonds, that could
protect MARAD's interests as a lender, how progress should be
monitored, what new procedures/methodologies should be developed to
improve the previously utilized progress payment system, and if payment
of interest on the obligations should be made on a more frequent basis
(i.e., weekly, monthly or quarterly) than that outlined in Sec. 298.22,
Amortization of Obligations. In addition, comments were solicited as to
how the Title XI applicant will verify/certify to MARAD that certain
costs have been paid prior to disbursement of Title XI funds from the
escrow account, for example, the use of an agent on MARAD's behalf to
verify that certain costs have been paid. All comments received in this
area are discussed in Sec. 298.21 below.
Finally, MARAD also requested comments concerning the standard
application Form MA-163 referenced in Sec. 298.3, Applications, and the
required documentation outlined in subpart D of this part 298. All
comments received in these areas are discussed under Sec. 298.3 or
subpart D of this part.
Discussion of Regulations by Section.
Note: Paragraph references are as designated or redesignated in
the notice of proposed rulemaking.
Section 298.2 Definitions
(b), Actual Cost. One commenter suggested the inclusion of
Guarantee Fees as an item in the definition of Actual Cost.
MARAD Response: The present definition of ``Actual Cost'' refers to
Sec. 298.21(b) which is being amended in the final rule to clearly
state that ``Guarantee Fees determined in accordance with the
provisions of section 1104(e) of the Act shall be included in the items
of Actual Cost.'' Hence, adoption of the NPRM as a final rule will
effectively accomplish the commenter's suggestion without the necessity
to change the definition of Actual Cost.
(f), Depreciated Actual Cost. One commenter suggested the inclusion
of Guarantee Fees as an item in the definition of Depreciated Actual
Cost.
MARAD Response: The same response as to the preceding comment
applies.
(l) Guarantee Fee. One commenter suggested deletion of the
reference to interest accrual on the Guarantee Fee.
MARAD Response: The definition of ``Guarantee Fee'' does not
include a reference to interest accrual and, therefore, is not being
amended.
(o) Letter of Interest. While no commenter suggested a change to
the proposed definition of a Letter of Interest, comments were received
regarding the Letter of Interest concept and content.
MARAD Response: MARAD's response to the comments are outlined below
in the discussion regarding Sec. 298.3(f). In view of the fact that
MARAD is deleting Sec. 298.3(f) in its entirety, this definition will
not be included in the Title XI regulations.
(y) Related Party. One commenter suggested that the definition of
Related Party should be revised to be consistent with the existing
definition in generally accepted accounting principles (GAAP).
MARAD Response: The intent behind replacing the terms ``Affiliate''
and ``Affiliated'' with the term ``Related Party'' was to be consistent
with a terminology change in GAAP as promulgated by the Financial
Accounting Standards Board of the American Institute of Certified
Public Accountants. Although the commenter has provided the present
GAAP definition for Related Party, MARAD has determined that it would
be inappropriate to incorporate the precise GAAP definition as it
exists today in the Title XI regulations due to the frequent
modifications to GAAP definitions. It should be noted, however, that
MARAD's regulations are to be construed in a manner consistent with
GAAP, unless the regulations expressly deviate from GAAP.
(cc) Vessel. The definition of Vessel was not modified in the NPRM.
However, three of the four commenters supported MARAD's announcement of
a change in policy to expressly include passenger vessels engaged in
commercial common carriage, in particular ferries, as eligible for the
Title XI program. One commenter also was in favor of an expansion of
Title XI financing to the ``cruise to nowhere'' segment and gaming
vessels, as the commenter believes that the passenger vessel segment of
the U.S. flag merchant marine will make the most gains in the next
decade. One commenter does not believe that the change in policy on
passenger vessels should include ferries and/or gambling vessels on
U.S. rivers because use of scarce Title XI resources for these vessels
would not promote the Act's objective of ocean-going vessels or vessels
capable of serving as a military auxiliary.
MARAD Response: MARAD does not believe that a regulatory change to
this definition is necessary. It is MARAD's position that the expansion
of Title XI financing in the passenger vessel market generally will aid
in the development and maintenance of an adequate and well-balanced
U.S. merchant marine and will promote U.S. commerce. As to the concern
expressed about MARAD's scarce Title XI resources, MARAD retains
informal discretion under the Act and formal discretion under
Sec. 298.3(e) (priorities), in appropriate circumstances, to limit
allocation of its Title XI resources to ensure optimal use of MARAD's
appropriated funds in terms of promoting the objectives of the Act.
Section 298.3 Applications
Section 298.3 (a). This section specifies the format for submitting
and amending applications for Title XI financing. As mentioned above,
MARAD specifically solicited comments on the current standard
application Form MA 163 and any proposed amendments to the form and
standard documentation, particularly with regard to export vessels and
shipyard modernization.
One commenter stated that inadequate time was given to review and
comment on the application form; however, as a general comment, the
form needs to be revised to be consistent with the recent changes in
law for
[[Page 21304]]
shipyard modernization and Eligible Export Vessels. Another commenter
stated that the application form is overly complicated and greatly
increases transaction costs and discourages applicants. The commenter
suggested the establishment of an advisory committee composed of
representatives from MARAD, the maritime bar, investment and commercial
banking industry, shipbuilding industry and the shipowning and
operating industry to review and assist in revisions.
A final commenter believes that the administration of the program
will be improved by including a list of all documents required to be
submitted with an application, i.e., any demise charters, time charters
in excess of six months, contracts of affreightment, drilling contracts
or other contractual arrangements (Sec. 298.3) and legal opinions
ensuring the enforceability of the mortgage or security interest for
Eligible Export Vessels (Sec. 298.31(a) (2) and (3)).
MARAD Response: In view of the time required to determine
appropriate changes and to obtain approval from the Office of
Management and Budget for a revised form, MARAD has decided to defer
consideration of this matter in order to avoid delay in promulgating
this rule. MARAD supports the suggestion that a non-Governmental
authority establish a working group composed of representatives from
MARAD, the maritime bar, investment and commercial banking industry,
shipbuilding industry and the shipowning and operating industry to
review and assist in revisions to the form.
MARAD agrees with the comment that the administration of the Title
XI program will be improved by including with the application form a
list of all documents required to be submitted with the application.
MARAD will prepare such a list of documents, which list shall be
provided with the standard application form.
In addition, MARAD has determined that the document required to be
filed with the Secretary of the Senate and the Clerk of the House of
Representatives by the Lobbying Disclosure Act of 1995, Pub. L. 104-65,
must be filed as part of a formal Title XI application, together with
the declaration required to be filed by 31 U.S.C. 1352. MARAD will
still require similar forms at Closing. Finally, as part of the
application process MARAD may request that the applicant submit
information to assist MARAD in the preparation of a National
Environmental Policy Act analysis.
The instructions regarding the filing of a Title XI application on
Form MA-163 require that 12 complete sets (of which three must be duly
executed and certified by the applicant), including schedules and
exhibits as required, must be filed with MARAD. MARAD has reviewed its
internal requirements for processing applications and has reduced the
required number of application sets to ten. Only two of the sets must
be duly executed and certified by the applicant. In addition, MARAD has
examined the possibility of allowing Title XI applicants to submit
their Title XI applications on computer disk to be accompanied by two
hard sets of the application duly executed and certified by the
applicant. Upon request a list of the computer software which can be
utilized for disk submission of the application will be made available
by the Office of Ship Financing.
Section 298.3(b)(1). In response to the 1994 interim final rule,
most commenters thought that the 60-day processing period for completed
applications was reasonable, appropriate, and adequate. Some commenters
suggested a shorter period of 30 days as conforming more closely to
purported international commercial norms. Some shipyards were concerned
that the 60-day turnaround is noncompetitive in the international
market because a ``complete'' application may in itself take more than
60 days to draft. They suggested that guidelines would be necessary to
define the procedures for submitting a complete application. Some
suggested that, for a pre-approved ship design, MARAD should be able to
issue Letter Commitments within 30 days, and further suggested that
MARAD review its application requirements to ensure that it is not
requiring burdensome information. One commenter suggested that a
deadline for processing completed applications is an unnecessary
requirement.
The April 1995 NPRM reiterated the 60 day guideline and also
proposed a 15-day deadline, after notification by MARAD, by which an
applicant must correct deficiencies in the application or face possible
termination of the application. In response to the NPRM, most
commenters supported MARAD's efforts to shorten the time for processing
guarantee applications. Several commenters suggested that to be world
competitive, a 60-day turnaround, from when the application is
submitted to the Closing, is necessary. Some commenters were concerned
about the proposed reduced amount of time the applicant has to correct
deficiencies in the application. One stated that placing a 15-day limit
on correcting deficiencies would place an undue hardship on the
applicant as well as make it impossible to meet the deadline where
deficiencies involve engineering or architectural items and, therefore,
suggested a minimum of 60 days to correct deficiencies. One commenter
noted that the requirement makes no distinction as to the nature,
complexity, or availability of the requested information.
Several commenters suggested that termination of an application
should occur only when it is the applicant's failure to complete the
application that results in inaction and that failure to supply the
deficient information should result in suspension of the application
process, rather than termination. Several commenters stated that if an
application is resubmitted, no new filing fee should be assessed unless
the application is for a substantially different project. Finally, one
commenter indicated that having to start over will actually result in
prejudice to MARAD's consideration of a subsequent application.
MARAD Response: Prior to the issuance of the NPRM, this section
indicated that the period between the filing of the application and the
anticipated date by which a Letter Commitment is issued was six months
and that the period for completing an application and the Secretary
taking action on a completed application is within one year. The NPRM
proposed significant modifications to the Title XI regulations in this
section in order to provide for expeditious processing of each Title XI
application, resulting in lower administrative costs and a more timely
response to the applicant.
The 60-day processing period for completed applications is a
general guideline for processing Title XI applications. If possible,
MARAD will process completed Title XI applications on a more expedited
basis than 60 days in order to enable applicants to more quickly
respond to market opportunities.
As to some shipyard concerns regarding the drafting of a
``complete'' application, the time that it takes to draft a Title XI
application is not factored into the 60-day processing period. MARAD is
on public record as encouraging Title XI applicants to have at least
one pre-application meeting with MARAD personnel to, among other
things, determine what essential pieces of information about the
applicant and its proposal must be included in the application. As each
application is project specific, the information necessary for
submitting a complete application for a given project will be discussed
at the pre-application meeting(s). If applicants follow MARAD's
suggestion to have pre-
[[Page 21305]]
application meetings, the application drafting time should be
significantly reduced.
The suggestion that MARAD issue a Letter Commitment in the case of
pre-approved ship designs within 30 days is rejected because MARAD
still has to review the application for economic soundness and review
of a company's financial position. In most cases, this could not be
completed in the proposed 30-day period. With regard to the suggestion
that MARAD review its application requirements to ensure that it is not
requiring burdensome information, MARAD is undertaking this review.
Finally, one commenter's suggestion that a deadline for processing
completed applications is an unnecessary requirement is rejected
because MARAD believes that it is critical to an orderly and
expeditious process to have a specific indication as to the period for
such process.
Several commenters expressed concerns about the reduced amount of
time (from the previous period of nine months) the applicant has to
correct deficiencies in the application. In response, MARAD notes that
failure by the applicant to correct deficiencies within 15 days does
not result in automatic termination of the application. The regulation
provides that the Secretary may terminate processing of the application
without prejudice. MARAD thus has the flexibility to extend the
deadline, if appropriate, taking into consideration the nature,
complexity, or availability of the requested information.
MARAD does not believe it necessary to amend the language in this
paragraph to provide that, in lieu of terminating an application
without prejudice, MARAD may elect to suspend processing of an
application for any number of contingencies. MARAD may use its
discretion to do whatever is appropriate in processing applications.
The position of several commenters that, if an application is
terminated, no new filing fee should be assessed unless a subsequent
application is for a substantially different project, is justifiable
and is being adopted.
In view of the foregoing, MARAD sees no reason to change the
present wording of Sec. 298.3(b)(1), with the exception of one item.
The paragraph is being amended to clarify that if an application is
terminated by MARAD without prejudice, no new filing fee will be
assessed for a subsequent application for a similar project that is
filed within one year of the termination date. If a subsequent
application is for a substantially different project as determined by
MARAD on a case-by-case basis a new filing fee will be assessed.
Section 298.3(c). The NPRM proposed requiring each Title XI
application to be accompanied by a filing fee in the amount of one
quarter of the investigation fee amount, calculated pursuant to the
formula outlined in Sec. 298.15, but in no event less than $1,000.
Several commenters do not support raising the $1,000 filing fee,
arguing that preparing a Title XI application shows seriousness. Other
commenters object to raising the filing fee to the amount proposed in
the NPRM, but believe a modest fee increase is appropriate. One
commenter believes that a multiple vessel application should not result
in a substantially greater fee than a single vessel application of the
same type because the amount of analysis involved is not significantly
more. Therefore, the commenter believes that the filing fee should be
capped at $25,000 to discourage frivolous applications. Another
commenter supports capping the filing fee at a maximum of $10,000. A
$10,000 non-refundable maximum filing fee will ensure the seriousness
of the applicant and provides the government with a substantial and
immediate contribution toward the cost of processing the application.
At the same time, the commenter states that a $10,000 cap will not
result in applicants undertaking substantial economic risk simply to
file an application.
One commenter states that the proposed filing fee increase would
act as a major disincentive to program participation by portions of the
maritime community the program is designed to serve, bearing most
heavily on those least able to afford its terms. The increased fee
would create a severe disincentive and is not only onerous in the
extreme for any large project but also discriminatory against larger
projects which tend to bring greater benefits to the country. Such a
fee level, in the case of large projects, bears no relationship to a
greater cost to MARAD of processing a given application up to the point
of approval and receipt of the investigation fee.
Another commenter believes that if the proposed NPRM modifications
are adopted, either the Letter of Interest procedure will in effect
become the application procedure, with prospective applicants
submitting applications complete in all respects (except for signatures
and payment of the application fee) or the number of Title XI
applications will decline dramatically. The commenter states that MARAD
cannot adequately review a Title XI application in a ten-day time frame
set out for Letters of Interest, and many applicants, particularly for
Eligible Export Vessels, will not pay thousands of dollars to find out
if MARAD might approve their application.
MARAD Response: MARAD has reconsidered its proposed amendment and
has decided to further amend this paragraph by requiring each Title XI
application to be accompanied by a filing fee in the amount of $5,000.
Since the filing fee is deducted from the investigation fee, which is
paid at the end of the application process, there will be no net
increase in cost to the applicant. However, the increase in the initial
filing fee will enable the Government to recover more of its
administrative costs for application processing at the beginning of the
application period. The instructions for filing Form MA-163 will be
modified to reflect the increased fee.
Section 298.3(f). In response to the 1994 interim final rule,
almost all of the 28 commenters responded favorably to the proposal
that the Secretary exercise discretion to issue a Letter of Interest
prior to the applicant's submission of a complete application.
Commenters noted that the procedure could be particularly useful if the
shipbuilder could use the document as a marketing document to compete
effectively against foreign yards. Some suggested that if MARAD were
also to preapprove ship designs, Letters of Interest would be very
effective indicators of MARAD's interest in a proposed financing. One
commenter suggested that Letters of Interest could be used by
applicants to forecast the cost of a transaction and the expertise that
will be needed to complete a proposed transaction.
Commenters proposed that requests for Letters of Interest should
contain information about (1) the type and design of the Vessel to be
financed and its intended trade, (2) the approximate cost of the Vessel
and its proposed builder, (3) the amount of the requested Guarantee,
(4) recent financial information on the prospective shipowner or
bareboat charterer, (5) a description of the collateral to secure the
Secretary's Guarantee, and (6) identification of the country in which
the Vessel would be owned and documented. A commenter recommended that
there be no charge or fee for the issuance of a Letter of Interest,
that the letter be issued prior to the filing of an application, and
that the letter be issued within ten days of the request.
Several commenters raised two concerns about Letters of Interest.
First,
[[Page 21306]]
they argued that requests for such letters must be treated
confidentially because a request for a letter may come during the
negotiating process and the subject shipyard would not want its
competitors to be aware of the negotiations or potential prices. A
second concern raised was that the formalization of a Letter of
Interest procedure could slow down the expeditious approval by MARAD of
loan guarantee applications by effectively duplicating the formal
application process. It was suggested by one commenter that MARAD could
substitute preapplication meetings for the Letter of Interest.
Additional concern was expressed that the conditions contained in the
Letter of Interest should not be deemed by the agency to be binding if
the applicant later demonstrates that it can meet alternative, but
equivalent conditions.
MARAD Response: MARAD noted in its comments above to Sec. 298.2(o)
its deletion of the Letter of Interest definition. Initially, MARAD
intended its Letters of Interest to parallel those of the Export-Import
Bank of the United States. However, MARAD has, with the passage of
time, significantly diluted the content of its Letter of Interest to
the point where the letter is in the nature of a letter of eligibility.
MARAD found it necessary to amend the letters because, in certain
instances, they had been held forth to outside institutions as
representing some sort of commitment to a project by MARAD. Currently,
the letters describe only the general eligibility of a project and
advise that, as such, they do not and should not be construed as
approval of the project by MARAD or the terms that would be applicable
to the project. The letters state that approval of any project would be
based on MARAD's determination that the project meets all statutory,
regulatory and financial requirements. The letters further state that,
although a project may be deemed eligible for Title XI financing,
issuance of the letter does not give any assurances that MARAD would be
interested in proceeding with, or that funds would be available for,
the type of project should an application be filed. Therefore, MARAD
believes that to continue to call these letters ``Letters of Interest''
is inaccurate. MARAD will continue to issue letters of eligibility to
indicate the general eligibility of a project for Title XI financing.
However, it will no longer issue any document referred to as a Letter
of Interest. MARAD believes that the letter of eligibility concept does
not have to be formalized in the Title XI regulations and, therefore,
paragraph (f) is being deleted in its entirety.
MARAD does not agree with the commenters' concern that letters of
eligibility be treated on a confidential basis. As a general matter,
all letters of eligibility including all formal actions taken by MARAD,
including the issuance of a letter of eligibility, must be disclosed to
the public. However, if the request for a letter of eligibility,
including attachments thereto, contains information which the submitter
considers to be trade secrets or commercial or financial information
and privileged or confidential, or otherwise exempt from disclosure
under the Freedom of Information Act (FOIA) (5 U.S.C. 552), the
submitter shall assert a claim of exemption at the time of filing a
letter of eligibility request. The same requirement shall apply to any
amendment to the request. The procedures outlined in paragraph (d) of
this section shall apply with respect to the assertion and review of
FOIA exemption claims. Due to the nature of a request for a letter of
eligibility, MARAD does not agree with the comment that the letter of
eligibility procedure would slow down the expeditious approval by MARAD
of Title XI applications. Finally, MARAD believes to be unfounded the
comment that MARAD could substitute pre-application meetings for the
letter of eligibility as the two concepts are unrelated. The purpose of
a pre-application meeting is to exchange information and the purpose of
a letter of eligibility is to identify the general eligibility of a
project.
Section 298.10 Citizenship.
This section sets forth the citizenship requirements for Title XI
applicants and certain other parties that must establish U.S.
citizenship prior to acquiring a legal or beneficial interest in a
Vessel financed under Title XI of the Act. The exceptions to this
requirement are Eligible Export Vessels and General Shipyard
Facilities.
Section 298.10(a). MARAD received four comments on this issue. One
commenter merely pointed out a typographical mistake. The other three
commenters supported the elimination of the citizenship requirement for
all Title XI financed U.S.-flag vessels and stated that the only
requirement should be the vessel documentation requirements
administered by the U.S. Coast Guard. One of the three commenters, with
known foreign involvement, is interested in converting semi-submersible
drilling rigs into floating production systems (FPS) for use in the oil
and gas industry in the Gulf of Mexico area. Therefore, their view is
that Title XI financing should be available to ``transnational ship-
owning corporations.'' Another commenter supported the elimination of
the citizenship requirement because their desire is ``to see that the
potential beneficiaries of the Title XI program are as broad as
possible * * *'' A comment from a law firm stated that sections 1103(a)
and 1104(a)(1) were amended by the Shipbuilding Act to eliminate
Section 2 citizenship requirements for Title XI financed U.S.-flag
vessels and that MARAD is misreading the U.S. citizenship requirements
set forth in the defined term ``vessel'' at section 1101(b). Their view
is that the U.S. citizenship requirement in this section is not all
inclusive and applies only to certain types of vessels. One of the four
commenters also stated that the citizenship of a preferred mortgagee is
``immaterial'' and MARAD should not be concerned with the citizenship
of third party mortgagees.
MARAD Response: The U.S. ownership requirement for U.S.-flag
vessels financed with Title XI has been consistently required
throughout the life of the Title XI program. It was required for the
predecessor federal ship mortgage insurance program, 52 Stat. 969 (See
H.R. Rep. No. 2168, 75th. Cong., 3d Sess. 29), retained in the Federal
Ship Loan Guarantee Program, enacted in 1972, 60 Stat. 909, and left
unchanged by enactment of the Shipbuilding Act in which Title XI loan
Guarantees were extended to Eligible Export Vessels, which could be
owned by either U.S. citizens or non-U.S. citizens, but retained the
limiting definition of vessels for non-export purposes. Therefore, by
law, U.S.-flag Vessels receiving Title XI financing must be owned by
U.S. citizens.
With respect to the comment regarding citizenship of mortgagees,
MARAD does not require, under the Title XI financing program, evidence
of the mortgagee's U.S. citizenship. MARAD only requires confirmation
that the mortgagee complies with the statutory requirements established
for mortgagees. Accordingly, MARAD will not amend the regulation.
Section 298.11 Vessel requirements
Section 298.11(a). Concerning paragraph (a), United States
Construction, one commenter suggested that the structure of creating
three separate classes of Vessels is confusing and unnecessary. To the
extent a higher standard is required for operation in the coastwise
trade, it should be sufficient simply to say that the Vessel shall be
built to whatever standard is necessary
[[Page 21307]]
to entitle it to be eligible for such trade. There should be no
distinction between U.S.-flag and Eligible Export Vessels. The standard
for U.S. shipyard involvement for Eligible Export Vessels is the
standard which should apply to all Vessels subject to specific trade
requirements. The commenter therefore recommends that for all Vessels
MARAD adopt the definition in Sec. 298.11(a)(3), which provides that
the Vessel is considered to be of U.S. construction if assembled in a
United States shipyard. A second commenter states that since the
Organization for Economic Cooperation and Development Shipbuilding
Agreement recognizes the U.S. right to maintain the Jones Act, it is
appropriate for the rule to make a distinction between Jones Act and
non-Jones Act Vessels so that any prospective change to the guarantee
period will not apply to Jones Act Vessels.
MARAD Response: Upon further review, MARAD agrees with one of the
commenters that the creation of three separate categories of Vessels is
unnecessary. As the proposed categories were squarely in line with the
standards enunciated by the United States Coast Guard, MARAD believes
it is appropriate instead to amend paragraph (a) of the regulation to
simply state that for U.S.-flag Vessels, the Vessels shall be built to
whatever standard is necessary to enable them to be eligible for their
specific trade requirement. Accordingly, the regulation is being
amended to provide that a Vessel, including an Eligible Export Vessel,
financed by an Obligation Guarantee is considered to be of United
States construction if the Vessel is assembled in a shipyard
geographically located in the United States. In addition,
Sec. 298.32(a)(6) is being amended to reflect the above.
Section 298.11(c). Concerning paragraph (c), Class, condition and
operation, two commenters supported MARAD's proposed amendment
regarding Quality Systems Certificate Scheme (QSCS) issued by qualified
International Association of Classification
Societies (IACS) members as meeting acceptable standards for such a
society to participate in the Eligible Export Vessel program.
MARAD Response: By requiring solely ISO-9000 registration, the
current Title XI regulations do not allow members of IACS who are QSCS
qualified members that are not ISO-9000 registered to participate in
the Title XI Eligible Export Vessel program. Initially, there was a
thought that merely agreeing to a QSCS standard would screen out
marginally qualified classification societies. However, requiring the
ISO-9000 standard would currently screen out the American Bureau of
Shipping and other highly qualified classification societies whose
inspection and classification activities are recognized worldwide.
Paragraph (c) has been amended to permit QSCS qualified IACS members
who have been recognized by the United States Coast Guard as meeting
acceptable standards for such a society to participate in the Eligible
Export Vessel program. That recognition shall include, at a minimum,
recognition that the society meets the requirements of IMO Resolution
A.739(18).
Section 298.11(e). Concerning paragraph (e), Metric Usage, one
commenter states that it is not clear what is meant in the regulation
by the statement that the ``preferred system'' is the metric system. If
some preference is to be given to application of the metric system, the
consequences of such preference should be spelled out.
MARAD Response: DOT Order 1020.1D ``Department of Transportation
Transition to the Metric System'' established Departmental policy for
transition to the metric system in accordance with the Metric
Conversion Act of 1975, as amended by Section 5164 of the Omnibus Trade
and Competitiveness Act of 1988, Pub. L. 100-418 (Omnibus Act). Section
5164 of the Omnibus Act declares that it is the policy of the United
States to designate the metric system of measurement as the preferred
system of weights and measures for U.S. trade and commerce. Section
5164(b)(2) requires each Federal agency to use the metric system of
measurement in its procurement, grants, or other business-related
activities. Therefore, the Title XI regulations have been amended to
indicate that the preferred system of measurement and weights for
vessels and advanced and modern shipbuilding technology is the metric
system as a matter of policy. However, no preference/priority is given
to processing applications where the metric system of weights and
measures is utilized. The priorities given to Title XI applications are
outlined in Sec. 298.3(e) and select criteria for evaluating Title XI
applications is set forth in Sec. 298.17.
Section 298.12 Applicant and Operator's Qualifications
Section 298.12(b)(2). This section outlines identifying information
required to be submitted if the applicant is a partnership, joint
venture, association, or unincorporated company.
MARAD Response: Although no comments were received regarding the
change to this paragraph as outlined in the NPRM, MARAD has decided to
add a new paragraph (b)(2)(vi) requiring the submission of information
regarding financial, management and/or equity transactions which could
have a significant impact on the ability of the applicant to meet the
Title XI requirements.
Section 298.12(f)(1). One commenter stated it is unclear which
individuals need to be named in this section which requires that the
background of ``all senior supervisory personnel'' be submitted. To the
extent that advanced shipbuilding technology is the subject of the
application, it should be sufficient to submit the background of the
people who will be directly responsible for the installation or
operation of the facility or method. Additionally, one commenter
suggested that the word ``personnel'' should be stricken from the
proposed insert--''by all senior supervisory''--because the word
``personnel'' already follows each place that the phrase is inserted.
MARAD Response: MARAD agrees that the word ``personnel'' should be
stricken from the proposed amendment to that paragraph. MARAD sees no
reason to change the present wording of paragraph (f)(1) regarding the
background of all senior supervisory personnel for Advanced
Shipbuilding Technology. It is a sufficiently clear standard to apply
to particular circumstances.
Section 298.13 Financial Requirements
Section 298.13(a)(2)(i). One issue on which MARAD solicited public
comments in the NPRM is the retention in section 298.13 of the waiver
requirement for foreign components and services to be included in
Actual Cost, which waiver shall not be granted for foreign components
of the hull and superstructure. MARAD indicated its concern about the
potential adverse effect on the U.S. supplier base, which MARAD
recognizes as critical to the national defense and economy. In the
NPRM, MARAD stated that it is attempting to create an environment where
both the shipbuilding and ship supply industries have the opportunity
to be competitive based on fair pricing, quality, and timeliness.
A broad spectrum of comments were received on this issue. Some
commenters supported the retention of the current waiver requirement
for foreign components and services. One commenter submits that the
retention of the waiver provision is the most
[[Page 21308]]
prudent path for applicants to follow and outweighs any speculative
adverse impact that retention of the waiver might have on the U.S.
supplier base. There are instances in which a foreign component or
service is necessary for the construction, reconstruction, or
conversion of a vessel, and the applicant should not be penalized in
such instances. Additionally, the commenter states that removal of the
waiver might place a U.S. supplier who competes with foreign suppliers
in a position to demand what might amount to monopolistic prices; the
supplier who normally competes in the world market would be given
dominant market power if the applicant were required to purchase
supplies from such a U.S. supplier in order to obtain financing for the
cost of such supplies. The commenter states that removal of the waiver
provision has the potential to hinder, rather than enhance, the
creation of a competitive domestic ship supply industry based on fair
pricing, quality and timeliness. In addition, the commenter submits
that it should be made clear that, in addition to the hull and
superstructure, each additional foreign component or service for which
a waiver is not granted, and thus which is not included in Actual Cost,
can be regarded as owner-furnished equipment that may be used in
satisfying the applicant's equity requirements. Finally, that commenter
proposes adding the following underscored language to
Sec. 298.13(a)(2)(1): ``Although excluded from Actual Cost, foreign
components of the hull and superstructure and other foreign components
and foreign services for which a waiver has not been granted can be
regarded as owner-furnished equipment that may be used in satisfying
the applicant's equity requirements * * *.''
Another commenter states that the term ``component'' should be
defined in order to eliminate the possibility that raw materials, such
as steel, might be considered to be a component and required to be of
U.S. origin. It is important to retain the ability to waive the
requirement for U.S. components, MARAD needs the flexibility and it is
too hard to predict technological changes that may be beneficial to a
vessel that may be obtained only through a foreign source or to
compensate for shortages in the U.S. supply of components affecting
delivery schedules. Another commenter notes that the regulations are
not specific as to what items are to be considered as components of the
``hull and superstructure.''
Other commenters supported the introduction of a more restrictive
waiver requirement by recommending that waivers ``ordinarily be granted
only where the applicant has demonstrated that the item involved: (a)
Is not manufactured by a U.S. domestic source, or if a service, is not
available from such a source; (b) is not available from a U.S. domestic
source in a timely fashion; or (c) is not available from a U.S.
domestic source at a competitive price.'' Along the same line, another
commenter states that the regulations need to be amended to provide for
standards and procedures for granting waivers, such that applicants
will be required to demonstrate in a clear and convincing way that no
U.S. product is available and that sufficient and effective steps have
been taken to search the U.S. industrial base.
Finally, some commenters opposed the requirement for a foreign
component waiver for non-hull and superstructure items. One commenter
states that the requirement to seek a waiver for each of a myriad of
items would be a crippling obstacle to achieving competitiveness and
the NPRM gives no indication as to grounds for a waiver. The commenter
states that protection of the U.S. supplier base will not promote
competition. Where U.S. suppliers are capable and cost-competitive, the
commenter expects U.S. suppliers to be used. However, the commenter
supports the requirement that only hull and superstructure components
fabricated in the U.S. should be included in Actual Cost and that no
waiver should be granted. The commenter does not believe that inclusion
of foreign hull and superstructure components should disqualify the
entire vessel from Title XI financing and does not see any significant
benefit to allowing foreign hull and superstructure components to be
included as part of the equity contribution. Finally, the commenter
states that it is unclear in the example given in the NPRM how foreign
hull and superstructure components will be considered as part of the
equity contribution. Nonetheless, the regulations should specifically
state that large items of foreign hull and superstructure components
excluded from actual cost may be financed externally, such as in a
foreign jurisdiction that is willing to provide export financing.
Another commenter opposing the requirement for a foreign component
waiver for non-hull and superstructure items states that restrictions
on the use and financing of foreign equipment will severely limit U.S.
shipyards' ability to become globally competitive. The commenter adds
that it is not reasonable to assume that these restrictions will result
in the domestic manufacture of items. U.S. yards need to have the same
access to the global supplier base as do other yards so that they can
obtain the low prices and technologically advanced designs necessary to
secure orders. Restricting U.S. shipyards from procuring foreign source
machinery, equipment, or hull and superstructure material which has
been manufactured in a foreign facility is not the way to make them
competitive on the international market.
Another commenter respects MARAD's good faith desire to try to
protect U.S. suppliers, but opposes the actual cost disqualification
for all foreign components and services. The commenter states that the
NPRM's articulated policy goal is contrary to the spirit of GATT, to
the policy of the President and the USTR, and to Congressional intent.
In order to get export shipbuilding orders, there must be freedom to
respond to the commercial dictates of international customers. The
commenter adds that U.S. suppliers are done no favors by adopting
protectionist principles which can prevent U.S. shipyards from
obtaining export orders. The commenter states that a ``Buy America''
program should not be adopted until choice availability and price
parity from within the domestic U.S. is fully equal to that
internationally available. If the above arguments are rejected, the
commenter argues that the hull and superstructure metals components are
the only items for which no waiver should be granted.
A final commenter adds that exclusion of foreign components of the
hull and superstructure and a waiver for other foreign components or
services is redundant in the case of coastwise-eligible U.S.-flag
Vessels since other U.S. laws require that such Vessels be built in the
United States (which term includes fabrication of all major components
of the hull and superstructure in the U.S.). The commenter states that
the regulations omit the word major thereby arguably setting up an even
higher standard than that required to document Vessels under the U.S.
flag for coastwise trade. The commenter recommends that MARAD limit its
requirements under Title XI in the case of non-coastwise U.S.-flag
Vessels and foreign-flag Vessels to assembly in a shipyard in the
United States. The commenter states that MARAD should encourage U.S.
shipyards to compete internationally and not limit its own program in a
way that makes it less attractive than competing programs being offered
by foreign countries. In addition, the commenter states that the waiver
[[Page 21309]]
requirement is totally unwarranted in light of earlier removal of the
``Buy America'' requirements. Placing additional requirements of this
type is the kind of unnecessary government regulation that the
Administration promised to eliminate in its October 1993 shipbuilding
initiative report.
MARAD Response: MARAD reiterates its concern about the potential
adverse effect on the U.S. supplier base of elimination of the waiver
requirement for foreign components and services to be included in the
Actual Cost determination. MARAD is attempting to create an environment
where both the shipbuilding and ship supply industries have the
opportunity to be competitive based on fair pricing, quality and
timeliness. In view of the foregoing comments, MARAD has decided to
retain the waiver requirement and to establish a standard for granting
a waiver. The standard would be the certification by the applicant, to
be reviewed by MARAD, that a foreign item or service is not available
in the U.S. on a timely or price-competitive basis, or is not of
sufficient quality. Paragraph (a)(2)(i) is being modified accordingly.
In addition, MARAD agrees with one of the commenters that the
omission of the word ``major'' from defining the components of the hull
and superstructure which must be fabricated in the U.S. establishes a
higher standard than that required to document vessels under the U.S.
flag for coastwise trade. Accordingly, the appropriate clarification is
being made to paragraph (a)(2)(i).
Section 298.13(a)(4). One commenter states that provision should be
made to accept financial information provided in the normal accounting
system used by the applicant, provided that it is an accepted
accounting system in the applicant's country of origin and further,
provided that the applicant submits some reconciliation of the major
differences between the accounting system employed and GAAP. The
commenter adds that the Securities and Exchange Commission accepts this
approach. One other commenter recommends that if U.S. GAAP is to be
required of all applicants or other entities significantly involved
with the financing, that requirement should be reflected in the
regulations.
MARAD Response: MARAD recognizes that a requirement to meet U.S.
generally accepted accounting standards may be unduly burdensome in the
case of Eligible Export Vessels. Accordingly, in the interim final rule
published in the Federal Register on March 31, 1994, MARAD amended
Sec. 298.42 of the Title XI regulations to provide that, in the case of
such vessels, the company accounts shall be audited at least annually
and the Secretary may require that the financial statements be in
accordance with generally accepted accounting principles by
accountants, as otherwise described in Sec. 298.42, or certified by
independent public accountants licensed to practice by the regulatory
authority or other political subdivision of a foreign country, provided
such accountants are satisfactory to the Secretary. In order to be
consistent with Sec. 298.42, MARAD agrees that provision should be made
for MARAD to accept financial information from Eligible Export Vessel
applicants provided in the normal accounting system used by the
applicant, provided that it is an accepted accounting system in the
applicant's country of origin and, further, provided that the applicant
provides a reconciliation of the major differences between the
accounting system employed and GAAP. This approach would parallel that
accepted by the Securities and Exchange Commission. MARAD has added new
language to this paragraph to accommodate the commenter's concerns and
to make this paragraph consistent with Sec. 298.42.
Section 298.13(b). This paragraph sets forth financial definitions
for Secs. 298.13, 298.35 and 298.42 of the Title XI regulations. One
commenter is confused as to how the NPRM amended this section to be
consistent with 46 CFR part 232, as no proposed amendments to part 232
could be found. The commenter added that, for the definitions of
working capital, equity and long-term debt, the NPRM deleted references
to GAAP, which revisions are not supported by the commenter.
MARAD Response: The commenter appears to have misinterpreted the
proposed amendment to this section of the Title XI regulations. The
NPRM amended certain paragraphs of this section to make them consistent
with 46 CFR Sec. 232, which was most recently amended by MARAD with the
publication of a notice in the Federal Register on December 9, 1993.
There is no indication in the discussion section of the NPRM that
amendments to part 232 were also being proposed, which is the reason
the commenter could not find any proposed amendments to part 232.
With regard to the commenter's statement that the NPRM deleted
references to GAAP in the definitions of working capital, equity and
long-term debt, it is important to note that 46 CFR Sec. 232.2(a),
which is separate from the Title XI regulations, requires that all
contractors shall conform their accounting policies to GAAP
(promulgated by the Financial Accounting Standards Board of the
American Institute of Certified Public Accountants). Although the NPRM
deletes references to GAAP in these Title XI regulations, working
capital, equity and long-term debt definitions must conform to GAAP as
such terms are defined in 46 CFR 232.2(a). Hence, MARAD sees no reason
to change the present wording of paragraph (b).
Sections 298.13 (d) and (e). These sections outline the primary and
special requirements required at the Closing. Comments were received
from only one commenter on these paragraphs. The commenter states that
the maximum debt to equity rate of 2:1 is unrealistic and should be
revised upwards. The commenter considers the ratio unrealistic because
a company could have a large asset requisition and yet still be strong
enough to pay back its loan. Furthermore, since banks allow a ratio of
3:1 in certain cases, MARAD regulations are more burdensome. In
addition, the commenter states that the working capital ratio is
obsolete and should be replaced by a cash flow ratio for asset-based
companies. A minimum ratio of 1.25:1 is recommended by the commenter in
keeping with current banking requirements.
MARAD Response: MARAD does not agree that a debt to equity ratio of
2:1 and a positive working capital ratio are either unrealistic or
obsolete standards, and is not amending these requirements. However,
MARAD recognizes that these standards may not be appropriate in certain
cases and does not apply them in every case. Financial requirements are
determined on a case-by-case basis and are dependent upon numerous
financial and economic factors. Pursuant to paragraph (h) of this
section, the Secretary may waive or modify the financial terms or
requirements otherwise applicable under this section, upon determining
that there is adequate security for the Guarantees. Should an applicant
have sufficient financial resources to justify a different ratio, the
Secretary already has the authority to modify the financial
requirements.
Section 298.14 Economic Soundness
Section 298.14. One commenter stated that in evaluating the income
stream for a one vessel project, MARAD should consider the assets of
the entire company which back up the loan, including other vessels'
income. In addition, loans should provide for repayment without the
imposition of pre-payment penalties kicking in.
[[Page 21310]]
MARAD Response: Paragraph (a)(1)(iii) of this section states that
in making a finding of economic soundness MARAD shall consider all
relevant factors, including, but not limited to, the projected revenues
and expenses associated with employment of the vessel. Whether the
project is a one Vessel project or a multi-Vessel project, MARAD
believes that it is only reasonable to require that the projected cash
flow and net income of the project support the Title XI debt service
requirements. Therefore, MARAD declines to amend the requirement.
As to the comment that loans should provide for repayment without
pre-payment penalties kicking in, payment terms, conditions, and
penalties, if any, are determined prior to the issuance of the
Obligations and are subject to negotiation. For MARAD to require that
no pre-payment penalties will kick in if a loan should be prepaid is
inappropriate and MARAD sees no reason to take such a position as the
issue of pre-payment penalties must be negotiated between the Obligor
and the Obligee(s).
Although no comments were specifically received regarding
paragraphs (b)(3) and (b)(4), MARAD has re-evaluated this requirement
and has determined that the IRR calculation is not necessary and is
deleting the appropriate paragraphs. The IRR calculation regulation was
originally intended to provide specific, clear procedures that would
produce more accurate and complete information for selecting successful
applicants. However, on August 6, 1992, MARAD issued a final rule which
shifted the burden for computation of the IRR from the applicant to
MARAD.
This section already outlines relevant factors that are considered
by MARAD in making the economic soundness finding for a project. MARAD
can make an economic soundness finding for a particular project based
on the revenue, cost data, cash flows and other data already required
to be submitted by all applicants. In view of the foregoing, the IRR
calculation is not necessary to make a finding of economic soundness.
Section 298.18 Financing Advanced or Modern Shipbuilding Technology
Section 298.18(a). This paragraph states that the Secretary will
approve Guarantees to finance Advanced or Modern Shipbuilding
Technology only upon a finding by the Secretary that the Guarantees
will aid in the transition from naval shipbuilding to commercial ship
construction for domestic and export sales, encourage shipyard
modernization, and support increased productivity.
MARAD Response: Although no comments were received on this
paragraph, MARAD has reevaluated the requirement for this finding as
part of its overall concern to reduce regulatory burden. This finding
is not a statutory requirement; it was incorporated in the Title XI
regulations on March 31, 1994, with the publication of the interim
final rule which became final on September 16, 1994. Subtitle D of the
Authorization Act includes a similar requirement for eligible export
vessels which does not apply to shipyard modernization and improvement.
In view of the fact that: (1) There is no statutory requirement for
the Secretary to include the provision in paragraph (a) of this
section; (2) Section 298.17 of the regulations already provides that,
in evaluating project applications, the Secretary shall also consider
whether, in the case of an Eligible Shipyard, the application provides
for the capability of the shipyard to engage in naval vessel
construction in time of war or national emergency; (3) paragraph (b) of
this section states that the Secretary shall not approve applications
for Advanced or Modern Shipbuilding Technology which, after taking into
consideration certain factors, would preclude approval of another
application which would result in a more desirable use of appropriated
funds; and (4) Sec. 298.3(e) states that priority will be given to
applications from General Shipyard Facilities that have engaged in
naval Vessel construction and that have pilot programs for shipyard
modernization and Vessel construction, with respect to funds
appropriated to the Secretary of Defense, it is now MARAD's position
that General Shipyard Facilities applying for Guarantees to finance
Advanced or Modern Shipbuilding Technology need not satisfy a mandatory
requirement as to prior naval shipbuilding. The language in the
paragraph is being amended accordingly.
Section 298.20 Term, Redemption and Interest Rate.
Section 298.20. One commenter stated that where charter rates are
very low, financial assistance could be provided to an operator such as
an extension of the Title XI maturity from 20 years to 25 years or a
moratorium of the principal payments for a certain period of time to
enable an owner to keep a ship out of lay-up.
MARAD Response: This section outlines Obligation criteria with
respect to term limitations, required redemptions and interest rate.
Title XI Obligations shall not have a maturity which exceeds the
anticipated physical and economic life of the asset being financed and,
with respect to vessels, no more than twenty-five years from certain
dates. MARAD already has the authority to defer principal payments, if
warranted. Further, to protect, preserve or improve the collateral held
as security by MARAD to secure Title XI debt, Sec. 298.28 provides
MARAD discretion to make, or commit to make, an advance or payment of
funds for Vessel-related expenses or fees.
Section 298.21 Limits
Section 298.21(c). One commenter supports inclusion of Guarantee
Fees as an item of Actual Cost in addition to certain broker
commissions and underwriting fees for export vessels.
MARAD Response: MARAD agrees with the comment that if Guarantee
Fees are to be paid up front and are eligible to be financed with Title
XI, then Guarantee Fees should be included as an item of Actual Cost.
No further changes to paragraph (c) are necessary. With regard to
broker commissions and underwriting fees for Eligible Export Vessels,
paragraph (c)(4) does not allow ``fees, commissions or charges for
granting or arranging for financing'', and paragraph (c)(6) does not
allow ``underwriting or trustee's fees'' to be included in Actual Cost.
Recognizing the importance that the payment of commissions plays in the
export market, MARAD will allow commissions to be included in the
foreign equipment and services amount of the Actual Cost of the
project, provided: (1) A majority of the work done by the parties
receiving the commissions is in the form of design and engineering
work, and (2) the commissions represent a small amount of the total
contract price. As the commissions represent a portion of the total
shipyard contract price, therefore, there is no need to amend
paragraphs (c)(4) and (c)(6). A new sentence is being added to
paragraph (b) which states that commissions may be included in the
amount of the Actual Cost of a project, subject to the foregoing
provisions.
Section 298.21(d). As mentioned previously in the preamble, the
NPRM solicited public comments regarding the guarantee of construction
period financing, as authorized by the Title XI regulations. MARAD
specifically invited comments on available forms of security, in
addition to surety bonds, that could protect MARAD's interests as a
lender, how progress should be monitored, what new procedures/
methodologies should be developed to
[[Page 21311]]
improve the progress payment system, and if payment of interest on the
obligations should be made on a more frequent basis (i.e., weekly,
monthly or quarterly) than that outlined in Sec. 298.22, Amortization
of Obligations. In addition, MARAD solicited comments on how the Title
XI applicant will verify/certify to MARAD that certain costs have been
paid prior to disbursement of Title XI funds from the escrow account,
including, for example, the use of an agent on MARAD's behalf to verify
that certain costs have been paid.
On the payment of interest issue, one commenter states that the
question of whether interest should be paid more frequently has no
bearing on construction risk. A requirement for more frequent payment
than would be required after delivery would make issuance of long-term
bonds during the construction period more awkward. Another commenter
adds that interest during the construction period should be paid semi-
annually. Finally, one commenter recommended that interest be collected
monthly in arrears.
On the agent issue, one commenter states that the use of an agent
is an unnecessary complication. Actual Cost is readily determined by
inspection of invoice payments. The issue is really whether progress
payment criteria established in the contract have been met. The
commenter adds that MARAD should adopt a system with only four or five
progress payments that are keyed to readily ascertained events, such as
keel laying or start of fabrication. MARAD should avoid any elaborate
audit procedures for costs incurred by the shipyard since the cost
basis for the project is a fixed price. A second commenter states that
the use of an agent by MARAD for certification of completion and
payment of costs is similar to the ``privatization'' going on in many
agencies and departments today and supports the concept. A final
commenter adds that progress could be monitored by an approved agent
and the shipyard and owner should have flexibility to develop
procedures/methodologies. The commenter adds that the applicant could
verify/certify certain costs paid prior to disbursement using an agent
on behalf of MARAD.
Finally, one commenter suggests that the words ``or Advanced
Shipbuilding Technology or Modern Shipbuilding Technology'' should not
be inserted as proposed in Sec. 298.21(d) because they are already in
the current regulations.
MARAD Response: MARAD disagrees with the comment that the words
``or Advanced Shipbuilding Technology or Modern Shipbuilding
Technology'' should not be inserted in Sec. 298.21(d) because the words
are already in the current regulations. Although Sec. 298.21 (b) has
already been amended to reflect the expansion of the Title XI program
for financing Advanced Shipbuilding Technology and/or Modern
Shipbuilding Technology, it is necessary that the applicant submit to
MARAD documents substantiating all claimed costs eligible under that
section prior to payment from the Escrow Fund or Construction Fund and
prior to the final Actual Cost determination for the Advanced
Shipbuilding Technology and/or Modern Shipbuilding Technology.
On the payment of interest issue, MARAD agrees that the frequency
of making interest payments has no bearing on construction risk, and a
requirement for a more frequent payment than would be required after
delivery would make issuance of long-term bonds during the construction
period more difficult. In view of the foregoing, MARAD does not believe
that interest on Obligations should be paid on a more frequent basis
than that outlined in Sec. 298.22, which, in most cases, is semi-
annually.
On the agent issue, MARAD disagrees with the comment that the use
of an agent is an unnecessary complication. Provided that the
methodology for substantiation of Actual Cost is determined prior to
the establishment of an Escrow Fund or Construction Fund, using an
agent on behalf of MARAD to verify/certify certain costs paid prior to
disbursement can improve the administration of the Title XI program.
MARAD believes that it is important to maintain flexibility in the
procedures/methodologies for agent certification, and therefore
declines to adopt by regulation a progress payment schedule based on
specified milestones as such a payment schedule keyed to definitive
events is already permissible.
Hence, MARAD will not amend the text of paragraph (d) as proposed
in the NPRM.
Section 298.28 Advances
Concerning paragraph (a), one commenter suggested that the fourth
sentence should be removed because the net result of the proposed
inserts and deletions render the fourth sentence meaningless.
MARAD Response: MARAD agrees and the fourth sentence is being
deleted.
Section 298.32 Required Provisions in Documentation
Section 298.32 (b). Pursuant to this section, the Obligor shall
assign certain rights and shall covenant certain items as required by
the Secretary.
Paragraph (b)(4) requires covenants relating to the annual filing
of satisfactory evidence of continuing U.S. citizenship, in accordance
with 46 CFR part 355, with the exception of Eligible Export Vessels and
shipyards with Advanced or Modern Shipbuilding Technology projects. One
commenter states that this requirement is inappropriate for those
classes of Vessels which must be documented under the laws of the U.S.
but are not required by Section 1101(b) of the Act to be owned by
Section 2 citizens. Since, the Coast Guard is the agency charged with
enforcing the documentation laws of the U.S. and its regulations at 46
CFR 67.163 require an annual report of eligibility for such
documentation from the owners of all documented Vessels, the commenter
writes that no useful purpose is served by requiring owners of cargo
and passenger Vessels, tugs and towboats and barges and dredges to file
affidavits pursuant to Part 355.
MARAD Response: Until the Act is further amended, MARAD will retain
the regulation regarding the filing of affidavits pursuant to 46 CFR
part 355.
Paragraph (b)(6) requires covenants to maintain marine and war risk
hull and machinery insurance on the Vessel in an amount equal to 110
percent of the outstanding Obligations or up to the full commercial
value of the Vessel, whichever is greater. One commenter recommends
that making the required insurance co-extensive with the Guarantee
amount (as MARAD only guarantees up to 87\1/2\ percent of the Actual
Cost of the Vessel) would ensure that MARAD is ``made whole'' in the
event of a disaster, while not creating an unnecessary financial burden
for the owners. In addition, the commenter recommends
FR Doc. 96-11289 Obligation GuaranteesProgram Administration
that war risk
coverage should not be required for vessels operating in U.S. waters.
MARAD Response: War risk insurance covers other perils besides war,
such as strikes, riots and civil commotions. MARAD has not required war
risk insurance for inland Vessels, Great Lakes Vessels, or Vessels
operating solely in the intercoastal waterway because they are in a
protected environment from risks of war. Vessels operating in domestic
coastal trades and Jones Act offshore trades, including Puerto Rico and
Hawaii, are required to have war risk insurance because these vessels
are often out of protected U.S. territorial waters and in international
waters, where they might encounter a hostile vessel or plane. For
example, in the
[[Page 21312]]
early 1960s a U.S.-flag vessel, the FLORIDIAN was attacked by a Cuban
fighter plane in international waters off the coast of Florida. Another
U.S.-flag vessel, operating in the U.S. coastwise trade during that
timeframe, the MARINE SULFUR QUEEN, vanished without a trace or
established cause somewhere off the Florida coast on a voyage from the
U.S. Gulf Coast to the U.S. East Coast. In addition, there is the
possibility of minor regional flare ups where there might be the
possibility of extending hostilities into international waters where
U.S.-flag vessels are transiting. Accordingly, MARAD has only agreed to
waive the war risk insurance requirement for vessels operating solely
on or in inland protected waters. Finally, war risk insurance is
relatively inexpensive, with coverage for a $10 million vessel costing
$2,500 per year.
With regard to the comments received on the covenants to maintain
marine and war risk hull and machinery insurance on the Vessel in an
amount equal to 110 percent of the outstanding Obligations or up to the
full commercial value of the Vessel, whichever is greater, MARAD has
considered the commenter's request to reduce the amount of coverage to
equal the outstanding Obligations on a Vessel. In view of the fact
that: (1) Any payoff by MARAD pursuant to its Guarantee would include
interest accruals on the outstanding Obligations, and (2) the potential
for a dispute with other parties over the insurance proceeds is reduced
if the Vessel is insured in an amount equal to 110 percent of the
outstanding Obligations or up to the full commercial value of the
Vessel, whichever is greater, MARAD does not agree with the commenter
that the amount of insurance coverage should equal the amount of the
outstanding Obligations. Hence, MARAD sees no reason to change the
present wording of paragraph (b).
Section 298.33 Escrow Fund
Section 298.33 One commenter states that, in the requirement that a
satisfactory certification as to the percentage of completion of the
Vessel be made in conjunction with distributions from the Escrow Fund,
the upfront payment of the Guarantee Fee as an item of Actual Cost
needs to be factored into the percentage of completion.
MARAD Response: Paragraph (e) of this section outlines the
necessary requirements for disbursing funds from the Escrow Fund. As
the upfront Guarantee Fee will be included in the Actual Cost of a
project and will be factored into the percentage of completion
determination referenced in subparagraph (3), MARAD is not amending the
present wording of this section.
Section 298.35 Reserve Fund and Financial Agreement
Section 298.35. The purpose of this section is to outline the
requirements in a Title XI Reserve Fund and Financial Agreement (RFFA),
which a company must enter into at the first Closing at which
Obligations are issued. As mentioned previously, MARAD specifically
solicited comments in the NPRM on any proposed amendments to the
standard documentation, particularly with regard to Eligible Export
Vessels and shipyard modernization.
Several commenters stated that inadequate time was given to review
and comment on the RFFA; a reduction in all documentation, not just the
RFFA, is badly needed but is too complex an issue to be dealt with now.
The Title XI documentation is overly complicated and greatly increases
transaction costs and discourages applicants according to these
commenters. As a general comment, the documentation needs to be revised
to be consistent with the recent changes in law for shipyard
modernization and Eligible Export Vessels. One commenter suggests the
establishment of an advisory committee composed of representatives from
MARAD, the maritime bar, investment and commercial banking industry,
shipbuilding industry and the shipowning and operating industry to
review and assist in documentation revisions.
MARAD Response: As noted in Sec. 298.3(a) above, MARAD has decided
to defer consideration of this matter in order to avoid delay in
issuance of this rule. MARAD supports the suggestion that a forum be
established by a non-Governmental authority composed of representatives
from MARAD, the maritime bar, investment and commercial banking
industry, shipbuilding industry and the shipowning and operating
industry to review and assist in revisions to the Title XI documents.
Section 298.36 Annual Guarantee Fee
Section 298.36. Most commenters oppose the lump sum prepayment of
the annual Guarantee Fee, especially without the right of reimbursement
in the event of prepayment. If the non-refundable-if-prepaid aspect
were removed, then some of the commenters would support the lump sum
payment of the annual Guarantee Fee. One commenter opposes the increase
and prepayment of the Guarantee Fee unless it results in an increase in
guarantee authority, as is provided in a current legislative proposal.
Several commenters believe that the lump sum payment of the Guarantee
Fee would force an applicant to incur increased project costs beyond
those which would otherwise be due, making it more economical to build
in other countries and resulting in MARAD and the applicant forfeiting
currently existing program flexibility. One commenter states that the
annual nature of the fee allows MARAD a second look at project exposure
and provides an incentive for the prepayment of principal, as a means
of reducing the applicant's real project financing costs. The commenter
concludes by stating that the proposed change appears to be clearly
outside the scope of the Title XI program.
Another commenter stated that there is no indication as to the
discount rate to be used in calculating the present value of the lump
sum Guarantee Fee. The commenter proposes that a discount rate equal to
the coupon rate (expected to be carried for the guaranteed bonds issued
for the project) be applied to calculate the guarantee fee due at the
time of the date of the security agreement. The commenter adds that it
should be made clear that no additional Guarantee Fee is required in
the event of a refinancing.
Finally, a commenter argues that the calculation of the annual
Guarantee Fee schedule should be based on the company's overall rating,
i.e., whether the company is governed by the Section 12 or Section 13
covenants of its Title XI Reserve Fund and Financial Agreement, rather
than a debt to equity ratio. The commenter recommends a 50 basis points
fee for Section 13 governed companies and a 75 basis points fee for
Section 12 governed companies.
MARAD Response: Section 1104(A)(e) of the Act, 46 App. U.S.C. 1274,
provides that the Secretary is authorized to fix the Guarantee Fee for
an Obligation and that all fees shall be computed and shall be payable
to the Secretary under such regulations as prescribed by the Secretary.
MARAD has exercised its authority to require the lump sum payment of
the annual Guarantee Fee, especially without the right of reimbursement
in the event of prepayment, to ensure that the Government will retain
the full amount of the Guarantee Fee should the Obligations be retired
prior to maturity, i.e., if a default occurs on the Obligations or the
Obligations are prepaid. The regulatory change which indicates a
modification in agency policy is within the scope of the Title
[[Page 21313]]
XI program. In addition, the lump sum Guarantee Fee payment would
create an incentive for applicants to enhance the financial structure
of their transactions in order to merit eligibility for the lowest
possible Guarantee Fee rate, and therefore, reduce the risk associated
with the project.
Contrary to the comments of one party, the lump sum payment of the
annual Guarantee Fee would not result in an increase in the Title XI
guarantee authority. The lump sum payment was part of a legislative
proposal previously submitted to Congress which increased the Guarantee
Fees charged for a Commitment. As the language increasing the Guarantee
Fees charged has been deleted from the legislation, the lump sum
payment of the Guarantee Fee will not lower the subsidy rate MARAD is
required to calculate according to the Credit Reform Act of 1990.
Therefore, the commenter is incorrect in stating that receipt of the
guarantee fee up front will result in an increase of the amount of
available Title XI funding without increasing appropriations.
The belief of several commenters that the lump sum payment of the
Guarantee Fee would force an applicant to incur increased project costs
beyond those which would otherwise be due is not true. It is estimated
that the following amounts are similar: (1) The full payment of the
first year's annual Guarantee Fee at the Closing as required prior to
this final rule, and (2) the equity portion, or a minimum of 12\1/2\
percent of the lump sum payment being financed. With these
similarities, the lump sum payment of the Guarantee Fee, and the
potential of financing up to a maximum of 87\1/2\ percent of this
amount, it is incorrect to assume the lump sum payment of the Guarantee
Fee would force an applicant to incur increased project costs beyond
those which would otherwise be due.
The comment that there is no indication in the NPRM as to the
discount rate to be used in calculating the present value of the lump
sum Guarantee Fee is also incorrect. The NPRM revised paragraph (e) of
this section and stated, among other things, that in ``determining the
amount of the Guarantee Fee to be paid, MARAD will use a discount rate
based on information contained in the Department of Commerce's Economic
Bulletin Board quarterly rates.'' MARAD agrees with the comment that
where bonds are issued in more than one series, the Guarantee Fee
should be payable only to the extent of the total amount of obligations
issued. The third sentence of the paragraph is deleted to coordinate
the payment of the fee with Sec. 298.36(b), which sets forth the method
of calculating the fee.
Finally, MARAD disagrees with the comment that the calculation of
the annual Guarantee Fee schedule should be based on the company's
overall rating, i.e., whether the company is governed by the Section 12
or Section 13 covenants of its Title XI Reserve Fund and Financial
Agreement, rather than a debt to equity ratio. The extent to which a
company is leveraged is a reasonable basis for assessing risk insofar
as determining the appropriate guarantee fee. In addition, the
commenter proposes a fee range of \1/2\ percent to \3/4\ percent; but
this does not take into account the full Guarantee Fee range outlined
in the statute of \1/4\ percent to \1/2\ percent for undelivered
vessels and \1/2\ percent to 1 percent for delivered vessels.
Section 298.40 Defaults
Paragraphs (b) and (d) of Sec. 298.40, Defaults, provide that if a
demand for payment of the Guarantees is made, the Secretary shall make
payment of the unpaid principal amount of Obligations and unpaid
interest accrued and accruing thereon up to, but not including, the
date of payment. One commenter suggested that the mandatory requirement
for MARAD to pay off 100% of the outstanding debt in the case of a
defaulting owner should be changed to provide an option for an
assumption of the Obligations rather than an early payoff.
MARAD Response: In view of the fact that the Act provides that in
the event of a default, the Secretary may assume the Obligor's rights
and duties under the Title XI Obligation and agreements and may make
any payments in default, MARAD is modifying paragraphs (b) and (d)
accordingly.
Other Comments
In addition to the above comments received in response to the NPRM,
several commenters provided comments which are not within the scope of
this rulemaking. One commenter suggested that: (1) MARAD should
consider making the Depository Trust Company (DTC) eligible as a
Depository (there would be more competition and therefore better
interest rates), (2) MARAD should be more adaptable to new financing
techniques as they arise, and (3) Title XI Closings should take place
at regional offices rather than in Washington. One other commenter
expressed opposition to proposed legislation which increases the
Guarantee Fee 50 percent.
MARAD Response: Any proposed legislation is not within the scope of
this rulemaking. As to the other comments, MARAD has the flexibility
under its existing regulations to consider a DTC as a Depository, to
adapt to new financing techniques, and to allow Closings at regional
offices if appropriate. As a result, no change in Section 298 is
necessary.
The NPRM proposed removing and reserving Sec. 298.25, financing
repayment of construction-differential subsidy. Section 298.25 is
removed but has not been reserved. As a result, Sec. 298.26 through
298.28 have been redesignated sections 298.25 through 298.27.
In addition to the above, minor administrative changes have been
made to Secs. 298.3(e), 298.13(e)(1)(i), 298.13(e)(1)(i)(A),
298.14(a)(2)(i)(B), 298.14(a)(2)(iii)(G), 298.14(b)(1)(ii), and
298.32(a)(3). '
Rulemaking Analyses and Notices
Executive Order 12866 (Regulatory Planning and Review) and Other
Requirements of Law
This rulemaking has been reviewed under section 3(f) of Executive
Order 12866, Regulatory Planning and Review, and it has been determined
that this is not an economically significant regulatory action.
However, since this rule would further the implementation of the
National Shipbuilding Initiative program established under Subtitle D
of Title XIII, Pub. L. 103-160, to support the industrial base and
national security objectives by assisting in the reestablishment of a
United States shipbuilding industry as a self-sufficient
internationally competitive industry, and is of great interest to the
U.S. maritime industry, it has been determined to be a significant rule
under the Department's Regulatory Policies and Procedures. Accordingly,
it is considered to be a significant regulatory action under E.O. 12866
and has been reviewed by the Office of Management and Budget. Because
the economic impact should be minimal, further regulatory evaluation is
not necessary. These amendments are intended only to simplify and
clarify the procedural requirements for obtaining Guarantees,
principally to expedite the process for MARAD's review of applications.
Its purpose is to encourage the construction of ships in U.S. shipyards
both for the domestic and the Eligible Export Vessel programs and the
modernization and improvement of U.S. general shipyard facilities.
MARAD is publishing this final rule to carry out the Secretary's
[[Page 21314]]
responsibilities under Title XI and to improve program administration.
Federalism
MARAD has analyzed this rulemaking in accordance with the
principles and criteria contained in Executive Order 12612 and has
determined that these regulations do not have sufficient federalism
implications to warrant the preparation of a Federalism Assessment.
Regulatory Flexibility Act
MARAD certifies that this regulation will not have a significant
economic impact on a substantial number of small entities.
Environmental Assessment
MARAD has considered the environmental impact of this rulemaking
and has concluded that an environmental impact statement is not
required under the National Environmental Policy Act of 1969.
Paperwork Reduction Act
This rulemaking contains reporting requirements that have
previously been approved by the Office of Management and Budget
(Approval No. 2133-0018). Use of the present Maritime Administration
Title XI Obligation Guarantees form will be continued pending revision
and issuance of new forms, which must be approved by the Office of
Management and Budget.
List of Subjects in 46 CFR Part 298
Loan programs-Transportation, Maritime carriers, and Mortgages.
Accordingly, 46 CFR part 298 is revised as follows:
PART 298--OBLIGATION GUARANTEES
Subpart A--Introduction
Sec.
298.1 Purpose.
298.2 Definitions.
298.3 Applications.
Subpart B--Eligibility
298.10 Citizenship.
298.11 Vessel requirements.
298.12 Applicant and operator's qualifications.
298.13 Financial requirements.
298.14 Economic soundness.
298.15 Investigation fee.
298.16 Substitution of participants.
298.17 Evaluation of applications.
298.18 Financing Advanced or Modern Shipbuilding Technology.
298.19 Financing Eligible Export Vessels.
Subpart C--Guarantees
298.20 Term, redemptions and interest rate.
298.21 Limits.
298.22 Amortization of Obligations.
298.23 Refinancing.
298.24 Financing facilities and equipment related to marine
operations.
298.25 Excess interest or other consideration.
298.26 Lease payments.
298.27 Advances.
Subpart D--Documentation
298.30 Nature and content of Obligations.
298.31 Mortgage.
298.32 Required provisions in documentation.
298.33 Escrow fund.
298.34 Construction fund.
298.35 Reserve Fund and Financial Agreement.
298.36 Annual Guarantee Fee.
298.37 Examination and audit.
298.38 Partnership agreements.
298.39 Exemptions.
Subpart E--Defaults and Remedies, Reporting Requirements, Applicability
of Regulations
298.40 Defaults.
298.41 Remedies after default.
298.42 Reporting requirements-financial statements.
298.43 Applicability of the regulations.
Subpart F--Administration [Reserved]
Authority: 46 App. U.S.C. 1114(b), 1271 et seq.; 49 CFR 1.66.
Subpart A--Introduction
Sec. 298.1 Purpose.
This part prescribes regulations implementing the provisions of
Title XI of the Merchant Marine Act, 1936, as amended, governing
Federal ship financing assistance (46 App. U.S.C. 1271 et seq.).
Sec. 298.2 Definitions.
For the purpose of this part:
(a) Act means the Merchant Marine Act, 1936, as amended (46 App.
U.S.C. 1101 through 1294).
(b) Actual Cost of a Vessel or Advanced or Modern Shipbuilding
Technology means, as of any specified date, the aggregate, as
determined by the Secretary, of all amounts paid by or for the account
of the Obligor on or before that date and all amounts which the Obligor
is then obligated to pay from time to time thereafter, for the
construction, reconstruction or reconditioning of such Vessel or
Advanced or Modern Shipbuilding Technology (described in
Sec. 298.21(b)).
(c) Advanced Shipbuilding Technology means:
(1) Numerically controlled machine tools, robots, automated process
control equipment, computerized flexible manufacturing systems,
associated computer software, and other technology for improving
shipbuilding and related industrial production which advance the state-
of-the-art; and
(2) Novel techniques and processes designed to improve shipbuilding
quality, productivity, and practice, and to promote sustainable
development, including engineering design, quality assurance,
concurrent engineering, continuous process production technology,
energy efficiency, waste minimization, design for recyclability or
parts reuse, inventory management, upgraded worker skills, and
communications with customers and suppliers.
(d) Closing means a meeting of various participants or their
representatives in a Title XI financing, at which a commitment to issue
Guarantees is executed, or at which all or part of the Obligations are
authenticated and issued and the proceeds are made available for a
purpose set forth in section 1104(a) of the Act, or at which a Vessel
is delivered and a Mortgage is executed as security to the Secretary.
(e) Depository means a bank or other financial institution
organized and doing business under the laws of the United States, any
State or territory thereof, the District of Columbia or the
Commonwealth of Puerto Rico that is authorized under such laws to
exercise corporate trust powers, is a member of the Federal Deposit
Insurance Corporation, and accepts deposits for purposes of
implementing the program authorized by Title XI of the Act; but in the
case of an Eligible Export Vessel can also mean, with the specific
approval of the Secretary, foreign branches, but not the foreign
subsidiaries, of such United States financial institutions.
(f) Depreciated Actual Cost of a Vessel or Advanced or Modern
Shipbuilding Technology means the Actual Cost of the Vessel or Advanced
or Modern Shipbuilding Technology, as defined in paragraph (b) of this
section (less a residual value of 2\1/2\ percent of United States
shipyard construction cost or, in the case of Advanced or Modern
Shipbuilding Technology, a residual value as appropriate), depreciated
on a straightline basis over the useful life of the Vessel or Advanced
or Modern Shipbuilding Technology as determined by the Secretary, not
to exceed twenty-five years from the date the Vessel or Advanced or
Modern Shipbuilding Technology was delivered by the shipbuilder or
manufacturer or, if the Vessel or Advanced or Modern Shipbuilding
Technology has been reconstructed or reconditioned, the Actual Cost of
the Vessel or Advanced or Modern Shipbuilding Technology depreciated on
a straightline basis from the date the Vessel or Advanced or Modern
Shipbuilding Technology was
[[Page 21315]]
delivered by the shipbuilder or manufacturer to the date of such
reconstruction or reconditioning, on the basis of the original useful
life of the Vessel or Advanced or Modern Shipbuilding Technology, and
from the date of said reconstruction or reconditioning on a
straightline basis and on the basis of a useful life of the Vessel or
Advanced or Modern Shipbuilding Technology determined by the Secretary,
plus all amounts paid or obligated to be paid for the reconstruction or
reconditioning, depreciated on a straightline basis and on the basis of
a useful life of the Vessel or Advanced or Modern Shipbuilding
Technology determined by the Secretary.
(g) Documentation means all or part of the agreements relating to
an entire Title XI financing which must be furnished to the Secretary,
irrespective of whether the Secretary is a party to each agreement.
(h) Eligible Export Vessel means a Vessel constructed,
reconstructed, or reconditioned in the United States for use in world-
wide trade which will, upon delivery or redelivery, be placed under or
continued to be documented under the laws of a country other than the
United States.
(i) Eligible Shipyard means a private shipyard located in the
United States.
(j) General Shipyard Facility means:
(1) For operations on land, any structure or appurtenance thereto
designed for the construction, repair, rehabilitation, refurbishment,
or rebuilding of any Vessel, including graving docks, building ways,
ship lifts, wharves and pier cranes; the land necessary for any
structures or appurtenances; and equipment necessary for the
performance of any function referred to in this paragraph; and
(2) For operations other than on land, any Vessel, floating
drydock, or barge built in the United States, within the meaning of
Sec. 298.11(a), and used for, or a type that is usually used for,
activities referred to in paragraph (k) of this section.
(k) Guarantee means the contractual commitment of the United States
of America, represented by the Secretary, endorsed on each Obligation,
to make payment to the Obligee or an agent, upon demand, of the unpaid
interest on, and the unpaid balance of the principal of such
Obligation, including interest accruing between the date of default
(described in Sec. 298.40 of this part) and the date of payment.
(l) Guarantee Fee means the annual fee payable to the Secretary in
consideration for the continuing Guarantees.
(m) Indenture Trustee means a bank with corporate trust powers, or
a trust company, with a combined capital and surplus of at least
$3,000,000, which is located in and organized and doing business under
the laws of the United States, any State or territory thereof, the
District of Columbia or the Commonwealth of Puerto Rico, which has
duties under the terms of a Trust Indenture, entered into with the
Obligor, providing for the issuance and registration of the ownership
and transfer of Obligations, the disbursement of funds held in trust by
the Indenture Trustee for the redemption and payment of interest and
principal with respect to Obligations, demands by the Indenture Trustee
for payment under the Guarantees in the event of default and the
remittance of payments received to the Obligees. Pursuant to a specific
authorization of the Secretary, the Indenture Trustee may also
authenticate the Guarantees.
(n) Letter Commitment means a letter from the Secretary to an
applicant for Guarantees, setting forth specific determinations made by
the Secretary with respect to the applicant's proposed project, as
required by the Act and regulations of this part, and stating the
Secretary's commitment to execute Guarantees, subject to compliance by
the applicant with any conditions specified therein.
(o) Maritime Administration means that agency created within the
Department of Transportation by Reorganization Plan No. 21 of 1950 (64
Stat. 1273), amended by Reorganization Plan No. 7 of 1961 (75 Stat.
840), as amended by Pub. L. 91-469 (84 Stat. 1036).
(p) Modern Shipbuilding Technology means a technology to be
introduced into the shipyard that is comprised of the best available
proven technology, techniques, and processes appropriate to advancing
the state-of-the-art of the applicant shipyard, or exceeds the best
available processes of American shipbuilding, and that will enhance its
productivity and make it more competitive internationally.
(q) Mortgage means a first Preferred Mortgage on any Vessel or a
first mortgage with respect to Advanced Shipbuilding Technology or with
respect to Modern Shipbuilding Technology.
(r) Obligation means any note, bond, debenture, or other evidence
of indebtedness, as defined in section 1101(c) of the Act, issued for
one of the purposes specified in section 1104(a) of the Act.
(s) Obligee means the holder of an Obligation.
(t) Obligor means any party primarily liable for payment of
principal of or interest on any Obligation.
(u) Paying Agent means any Person appointed by the Obligor to pay
the principal of or interest on the Obligations on behalf of the
Obligor.
(v) Person means any individual, estate, foundation, corporation,
partnership, limited partnership, joint venture, association, joint-
stock company, trust, unincorporated organization or other acceptable
legal business entity, government, or any agency or political
subdivision thereof.
(w) Preferred Mortgage means:
(1) In the case of a mortgage on a Vessel documented under United
States law, whenever made, a mortgage that--
(i) Includes the whole of a Vessel;
(ii) Is filed in substantial compliance with 46 U.S.C. 31321;
(iii) Covers a documented Vessel or a Vessel for which an
application for documentation has been filed that is in substantial
compliance with the requirements of 46 U.S.C. Ch. 121 and the
regulations prescribed under that Chapter by the United States Coast
Guard; and
(iv) Has as the mortgagee--
(A) A State;
(B) The United States Government;
(C) A Federally insured depository institution, unless disapproved
by the Secretary for that Vessel;
(D) An individual who is a citizen of the United States;
(E) A Person qualifying as a citizen of the United States pursuant
to a provision of 46 App. U.S.C. 802; or
(F) A Person approved by the Secretary pursuant to regulations at
46 CFR 221.23(d); and
(2) In the case of a mortgage on an Eligible Export Vessel,
whenever made, a mortgage that--
(i) Constitutes a mortgage that is established as security on an
Eligible Export Vessel under the laws of a foreign country;
(ii) Was executed under the laws of that foreign country and under
which laws the ownership of the Vessel is documented;
(iii) Is registered under the laws of that foreign country in a
public register at the port of registry of the Vessel or at a central
office;
(iv) Otherwise satisfies the requirements of 46 U.S.C. 31301(6)(B)
to constitute a Preferred Mortgage; and
(v) Has the Secretary as the mortgagee, or such other mortgagee as
is permitted by the applicable foreign law and approved by the
Secretary.
(x) Related Party means as that term is defined by generally
accepted
[[Page 21316]]
accounting principles outlined in paragraph 24 of Statement of
Financial Accounting Standards No. 57, Related Party Disclosures.
(y) Secretary means the Secretary of Transportation, acting by and
through the Maritime Administrator, Department of Transportation, the
Maritime Administrator or any official of the Maritime Administration
to whom is duly delegated the authority, from time to time, to perform
the functions of the Secretary of Transportation or the Maritime
Administrator, Department of Transportation.
(z) Secretary's Note means a promissory note from the Obligor to
the Secretary in an amount equal to the aggregate amount of the
Obligations, which is issued simultaneously with the Guarantees.
(aa) Security Agreement means the primary contract between the
Obligor and the Secretary, providing for the transfer to the Secretary
by the Obligor of all right, title and interest of the Obligor in
certain described property (including rights under contracts in
existence or to be entered into), and containing other provisions
relating to representations and responsibilities of the Obligor to the
Secretary as security for the issuance of Guarantees.
(bb) Vessel means all types of vessels, whether in existence or
under construction, including passenger, cargo and combination
passenger-cargo carrying vessels, tankers, towboats, barges and dredges
which are or will be documented under the laws of the United States,
floating drydocks which have a capacity of at least thirty-five
thousand or more lifting tons and a beam of one hundred and twenty-five
feet or more between the wing walls and oceanographic research or
instruction or pollution treatment, abatement or control vessels, which
are owned by citizens of the United States; except that an Eligible
Export Vessel shall not be documented under the laws of the United
States.
Sec. 298.3 Applications.
(a) Content and amendment. Each application for a commitment to
execute Guarantees shall be made on Form MA 163 to the Secretary,
Maritime Administration, U.S. Department of Transportation, Washington,
DC 20590, and be certified in the manner prescribed on said form. All
required information, including copies of any demise charters, time
charters in excess of six months, contracts of affreightment, drilling
contracts or other contractual arrangements with respect to the Vessel
or Vessels, shall be presented on the form or in exhibits and schedules
submitted with the application. In addition, the Declaration of
Lobbying form as required by 31 U.S.C. 1352 shall be filed with the
initial application, as part of the formal submission. Each exhibit and
schedule shall contain a statement, on the first page thereof, clearly
identifying the document as an attachment to an application for
Obligation Guarantees, stating the name of the applicant and the date
of the application. Any amendment of data contained in the application
filed shall be marked ``Amendment,'' and shall contain a statement on
the first page thereof, clearly identifying the document as an
amendment to an application for Obligation Guarantees, stating the name
of the applicant and the date of application. The certification
required on Form MA 163 shall be affixed to each amendment.
(b)(1) Time requirements for application. Each application shall be
submitted to the Secretary at least four months prior to the
anticipated date by which the applicant requires a Letter Commitment.
The Secretary may consider applications with less notice prior to the
anticipated date by which the applicant requires a Letter Commitment,
upon written documentation that extenuating circumstances exist. During
the first 15 calendar day period after submission, the Secretary will
perform a preliminary review of the application for adequacy and
completeness. If the application is found to be incomplete, or if
additional data is required, the Secretary will notify the applicant
promptly in writing and the applicant will have 15 calendar days to
correct deficiencies from the date of each request for additional
information. If the applicant has not corrected the deficiencies, or
made substantial progress toward correcting them, within this 15
calendar day period, then the Secretary may terminate the processing of
the application without prejudice. Once the Title XI application is
considered complete by the Secretary, the Secretary will act on the
application within a period of 60 calendar days, unless for good cause
the Secretary deems it necessary to extend such period. If an
application is not completed by the applicant and acted upon by the
Secretary within four months from the submission date, unless such time
period is extended by the Secretary, the Secretary will notify the
applicant in writing that processing of the application is terminated
and that the applicant may reapply at a later date. If an application
is terminated by MARAD without prejudice, no new filing fee will be
assessed for a subsequent application for a similar project that is
filed within one year of the termination date. If a subsequent
application is for a substantially different project as determined by
MARAD on a case-by-case basis a new filing fee will be assessed.
(2) Time requirements for documentation. An applicant to whom a
Letter Commitment has been issued shall submit four sets of the
documentation to the Secretary for review. The documentation shall be
submitted to the Secretary for review at least six weeks prior to the
anticipated closing to afford the Secretary time to complete an
adequate review of the documentation. The applicant shall utilize the
standard form of documentation which will be provided by the Secretary.
(3) Processing applications. In processing applications, the
Secretary shall consider the different degrees of risk involved with
different applications.
(4) Additional assurances. For those applications not involving
well established firms with strong financial qualifications and strong
market shares, seeking financing guarantees for replacement vessels in
an established market, in which projected demand exceeds supply, the
Secretary may require additional assurances prior to approval, such as
firm charter commitments, parent company guarantees, greater equity
participation, private financing participation, security interest on
other property and similar arrangements.
(c) Filing Fee. Each application must be accompanied by a filing
fee in the amount of $5,000, which will be non-refundable, irrespective
of whether the Secretary subsequently issues a Letter Commitment.
(d) Confidential Information. If the application, including
attachments thereto, contains information which the applicant considers
to be trade secrets or commercial or financial information and
privileged or confidential, or otherwise exempt from disclosure under
the Freedom of Information Act (5 U.S.C. 552), the applicant shall
assert a claim of exemption at the time of application. The same
requirement shall apply to any amendment to the application. If no
claim of exemption is made when the application or amendment is filed,
the Maritime Administration shall not oppose any request subsequently
made for disclosure, pursuant to the Freedom of Information Act (FOIA),
of any information contained in the
[[Page 21317]]
application. The following procedures shall apply with respect to the
assertion and review of FOIA exemption claims:
(1) Form and bases for claim. Any claim of exemption shall be made
in a memorandum or letter contained in a sealed envelope marked
``Confidential Information,'' addressed to the Secretary, Maritime
Administration, and shall be subscribed by the applicant, or with
respect to a corporate applicant, by a responsible corporate officer of
the applicant. The applicant shall specifically and separately
designate each part of the application, including attachments or
amendments thereto, to which exemption from disclosure is claimed by
noting ``Confidential Information'' thereon, and shall place each page
in the sealed envelope. The applicant shall state in the memorandum or
letter the bases, in detail, for each assertion of exemption, including
but not limited to statutory and decisional authority.
(2) The Secretary, Maritime Administration, shall make a
determination as to any claim of exemption at the time a request is
made for the information pursuant to the Freedom of Information Act. If
the Secretary, Maritime Administration makes a determination
unfavorable to the applicant as to any item of information in the
application or amendment, the applicant will be advised that the
Maritime Administration will not honor the request for confidentiality
at the time of any request for production of information made pursuant
to the Freedom of Information Act by third parties.
(e) Priority. The Maritime Administration shall give priority for
processing applications to vessels capable of serving as a naval and
military auxiliary in time of war or national emergency, and requests
for financing construction of equipment or vessels less than one year
old as opposed to the financing of existing equipment or vessels that
are one year old or older. Any applications involving the purchase of
vessels currently financed under Title XI will also receive priority
consideration for purposes of processing the assumption of the
obligations as will applications from those willing to take guarantees
for less than the normal term for that class of vessel. In regard to
shipyards, priority will be given to applications from General Shipyard
Facilities that have engaged in naval Vessel construction and that have
pilot projects for shipyard modernization and Vessel construction, with
respect only to funds appropriated to the Secretary of Defense,
pursuant to provision of section 1359(a) of Pub. L. 103-160, 107 Stat.
1547. With regard to Eligible Export Vessels, the Secretary may not
issue a commitment to guarantee Obligations for an Eligible Export
Vessel unless the Secretary determines, in the sole discretion of the
Secretary, that the issuance of a commitment to guarantee obligations
for an Eligible Export Vessel will result in the denial of an
economically sound application to issue a commitment to guarantee
Obligations for vessels documented under the laws of the United States
operating in the domestic or foreign commerce of the United States,
after considering:
(1) The status of pending applications for commitments to guarantee
obligations for vessels documented under the laws of the United States
and operating or to be operated in the domestic or foreign commerce of
the United States;
(2) The economic soundness of the applications referred to in
paragraph (e)(1) of this section; and
(3) The amount of guarantee authority available.
(Approved by the Office of Management and Budget under control
number 2133-0018)
Subpart B--Eligibility
Sec. 298.10 Citizenship.
(a) Applicability. Prior to acquiring a legal or beneficial
interest in a Vessel financed under Title XI of the Act, except as
provided in paragraph (e) of this section, the applicant and any other
Person (including, but not limited to shipowners and, if applicable,
owner trustees, equity participants and bareboat charterers) shall
establish their United States citizenship within the meaning of Section
2 of the Shipping Act, 1916, as amended, (``1916 Act'') (46 App. U.S.C.
802) and MARAD's regulation at 46 CFR 221.3(c). All persons holding a
Preferred Mortgage on the Vessel who do not qualify as citizens of the
United States shall submit on the date of the Closing evidence that
they qualify for the MARAD approval granted pursuant to 46 CFR 221.23,
or that they have received approval pursuant to 46 CFR 221.25. The
Secretary will not approve an application providing for ownership of
such Vessel by, or bareboat chartering of such Vessel to, a non-U.S.
citizen. Citizenship may also be required of any Person who is deemed
by the Secretary to be an operator of the Vessel or who has authority
to direct the operation of the Vessel on behalf of the shipowner.
Certain chartering arrangements, including time chartering and
contracts of affreightment, have been given general approval by the
Secretary pursuant to Sections 9, 37, and 41 of the 1916 Act. See part
221 of title 46 for more details on these approvals and other approvals
granted concerning chartering and mortgaging of U.S. documented
Vessels.
(b) Prior to Letter Commitment. The applicant and any Person
identified in paragraph (a) of this section, who is required to
establish United States citizenship shall, prior to the issuance of the
Letter Commitment, establish United States citizenship in form and
manner prescribed in 46 CFR part 355.
(c) After Letter Commitment. Any Person who has become identified
with the project, for a reason indicated in paragraph (a) of this
section, and who has not previously established United States
citizenship within the prior twelve calendar months, promptly shall
establish its United States citizenship in the form and manner
prescribed in 46 CFR part 355.
(d) Supplemental proof. Unless otherwise waived by the Secretary
for good cause, at least 10 days prior to every Closing, all Persons
identified with the project who have previously established United
States citizenship in accordance with paragraphs (a) and (c) of this
section shall submit pro forma Supplemental Affidavits of Citizenship
which have previously been approved as to form and substance by the
Secretary, and on the date of such Closing such Persons shall submit to
the Secretary three executed copies of such Supplemental Affidavits of
Citizenship evidencing the continuing United States citizenship of such
Persons bearing the date of such Closing.
(e) Exemption. With regard to Eligible Export Vessels and Eligible
Shipyards, the applicant and any other Person, (including, but not
limited to settlors, owner trustees, owner participants and bareboat
charterers) shall be exempted from complying with the provisions of
paragraphs (a) through (d) of this section.
Sec. 298.11 Vessel requirements.
Each Vessel to be constructed, reconstructed or reconditioned and
financed by issuance of Guarantees shall meet the following criteria:
(a) United States Construction. A Vessel, including an Eligible
Export Vessel, financed by an Obligation Guarantee is considered to be
of United States construction if the Vessel is assembled in a shipyard
geographically located within the United States. A U.S.-flag Vessel
must meet the applicable United States Coast Guard requirements. An
Eligible Export Vessel must meet the applicable laws, rules,
[[Page 21318]]
and regulations of its country of documentation, all applicable
treaties, conventions on international agreements to which that country
is a signatory, and the laws of the ports it serves. An Eligible Export
Vessel shall be constructed in accordance with the requirements of the
International Maritime Organization.
(b) Actual Cost. The applicant's estimated Actual Cost as described
in Sec. 298.21(b), must be approved by the Secretary for the
construction, reconstruction, reconditioning of a Vessel as a condition
for issuance of the Letter Commitment. The Secretary may require the
applicant to have the shipyard that has contracted to build the vessel
to submit additional technical data, backup cost details, and other
evidence if the Secretary has insufficient data. The estimated cost of
the Vessel may include escalation for the anticipated construction
period of the Vessel, as described in Sec. 298.21(e).
(c) Class condition and operation. The Vessel shall be constructed,
maintained, and operated so as to meet the highest classification,
certification, rating, and inspection standards for Vessels of the same
age and type imposed by the American Bureau of Shipping (ABS), or other
such standards as may be approved by the United States Coast Guard, or
in the case of an Eligible Export Vessel, such standards as may be
imposed by a member of the International Association of Classification
Societies (IACS) classification societies to be ISO 9000 series
registered or Quality Systems Certificate Scheme qualified IACS members
who have been recognized by the United States Coast Guard as meeting
acceptable standards with such recognition including, at a minimum,
that the society meets the requirements of IMO Resolution A.739(18)
with appropriate certificates required at delivery, so long as the home
country of that IACS member accords equal reciprocity, as determined by
the Secretary, to United States classification societies. A Vessel,
except an Eligible Export Vessel, shall comply with all applicable
laws, rules, and regulations as to condition and operation, including,
but not limited to, those administered by the United States Coast
Guard, Environmental Protection Agency, Federal Communications
Commission, Public Health Service, or their respective successor
agencies, and all applicable treaties and conventions to which the
United States is a signatory, including, but not limited to, the
International Convention for Safety of Life at Sea. An Eligible Export
Vessel shall be documented in a country that is party to the
International Convention for Safety of Life at Sea, or other treaty,
convention, or international agreement governing vessel inspection to
which the United States is a signatory, and shall comply with the
applicable laws, rules, and regulations of its country of
documentation, all applicable treaties, conventions on international
agreements to which that country is a signatory, and the laws of the
ports it serves. An Eligible Export Vessel shall be constructed in
accordance with the requirements of the International Maritime
Organization.
(d) Reconstruction or reconditioning. Repairs necessary for the
Vessel to meet the classification standards approved by the Secretary,
or any regulatory body, or because of previous inadequate maintenance
and repair, shall not constitute reconstruction or reconditioning
within the meaning of this paragraph. An applicant for Guarantees
secured by a Vessel to be reconstructed or reconditioned shall make the
Vessel available at a time and place acceptable to the Secretary for a
condition survey to be conducted by representatives of the Secretary.
The applicant shall pay the cost of the condition survey. The scope and
extent of the condition survey shall not be less effective than that
required by the last ABS special survey completed (if the Vessel is
classified), next due or overdue, whichever date is nearest in
accordance with the Vessel's age. The Vessel shall meet the standard of
the survey necessary for retention of class (if the Vessel is
classified), and the operating records of the Vessel shall reflect
normal operation of the Vessel's main propulsion and other machinery
and equipment, consistent with accepted commercial experience and
practice.
(e) Metric Usage. The preferred system of measurement and weights
for Vessels and Advanced and Modern Shipbuilding Technology shall be
the metric system.
Sec. 298.12 Applicant and operator's qualifications.
(a) Operator's qualifications. No Letter Commitment shall be issued
by the Secretary without a prior determination that the applicant,
bareboat charterer, or other Person identified in the application as
the operator of the Vessel, possesses the necessary experience, ability
and other qualifications to properly operate and maintain the Vessel or
Vessels which serve as security for the Guarantees, and otherwise to
comply with all requirements of this part.
(b) Identity and ownership of applicant. In order to assess the
likelihood that the project will be successful, the Secretary needs
information about the applicant and the proposed project. To permit
this assessment, each applicant shall provide the following information
in its application for Title XI guarantees.
(1) Incorporated companies. If the applicant is an incorporated
company, it shall submit the following identifying information:
(i) Exact name of applicant and tax identification number of a U.S.
corporation, or if appropriate, international identification number of
the applicant;
(ii) State or country in which incorporated and date of
incorporation; and
(iii) Address of principal executive offices and of important
branch offices, if any.
(2) Partnerships, joint-ventures, associations, unincorporated
companies. If the applicant is a partnership, joint-venture,
association, or unincorporated company, it shall submit the following
identifying information:
(i) Name of partnership, association, or unincorporated company,
and tax identification number, or if appropriate, international
identification number of applicant;
(ii) Business address;
(iii) Date of organization;
(iv) Name of partners (general and special) of the partnership or
trustee and holders of beneficial interest in the association or
company;
(v) Certified copy of Partnership or Joint Venture Agreement, as
amended; and
(vi) A detailed statement regarding financial, management and/or
equity transactions which could have a significant impact on the
ability of the applicant to meet the requirements placed on the
applicant under its financing.
(3) Other entities. For any entity that does not fit the
descriptions in paragraphs (b)(1) through (b)(3) of this section, MARAD
will specify the information that the entity shall submit regarding its
identity and ownership.
(c) Applicants: Business and affiliations. The applicant shall
include:
(1) A brief description of the principal business activities during
the past 5 years of applicant and of any predecessor of the applicant.
If any change in the principal business activities is presently
contemplated (whether in connection with the work to be financed by the
guarantees applied for, or otherwise), applicant shall give a
[[Page 21319]]
brief statement of the nature and circumstances thereof;
(2) A list of all companies or persons (hereinafter referred to as
related companies) that directly or indirectly, through one or more
intermediaries, control, are controlled by, or are under common control
with, the applicant. Also indicate the nature of the business
transacted by each, the relationships between the companies named, and
the nature and extent of the control. This information may be furnished
in the form of a chart. Specify whether any related companies have
previously applied for or received any Title XI assistance;
(3) A statement of whether or not during the past 5 years the
applicant, or any predecessor or related company, has been in
bankruptcy or in reorganization under the Federal Bankruptcy Act or in
any other insolvency or reorganization proceedings under either
domestic or foreign statutes, and whether or not any substantial
property of the applicant or a predecessor or related company has been
acquired in any such proceedings or has been subject to foreclosure or
receivership during such period, and details of all such occurrences;
and
(4) A statement of whether or not the applicant or any predecessor
or related company is now, or during the past 5 years has been, in
default under any agreement or undertaking:
(i) With others, the United States or a country other than the
United States; or
(ii) Guaranteed or insured by the United States or a country other
than the United States.
(d) Management of applicant. The applicant shall include:
(1) A brief description of the principal business activities during
the past 5 years of each director and each principal executive officer
of the applicant; and
(2) The name and address of each organization engaged in business
activities related to those carried on or to be carried on by the
applicant with which any person named in answer to paragraph (d)(1) of
this section has any present business connection, the name of each such
person and, briefly, the nature of such connection.
(e) Applicant's property and activity. The applicant shall provide:
(1) A brief description of the general character and location of
the principal properties of the applicant employed in its business,
other than vessels, describing encumbrances, if any;
(2) A statement with respect to each vessel owned by the applicant,
or operated by it under charter, stating name, gross tonnage, net
tonnage, deadweight tonnage, age, type, speed, registry, cargo capacity
and number and type of cargo units (container, trailer, etc.); and
(3) A summary statement which addresses the services, routes, or
line (including ports served) on which the applicant operates any of
the vessels owned or chartered by it. Also, a schedule and tonnage of
cargo carried by the applicant during the two preceding years, the
units carried (containers, barges, passengers, etc.) and the cargo
capacity utilization factor experienced.
(f) Operating ability. (1) In the case of an applicant for a vessel
financing Guarantee, the applicant shall submit a detailed statement
showing its ability to successfully operate the Vessel(s), including
name, education, background of, and licenses held by all senior
supervisory personnel concerned with the physical operation of the
ships owned by the applicant or proposed for construction. If not now
an operator of Vessel(s), the applicant shall indicate a proposed
organizational structure of key operating personnel or the name of the
proposed operating agent. If now the owner and/or operator of ships,
the applicant shall furnish data as to union affiliations and existing
contracts necessary to the management and operation of the Vessel(s)
covering such items as bunkers, repairs, stores and stevedoring, and
names of companies (domestic and foreign) for which the company acts as
agent. If a company other than the applicant is designated to operate
the Vessel(s), then the above information shall be provided for that
company, together with a copy of the proposed operating agreement(s).
(2) In the case of an Eligible Shipyard which is an applicant for a
Guarantee for Advanced or Modern Shipbuilding Technology, a detailed
statement shall be submitted evidencing its ability to successfully
construct/reconstruct vessel(s), including name, education, background
of, and licenses, if any, held by all senior supervisory personnel in
the shipyard concerned with the physical operation of the shipyard,
union affiliations and existing contracts necessary to the management
and operation of the shipyard.
Sec. 298.13 Financial requirements.
(a)(1) In general. To be eligible for guarantees, the applicant
and/or the parent organization (when applicable), and any other
participants in the project having a significant financial or
contractual relationship with the applicant shall submit information,
respectively, on their financial condition. This information shall be
submitted at the time of the application and supplemented as
subsequently required by the Secretary. In addition, the applicant
shall submit information satisfactory to the Secretary that financial
resources are available to support the project which is the subject of
the Title XI application.
(2) Cost of the project. Applicant shall submit the following cost
information with respect to the project:
(i) In the case of an applicant for Vessel financing Guarantees, a
detailed statement of the estimated Actual Cost of construction,
reconstruction or reconditioning of the Vessel(s) including those items
which would normally be capitalized as Vessel construction costs. Net
interest during construction is the total estimated construction period
interest on non-equity funds less estimated earnings from the escrow
fund, if such fund is to be established prior to Vessel(s) delivery.
Each item of foreign components and services shall be excluded from
Actual Cost, unless a waiver is specifically granted for the item,
which waiver shall not be granted for major foreign components of the
hull and superstructure. The standard for granting a waiver is
certification by the applicant, to be reviewed by the Secretary, that a
foreign item or service is not available in the United States on a
timely or price-competitive basis, or is not of sufficient quality.
Although excluded from Actual Cost, foreign components of the hull and
superstructure can be regarded as owner-furnished equipment that may be
used in satisfying the applicant's equity requirements imposed by
paragraph (a)(3) of this section. An illustration of how the cost of
foreign components of the hull and superstructure may be used to
satisfy an applicant's equity requirements is outlined below. If any of
the costs have been incurred by written contracts such as the shipyard
contract, management or operating agreement, signed copies should be
forwarded with the application. The applicant may be required to have
the contracting shipyard submit back-up cost details and technical
data. This information shall be submitted in the format as prescribed
by the Title XI application procedures.
ILLUSTRATION--COST OF FOREIGN COMPONENTS SATISFYING EQUITY
REQUIREMENTS.
Assuming that the total project cost is $100 million, of which
the cost of major foreign components in the hull and superstructure
total $20 million, and that the Title XI applicant has requested
financing for 87\1/2\ percent of the cost of the project, the
following is a demonstration of how the value of the major foreign
components in the
[[Page 21320]]
hull and superstructure may be used in meeting the equity
requirements of Sec. 298.13 (a)(3):
Cost of Foreign Components Excluded from Actual Cost
Cost of Project..........................................$100.0 million
Cost of Major Foreign Components in Hull and Superstructure.......$20.0
million
Total Actual Cost of Project..............................$80.0 million
Required Equity (12\1/2\ percent).........................$10.0 million
Total Project Cost Financed w/Title XI (87\1/2\ percent)..........$70.0
million
The $10 million in required equity may be satisfied by the
owner's contribution of the foreign components of hull and
superstructure to the project.
(ii) In the case of Advanced or Modern Shipbuilding Technology, a
detailed statement of the actual cost of such technology, including
those items which would normally be capitalizable. If any of the costs
have been incurred by written contracts, signed copies shall be
forwarded with the application. The applicant may be required to have
manufacturers submit back-up cost details and technical data. This
information shall be submitted in the format prescribed by the Title XI
application procedures.
(iii) A detailed statement showing the actual cost of any shore
facilities, cargo containers, etc., required to be purchased in
conjunction with the project.
(iv) A detailed statement showing any other costs associated with
the project which were not included in paragraphs (a)(2) (i) through
(iii) of this section, such as: Legal and accounting fees, printing
costs, guarantee fees, vessel insurance, underwriting fees, fee to a
Related Party, etc.
(v) If the project involves refinancing, the exhibit entitled
Request for Actual Cost Approval and Reimbursement, its summary sheet
and supplemental schedules shall be submitted at the time of filing the
application.
(3) Financing. The applicant shall describe, in detail, how the
costs of the project (sums referred to in paragraph (a)(2) of this
section) are to be funded and the timing of such funding. The applicant
shall include any vessel trade-ins, related or third party financings,
etc. The applicant shall also provide the proposed terms and conditions
of all private funding, from both equity and debt sources and clearly
identify all parties involved. If the applicant intends to utilize co-
financing (involving a blend of Title XI and private financing for the
debt portion), the terms and conditions of such financing shall be
subject to approval by the Secretary. The applicant shall demonstrate
with financial statements that at least 12\1/2\ percent of the
construction or reconstruction costs of the Vessel(s) or the cost of
the Advanced Shipbuilding Technology or Modern Shipbuilding Technology
will be in the form of equity and not additional debt, except to the
extent allowed by paragraph (g) of this section. The applicant shall
disclose all of the Vessel(s), Advanced Shipbuilding Technology or
Modern Shipbuilding Technology financing in the format prescribed by
the Title XI application procedures. If the applicant uses co-financing
(involving a blend of Title XI and private financing for the debt
portion of the project), the ability of the co-financiers to exercise
their rights against collateral shared with the Secretary for any
transaction shall be subject to the approval of the Secretary.
(4) Financial Information. The applicant shall submit the following
additional financial statements with respect to both the proposed Title
XI project and the overall operations of the applicant, prepared in
accordance with 46 CFR part 232 and including notes to explain the
basis used for arriving at the figures (in the case of Eligible Export
Vessels, the Secretary may accept financial information provided in the
normal accounting system used by the applicant provided that it is an
accepted accounting system in the applicant's country of origin and,
further, provided that the applicant provides a reconciliation of the
major differences between the accounting system employed and U.S.
generally accepted accounting principles):
(i) The three most recent audited financial statements of the
applicant, its parent, if any, and other significant participants. If
the applicant is a new entity or is to be funded from or guaranteed by
external source(s), it shall provide the audited financial statements
of the funding source(s);
(ii) A pro forma balance sheet of the applicant as of the estimated
date of execution of the Guarantees reflecting the assumption of the
Title XI Obligations;
(iii) A schedule of amortization of all existing debt (Title XI or
otherwise) of the applicant for the period in which the Guarantees are
to be outstanding; and
(iv) A Sources and Uses Statement for the first full year of
operations and the following five years, including a clear source of
funding for the payment of all debt when due.
(b) Financial definitions. For the purpose of this section and
Secs. 298.35 and 298.42 of this part:
(1) Company means any Person subject to financial requirements
imposed under paragraphs (d) and (e) of this section and paragraphs (b)
and (c) of Sec. 298.35, as well as the reporting requirements imposed
by Sec. 298.42.
(2) Working Capital means the difference between current assets and
current liabilities, adjusted as follows:
(i) Current assets shall exclude:
(A) Amounts in or required to be set aside in any Title XI Reserve
Fund, pursuant to Sec. 298.35(e) or Capital Construction Fund Security
Amount prescribed by Sec. 298.35(f), (excluding that portion of such
fund which is available for the payment of current liabilities) that is
being maintained pursuant to an agreement covering a Vessel owned or
leased by the company, or in another similar fund required under any
other mortgage, indenture or other agreement to which the company is a
party; and
(B) Any receivables from a Related Party or from any stockholder,
director, officer or employee (or their family) of the company or of a
Related Party other than current receivables arising out of the
ordinary course of business and not outstanding for more than 60 days.
(ii) Current liabilities shall include the current portion of
charter hire and other lease obligations not already included as a
current liability.
(3) Equity (net worth) shall be exclusive of:
(i) Any receivables from a Related Party or from any stockholder,
director, officer or employee (or their family) of the company or of a
Related Party other than current receivables arising out of the
ordinary course of business and not outstanding for more than 60 days,
and
(ii) Any increment resulting from the reappraisal of assets.
(4) Long Term Debt shall exclude the balance of Escrow Fund
deposits attributable to the principal of Obligations sold, where
deposits are required in accordance with Sec. 298.33. However, there
shall be included any guarantee or other liability for the debt of any
other Person.
(5) Capitalizable Cost means the aggregate of the Actual Cost of
the Vessel or Advanced or Modern Shipbuilding Technology and those
other items which customarily would be capitalized as Vessel costs or
Advanced or Modern Shipbuilding Technology costs under generally
accepted accounting principles and those other items which customarily
would be capitalized as Vessel costs under generally accepted
accounting principles.
(6) Depreciated Capitalizable Cost means the Capitalizable Cost of
a Vessel or Advanced or Modern Shipbuilding Technology, depreciated on
a straight
[[Page 21321]]
line basis over the same useful life as determined by the Secretary for
Actual Cost, and depreciated as required by Sec. 298.21(g).
(c) Applicability. The financial resources shall be adequate to
meet the Equity requirements in the project and existing Working
Capital requirements, as set forth in paragraphs (d) and (e) of this
section.
(1) The various financial requirements shall be met by the owner of
the Vessel or Vessels or Advanced or Modern Shipbuilding Technology to
be security to the Secretary for the Guarantees, except that if the
owner is not the operator, the overall financial requirements shall be
allocated among the owner, the operator and other parties as determined
by the Secretary.
(2) The Company shall satisfy the applicable financial
requirements, in addition to any other financial requirements already
imposed or which may be imposed upon it in connection with other
Vessels financed under the Title XI program or in connection with other
Advanced or Modern Shipbuilding Technology financed under the Title XI
program.
(3) A determination as to whether the Company has satisfied all
financial requirements shall be based on the assumption that the
projected financing has been completed. Accordingly, a pro forma
balance sheet shall be submitted at the time of the application,
reflecting any adjustment made pursuant to paragraph (d)(1)(i) of this
section, and a revised pro forma balance sheet, reflecting the
completion of the projected financing, shall be submitted at least five
business days before the first Closing at which the Obligations are
issued.
(d) Primary financial requirements at Closing. Where the primary
minimum financing requirements at Closing are satisfied, the financial
convenants in Sec. 298.35(b) are applicable. Primary financial
requirements can apply to one or more Companies, and are determined as
follows:
(1) Owner as operator. Where the owner is to be the Vessel
operator, minimum requirements at Closing usually are as follows:
(i) Working Capital. The Company's Working Capital shall not be
less than one dollar. This Working Capital requirement is based on the
premise that the Company engages in a service-type activity with only
normal Vessel inventory. If Working Capital includes other inventory,
in addition to such normal Vessel inventory, the Secretary may adjust
the requirement as considered appropriate. Also, if the Secretary
determines that the Company's Working Capital includes amounts
receivable that it reasonably could not expect to collect within one
year, the Secretary may make adjustments to the Working Capital
requirements.
(ii) Equity (net worth). The Company's Equity shall be the greater
of:
(A) 50 percent of its Long Term Debt or
(B) 90 percent of its Equity as shown on the last audited balance
sheet, dated not earlier than six months before the date of issuance of
the Letter Commitment.
(2) Lessee or charterer as operator. Where a lessee or charterer is
to be the Vessel operator, minimum requirements at Closing usually are
as follows:
(i) Working Capital. The operator's Working Capital requirement
shall be the same as that which would have otherwise been imposed on
the owner as operator under paragraph (d)(1)(i) of this section and
based on the same premise stated therein.
(ii) Long Term Debt. The operator's Long Term Debt shall not be
greater than twice its Equity.
(iii) Equity (net worth). Different Equity requirements shall be
imposed on the owner and operator of the Vessel, respectively, as
follows:
(A) The owner's Equity shall at least be equal to the difference
between the Capitalizable Cost or Depreciated Capitalizable Cost of the
Vessel (whichever is applicable) and the total amount of the
Guarantees.
(B) The operator's Equity shall be the same as that which would
have otherwise been required of the owner as operator under paragraph
(d)(1)(ii) of this section.
(3) Owner as General Shipyard Facility. Where the owner of Advanced
or Modern Shipbuilding Technology is a General Shipyard Facility,
minimum requirements at Closing will be the same as those set forth in
paragraph (d)(1) of this section for an owner as operator.
(e) Special financial requirements at closing. If the proposed
project involves a leverage lessor, parent company or ``hell or high
water'' charterer committed to financing the debt service for the term
of the Guarantees and who meets the primary financial requirement at
closing, then with respect to the applicant, the eligibility for
Guarantees may be based upon satisfaction of special financial
requirements, in which the financial covenants imposed and the
requirements for maintenance of a Title XI Reserve Fund shall be as
provided for in Sec. 298.35(c) of this part. Special financial
requirements are as follows:
(1) Owner as operator. Where the owner is the Vessel operator, the
special requirements at Closing are as follows:
(i) Working Capital. The Company's Working Capital, which may be
adjusted by the Secretary in accordance with the provisions set forth
in paragraph (d)(1)(i) of this section, shall be an amount at least
equal to the sum of the following:
(A) The first year's debt service relating to the Vessel to be
financed upon delivery (redelivery in the case of a reconstructed or
reconditioned Vessel), or the first year's debt service relating to the
Vessel to be financed or refinanced after delivery. With respect to a
reconstructed or reconditioned Vessel, the estimated Capitalizable Cost
or Depreciated Capitalizable Cost, whichever is applicable (depending
upon when financing occurs), shall be that related only to the cost of
work performed in the reconstruction or reconditioning;
(B) One year's premium for vessel insurance including Hull,
Machinery, Protection and Indemnity, and War Risk coverage; and
(C) One year's Guarantee Fee.
(ii) Equity (net worth). The Company's Equity shall be at least
equal to 90 percent of the Equity as shown on the last audited balance
sheet dated not earlier than six months before the issuance of the
Letter Commitment, but not less than the sum of the following:
(A) The difference between:
(1) The estimated Capitalizable Cost of a new Vessel to be financed
upon delivery, the estimated Capitalizable Cost of the work to be
performed in reconstructing or reconditioning a Vessel, the Depreciated
Capitalizable Cost of an existing Vessel to be refinanced or the
Depreciated Capitalizable Cost of a new Vessel to be financed after
delivery, and
(2) The amount of the Guarantees; and
(B) The amount of Working Capital as determined in accordance with
the provisions of paragraph (e)(1)(i) of this section.
(2) Lessee or charterer as operator. Where the lessee or charterer
is the Vessel operator, the special financial requirements at Closing
are as follows:
(i) Working Capital. The Company shall have Working Capital in an
amount determined in accordance with the provisions of paragraph
(e)(1)(i) of this section, applicable as if the owner were the
operator.
(ii) Equity (net worth). Different Equity requirements shall be
imposed on the operator and the owner, respectively as follows:
(A) The operator shall have Equity at least equal to 90 percent of
the Equity
[[Page 21322]]
shown on the last audited balance sheet dated not earlier than six
months before the issuance of the Letter Commitment, but no less than
its Working Capital requirement.
(B) The owner shall have Equity in an amount determined in
accordance with the provisio
FR Doc. 96-11289 Obligation GuaranteesProgram Administration
ns of paragraph (e)(1)(ii)(A) of this
section.
(3) Owner as General Shipyard Facility. Where the owner of Advanced
or Modern Shipbuilding Technology is a General Shipyard Facility,
special financial requirements at Closing will be the same as those
outlined in paragraph (e)(1) of this section for an owner as operator
insofar as they apply to such technology.
(f) Adjustments to financial requirements at Closing. If the owner,
although not operating a Vessel, assumes any of the operating
responsibilities, the Secretary may adjust the respective Working
Capital and Equity requirements of the owner and operator, otherwise
applicable under paragraphs (d) and (e) of this section, by increasing
the requirements of the owner and decreasing those of the operator by
the same amount.
(g) Subordinated debt considered to be Equity. With the consent of
the Secretary, part of the Equity requirements applicable under
paragraphs (a)(3), (d) and (e) of this section may be satisfied by
debt, fully subordinated as to the payment of principal and interest on
the Secretary's Note and any claims secured as provided for in the
Security Agreement or the Mortgage. Repayment of subordinated debt may
be made only from funds available for payment of dividends or for other
distributions, in accordance with requirements of the Reserve Fund and
Financial Agreement (described in Sec. 298.35 of this part). Such
subordinated debt shall not be secured by any interest in property that
is security for Guarantees or mortgage insurance under Title XI, unless
the Obligor and the lender enter into a written agreement, satisfactory
to the Secretary, providing, among other things, that if any Title XI
financing or advance by the Secretary to the Obligor shall occur in the
future, such security interest of the lender shall become subordinated
to any indebtedness incurred by the Obligor and to any security
interest obtained by the Secretary in that property or other property,
with respect to the subsequent indebtedness.
(h) Modified requirements. The Secretary may waive or modify the
financial terms or requirements otherwise applicable under
Secs. 298.13, 298.35 and 298.42, upon determining that there is
adequate security for the Guarantees. The Secretary may impose similar
financial requirements on any Person providing other security for the
Guarantees.
Sec. 298.14 Economic soundness.
(a) Economic Evaluation. No Letter Commitment for guarantees shall
be given by the Secretary without a finding that the proposed project,
with respect to which the Vessel(s) or Advanced or Modern Shipbuilding
Technology to be financed or refinanced under Title XI, will be
economically sound.
(1) Basic feasibility factors. In making the economic soundness
findings the Secretary shall consider all relevant factors, including,
but not limited to:
(i) The need in the particular segment of the maritime industry for
new or additional capacity, including any impact on existing equipment
for which a guarantee under this title is in effect;
(ii) The market potential for the employment of the Vessel or
utilization of the Advanced Shipbuilding Technology or Modern
Shipbuilding Technology of a General Shipyard Facility over the life of
the guarantee;
(iii) Projected revenues and expenses associated with employment of
the Vessel or utilization of the Advanced Shipbuilding Technology or
Modern Shipbuilding Technology of a General Shipyard Facility;
(iv) Any charters, contracts of affreightment, transportation
agreements, or similar agreements or undertakings relevant to the
employment of the Vessel or utilization of the Advanced Shipbuilding
Technology or Modern Shipbuilding Technology of a General Shipyard
Facility;
(v) For inland waterways, the need for technical improvements
including but not limited to increased fuel efficiency, or improved
safety; and
(vi) Other relevant criteria.
(2) Project Feasibility. The applicant shall state in detail the
purpose for the obligations to be guaranteed and shall supplement the
application by exhibits deemed to be necessary. The applicant shall
submit the following information to demonstrate the economic
feasibility of the project over the Guarantee period.
(i) Relevant market. A written narrative of the market (or
potential market) for the project including full details on the
following, as applicable:
(A) Nature and amount of cargo/passengers available for carriage
and applicant's projected share (provide also the number of units;
i.e., containers, trailers, etc.);
(B) Services or routes in which the Vessel(s) will be employed,
including an itinerary of ports served, with the arrival and departure
times, sea time, port time, hours working or idle in port, off hire
days and reserve or contingency time, proposed number of annual
sailings and number of annual working days for the Vessel(s) or, with
respect to Advanced or Modern Shipbuilding Technology, how the
equipment will be employed;
(C) Suitability of the Vessel(s) or Advanced or Modern Shipbuilding
Technology for their anticipated use;
(D) Significant factors influencing the applicant's expectations
for the future market for the Vessel(s) or Advanced or Modern
Shipbuilding Technology, for example, competition, government
regulations, alternative uses, and charter rates; and
(E) Particulars of any charters, contracts of affreightment,
transportation agreements, etc. The narrative should be supplemented by
providing copies of any marketing studies and/or supporting information
(for instance, existing or proposed charters, contracts of
affreightment, transportation agreements, and letters of intent from
prospective customers).
(F) The potential for purchasing existing equipment of a reasonable
condition and age from another source, including information
regarding--
(1) Market assessment concerning the availability and cost of
existing equipment that may be an alternative to new construction or
the new technology;
(2) The cost of modification, reconditioning or reconstruction of
existing equipment to make it suitable for intended use; and
(3) Descriptions of any bids or offers which the company had made
to purchase existing equipment, especially Vessels which currently are
financed with Title XI Obligations including date of offer, Vessels and
amount of offer.
(ii) Revenues. A detailed statement of the revenues expected to be
earned from the project based upon the information in paragraph (a)(2)
of this section. The revenues shall be based on a realistic estimate of
the Vessel(s) or the new technology utilization rate at a breakeven
rate for the project. A justification for the utilization rate shall be
supplied and should indicate the number of days per year allowed for
maintenance, drydocking, inspection, etc.
(iii) Expenses. A detailed statement of estimated daily vessel
expense or expenses associated with Advanced or Modern Shipbuilding
Technology, including the following (where applicable):
[[Page 21323]]
(A) Wages, including staffing (submit itemized staffing schedule
and wages, identifying the seamen's unions involved), and aggregated as
to straight time, overtime and fringe benefits;
(B) Subsistence cost (indicate cost per person per day);
(C) Fuel cost (specify purchase ports), including estimated fuel
consumption at design speed loaded and in port;
(D) Cost of stores, supplies and equipment, segregated as to Deck,
Engine and Stewards Departments;
(E) Maintenance and repair cost at midlife of ship (specify in
years) segregated as to voyage repairs, special surveys, drydocking and
tailshaft removal, annual survey and structural renewals;
(F) Insurance costs, Hull and Machinery, Protection and Indemnity,
War Risk and other (an insurance broker's estimate based upon current
premium rates, if available, is considered preferable); and
(G) Other expenses directly allocable to the asset (indicate items
included).
(iv) Estimated voyage expense: These items shall include:
(A) Port expense segregated by port as to agency fees, wharfage and
dockage and other port expenses;
(B) Cargo expense, segregated as to stevedoring and other cargo
expense (show average cost per ton for loading and discharging for each
port or geographic area);
(C) Brokerage expense, segregated as to freight and passenger; and
(D) Other voyage expense segregated as to canal tolls and other
expense (indicate items included).
(v) Owner's expenses annually. These expenses shall be segregated
as to:
(A) Interest and amortized principal on mortgage indebtedness;
(B) Estimated government Guarantee Fee; and
(C) Salaries and other administrative expenses (indicate basis of
allocations).
(b) Objective Criteria. The Secretary shall make a finding of
economic soundness with respect to each proposed project based on an
assessment of the entire project. In order to be considered for
approval, a project must meet the following criteria as determined by
the Secretary:
(1) The projected long-term demand (equal to length of financing
being requested) for the particular Vessel(s) or new technology to be
financed must exceed the supply of similar Vessels or new technology in
the applicable markets, based on the Secretary's assessment of existing
equipment, similar Vessels or new technology under construction and the
projected need for new equipment in that particular segment of the
maritime industry. Such an assessment shall be determined by the
Secretary's analysis of the following three elements:
(i) Conformity of the company's projections with supply and demand
analyses prepared by the Maritime Administration;
(ii) Availability of charters, letters of intent, outstanding
contractual commitments, contracts of affreightment, transportation
agreements or similar agreements or undertakings; and
(iii) The applicant's existing market share compared with the
market share necessary to meet projected revenues.
(2) A projected cash flow and net income, supported by the findings
of paragraph (b)(1) of this section, that is sufficient to meet the
projected Title XI debt service requirements and any other debt
obligations of the company.
Sec. 298.15 Investigation fee.
(a) In general. Prior to the issuance of the Letter Commitment the
applicant shall pay an Investigation Fee, computed as hereinafter
provided, to the Secretary in the amount stated in the Letter
Commitment. This fee is imposed to pay for the investigation of the
project described in the application and the participants in the
project, the appraisal of properties offered as security, Vessel
inspection during construction, reconstruction or reconditioning (where
applicable) and other administrative expenses. If, for any reason, the
Secretary shall subsequently disapprove the application, one-half of
the Investigation Fees shall be due and payable.
(b) Base Fee. The investigation fee shall be one-half of one
percent on obligations to be issued up to and including $10,000,000 and
\1/8\ of one percent on all obligations to be issued in excess of
$10,000,000. The $1,000 filing fee previously paid upon filing the
original application (described in Sec. 298.3 of this part) shall be
credited against the investigation fee.
Sec. 298.16 Substitution of participants.
(a) Application may be made to the Maritime Administration for
permission to substitute participants to a Mortgage and/or Security
Agreement in a financing that is receiving assistance authorized by
Title XI of the Act, both prior and subsequent to amendment by Pub. L.
92-507. A non-refundable fee shall be imposed, payable at the time of
application. This fee shall be in addition to the Annual Guarantee Fee
or annual premium charge for Mortgage insurance, whichever is
applicable.
(b) A $3,000 fee shall be required to defray all costs of
processing and reviewing a joint application by a mortgagor and/or
Obligor and a proposed transferee of a Vessel or Advanced or Modern
Shipbuilding Technology, which is security for Title XI debt, if the
proposed transferee is to assume the Mortgage and/or the Security
Agreement.
Sec. 298.17 Evaluation of applications.
(a) In evaluating project applications, the Secretary shall also
consider whether the application provides for:
(1) The capability of the Vessel(s) serving as a naval and military
auxiliary in time of war or national emergency.
(2) The financing of the Vessel(s) within one year after delivery.
(3) The acquisition of Vessel(s) currently financed under Title XI
by assumption of the total obligation(s).
(4) The Guarantees extend for less than the normal term for that
class of vessel.
(5) In the case of an Eligible Shipyard, the capability of the
shipyard to engage in naval vessel construction in time of war or
national emergency.
(6) In the case of Advanced or Modern Shipbuilding Technology, the
Guarantees extend for less than the technological life of the asset.
(b) In determining the amount of equity which must be provided by
the applicant, the Secretary shall consider, among other things, the
following:
(1) The financial strength of the company;
(2) Adequacy of collateral; and
(3) The term of the Guarantees.
Sec. 298.18 Financing Advanced or Modern Shipbuilding Technology.
(a) Initial criteria. The Secretary may approve Guarantees issued
to finance Advanced or Modern Shipbuilding Technology at a General
Shipyard Facility. The Secretary will approve such Guarantees after
consideration of the following factors: whether the Guarantees will aid
in the transition from naval shipbuilding to commercial ship
construction for domestic and export sales, will encourage shipyard
modernization, and/or will support increased productivity. The
applicant shall provide a detailed statement with the Guarantee
application which will provide the basis for such consideration by the
Secretary.
(b) Other conditions. Applications for loan guarantees under this
section shall not be approved unless the Secretary determines that the
following requirements have been met:
(1) The term for such Guarantees will not exceed the reasonable
economic
[[Page 21324]]
useful life of the collective assets which comprise this technology, as
determined by the Secretary;
(2) There is sufficient collateral to secure the Guarantee; and
(3) Approval of the application will not preclude approval of any
other pending application for Advanced or Modern Shipbuilding
Technology Guarantees which, in the sole opinion of the Secretary,
would result in a more desirable use of appropriated funds. The
Secretary's opinion will take into consideration such factors as the
types of vessels which will be built by the shipyard, the productivity
increases which will be achieved, the geographic location of the
shipyard, the long-term viability of the shipyard, the soundness of the
financial transaction, any financial impact on other Title XI
transactions, and the furtherance of the goals of the Shipbuilding Act.
Sec. 298.19 Financing Eligible Export Vessels.
(a) Transmittal to Secretary of Defense. Upon receiving an
application for a loan Guarantee for an Eligible Export Vessel, the
Secretary shall promptly provide to the Secretary of Defense notice of
the receipt of the application. During the 30-day period beginning on
the date on which the Secretary of Defense receives such notice, the
Secretary of Defense may disapprove the loan guarantee based on the
assessment of the Secretary of Defense of the potential use of the
Vessel in a manner that may cause harm to United States national
security interests. The Secretary of Defense may not disapprove a loan
Guarantee under this section solely on the basis of the type of vessel
to be constructed with the loan Guarantee. The authority of the
Secretary of Defense to disapprove a loan Guarantee under this section
may not be delegated to any official other than a civilian officer of
the Department of Defense appointed by the President, by and with the
advice and consent of the Senate. The Secretary of Transportation may
not make a loan guarantee disapproved by the Secretary of Defense.
(b) Determinations by the Secretary. (1) If the loan Guarantee
commitment cost of any such Vessel is made available from funds
transferred from the Secretary of Defense pursuant to section 108 of
the National Defense Authorization Act for Fiscal Year 1994 (Pub. L.
103-160, 107 Stat. 1547), the Vessel must be of at least 5,000 gross
tons and found by the Secretary to be commercially marketable on the
international market. Vessels of less than 5,000 gross tons can receive
Guarantees with funds appropriated to the Department of Transportation.
(2) Such Guarantees shall not be approved unless:
(i) The Secretary finds that the construction, reconstruction or
reconditioning of the Vessel will aid in the transition of United
States shipyards to commercial activities or will preserve shipbuilding
assets that would be essential in time of war or national emergency;
and
(ii) The owner of the Vessel agrees with the Secretary that the
Vessel shall not be transferred to any country designated by the
Secretary of Defense as a country whose interests are hostile to the
interests of the United States.
(3) The Secretary may approve Guarantees issued to finance Eligible
Export Vessels. Such Guarantee shall not be approved unless the
Secretary determines that the countries in which the shipowner, its
charterers, guarantors, or other financial interests supporting the
transaction, if any, have their chief executive offices or have located
a substantial portion of their assets, present an acceptable financial
or legal risk to MARAD's collateral interests. The Secretary's
determination shall be based on confidential risk assessments provided
by the Export-Import Bank of the United States and country risk
analyses provided by the Inter-Agency Country Risk Assessment System
and shall take into account any other factors related to the loan
guarantee transaction deemed pertinent by the Secretary.
Subpart C--Guarantees
Sec. 298.20 Term, redemptions and interest rate.
(a) In general. To be eligible for Guarantees, Obligations shall
have a maturity date satisfactory to the Secretary, not exceeding the
anticipated physical and economic life of the Vessel or Vessels or
Advanced or Modern Shipbuilding Technology. Such maturity date may be
less than but in no event more than:
(1) Twenty-five years from the date of delivery from the
shipbuilder of a single new Vessel which is to be security for
Guarantees;
(2) Twenty-five years from the date of delivery from the shipyard
of the last of multiple Vessels which are to be security for the
Guarantees;
(3) The later of twenty-five years from the date of original
delivery of a reconstructed or reconditioned Vessel which is to be
security for the Guarantees, or at the expiration of the remaining
useful life of the Vessel, as determined by the Secretary; and
(4) The technological life of the Advanced or Modern Shipbuilding
Technology.
(b) Required redemptions. Where multiple Vessels or multiple
Advanced Shipbuilding Technology or Modern Shipbuilding Technology
assets are to be used as security for the Guarantees, as set forth in
paragraph (a) of this section, the Secretary may require payments of
principal prior to maturity (redemptions) with respect to all related
Obligations, as may be deemed necessary to maintain adequate security
for the Guarantees.
(c) Interest rate. The interest rate of each Obligation must be
determined by the Secretary to be reasonable, taking into account the
range of interest rates prevailing in the private market for similar
loans and the risks assumed by the Secretary.
Sec. 298.21 Limits.
(a) Actual Cost basis. The amount of Obligations to be issued shall
be satisfactory to the Secretary based upon the economic soundness of
the transaction. Such amount may be less than but in no event more than
75 percent or 87\1/2\ percent, whichever is applicable under the
provisions of section 1104A(b)(2) or section 1104B(b)(2) of the Act, of
the Actual Cost of the Vessel or Vessels or Advanced Shipbuilding
Technology or Modern Shipbuilding Technology asset(s). If minimum
horsepower of the main engine is a requirement for Guarantees up to
87\1/2\ percent of the Actual Cost, the standard with respect to such
horsepower shall be continuous rated horsepower. Where existing debt is
being refinanced, pursuant to section 1103A(a)(5) of the Act, the
amount of new Obligations issued in respect to such existing debt may
not exceed the lesser of:
(1) The amount of outstanding debt being refinanced (whether or not
receiving assistance under Title XI); or
(2) Seventy-five or 87\1/2\ percent whichever is applicable, of the
Depreciated Actual Cost of the Vessel or Advanced Shipbuilding
Technology or Modern Shipbuilding Technology with respect to which the
new Obligations are being issued.
(b) Actual Cost items. Actual Cost is comprised essentially of
those items which would customarily be capitalized as Vessel or
Advanced Shipbuilding Technology or Modern Shipbuilding Technology
construction costs such as designing, engineering, constructing
(including performance bond premiums approved by the Secretary),
inspecting, outfitting and equipping. There shall be included those
cost items usually
[[Page 21325]]
specified in Vessel or Advanced Shipbuilding Technology or Modern
Shipbuilding Technology construction contracts, e.g., changes and
extras, cost of owner furnished equipment, shoreside spare parts and
commitment fees and interest on the Obligations or other borrowings
during the construction period (excluding interest paid on subordinated
debt considered to be Equity, and incurred during the construction
period), and less income realized from investment of Escrow Fund
deposits during the construction period. Recognizing the importance
that the payment of commissions plays in the export market, commissions
(which represent a portion of the total shipyard contract price) may be
included in the foreign equipment and services amount of the Actual
Cost of an export project, provided:
A majority of the work done by the parties receiving the
commissions is in the form of design and engineering work, and
The commissions represent a small amount of the total contract
price. In addition, Guarantee Fees determined in accordance with the
provisions of section 1104(e) of the Act shall be included in the items
of Actual Cost. In approving Actual Cost the Secretary will consider
all pertinent factors.
(c) Items excludible from Actual Cost. Actual Cost shall not
include any other costs such as the following:
(1) Legal fees or expenses;
(2) Accounting fees or expenses;
(3) Commitment fees or interest other than those specifically
allowed;
(4) Fees, commissions or charges for granting or arranging for
financing;
(5) Fees or charges for preparing, printing and filing an
application for Title XI Guarantees and supporting documents, for
services rendered to obtain approval of the application and for
preparing, printing and processing documents relating to the
application for Guarantees;
(6) Underwriting or trustee's fees;
(7) Federal documentary tax stamps;
(8) Investigation Fee determined in accordance with section 1104(f)
of the Act and Sec. 298.15 of this part;
(9) Predelivery Vessel operating expenses, Vessel insurance
premiums and other items which may not be properly capitalized by the
owner as costs of the Vessel under generally accepted accounting
principles;
(10) The cost of the condition survey required by Sec. 298.11(d) of
this part and all work necessary to meet the standards set forth
therein;
(11) The cost to the Shipowner of a Vessel which is to be
reconstructed or reconditioned, e.g., cost of acquisition or repair
work;
(12) Generally not include any amount payable to the shipyard for
early delivery of the Vessel;
(13) Generally not include any amount payable to the manufacturer
of the Advanced Shipbuilding Technology or Modern Shipbuilding
Technology for early delivery of the equipment to the General Shipyard
Facility;
(14) Predelivery Advanced Shipbuilding Technology or Modern
Shipbuilding Technology expenses which may not be properly capitalized
by the General Shipyard Facility as costs of the technology under
Generally Accepted Accounting Principles; and
(15) The cost of major foreign components and other foreign
components for which there is no waiver and their assembly when
comprising any part of the hull and superstructure of a Vessel.
(d) Substantiation of Actual Cost. Prior to payment from the Escrow
Fund or Construction Fund (described in Secs. 298.33 and 298.34 of this
part), and prior to the final Actual Cost determination for each Vessel
or Advanced Shipbuilding Technology or Modern Shipbuilding Technology,
the applicant shall submit to the Secretary documents substantiating
all claimed costs eligible under Sec. 298.21(b) or, alternatively,
appropriate certification of such costs by an agent approved by the
Secretary. These documents may include but need not be limited to
copies of invoices, change orders, subcontracts, and where required by
the Secretary, statements from independent certified or independent
licensed public accountants that the costs for which payment or
reimbursement is sought were actually paid or are payable with respect
to the construction of a Vessel or Advanced Shipbuilding Technology or
Modern Shipbuilding Technology. These documents must be summarized,
indexed and arranged according to cost categories, pursuant to
directions contained in forms prescribed by the Secretary.
(e) Escalation as part of Actual Cost. Escalation clauses in
construction contracts shall be subject to approval by the Secretary.
After a review of the base contract price and the escalation clauses,
the Secretary shall, in order to estimate the Actual Cost amount to be
stated in the Letter Commitment, add to the approved base contract
price the amount of estimated escalation as approved by the Secretary.
The Secretary must subsequently approve the amount of escalation
claimed by the applicant as Actual Cost.
(f) Moneys received in respect of construction. If the Obligor or
any Person acting in behalf of the Obligor shall from time to time
receive moneys due in respect to construction of a Vessel or Advanced
Shipbuilding Technology or Modern Shipbuilding Technology (described in
the Security Agreement) from the shipbuilder, guarantors, sureties or
other Persons, the Obligor shall give written notice of such fact to
the Secretary. So long as the Guarantees have not been paid by the
Secretary, the Obligor or other recipient shall promptly make deposit
of these moneys in a Depository with a written notice that the
Depository shall hold such moneys on deposit until it receives written
instructions from the Secretary as to their disposition. The Secretary
shall determine the extent to which Actual Cost is to be reduced with
respect to these moneys. In no event shall Actual Cost be reduced with
respect to payments by the shipyard to a Vessel or Advanced
Shipbuilding Technology or Modern Shipbuilding Technology owner of
liquidated damages for late delivery of the Vessel or Advanced
Shipbuilding Technology or Modern Shipbuilding Technology. If the
Secretary shall have paid the Guarantees, the Obligor or other
recipient shall promptly pay these moneys including any liquidated
damages to the Secretary for deposit into the Federal Ship Financing
Fund.
(g) Depreciated Actual Cost. After a Vessel or Advanced
Shipbuilding Technology or Modern Shipbuilding Technology has been
delivered or redelivered (in the case of reconstruction or
reconditioning), the limitation on the amount of Guarantees shall be 75
or 87\1/2\ percent, whichever is applicable, of the Depreciated Actual
Cost of the Vessel or Advanced Shipbuilding Technology or Modern
Shipbuilding Technology.
Sec. 298.22 Amortization of Obligations.
Generally after Vessel or Advanced Shipbuilding Technology or
Modern Shipbuilding Technology delivery, and until maturity of the
Obligations, the Obligor shall be required by provision of the Trust
Indenture or other part of the Documentation to make periodic payment
of interest on and principal of the Obligations. Usually, the payment
of principal (amortization) shall be made semi-annually, but in no
event, less frequently than on an annual basis, and in either case
shall be in equal parts (straightline basis), unless the Secretary
consents to the periodic payment of a constant aggregate amount,
comprised of both interest and principal components which are variable
in
[[Page 21326]]
amount (level debt basis). No other proposed method of amortization
will be allowed which would reduce the amount of periodic amortization
below that determined under the straightline or level debt basis at any
time prior to maturity of the Obligations, except where:
(a) The Obligor can demonstrate to the satisfaction of the
Secretary that there will be adequate funds to discharge the
Obligations at maturity;
(b) The Obligor establishes a fund acceptable to the Secretary in
which the Obligor deposits an equal annual amount necessary to redeem
the outstanding Obligations at maturity; or
(c) With regard to Eligible Export Vessels, in accordance with such
other terms as the Secretary determines to be more favorable and to be
compatible with export credit terms offered by foreign governments for
the sale of vessels built in foreign shipyards.
Sec. 298.23 Refinancing.
The Secretary may approve guarantees with respect to Obligations to
be secured by one or more Vessels or Advanced or Modern Shipbuilding
Technology and issued to refinance existing debt, whether or not
covered by mortgage insurance or Guarantees, so long as the existing
debt has been issued for one of the purposes set forth in Sections
1104(a) (1) through (4) of the Act. Section 1104(a)(1) of the Act
requires that, if the existing indebtedness was incurred more than one
year after the delivery or redelivery of the related Vessel or Advanced
or Modern Shipbuilding Technology, the proceeds of such Obligations
shall be applied to the construction, reconstruction or reconditioning
of other Vessels or Advanced or Modern Shipbuilding Technology or for
facilities or equipment pertaining to marine operation (described in
Sec. 298.24 of this part). The Secretary may permit the refinancing of
existing debt but only if any security lien on the Vessel(s) or
Advanced or Modern Shipbuilding Technology is discharged immediately
prior to the placing of any Mortgage thereon by the Secretary. The
applicant shall satisfy all the eligibility requirements set forth in
subpart B of this part, including economic soundness, as may be
necessary. Refinancing of Title XI debt only shall be permitted for
Advanced or Modern Shipbuilding Technology.
Sec. 298.24 Financing facilities and equipment related to marine
operations.
The Secretary may approve Guarantees secured by one or more Vessels
and issued to finance the construction, reconstruction, or
reconditioning of facilities or equipment pertaining to marine
operations. Such facilities or equipment shall be of a specialized
nature, used principally for servicing vessels and in handling
waterborne cargo in the close proximity of the berthing area, excluding
over-the-road equipment (other than chassis and containers), permanent
or semipermanent structures and real estate.
Sec. 298.25 Excess interest or other consideration.
The Secretary shall not execute Guarantees if any agreement in the
Documentation directly or indirectly provides for:
(a) The payment to an Obligee of interest, or other compensation
for services which have not been performed, in a manner that such
compensation or payment is being provided as interest in excess of the
rate approved by the Secretary; or
(b) Grants of security to an Obligee in addition to the Guarantees.
Sec. 298.26 Lease payments.
If payment of principal and interest on Obligations would in any
way be dependent upon the lease or charter hire payments for a Vessel
or Advanced Shipbuilding Technology or Modern Shipbuilding Technology
that is security for the Obligations, the amount and conditions of
lease or charter payments shall be subject to the Secretary's approval.
Sec. 298.27 Advances.
(a) In general. In accordance with the provisions of section 207
and Title XI of the Act, the Secretary shall have the discretion to
make or commit to make an advance or payment of funds to, or on behalf
of the owner, or operator or directly to any other person or entity for
items, including, but not limited to, principal, interest, insurance
and other vessel-related expenses or fees. Such advances or payments
shall be made only to protect, preserve or improve the collateral held
as security by the Secretary to secure Title XI debt. The applicant
making the request for an advance shall demonstrate (with market and
cash flow analysis and other projections) that its problems are of a
short term duration (less than two years); with the help of an
advance(s), the applicant would be assisted over its temporary
difficulties; and there is adequate collateral for the advance.
(b) Filing requirements. Any company that desires to request an
advance or other payment, or a commitment to make an advance or other
payment from the Secretary for the purposes stated in Sec. 298.27 of
this part, shall apply for such assistance as far in advance as is
reasonably possible. A request for an advance for principal and
interest payments shall be received by the Secretary at least 30 days
prior to the initial payment date. A request for an advance of
insurance payments shall be received by the Secretary at least 30 days
prior to a renewal or termination date. The Secretary may consider
requests for assistance with less notice, upon written documentation of
extenuating circumstances. Any requests for assistance must be
accompanied by supporting data with respect to the need for the
advance, that financing assistance has been sought from other sources,
that the company is taking and has taken measures to alleviate its
situation, financial projections, proposed term of the repayment,
current and projected market conditions, information on other available
collateral, liens and other creditor information, and any other
information which may be requested by the Secretary.
Subpart D--Documentation
Sec. 298.30 Nature and content of Obligations.
An Obligation, whether issued in the form of a note, bond of any
type, or other debt instrument, when engraved, printed or lithographed
on a single sheet of paper shall include on its face the name of the
Obligor, the principal sum, the rate of interest, the date of maturity,
and the Guarantee of the United States, authenticated by the Indenture
Trustee. If the Obligation is typewritten, printed or reproduced by
other means on several pages of paper, the Guarantee of the United
States and the authentication certificate of the Indenture Trustee may
appear at the end of the typewritten Obligation. The instrument which
is evidence of indebtedness shall also contain all information
necessary to apprise the Obligees of their rights and responsibilities
with respect thereto, including, but not limited to, time and manner
for payment of principal and interest, redemptions, default procedure
and notification (in case of registered Obligations) of sale or other
transfer of the instruments.
Sec. 298.31
Mortgage.
(a) In general. (1) Under normal circumstances, a Guarantee shall
not be endorsed on any Obligation until the Secretary receives
satisfactory evidence of a Mortgage in one or more Vessels or a
Mortgage or other security interest in
[[Page 21327]]
the Advanced Shipbuilding Technology or Modern Shipbuilding Technology
(the ``Technologies''), in favor of the Secretary. During construction
of a new Vessel or any of the Technologies, a security interest may be
perfected by a filing under the Uniform Commercial Code.
(2) In order to ensure that the Secretary's Mortgages or other
security interests are valid and enforceable, the Secretary shall
require that the Obligor obtain legal opinions, in form and substance
satisfactory to the Secretary, from independent, outside legal counsel
satisfactory to the Secretary, including foreign independent outside
legal Counsel with respect to Eligible Export Vessels, which opinions
shall state, among other things, that the Mortgage or other security
interest(s) are valid and enforceable:
(i) In the country in which the Vessel is documented (or, in the
case of a security interest, in jurisdictions acceptable to the
Secretary);
(ii) In the United States; and
(iii) For vessels operating on specified trade routes, in the
country or countries involved in this service, unless the Secretary
determines that those destinations are too numerous, in which case, the
Secretary will instead require an opinion of foreign validity and
enforceability in the Vessel's primary port of operation.
(3) In the case where a Mortgage or security interest on the
financed assets may not be available or enforceable, the Secretary
shall require alternative forms of security.
(4) The Security Agreement shall provide that upon delivery of a
new Vessel or upon final installation of the Technologies, or at the
time Guarantees are issued with respect to an existing Vessel or the
Technologies, a Mortgage on the Vessel and a Mortgage or other security
interest on the Technologies shall be executed in favor of the
Secretary, unless the Secretary determines that a Mortgage or a
security interest is not required in accordance with the preceding
sentence.
(5) The Mortgage shall be filed with the United States Coast Guard
at the Vessel's port of record, or with the proper foreign authorities
with respect to an Eligible Export Vessel, and with respect to assets
of a General Shipyard Facility a Mortgage and security interest shall
be filed with the proper authorities within the appropriate state and
shall be delivered to the Secretary after being recorded.
(b) Mortgage secured by multiple Vessels. When two or more Vessels
are to be security for Guarantees, the Security Agreement may provide
that one Mortgage relating to all the Vessels (Fleet Mortgage) shall be
executed, perfected and delivered to the Secretary by the Obligor. If
the Fleet Mortgage relates to undelivered Vessels, the Fleet Mortgage
shall be executed upon delivery of the first vessel. At the time of
each subsequent Vessel delivery, the Obligor shall execute a supplement
to the Fleet Mortgage which makes that Vessel subject to the
Secretary's Mortgage lien. The Fleet Mortgage shall provide that
payment by the Obligor of the entire amount of Obligations covered or
to be covered by Guarantees shall be required to discharge the Fleet
Mortgage, regardless of the amount of the Secretary's Note or Notes
issued and outstanding at the time of execution and delivery of the
Fleet Mortgage or the number of Vessels covered by the Fleet Mortgage.
The discharge date of the Fleet Mortgage shall be the maturity date of
the Secretary's Note. The Secretary may require, as authorized by
section 1104(c)(2) of the Act, such payments of principal prior to
maturity (redemptions), with respect to all related Obligations, as
deemed necessary to maintain adequate security for the Guarantees. Each
Fleet Mortgage shall provide that in the event of constructive total
loss, requisition of title or sale of any Vessel covered by the Fleet
Mortgage, indebtedness represented by the Obligations shall be paid,
unless the Secretary shall otherwise determine that there remains
adequate security for the Guarantees, and the Vessel shall be
discharged from the Mortgage lien.
(c) Adequacy of collateral. Under normal circumstances, a First
Preferred Mortgage on the Vessel(s) or Advanced or Modern Shipbuilding
Technology will be adequate security for the Guarantees. If, however,
the Secretary determines that the Mortgage on the Vessel(s) or Advanced
or Modern Shipbuilding Technology is not sufficient to provide adequate
security, the Secretary, as a condition to approving the Letter
Commitment or processing the application may require additional
collateral, such as a mortgage(s) on other vessel(s) or Advanced or
Modern Shipbuilding Technology or on other assets, special escrow
funds, pledges of stock, charters, contracts, notes, letters of credit,
accounts receivable assignments, and guarantees.
Sec. 298.32 Required provisions in documentation.
(a) Performance under shipyard and related contracts. Generally,
shipyard and related contracts shall contain provisions for:
(1) Furnishing by the shipyard or manufacturer of the Advanced
Shipbuilding Technology or Modern Shipbuilding Technology of
satisfactory insurance and a satisfactory performance bond where
Obligations are issued during the construction period, except that if
the shipyard or manufacturer of the Advanced Shipbuilding Technology or
Modern Shipbuilding Technology demonstrates to the satisfaction of the
Secretary that it has sufficient financial resources and operational
capacity to complete the project, posting of a bond will not be
required;
(2) Allowing access to the Vessel or Advanced or Modern
Shipbuilding Technology, as well as all related work projects being
performed by the contractor and subcontractors, to a representative of
the Secretary, at all reasonable times, to inspect performance of the
work and to observe trials and other tests for the purpose of
determining that the Vessel or Advanced or Modern Shipbuilding
Technology is being constructed, reconstructed or reconditioned in
accordance with contract plans and specifications approved by the
Secretary;
(3) Submitting to the Secretary, upon request, one set of shipyard
plans, in form and substance satisfactory to the Secretary, for the
Vessel or Advanced or Modern Shipbuilding Technology as built;
(4) Making periodic payments for the work in accordance with an
agreed schedule, submitted by the shipyard in a form acceptable to the
Secretary, based on percentage of completion, after such percentage and
satisfactory performance are certified by the Obligor, shipyard and a
representative of the Secretary as to each payment;
(5) Prohibiting the use of proceeds from the sale of Obligations
for the payment of work performed outside the shipyard, unless the
Secretary consents in writing to such use; and
(6) Requiring that all components of the hull and superstructure of
a U.S.-documented Vessel and an Eligible Export Vessel shall be
assembled in the United States. If obligations will not be issued
during the period of construction of a Vessel, shipyard-related
contracts shall generally include the provisions specified in
paragraphs (a)(2) and (a)(3) of this section and this paragraph (a)(6).
(b) Assignments and general covenants from Obligor to Secretary.
The Obligor shall assign rights and shall covenant with the Secretary,
as required by the Secretary, including, but not limited to, the
following:
[[Page 21328]]
(1) Assignment of all or part of the right, title and interest
under the construction contract and related contracts, except those
rights expressly reserved therein by the Obligor relating to such
things as patent infringement and liquidated damages;
(2) Assignment of rights to receive all moneys which from time to
time become due with respect to Vessel or Advanced or Modern
Shipbuilding Technology construction;
(3) Assignment, where applicable, of all or a part of the bareboat
charter, time charter, contracts of affreightment or other agreements
relating to the use of the Vessel or Advanced or Modern Shipbuilding
Technology and all hire payable to the Obligor, and delivery to the
Secretary of required consents by appropriate parties to any such
assignments;
(4) Covenants relating to the annual filing of satisfactory
evidence of continuing United States citizenship, in accordance with 46
CFR part 355, with the exception of Eligible Export Vessels and
shipyards with Advanced or Modern Shipbuilding Technology projects;
warranty of Vessel or Advanced or Modern Shipbuilding Technology title
free from all liens other than those specifically excepted; maintaining
United States documentation of the Vessel or documentation under the
laws of a country other than the United States with regard to an
Eligible Export Vessel; compliance with the provisions of 46 U.S.C.
31301-31343, except that Eligible Export Vessels shall comply with the
definition of a ``preferred mortgage'' in 46 U.S.C. 31301(6)(B),
requiring, among other things, that the Mortgage shall comply with the
mortgage laws of the foreign country where the Vessel is documented and
shall have been registered under those laws in a public register;
Notice of Mortgage, payment of all taxes (except if being contested in
good faith); annual financial statements audited by independent
certified or independent licensed public accountant.
(5) Covenants to keep records of construction costs paid by or for
the Obligor's account and to furnish the Secretary with a detailed
statement of those costs, distinguishing between:
(i) Items paid or obligated to be paid, attested to by independent
certified public accountants unless otherwise verified by the
Secretary; and
(ii) Costs of American and foreign materials (including services)
in the hull and superstructure.
(6) Covenants to maintain Marine and War Risk Hull and Machinery
insurance on the Vessel or Eligible Export Vessel in an amount equal to
110% of the outstanding Obligations or up to the full commercial value
of the Vessel or Eligible Export Vessel, whichever is greater; Marine
and War Risk Protection and Indemnity insurance; Interim War Risk
Binders for Hull and Machinery, and Protection and Indemnity coverages
underwritten by the Maritime Administration as authorized by Title XII
of the Act; and such additional insurance as may be required by the
Secretary. All insurance required to be maintained shall be placed with
the United States Government and American and/or British (and/or other
foreign, if permitted by the Secretary by prior written notice)
insurance companies, underwriters' associations or underwriting funds
approved by the Secretary through marine insurance brokers and/or
underwriting agents approved by the Secretary. All insurance required
to be maintained shall be placed under the latest (at the time of
issue) forms of American Institute of Marine Underwriters policies
approved by the Secretary and/or under such other forms of policies
which the Secretary may approve in writing and/or policies issued by or
for the Maritime Administration insuring the Vessel or Eligible Export
Vessel against the usual risks provided for under such forms, including
such amounts of increase value other forms of ``total loss only''
insurance permitted by the Hull and Machinery insurance policies;
(7) Collateralize other debt due to the Secretary under other Title
XI financings;
(8) Covenants to maintain shipyard insurance on the Advanced
Shipbuilding Technology or Modern Shipbuilding Technology in an amount
equal to 110% of the outstanding Obligations or up to the full
commercial value of the technology, whichever is greater, and such
additional insurance as may be required by the Secretary; and
(9) Covenants to maintain additional types of insurance as may be
required by the Secretary with respect to Eligible Export Vessels, i.e.
political risk insurance, to cover such items as the political,
financial, and/or economic risk in a foreign country.
Sec. 298.33 Escrow fund.
(a) Circumstances requiring deposits. The Obligor may be required
to establish a fund with the Secretary (Escrow Fund) in accordance with
section 1108(a) of the Act and the Security Agreement. The deposit with
the Secretary shall be in cash or Federal Reserve Bank funds.
(b) Principal Deposit-Single Vessel or Advanced or Modern
Shipbuilding Technology. If a single Vessel or Advanced or Modern
Shipbuilding Technology is security for the Guarantees, the deposit of
principal shall be calculated by subtracting from the aggregate
principal amount of the Obligations sold, 75 or 87\1/2\ percent
(whichever is applicable under section 1104(b)(2) of the Act) of the
amount of Actual Cost or Depreciated Actual Cost determined by the
Secretary to have been paid, as of the date of the deposit, by or for
the account of the Obligor for construction, reconstruction or
reconditioning of the Vessel or Advanced or Modern Shipbuilding
Technology. In the event that Obligations are issued and sold on a date
subsequent to the initial issuance and sale of Obligations, a deposit
shall be calculated in the same manner as for the first sale of
Obligations.
(c) Principal deposit--multiple Vessels or Advanced or Modern
Shipbuilding Technology. If multiple Vessels or Advanced or Modern
Shipbuilding Technology are security for the Guarantees, with the
Secretary's approval, the Obligor may calculate the aggregate deposit
of principal amount in the Escrow Fund by computing on an individual
Vessel or Advanced or Modern Shipbuilding Technology basis by prorating
the proceeds of the sale of Obligations, within the meaning of the
proviso in section 1108(a) of the Act, based on the ratio of the
Vessel's Actual Cost or Depreciated Actual Cost, to the total Actual
Cost and Depreciated Actual Cost of all Vessels or Advanced or Modern
Shipbuilding Technology which are security for the Guarantees less 75
or 87\1/2\ percent (whichever is applicable under section 1104(b)(2) of
the Act) of the amount of Actual Cost or Depreciated Actual Cost
determined by the Secretary to have been paid, as of the date of
deposit, by or for the account of the Obligor for the construction,
reconstruction or reconditioning of the Vessel or Advanced or Modern
Shipbuilding Technology for which the deposit is being computed or by
allocating portions of the proceeds (up to 75 or 87\1/2\ percent,
whichever is applicable under section 1104(b) of the Act) from the sale
of the Obligations to specific Vessels or Advanced or Modern
Shipbuilding Technology and computing the deposit based on the Actual
Cost or Depreciated Actual Cost of such Vessels or Advanced or Modern
Shipbuilding Technology paid, as of the date of deposit, by or for the
account of the Obligor. In the event that Obligations are issued and
sold on a
[[Page 21329]]
date subsequent to the initial issuance and sale of Obligations, a
deposit shall be calculated in the same manner as for the first sale of
Obligations. The foregoing allocations are for the purpose of
calculating the deposits only and are not applicable or controlling
with respect to disbursements from the Escrow Fund.
(d) Interest deposit. Interest on the aggregate principal amount
deposited pursuant to paragraphs (b) and (c) of this section, shall be
computed at the same rate borne by the Obligations, for one interest
payment period, unless the Secretary shall find the existence of
adequate consideration or accept other consideration in lieu of the
interest deposit. If the Obligations issued and sold bear more than one
rate of interest, the amount of interest required to be deposited shall
be based upon the weighted average of such interest rates. The
calculation of the amount of interest to be deposited shall take into
account the principal and interest, if any, remaining on deposit in the
Escrow Fund.
(e) Disbursements prior to Termination Date. Unless the Guarantees
shall become payable prior to the Termination Date (described in
paragraph (h) of this section) of the Escrow Fund, the Secretary shall,
subject to the satisfaction of any applicable conditions contained in
the Security Agreement, and within a reasonable time after written
request from the Obligor, make disbursements from the fund directly to
the Indenture Trustee or any Paying Agent for the payment of interest
on the Obligations, for periods prior to Vessel or Advanced or Modern
Shipbuilding Technology delivery or redelivery, and to the shipbuilder,
the Obligor or to any other Person entitled thereto, with respect to
costs included in Actual Cost. Also, the Secretary may disburse to the
Obligor, upon request made at least 10 business days prior to, and no
later than 30 days after the date on which the payment of interest on
the Obligations is due, any excess, as determined by the Secretary, of
required interest on deposit in the Escrow Fund on the date of
disbursement. However, no payment or reimbursement shall be made from
the Escrow Fund to any Person until:
(1) The Construction Fund (described in Sec. 298.34 of this part),
where provided for in the Security Agreement, has been exhausted;
(2) At least 12\1/2\ or 25 percent (whichever is applicable) of the
Actual Cost or Depreciated Actual Cost of the Vessel or Advanced or
Modern Shipbuilding Technology for which the disbursement is requested
has been paid by or for the account of the Obligor from sources other
than the proceeds of the Obligations, except that where the Obligor is
required to pay in 25 percent of the Actual Cost or Depreciated Actual
Cost, and demonstrates to the Secretary's satisfaction the ability to
pay in such 25 percent, after the Obligor has paid the first 12\1/2\
percent of the Actual Cost or Depreciated Actual Cost, the Obligor may
be permitted to withdraw moneys from the Escrow Fund, for payment of
the next 37\1/2\ percent of such Actual Cost or Depreciated Actual
Cost, and withdraw the remainder of the Escrow Fund moneys after paying
in the next 12\1/2\ percent of Actual Cost or Depreciated Actual Cost;
and
(3) The Secretary has approved the Actual Cost items and has
determined that the amounts for which reimbursement is requested have
been paid and that there has been satisfactory certification as to the
percentage of completion of the Vessel or Vessels or Advanced or Modern
Shipbuilding Technology, at least equal to that amount of Actual Cost
paid, except where the Secretary has specifically consented to an
alternative procedure.
(f) Where Guarantees become payable. If, prior to the Termination
Date of the Escrow Fund, the Guarantees shall become payable by the
Secretary, all amounts in the Escrow Fund at such time (including
interest and realized income which have not yet been paid to the
Obligor) shall be paid into the Federal Ship Financing Fund, created by
section 1102 of the Act, and be credited against any amounts due or to
become due to the Secretary from the Obligor with respect to all
Guarantees, and to the extent not so required, be paid to the Obligor.
(g) Requisition of title, termination of construction contract or
total loss of Vessel or Advanced or Modern Shipbuilding Technology. In
the event of requisition of title to or seizure or forfeiture of the
Vessel or Advanced or Modern Shipbuilding Technology, termination of
the construction contract (unless the Obligor and the Secretary elect
to have the Vessel or Advanced or Modern Shipbuilding Technology
completed) or the construction-differential subsidy contract (where
applicable), or the actual or constructive total loss of the Vessel or
Advanced or Modern Shipbuilding Technology, all moneys remaining on
deposit in the Escrow Fund may be disbursed by the Secretary for any of
the following purposes:
(1) Redemption or payment of Obligations and accrued interest
thereon to the date of redemption or payment, in accordance with the
applicable provisions of the Documentation relating to such redemption
or payment, where there is no existing default;
(2) Payment to the Obligor, if all outstanding Obligations are
retired and paid other than by payment of the Guarantees, and all
amounts payable to the Secretary and secured by the Mortgage have been
paid; and
(3) Payment in accordance with the priorities set forth in
Sec. 298.41 of this part, if a default has occurred and if the
Secretary shall have paid the Guarantees.
(h) Disbursement upon Termination Date. The Escrow Fund shall
terminate on a date agreed upon by the Obligor and the Secretary as set
forth in the Security Agreement (Termination Date). If on such
Termination Date the full amount of Actual Cost of the Vessel or
Advanced or Modern Shipbuilding Technology has not been paid by or for
the account of the Obligor, or is not then due and payable, the Obligor
and the Secretary may extend the Termination Date by agreement. When
the Secretary makes a final determination of Actual Cost at the written
request of the Obligor, or at the instance of the Secretary if the
Termination Date has occurred without such a request, the Termination
Date shall be deemed to be the date of such final determination of
Actual Cost. If payments under the Guarantees have not become due prior
to the Termination Date, then on or immediately after said Termination
Date, any balance in the Escrow Fund shall be disbursed by the
Secretary in the following manner:
(1) Where the principal amount of the Obligations issued less the
principal amount of Obligations which have been retired or paid on or
before such Termination Date, and not availed of as a credit against
any mandatory redemptions otherwise required to be made on or before
such Termination Date, shall be in excess of 75 or 87\1/2\ percent
(whichever is applicable) of the Actual Cost or Depreciated Actual Cost
of the Vessel or Advanced or Modern Shipbuilding Technology as finally
determined by the Secretary as of the Termination Date, the Secretary
shall pay such excess to the Indenture Trustee in accordance with the
provisions of the Documentation relating to such payment. A written
notice from the Secretary and the Obligor shall accompany such payment,
stating the Termination Date and directing the Indenture Trustee to
redeem an equal amount of Obligations;
(2) From the balance remaining after the deduction of the principal
amount of the Obligations to be redeemed, an amount equal to interest
accrued to the
[[Page 21330]]
date fixed for redemption of the principal amount of Obligations to be
redeemed shall be simultaneously paid from the Escrow Fund by the
Secretary to the Indenture Trustee to be applied to the payment of
interest to the date to be fixed for redemption. In the event the
balance remaining in the Escrow Fund, after giving effect to paragraph
(h)(1) of this section, is insufficient to pay the interest accrued to
the date fixed for redemption, such balance shall be paid from the
Escrow Fund to the Indenture Trustee and the Obligor shall
simultaneously deposit with the Indenture Trustee an amount equal to
the difference between the balance being paid to the Indenture Trustee
from the Escrow Fund and the total amount required for the payment of
accrued interest; and
(3) Any balance of the Escrow Fund shall be paid to the Obligor.
(i) Investment and liquidation of the Escrow Fund. The Secretary
may invest and reinvest deposits to the Escrow Fund in securities which
are obligations of the United States and with maturities such that
sufficient cash will be reasonably available to the Escrow Fund as
required to make periodic authorized disbursements. The Secretary shall
deposit the Escrow Fund into a special Treasury Department account with
instructions, pursuant to an agreement with the Obligor, for the
investment, reinvestment and liquidation of the Escrow Fund.
(j) Income Earned on the Escrow Fund. If the Guarantees shall not
have become due, after receiving notice that the Treasury Department
has deposited income earned on the Escrow Fund into the special
account, the Secretary shall direct the payment of such income to the
Obligor. Income shall include the excess of the cash received from the
sale of securities or the payment of securities at maturity (less any
losses from the sale of securities not made up by payments by the
Obligor pursuant to provisions of the Security Agreement) over the cost
thereof, and interest received with respect to the securities.
(k) Redeposit. If, at any time, the Secretary shall have determined
that there has been an improper disbursement from the Escrow Fund, the
Secretary shall give written notice to the Obligor of the amount
improperly disbursed, the amount to be redeposited into the Escrow Fund
on account thereof and the reasons for such determination. The Obligor
shall thereafter promptly redeposit such amount into the Escrow Fund.
Sec. 298.34 Construction fund.
(a) Deposit. Where the Security Agreement provides for an Escrow
Fund deposit, usually a provision shall also be included therein for
establishing Construction Fund deposits. Under the terms of this
provision, at the time of each sale of Obligations the Obligor shall
deposit with a Depository, in a special account subject to the joint
control of the Obligor and the Secretary, cash equal to the principal
amount of the Obligations issued at such time less the sum of the
aggregate principal amount then required to be in the Escrow Fund and
the amount in excess of 12\1/2\ or 25 percent of Actual Cost or
Depreciated Actual Cost, as applicable (whichever is payable under
Sec. 298.33(e) of this part) which the Secretary determines has been
paid by or for the account of the Obligor. The balance of the proceeds
from the sale of the Obligations, after depositing the amounts required
to be deposited in the Escrow Fund and/or the Construction Fund, shall
be retained by the Obligor.
(b) Withdrawals. The Secretary shall, subject to the satisfaction
of any applicable conditions contained in the Security Agreement,
periodically approve disbursements from the Construction Fund directly
to the Indenture Trustee or any Paying Agent for the payment of
interest on the Obligations, for periods prior to Vessel or Advanced or
Modern Shipbuilding Technology delivery, and to the shipbuilder, the
Obligor, or to any other Person entitled thereto with respect to costs
included in Actual Cost. The Secretary shall not authorize any
disbursement from the Construction Fund unless payments have been made
by or for the account of the Obligor from sources other than the
Obligations, in accordance with the requirements of paragraphs (e) (2)
and (3) of Sec. 298.33.
(c) Redeposit. If, at any time, the Secretary shall have determined
that there has been an improper disbursement from the Construction
Fund, the Secretary shall give written notice to the Obligor of the
amount improperly disbursed, the amount to be redeposited into the
Construction Fund on account thereof and the reasons for such
determination. The Obligor shall thereafter promptly redeposit such
amount into the Construction Fund.
Sec. 298.35 Reserve Fund and Financial Agreement.
(a) Purpose. In order to provide further security to the Secretary
and to insure payment of the interest and principal due on the
Obligations, the Company shall be required to enter into a Title XI
Reserve Fund and Financial Agreement (Agreement) at the first Closing
at which Obligations are issued. The Secretary may waive or modify
provisions of the Agreement based on an evaluation of the aggregate
security for the Guarantees.
(b) Financial Covenants for Companies meeting primary financial
requirements. Covenants shall be imposed on the Company which is
subject to compliance with the primary financial requirements at
Closing, set forth in Sec. 298.13(d), as follows:
(1) Continuous covenants. So long as Guarantees are in effect the
Company shall not, without the prior written consent of the Secretary,
undertake any actions prohibited by the Documentation, which actions
include but are not limited to those of the following nature:
(i) Enter into a service, management or operating agreement with
respect to a Vessel or Advanced or Modern Shipbuilding Technology
financed with the assistance of Title XI Guarantees;
(ii) Sell, transfer or demise charter the Vessel or transfer the
Vessel to a Related Party under any form of charter or contract,
(iii) Sell or transfer a substantial part of its assets, enter into
a merger or consolidation, engage in new business activities not
directly connected with marine operations or guarantee (or otherwise be
liable for) debts of other Persons.
(iv) Pay any dividend except as may be permitted by paragraph
(b)(1)(iv) (A) or (B) of this section. If the Company is party to an
operating-differential subsidy contract, the payment of dividends is
subject to the provisions of Sec. 298.35(g).
(v) Sell, transfer, or lease any Modern or Advanced Shipbuilding
Technology financed with the assistance of Title XI guarantees or
transfer such technology to a Related Party under any form of contract.
(A) From retained earnings in an amount specified in paragraph
(b)(1)(iv)(C) of this section providing that the year in which the
dividend is paid there is no operating loss in the current fiscal year
to the date of the payment of the dividend and
(1) There was no operating loss in the immediate preceding three
fiscal years, or
(2) There was a one year operating loss during the immediate
preceding three fiscal years and
(i) Such loss was not in the immediate preceding fiscal year, and
(ii) There was positive net income for the three year period.
(B) If dividends are not payable under paragraph (b)(1)(iv)(A) of
this section, a
[[Page 21331]]
dividend can be paid in an amount equal to the total operating net
income for the immediate preceding three fiscal year period provided
that
(1) There were no two successive years of losses,
(2) In the year in which the dividend is paid there is no operating
loss in such fiscal year to the date of payment of the dividend, and
(3) The dividend paid would not exceed an amount specified in
paragraph (b)(1)(iv)(C) of this section.
(C) Dividends may be paid from earnings of prior years in an
aggregate amount equal to:
(1) 40 percent of the Company's total net income after tax for each
of the prior years, less any dividends that were paid in such years; or
(2) The aggregate of the Company's total net income after tax for
such prior years, providing that after the payment of such dividend,
the Company's long term debt does not exceed its net worth. In
computing net income extraordinary gains, such as gains from the sale
of assets, etc., shall be excluded.
(2) Additional Covenants which may become applicable. If the
Company shall at any time no longer satisfy the primary financial
requirements, or such condition would occur after giving effect to any
of the proposed transactions set forth below, the Company shall not,
without the prior written consent of the Secretary, undertake any
actions prohibited by the Documentation, which actions include but are
not limited to those of the following nature:
(i) Withdraw or redeem capital, covert capital into debt, make
distributions, or pay any dividends, provided, however, if the Company
is subject to an operating-differential subsidy contract, the dividend
restriction shall be governed by Sec. 298.35(g);
(ii) Make loans, advances, investments in or repayments of existing
debts to a Related Party, stockholders, officers or directors;
(iii) Incur indebtedness or become subject to any liens (except if
necessary in the ordinary course of existing business); acquire fixed
assets or become liable (directly or indirectly) under charters or
leases (having a term of six months or more) for the payment of charter
hire or rent on all such charters or leases which have annual payments
aggregating in excess of an amount specified by the Secretary in the
Agreement;
(iv) Pay salaries in excess of amounts specified in the Agreement,
pay subordinated indebtedness or make loans; or
(v) Invest in securities other than those that qualify as eligible
investments under the Agreement.
(c) Financial Covenants for Companies meeting the special financial
requirements. Covenants shall be imposed on the Company which is
subject to the special financial requirements at Closing, set forth in
Sec. 298.13(e), as follows:
(1) Continuous covenants. So long as the Guarantees are in effect
the Company shall not, without the prior written consent of the
Secretary, undertake any actions, prohibited by the Documentation,
which actions include but are not limited to those of the following
nature.
(i) Enter into a service, management or operating agreement for a
Vessel or Advanced or Modern Shipbuilding Technology financed with the
assistance of Title XI Guarantees;
(ii) Sell, transfer or demise charter the Vessel or transfer the
Vessel to a Related Party under any form of Charter or Contract.
(iii) Sell or transfer a substantial part of its assets, enter into
a merger or consolidation, engage in any new business activities not
directly connected with marine operations or guarantee (or otherwise
become liable for) debts of other Persons;
(iv) Incur indebtedness or become subject to any liens (except if
necessary in the ordinary course of existing business); acquire fixed
assets or become liable (directly or indirectly) under charters or
leases (having a term of six months or more) for the payment of charter
hire or rent on all such charters or leases which have annual payments
aggregating in excess of an amount specified for the Secretary in the
Agreement;
(v) Make any loans or invest in any securities other than Eligible
Investments for Title XI Reserve Fund;
(vi) Pay any subordinated indebtedness other than in accordance
with a subordination agreement approved by the Secretary; or
(vii) Sell, transfer, or lease any Advanced or Modern Shipbuilding
Technology financed with the assistance of Title XI guarantees or
transfer such technology to a Related Party under any form of contract.
(2) Additional covenants which may become applicable. If the
Company shall at any time no longer satisfy the special financial
requirement (after including the annual financial liability relating to
the Obligations as a current liability in computing Working Capital),
or such condition would occur after giving effect to any proposed
transaction set forth below, the Company shall not, without the prior
written consent of the Secretary, undertake any actions prohibited by
the Documentation, which actions include but are not limited to those
of the following nature:
(i) Withdraw or redeem capital, convert capital into debt, make
distributions, or pay any dividend, provided however, if the Company is
subject to an operating-differential subsidy contract, the dividend
restriction shall be governed by Sec. 298.35(g);
(ii) Make loans, advances, investments or prepayments of existing
debts to a Related Party, stockholders, officers or directors, or
invest in the securities of any Related Party; or
(iii) Pay salaries in excess of amounts specified in the Agreement.
(3) Covenants where Company's financial condition improves to meet
primary financial requirements. Whenever the Company, based on a review
of its financial position, determines that it meets the primary
financial requirements set forth in Sec. 298.13(d), it may inform the
Secretary of this fact, and submit such financial statements and all
additional information which the Secretary shall consider necessary to
verify compliance with such financial requirements. With the consent of
the Secretary, the Company may elect thereafter to be subject to
covenants applicable to a Company which had satisfied the primary
financial requirements at Closing.
(d) Title XI Reserve Fund Net Income. The Agreement shall provide
that within 105 days after the end of its accounting year, the Company
shall compute its net income attributable to the operation of one or
more Vessels that were constructed, reconstructed, reconditioned or
refinanced with Title XI financing assistance (Title XI Reserve Fund
Net Income). The computation utilizes a ratio expressed as a
percentage, and applies this percentage to the Company's total net
income after taxes. The numerator of the ratio shall be the total
original capitalized cost of all Company Vessels (whether leased or
owned) which were constructed, reconstructed, reconditioned or
refinanced with the assistance of Guarantees. The denominator shall be
the total original capitalized cost of all the Company's fixed assets.
In the case of Advanced or Modern Shipbuilding Technology, the
Agreement shall provide that within 105 days after the end of its
accounting year, the Company shall submit its audited financial
statements showing its net cash flow in a manner acceptable to the
Secretary, in lieu of any other computation of Reserve
[[Page 21332]]
Fund Net Income specified herein for Vessels. The net income after
taxes, computed in accordance with generally accepted accounting
principles, shall be adjusted as follows:
(1) The depreciation expense applicable to the accounting year
shall be added back.
(2) There shall be subtracted:
(i) An amount equal to the principal amount of debt required to be
paid or redeemed, and actually paid or redeemed by the Company (other
than from the Title XI Reserve Fund) during the year; and
(ii) The principal amount of Obligations retired or paid (as
defined in the Security Agreement), prepaid or redeemed, in excess of
the required redemptions or payments which may be used by the Company
as a credit against future required redemptions or other required
payments w
FR Doc. 96-11289 Obligation GuaranteesProgram Administration
ith respect to the Obligations.
(e) Deposits. Unless the Company, as of the close of its accounting
year, was subject to and in compliance with the primary financial
requirements set forth in Sec. 298.13(d), the Company shall make one or
more deposits to a special joint depository account with the Secretary
(the Title XI Reserve Fund) to be established pursuant to an agreement
in writing (Depository Agreement) at the time the first deposit is
required to be made. The amount of deposit as to any year, or period
less than a full year, where applicable, shall be determined as
follows:
(1) If the Company is the owner of the Vessel or Advanced or Modern
Shipbuilding Technology, an amount (pro rated for a period of less than
a full year) that is equal to 10 percent of the Company's aggregate
original equity investment in the Vessel or Vessels or Advanced or
Modern Shipbuilding Technology shall be deducted from Title XI Reserve
Fund Net Income.
(2) Fifty percent of the Title XI Reserve Fund Net Income adjusted
where applicable, in accordance with paragraph (e)(1) of this section
shall be deposited into the Title XI Reserve Fund.
(3) There shall also be deposited any additional amounts that may
be required, pursuant to provisions of the Security Agreement or any
other agreement in the documentation to which the Company is a party.
(4) Irrespective of the Company's deposit requirement, as stated in
preceding paragraphs (e) (1) through (3) of this section, the Company
shall not be required to make any deposits into the Title XI Reserve
Fund if any of the following events shall have occurred:
(i) The Company shall have discharged the Obligations and related
Secretary's Note and shall have paid other sums secured under the
Security Agreement and Preferred Mortgage;
(ii) All Guarantees with respect to outstanding Obligations shall
have terminated pursuant to the provisions of the Security Agreements,
other than by reason of payment of the Guarantees; or
(iii) The amount in the Title XI Reserve Fund, (including any
securities at market value), is equal to, or in excess of 50 percent of
the principal amount of outstanding Obligations.
(5) In the case of Advanced or Modern Shipbuilding Technology,
unless the shipyard as of the close of its accounting year was subject
to and in compliance with the primary financial requirements, the
shipyard shall make a deposit at two percent of its net cash flow, as
defined by GAAP, and as shown on its audited financial statements.
(f) Fund in lieu of Title XI Reserve Fund. If the Company has
established a Capital Construction Fund (CCF), pursuant to section 607
of the Act, whether interim or permanent, at any time when a deposit
would otherwise be required to be made into the Title XI Reserve Fund,
and the Company elects to make such deposits to the CCF, the Company
shall enter into an agreement, satisfactory to the Secretary, providing
that all such deposits of assets therein shall be security (CCF
Security Amount) to the United States in lieu of the Title XI Reserve
Fund. The deposit requirements of the Title XI Reserve Fund and
Financial Agreement shall be deemed satisfied by deposits of equal
amounts in the CCF, and withdrawal of the CCF Security Amount shall be
subject to the Secretary's prior written consent. If, for any reason,
the CCF terminates prior to the payment of the Obligations, the
Secretary's Note and all other amounts due under or secured by the
Security Agreement or Mortgage, the CCF Security Amount shall be
deposited or redeposited in the Title XI Reserve Fund.
(g) Dividend restrictions applicable to companies who are parties
to an operating-differential subsidy contract. [Reserved]
Sec. 298.36 Annual Guarantee Fee.
(a) Rates in general. For annual periods, beginning with the date
of the Security Agreement and prior to the delivery date of a Vessel or
Advanced or Modern Shipbuilding Technology, the Secretary shall charge
the Obligor an annual fee (Guarantee Fee) at a rate of not less than
\1/4\ of 1 percent and not more than \1/2\ of 1 percent of the excess
of the average principal amount of the Obligations estimated to be
outstanding during the annual period covered by said Guarantee Fee over
the average principal amount, if any, on deposit in the Escrow Fund
during said annual period (Average Principal Amount of Obligations
Outstanding). For annual periods beginning with the delivery date of a
Vessel or Advanced or Modern Shipbuilding Technology, the Guarantee Fee
shall be imposed at an annual rate of not less than \1/2\ of 1 percent
and not more than 1 percent of the Average Principal Amount of
Obligations Outstanding during the annual period covered by the
Guarantee Fee. The Obligor shall be responsible for payment of the
Guarantee Fee.
(b) Rate calculation. The Guarantee Fee rate generally shall vary
inversely with the ratio of Equity to Long Term Debt of the Person
considered by the Secretary to be the primary source of credit in the
transaction (Credit Source), e.g., the long term time charterer (where
the charter hire represents the source of payment of interest and
principal with respect to the Obligations), the guarantor of the
Obligations, Obligor or the bareboat charterer. Where the ratio of
Equity to Long Term Debt (Variable Rate) is used, the Secretary may
make such adjustments to the computation of Equity and Long Term Debt
considered necessary to reflect more accurately the financial condition
of the Credit Source. The determination of Equity and Long Term Debt
shall be based on information contained in forms or statements on file
with the Secretary prior to the date on which the Guarantee Fee is to
be paid. With the consent of the Secretary, there shall be included in
equity, but excluded from Long Term Debt, any subordinated indebtedness
representing loans to the credit source, evidence of which has been
delivered to the Secretary. The Secretary may establish a fixed rate or
other method of calculation of the Guarantee Fee, upon an evaluation of
the aggregate security for the Guarantees.
(c) Variable Rate prior to Vessel or Advanced or Modern
Shipbuilding Technology delivery. For annual periods beginning prior to
the delivery date of a Vessel or Advanced or Modern Shipbuilding
Technology being constructed, reconstructed, or reconditioned, the
Guarantee Fee shall be determined as follows:
(1) If the Equity is less than 15 percent of the Long Term Debt,
the annual Guarantee Fee rate shall be \1/2\ of 1 percent of the
Average Principal Amount of Obligations Outstanding during the annual
period covered by the Guarantee Fee.
[[Page 21333]]
(2) If the Equity is at least 15 percent of the Long Term Debt, but
less than the Long Term Debt, the annual Guarantee Fee rate shall be
\3/8\ of 1 percent of the Average Principal Amount of Obligations
Outstanding during the annual period covered by the Guarantee Fee.
(3) If the Equity is equal to or exceeds the Long Term Debt, the
annual Guarantee Fee rate shall be \1/4\ of 1 percent of the Average
Principal Amount of Obligations Outstanding during the annual period
covered by the Guarantee Fee.
(d) Variable Rate after Vessel or Advanced or Modern Shipbuilding
Technology delivery. For annual periods beginning on or after the
Vessel or Advanced or Modern Shipbuilding Technology delivery date, the
Guarantee Fee shall be determined as follows:
(1) If the Equity is less than 15 percent of the Long Term Debt,
the annual Guarantee Fee rate shall be 1 percent of the Average
Principal Amount of Obligations Outstanding during the annual period
covered by the Guarantee Fee.
(2) If the Equity is at least 15 percent of the Long Term Debt but
less than 60 percent of the Long Term Debt, the annual Guarantee Fee
rate shall be \3/4\ of 1 percent of the Average Principal Amount of
Obligations Outstanding during the annual period covered by the
Guarantee Fee.
(3) If the Equity is at least 60 percent of the Long Term Debt, but
less than the Long Term Debt, the annual Guarantee Fee rate shall be
\5/8\ of 1 percent of the Average Principal Amount of Obligations
Outstanding during the annual period covered by the Guarantee Fee.
(4) If the Equity shall equal or exceed the Long Term Debt, the
Guarantee Fee rate shall be \1/2\ of 1 percent of the Average Principal
Amount of Obligations Outstanding during the annual period covered by
the Guarantee Fee.
(e) Payment of Guarantee Fee. The Guarantee Fee covering the full
period of the stated maturity of the Obligations commencing with the
date of the Security Agreement shall be paid to the Secretary
concurrently with the execution and delivery of said Agreement. The
project's entire Guarantee Fee payment shall be made by the Obligor to
the Secretary in an amount equal to the sum of the present value of the
separate products obtained by applying the Guarantee Fee rate to the
projected amount of the Obligations Outstanding for each year of the
stated maturity of the Obligations. In calculating the present value
used in determining the amount of the Guarantee Fee to be paid, MARAD
will use a discount rate based on information contained in the
Department of Commerce's Economic Bulletin Board quarterly rates. Under
no circumstances will the Secretary refund the Guarantee Fee to the
Obligor. A Guarantee Fee paid pursuant to this section may be included
in Actual Cost and is eligible to be financed.
(f) Proration of Guarantee Fee. The Guarantee Fee shall be prorated
where a Vessel delivery is scheduled to occur during the annual period
with respect to which payment of said Guarantee Fee is being made, as
follows:
(1) Undelivered Vessel. If the Guarantee Fee relates to an
undelivered Vessel, the predelivery rate is applicable to the Average
Principal Amount of Obligations Outstanding for the period from the
date of the Security Agreement to the delivery date, and the delivered
Vessel rate is applicable for the balance of the annual period in which
the delivery occurs.
(2) Multiple Vessels. If the Guarantee Fee relates to more than one
Vessel, the amount of outstanding Obligations shall be allocated to
each Vessel in the manner prescribed in Sec. 298.33(d), and an amount
shall be determined for each Vessel by using the rate that is
applicable under paragraph (c) or (d) of this section and the proration
as set forth above. The Guarantee Fee shall be the aggregate of the
amounts calculated for each Vessel.
Sec. 298.37 Examination and audit.
The Secretary shall have the right to examine and audit the books,
records (including original logs, cargo manifests and similar records)
and books of account, which pertain directly to the project, of the
Obligor, bareboat charterer, time charterer or any other Person who has
control of or a financial interest in a Vessel or Advanced or Modern
Shipbuilding Technology, as well as records of a Related Party and
domestic agents connected with such Persons, and shall have full, free
and complete access thereto at all reasonable times. Also, the
Secretary shall have full, free and complete access at all reasonable
times to each Vessel or Advanced or Modern Shipbuilding Technology with
respect to which Guarantees or an insurance contract is in force. When
a Vessel is in port or undergoing repairs, the Secretary may make
photostatic or other copies of any books, records and other relevant
documents or papers being examined or audited. Adequate office space
and other facilities reasonably required by any representatives of the
Secretary engaged in an examination, audit or inspection shall be
furnished without charge by the Person in control of the premises where
the examination or audit is being conducted.
Sec. 298.38 Partnership agreements.
Partnership agreements shall be in form and substance satisfactory
to the Secretary prior to any Guarantee closing, especially relating,
but not limited to, four basis areas:
(a) Duration of the partnership,
(b) adequate partnership funding requirements and mechanisms,
(c) dissolution of the partnership and the withdrawal of a general
partner and
(d) the termination, amendment, or other modification of the
partnership agreement without the prior written consent of the
Secretary.
Sec. 298.39 Exemptions.
The Secretary may exempt an applicant from any requirement of this
Part not required by law, in exceptional cases, on written findings
that:
(a) The case materially involves factors not considered in the
promulgation of this part;
(b) (1) a national emergency makes it necessary to approve the
exemption or
(2) the financial liability of the United States will be
substantially relieved;
(c) the exemption will not substantially affect effective
regulation of the Title XI program, consistent with the objectives of
this part; and
(d) exemption will not be unjustly discriminatory. In the case of
Eligible Export Vessels, the Secretary may also exempt an applicant
from any requirement of this part not required by law if the Secretary
makes a written determination that such exemption would assist in
creating financing terms that would be compatible with export credit
terms for the sale of vessels built in shipyards other than those in
the United States.
Subpart E--Defaults and Remedies, Reporting Requirements,
Applicability of Regulations
Sec. 298.40 Defaults.
(a) In General. Provisions concerning the existence and declaration
of a default and demand for payment of the Obligations (described in
paragraphs (b) and (c) of this section) shall be included in the
Security Agreement and in other parts of the Documentation.
(b) Payment Default. In the case of any default in the payment of
principal or interest with respect to the Obligations (provided that
the Secretary shall not have, upon such terms as may be provided in the
Obligation or related
[[Page 21334]]
agreements, prior to that demand, assumed the obligor's rights and
duties under the Obligation and agreements and shall have made any
payments in default), the following procedures shall be applicable:
(1) No demand shall be made for payment under the Guarantees unless
the default shall have continued for 30 days (Payment Default).
(2) After the expiration of said 30-day period, demand for payment
of all amounts due under the Guarantees must be made no later than 60
days thereafter.
(3) After demand for payment is made by or on behalf of the
Obligees, the Secretary shall make payment under the Guarantees, except
if the Secretary determines that a Payment Default has not occurred or
that such Payment Default has been remedied prior to demand being made.
(c) Security Default. If a default occurs under the Security
Agreement which is other than a Payment Default (Security Default), the
Secretary, as provided in section 1105(b) of the Act, shall have the
sole discretion to declare such default a Security Default and may
notify the Obligee or agent of the Obligee of such Security Default,
stating that demand for payment under the Guarantees must be made no
later than 60 days after the date of such notification.
(d) Payment of Guarantees. If demand for payment of the Guarantees
is made, the Secretary shall, no later than 30 days after the date of
such demand (provided that the Secretary shall not have, upon such
terms as may be provided in the Obligations or related agreements,
prior to that demand, assumed the Obligor's rights and duties under the
Obligation and agreements and shall have made any payments in default),
make payment to the Obligees, Indenture Trustee or any other agent of
the unpaid principal amount of Obligations and unpaid interest accrued
and accruing thereon up to, but not including, the date of payment.
Sec. 298.41 Remedies after default.
(a) In general. Provisions governing remedies after a default,
which relate to rights and duties of the Obligor, the Secretary and
other Persons (where appropriate), shall be included in the Security
Agreement or in other parts of the Documentation.
(b) Action by Secretary. After a default has occurred and is
continuing and before making payment required under the Guarantees, the
Secretary may take the Vessel or Advanced or Modern Shipbuilding
Technology and hold, lease, charter, operate or use the Vessel or
Advanced or Modern Shipbuilding Technology, accounting only for the net
profits to the Obligor. After making payment required under the
Guarantees, the Secretary may initiate or otherwise participate in
legal proceedings of every type, or take any other action considered
appropriate, to protect rights and interests granted to the Secretary
by sections 1105(c), 1105(e) and 1108(b) of the Act, the Security
Agreement or other applicable provisions of law and of the
Documentation.
(c) Security proceeds to Secretary. The Secretary's interest in
proceeds realized from the disposition of or collection with respect to
security granted to the Secretary in consideration for the Guarantees
(except all proceeds from the sale, requisition, charter or other
disposition of property purchased by the Secretary at a foreclosure or
other public sale, which proceeds shall belong to and vest exclusively
in the Secretary), shall be an amount equal to, but not in excess of,
the sum of (in order of priority of application of the proceeds):
(1) Guarantee Fees, if any, due the Secretary under the Security
Agreements;
(2) All moneys due and unpaid and secured by the Mortgage or
Security Agreement;
(3) All advances, including interest thereon, by the Secretary,
pursuant to the Security Agreement and all reasonable charges and
expenses of the Secretary;
(4) The accrued and unpaid interest on the Secretary's Note;
(5) The accrued and unpaid balance of the principal of the
Secretary's Note; and
(6) To the extent of any collaterization by the Obligor of other
debt due to the Secretary from the Obligor under other Title XI
financings, such other Title XI debt.
(d) Security proceeds to Obligor. The Obligor shall be entitled to
the proceeds from the sale or other disposition of security, described
in paragraph (c) of this section, if and to the extent that the
proceeds realized are in excess of the amounts described in paragraphs
(c) (1) through (6) of this section.
Sec. 298.42 Reporting requirements--financial statements.
The financial statements of the Company shall be audited at least
annually, in accordance with generally accepted auditing standards, by
independent certified public accountants licensed to practice by the
regulatory authority of a State or other political subdivision of the
United States or, licensed public accountants licensed to practice by
the regulatory authority or other political subdivision of the United
States on or before December 31, 1970. In the case of Eligible Export
Vessels, the accounts of the Company shall be audited at least
annually, and the Secretary may require that the financial statements
be in accordance with generally accepted accounting principles, by
accountants as described in the first sentence of this section or by
independent public accountants licensed to practice by the regulatory
authority or other political subdivision of a foreign country, provided
such accountants are satisfactory to the Secretary. The accountants
performing such audits may be the regular auditors of the Company.
(a) Reports of Company and other Persons. Except as otherwise
required by the Secretary, the Company shall file a semiannual
financial report and an annual financial report, prepared in accordance
with generally accepted accounting principles, with the Maritime
Administration as specified in the Documentation. Included shall be the
balance sheet and a statement of paid-in-capital and retained earnings
at the close of the required reporting period, a statement of income
for the period and any other statement that the Secretary shall
consider necessary to accurately reflect the Company's financial
condition and the results of its operations. By letter to the Company,
the Secretary shall specify the form required for reporting and the
number of copies to be submitted. The Secretary may, by notice to the
Company, also require the Company to submit financial statements of any
other Person, directly or indirectly participating in the project, if
the financial condition of that Person affects the Secretary's security
for the Guarantees. The required financial report for the annual period
shall be due within 105 days after the close of each fiscal year of the
Company, commencing with the first fiscal year ending after the date of
the Security Agreement. The required semiannual report shall be due
within 105 days after each semiannual period, commencing with the first
semiannual period ending after the date of the Security Agreement. The
annual report shall be accompanied by the public accountant's report
based on an audit of the company's financial statements. An audit by
the public accountants of the financial statements contained in the
company's semiannual report may be required by the Secretary.
Certification of the semiannual report by the accountants may be
required by the Secretary. Where independent certification is not
required, a responsible corporate officer shall attach a certification
that such report is based
[[Page 21335]]
on the accounting records and, to the best of that officer's knowledge
and belief, is accurate and complete.
(b) Leveraged lease financing. If the method of financing involved
is a leveraged lease financing, or a trust is the owner of the Vessels,
the requirements for annual and semiannual accounting reports of the
Obligor may be modified accordingly by the Secretary.
(c) The Company shall furnish, along with its semi-annual report, a
letter of confirmation issued by its insurance underwriter(s) or
broker(s) that the Company has paid premiums on insurance applicable to
the preservation, protection and operation of the asset, which
information shall state the term for which the insurance is in force.
Sec. 298.43 Applicability of the regulations.
The regulations in this part shall be in effect as to all Letter
Commitments, commitments to guarantee Obligations and Guarantees of
Obligations made, issued or entered into after the effective date
hereof pursuant to section 1104(a) of the Act, and all mortgages and
loans covered thereby. These regulations supersede those issued under
part 298 of this title (43 FR 60912) as of the effective date hereof,
but shall not affect any Letter Commitments, commitment for Guarantees,
Guarantees or contracts of insurance in existence on the effective date
of these regulations. The regulations in this part may be amended, but
said amendments shall have no effect upon any existing Letter
Commitments, guarantees, insurance contracts, commitments for
Guarantees or Documentation.
Subpart F--Administration [Reserved]
Dated: May 2, 1996.
By order of the Maritime Administrator.
Joel C. Richard,
Secretary, Maritime Administration.
[FR Doc. 96-11289 Filed 5-8-96; 8:45 am]
BILLING CODE 4910-81-P
Complete official Federal Register PDF
FR Doc. 96-11258 Airworthiness Directives; AlliedSignal, Inc. LTS101-600 Series Turboshaft Engines
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21070-21071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11258]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
14 CFR Part 39
[Docket No. 95-ANE-12; Amendment 39-9609; AD 96-10-04]
Airworthiness Directives; AlliedSignal, Inc. LTS101-600 Series
Turboshaft Engines
AGENCY: Federal Aviation Administration, DOT.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This amendment adopts a new airworthiness directive (AD),
applicable to AlliedSignal, Inc. LTS101-600 series turboshaft engines,
that requires installation of an improved design fuel control. This
amendment is prompted by reports of fuel control bearings failing prior
to the recommended overhaul period. The actions specified by this AD
are intended to prevent a fuel control failure, which could result in
an uncommanded increase or decrease in engine power.
DATES: Effective June 13, 1996.
The incorporation by reference of certain publications listed in
the regulations is approved by the Director of the Federal Register as
of June 13, 1996.
ADDRESSES: The service information referenced in this AD may be
obtained from AlliedSignal Engines, 111 South 34th Street, Phoenix, AZ
85072; telephone (602) 365-2493, fax (602) 365-2210. This information
may be examined at the Federal Aviation Administration (FAA), New
England Region, Office of the Assistant Chief Counsel, 12 New England
Executive Park, Burlington, MA; or at the Office of the Federal
Register, 800 North Capitol Street NW., suite 700, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Dave Keenan, Aerospace Engineer,
Engine Certification Office, FAA, Engine and Propeller Directorate, 12
New England Executive Park, Burlington, MA 01803-5299; telephone (617)
238-7139, fax (617) 238-7199.
SUPPLEMENTARY INFORMATION: A proposal to amend part 39 of the Federal
Aviation Regulations (14 CFR part 39) to include an airworthiness
directive (AD) that is applicable to AlliedSignal, Inc. Models LTS101-
600A-2/A-3 turboshaft engines was published in the Federal Register on
August 21, 1995 (60 FR 43413). That action proposed to require the
installation of an improved fuel control in accordance with
AlliedSignal Engines Service Bulletin (SB) No. LTS101A-73-20-0166,
Revision 1, dated November 21, 1994.
Interested persons have been afforded an opportunity to participate
in the making of this amendment. Due consideration has been given to
the comments received.
One commenter, the manufacturer, states that since the issuance of
the NPRM, AlliedSignal, Inc. has revised AlliedSignal Engines SB No.
LTS101A-73-20-0166 to recommend the installation of a screened
pneumatic fitting on the main fuel control (MFC). The FAA concurs in
part. Both revisions of the SB address the incorporation of fuel
control drive (Meldin) bearings in the MFC in the same manner, which is
the primary focus of this AD. The FAA has determined that installation
of a screened pneumatic fitting is not necessary to prevent a MFC
failure due to lack of bearing lubrication. Therefore, this final rule
references both AlliedSignal Engines SB No. LTS101A-73-20-0166,
Revision 1, dated November 21, 1994, and Revision 2, dated August 1,
1995, but does not require installation of a screened pneumatic
fitting.
The manufacturer also states that due to the time required to
publish the NPRM and receive comments, the AD will not be published
prior to compliance end-date specified in the NPRM. The FAA concurs and
has extended the compliance end-date in this final rule to September 1,
1996.
In addition, the FAA is considering future rulemaking to address
other aircraft installations of the AlliedSignal, Inc. LT101 series
engines.
After careful review of the available data, including the comments
noted above, the FAA has determined that air safety and the public
interest require the adoption of the rule with the changes described
previously. The FAA has determined that these changes will neither
increase the economic burden on any operator nor increase the scope of
the AD.
The FAA estimates that 216 engines installed on aircraft of U.S.
registry will be affected by this AD, that it will take approximately
2.5 work hours per engine to accomplish the required actions, and that
the average labor rate is $60 per work hour. Required parts will cost
approximately $1,000 per engine. Based on these figures, the total cost
impact of the AD on U.S. operators is estimated to be $248,400.
The regulations adopted herein 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 Executive Order 12612, it is determined that this final
rule does not have sufficient federalism implications to warrant the
preparation of a Federalism Assessment.
For the reasons discussed above, I certify that this action (1) is
not a ``significant regulatory action'' under Executive Order 12866;
(2) is not a ``significant rule'' under DOT Regulatory Policies and
Procedures (44 FR 11034, February 26, 1979); and (3) will not have a
significant economic impact, positive or negative, on a substantial
number of small entities under the criteria of the Regulatory
Flexibility Act. A final evaluation has been prepared for this action
and it is contained in the Rules Docket. A copy of it may be obtained
from the Rules Docket at the location provided under the caption
ADDRESSES.
[[Page 21071]]
List of Subjects in 14 CFR Part 39
Air Transportation, Aircraft, Aviation safety, Incorporation by
reference, Safety.
Adoption of the Amendment
Accordingly, pursuant to the authority delegated to me by the
Administrator, the Federal Aviation Administration amends part 39 of
the Federal Aviation Regulations (14 CFR part 39) as follows:
PART 39--AIRWORTHINESS DIRECTIVES
1. The authority citation for part 39 continues to read as follows:
Authority: 49 USC 106(g), 40113, 44701.
Sec. 39.13 [Amended]
2. Section 39.13 is amended by adding the following new
airworthiness directive:
96-10-04 AlliedSignal, Inc.: Amendment 39-9609. Docket 95-ANE-12.
Applicability: AlliedSignal, Inc. Models LTS101-600A-2 and A-3
turboshaft engines, installed on but not limited to Eurocopter AS350
series aircraft.
Note: This airworthiness directive (AD) applies to each engine
identified in the preceding applicability provision, regardless of
whether it has been modified, altered, or repaired in the area
subject to the requirements of this AD. For engines that have been
modified, altered, or repaired so that the performance of the
requirements of this AD is affected, the owner/operator must use the
authority provided in paragraph (b) to request approval from the
Federal Aviation Administration (FAA). This approval may address
either no action, if the current configuration eliminates the unsafe
condition, or different actions necessary to address the unsafe
condition described in this AD. Such a request should include an
assessment of the effect of the changed configuration on the unsafe
condition addressed by this AD. In no case does the presence of any
modification, alteration, or repair remove any engine from the
applicability of this AD.
Compliance: Required as indicated, unless accomplished
previously.
To prevent a fuel control failure, which could result in an
uncommanded increase or decrease in available engine power,
accomplish the following:
(a) At the next replacement of an affected fuel control, prior
to accumulating 300 hours time in service (TIS) after the effective
date of this AD, or September 1, 1996, whichever occurs first,
accomplish the following in accordance with AlliedSignal Engines
Service Bulletin (SB) No. LTS101A-73-20-0166, Revision 1, dated
November 21, 1994, or Revision 2, dated August 1, 1995:
(1) For AlliedSignal, Inc. Model LTS101-600A-2 engines, install
an improved fuel control, P/N 4-301-098-04 with ``B'' or ``BF''
stamped on the data plate after the dash number of the AlliedSignal
Aerospace Equipment Division (formerly AlliedSignal Controls and
Accessories/Bendix) part number, or P/N 4-301-098-15. These improved
fuel controls incorporate fuel control drive (Meldin) bearings.
(2) For AlliedSignal, Inc. Model LTS101-600A-3 engines, install
an improved fuel control, P/N 4-301-288-02 with ``B'' or ``BF''
stamped on the data plate after the dash number of the AlliedSignal
Aerospace Equipment Division (formerly AlliedSignal Controls and
Accessories/Bendix)
P/N, or P/N 4-301-288-04. These improved fuel controls incorporate
fuel control drive (Meldin) bearings.
(b) An alternative method of compliance or adjustment of the
compliance time that provides an acceptable level of safety may be
used if approved by the Manager, Engine Certification Office. The
request should be forwarded through an appropriate FAA Principal
Maintenance Inspector, who may add comments and then send it to the
Manager, Engine Certification Office.
Note: Information concerning the existence of approved
alternative methods of compliance with this airworthiness directive,
if any, may be obtained from the Engine Certification Office.
(c) Special flight permits may be issued in accordance with
sections 21.197 and 21.199 of the Federal Aviation Regulations (14
CFR 21.197 and 21.199) to operate the aircraft to a location where
the requirements of this AD can be accomplished.
(d) The actions required by this AD shall be done in accordance
with the following AlliedSignal Engines SB's:
------------------------------------------------------------------------
Document No. Pages Revision Date
------------------------------------------------------------------------
LTS101A-73-20-0166............... 1-3 1 November 21, 1994.
Total Pages: 3.
LTS101A-73-20-0166............... 1-6 2 August 1, 1995.
Total Pages: 6.
------------------------------------------------------------------------
This incorporation by reference was approved by the Director of
the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR
part 51. Copies may be obtained from AlliedSignal Engines, 111 South
34th Street, Phoenix, AZ 85072; telephone (602) 365-2493, fax (602)
365-2210. Copies may be inspected at the FAA, New England Region,
Office of the Assistant Chief Counsel, 12 New England Executive
Park, Burlington, MA; or at the Office of the Federal Register, 800
North Capitol Street NW., suite 700, Washington, DC.
(e) This amendment becomes effective on June 13, 1996.
Issued in Burlington, Massachusetts, on April 24, 1996.
Jay J. Pardee,
Manager, Engine and Propeller Directorate, Aircraft Certification
Service.
[FR Doc. 96-11258 Filed 5-8-96; 8:45 am]
BILLING CODE 4910-13-U
Complete official Federal Register PDF
FR Doc. 96-11257 Airworthiness Directives; Sensenich Propeller Manufacturing Company Inc. Models M76EMM, M76EMMS, 76EM8, and 76EM8S() Metal Propellers
[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Rules and Regulations]
[Pages 21071-21073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11257]
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DEPARTMENT OF TRANSPORTATION
14 CFR Part 39
[Docket No. 95-ANE-03; Amendment 39-9583; AD 69-09-03 R3]
Airworthiness Directives; Sensenich Propeller Manufacturing
Company Inc. Models M76EMM, M76EMMS, 76EM8, and 76EM8S() Metal
Propellers
AGENCY: Federal Aviation Administration, DOT.
ACTION: Final rule.
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SUMMARY: This amendment revises an existing airworthiness directive
(AD), applicable to Sensenich Propeller Manufacturing Company Inc.
Models M76EMM, M76EMMS, 76EM8, and 76EM8S() metal propellers, that
currently restricts operators from continuously operating the propeller
at engine speeds from 2,150 to 2,350 revolutions per minute (RPM) and
specifies propeller inspection and rework or replacement. This
amendment eliminates the requirement to add tachometer markings on
aircraft with certain additional Textron Lycoming O-360 series
reciprocating engines with solid crankshafts installed, and updates the
referenced Sensenich Propeller Company Inc. service bulletin to the
latest revision. Reworking of all affected propeller models remains a
requirement of the AD, regardless of engine installation. This
amendment is prompted by inquiries concerning tachometer red arc
restrictions on certain Textron Lycoming O-360 series reciprocating
engines with solid crankshafts. The actions specified by this AD are
intended to prevent propeller blade tip fatigue failure, which can
result in loss of control of the aircraft.
DATES: Effective June 13, 1996.
The incorporation by reference of certain publications listed in
the regulations is approved by the Director of the Federal Register as
of June 13, 1996.
ADDRESSES: The service information referenced in this AD may be
obtained from Sensenich Propeller Manufacturing Company Inc., 519
Airport Road, Lititz, PA 17543; telephone (717) 569-0435, fax (717)
560-3725. This information may be examined at the Federal Aviation
Administration (FAA), New England Region, Office of the Assistant Chief
Counsel, 12 New England Executive Park, Burlington, MA; or at the
Office of the Federal Register, 800 North Capitol Street, NW., 7th
Floor, suite 700, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Raymond J. O'Neill, Aerospace
[[Page 21072]]
Engineer, New York Aircraft Certification Office, FAA, Engine and
Propeller Directorate, 10 Fifth St., Valley Stream, NY 11581; telephone
(516) 256-7505, fax (516) 568-2716.
SUPPLEMENTARY INFORMATION: A proposal to amend part 39 of the Federal
Aviation Regulations (14 CFR part 39) by revising AD 69-09-03,
Amendment 39-761 (34 FR 7371, May 7, 1969); Revision 1, Amendment 39-
808 (34 FR 12563, August 1, 1969); Revision 2, Amendment 39-1102 (35 FR
17030, November 5, 1970), was published in the Federal Register on
December 7, 1995 (60 FR 62772). The action, applicable to Sensenich
Propeller Manufacturing Company Inc. Models M76EMM, M76EMMS, 76EM8, and
76EM8S() metal propellers, proposed to eliminate the requirement to add
tachometer markings on aircraft with certain additional Textron
Lycoming O-360 series reciprocating engines with solid crankshafts
installed that restrict continuous operation between engine speeds from
2,150 to 2,350 revolutions per minute (RPM). In addition, that action
proposed to update the referenced Sensenich Propeller Company Inc.
service bulletin (SB) to the latest revision.
Interested persons have been afforded an opportunity to participate
in the making of this amendment. No comments were received on the
proposal or the FAA's determination of the cost to the public.
In the NPRM, propeller model M76EMMS was erroneously listed as
M7EMMS. This final rule lists the correct propeller model, M76EMMS.
In addition, since issuance of the NPRM, the manufacturer has
advised the FAA that correct date of SB No. R-14A is July 28, 1995.
This final rule shows the correct revision date.
The FAA has determined that air safety and the public interest
require the adoption of the rule with the changes described previously.
The FAA has determined that these changes will neither increase the
economic burden on any operator nor increase the scope of the AD.
There are approximately 100 propellers of the affected design that
may not have been modified to the ``K'' standard in the worldwide
fleet. The FAA estimates that 50 propellers installed on aircraft of
U.S. registry will be affected by this AD, that it will take
approximately 2.5 work hours per propeller to accomplish the required
actions, and that the average labor rate is $60 per work hour. Based on
these figures, the total cost impact of the AD on U.S. operators is
estimated to be $7,500. However, since this rule further restricts the
applicability by exempting propellers installed on certain Textron
Lycoming engine models from the tachometer restriction, there is a
potential overall cost savings of $4,395,000, if all the affected
Sensenich propellers are installed on the newly exempted engines.
The regulations adopted herein 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 Executive Order 12612, it is determined that this final
rule does not have sufficient federalism implications to warrant the
preparation of a Federalism Assessment.
For the reasons discussed above, I certify that this action (1) is
not a ``significant regulatory action'' under Executive Order 12866;
(2) is not a ``significant rule'' under DOT Regulatory Policies and
Procedures (44 FR 11034, February 26, 1979); and (3) will not have a
significant economic impact, positive or negative, on a substantial
number of small entities under the criteria of the Regulatory
Flexibility Act. A final evaluation has been prepared for this action
and it is contained in the Rules Docket. A copy of it may be obtained
from the Rules Docket at the location provided under the caption
ADDRESSES.
List of Subjects in 14 CFR Part 39
Air Transportation, Aircraft, Aviation safety, Incorporation by
reference, Safety.
Adoption of the Amendment
Accordingly, pursuant to the authority delegated to me by the
Administrator, the Federal Aviation Administration amends part 39 of
the Federal Aviation Regulations (14 CFR part 39) as follows:
PART 39--AIRWORTHINESS DIRECTIVES
1. The authority citation for part 39 continues to read as follows:
Authority: 49 U.S.C. 106(g), 40113, 44701.
Sec. 39.13 [Amended]
2. Section 39.13 is amended by removing Amendment 39-1102 (35 FR
17030, November 5, 1970) and by adding a new airworthiness directive,
Amendment 39-9583, to read as follows:
69-09-03 R3 Sensenich Propeller Manufacturing Company Inc.:
Amendment 39-9583. Docket 95-ANE-03. Revises AD 69-09-03 R2,
Amendment 39-1102.
Applicability: Sensenich Propeller Manufacturing Company Inc.
Models M76EMM, M76EMMS, 76EM8, and 76EM8S() metal propellers.
Paragraphs (a) and (b) of this airworthiness directive (AD) do not
apply to those propellers installed on the following solid
crankshaft Textron Lycoming O-360 series reciprocating engines: O-
360-A4A, -A4D, -A4G, -A4J, -A4K, -A4M, -A4N, -A4P, and -A5AD, or
additional engines identified by suffixes having a digit ``4'' or
higher in the second position. These propellers are installed on but
not limited to the following aircraft: Piper PA-28-180, PA-28-181,
American General Aircraft Holding Co. Inc. (formerly Gulfstream
American) AA-5 series, Beech B23 and C23, Cessna 172Q, Avions Pierre
Robin R-3000/160, and aircraft modified under various Supplemental
Type Certificates (STC's).
Note: This AD applies to each propeller identified in the
preceding applicability provision, regardless of whether it has been
modified, altered, or repaired in the area subject to the
requirements of this AD. For propellers that have been modified,
altered, or repaired so that the performance of the requirements of
this AD is affected, the owner/operator must use the authority
provided in paragraph (f) to request approval from the Federal
Aviation Administration (FAA). This approval may address either no
action, if the current configuration eliminates the unsafe
condition, or different actions necessary to address the unsafe
condition described in this AD. Such a request should include an
assessment of the effect of the changed configuration on the unsafe
condition addressed by this AD.In no case does the presence of any
modification, alteration, or repair remove any propeller from the
applicability of this AD.
Compliance: Required as indicated, unless accomplished
previously. To prevent propeller blade tip fatigue failure, which
can result in loss of control of the aircraft, accomplish the
following:
(a) Commencing with the next flight after the effective date of
this AD, do not operate the engine in continuous operation between
2,150 and 2,350 RPM.
(b) Within the next 25 hours time in service (TIS) after the
effective date of this AD, mark engine tachometer with a red arc
from 2150 RPM to 2350 RPM.
(c) For propellers with 500 or more total hours TIS, or unknown
TIS on the effective date of this AD, inspect and rework, within the
next 50 hours TIS after the effective date of this AD, in accordance
with Sensenich Propeller SB No. R-14A, dated July 28, 1995. Remove
from service those propellers that do not meet the inspection and
rework requirements of Sensenich Propeller SB No. R-14A, dated July
28, 1995.
(d) For propellers with less than 500 total hours TIS on the
effective date of this AD,
[[Page 21073]]
inspect, and rework or replace, as necessary, prior to accumulating
550 total hours TIS, in accordance with Sensenich Propeller SB No.
R-14A, dated July 28, 1995. Remove from service those propellers
that do not meet the inspection and rework requirements of Sensenich
Propeller SB No. R-14A, dated July 28, 1995.
(e) Mark with a suffix letter ``K'' propellers that have been
inspected and, reworked in accordance with Sensenich Propeller SB
No. R-14A, dated July 28, 1995, and found satisfactory.
(f) An alternative method of compliance or adjustment of the
initial compliance time that provides an acceptable level of safety
may be used if approved by the Manager, New York Aircraft
Certification Office. The request should be forwarded through an
appropriate FAA Maintenance Inspector, who may add comments and then
send it to the Manager, New York Aircraft Certification Office.
Note: Information concerning the existence of approved
alternative methods of compliance with this AD, if any, may be
obtained from the New York Aircraft Certification Office.
(g) Special flight permits may be issued in accordance with
sections 21.197 and 21.199 of the Federal Aviation Regulations (14
CFR 21.197 and 21.199) to operate the aircraft to a location where
the requirements of this AD can be accomplished.
(h) The actions required by this AD shall be done in accordance
with the following Sensenich Propeller SB's:
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Document No. Pages Revision Date
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No. R-13.............................. A7 Original................ April 11, 1969.
Total pages: 1
No. R-14A............................. 1 Original................ July 28, 1995.
Total pages: 1.
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This incorporation by reference was approved by the Director of the
Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part
51. Copies may be obtained from Sensenich Propeller Manufacturing
Company Inc., 519 Airport Road, Lititz, PA 17543; telephone (717)
569-0435, fax (717) 560- 3725. Copies may be inspected at the FAA,
New England Region, Office of the Assistant Chief Counsel, 12 New
England Executive Park, Burlington, MA; or at the Office of the
Federal Register, 800 North Capitol Street, NW., suite 700,
Washington, DC.
(i) This amendment becomes effective on June 13, 1996.
Issued in Burlington, Massachusetts, on April 22, 1996.
Jay J. Pardee,
Manager, Engine and Propeller Directorate, Aircraft Certification
Service.
[FR Doc. 96-11257 Filed 5-8-96; 8:45 am]
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