Federal Register Vol. 81, No.223,

I. Rulemaking History

On November 27, 2015, the U.S. Office of Government Ethics (OGE) published for public comment a proposed rule setting forth comprehensive revisions to subpart B of the Standards of Ethical Conduct for Employees of the Executive Branch (Standards of Ethical Conduct), 5 CFR part 2635. 80 FR 74004 (Nov. 27, 2015). Subpart B of part 2635 contains the regulations governing the solicitation and acceptance of gifts from outside sources by officers and employees of the Executive Branch. These regulations implement the gift restrictions set forth in 5 U.S.C. 7353 and section 101(d) of Executive Order 12674, as modified by Executive Order 12731. The proposed rule was issued following OGE's retrospective review of the regulations found in subpart B, pursuant to section 402(b)(12) of the Ethics in Government Act of 1978, Public Law 95-521, codified at 5 U.S.C. Appendix IV, sec. 402(b)(12). Prior to publishing the proposed rule, OGE consulted with the Office of Personnel Management and the Department of Justice in accordance with section 402(b) of the Ethics in Government Act and section 201(a) of Executive Order 12674, as modified by Executive Order 12731, and with other officials throughout the Federal Government.

The proposed rule provided a 60-day comment period, which ended on January 26, 2016. OGE received ten timely and responsive comments, which were submitted by four individuals, three professional associations, two Federal agencies, and a law firm. After carefully considering all comments and making appropriate modifications, and for the reasons set forth below and in the preamble to the proposed rule at https://www.thefederalregister.org/fdsys/pkg/FR-2015-11-27/pdf/2015-29208.pdf, OGE is publishing this final rule.

OGE received one comment from an individual observing that various references to spousal and dating relationships in the examples used dual-gendered relationships and gender-specific pronouns. The commenter expressed concern that such examples could be read as excluding same-sex marriages or relationships. OGE treats same-sex spouses the same as opposite-sex spouses for the purposes of all of its regulations. OGE Legal Advisory LA-13-10 (Aug. 19, 2013). OGE has therefore reviewed the examples highlighted by the commenter and has replaced the terms “husband” and “wife” with the gender-neutral term “spouse.”

Various commenters suggested that one or more of the proposed amendments to the rule might negatively impact the ability of the public to interact with Federal employees. These commenters pointed out the beneficial impact of this interaction and encouraged OGE to consider this equity in drafting gift regulations. As a general matter, OGE agrees with the commenters' proposition that communication between the Government and the public is vital to ensuring that Government decisions are responsive to citizen needs. Public interaction done in a non-preferential manner may: (1) Provide executive branch decisionmakers with information and data they may not otherwise possess; (2) identify policy options and alternatives that may not have been raised internally; and (3) produce better and more thoughtful decisions. These interactions must, however, occur in an environment that promotes the public's confidence in the integrity of Government decisionmaking. When Federal employees accept or solicit gifts from members of the public who have interests that are affected by the employee's agency, the public's confidence can be eroded as “[s]uch gifts may well provide a source of illicit influence over the government official; in any case they create a suspicious and unhealthy appearance.” The Association of the Bar of the City of New York, Conflict of Interest and Federal Service 219 (1960). When drafting this final rule, OGE has carefully considered the commenters' concerns in light of the important objective of promoting the public's confidence in the impartial administration of the Government.

OGE received comments from three sources on proposed § 2635.201(b)(1). Section 2635.201(b)(1) establishes a non-binding standard that can assist employees in considering whether to decline an otherwise permissible gift. The standard encourages employees to consider whether their acceptance of a gift that would otherwise be permissible to accept would nonetheless create the appearance that their integrity or ability to act impartially may be compromised. The duty to avoid such appearances is a responsibility of all executive branch employees. See 5 CFR 2635.101(b)(1); (14).

Based on past experience with executive branch agencies applying subpart B of part 2635, OGE is concerned that employees and ethics officials may not be sufficiently analyzing appearance concerns and, instead, may be focusing exclusively on whether a gift can be accepted under a regulatory gift exception. This kind of analysis may unintentionally overlook other important considerations, such as “whether acceptance of the gift could affect the perceived integrity of the employee or the credibility and legitimacy of [an] agency's programs.” 80 FR 74004, 74004 (Nov. 27, 2015). The non-binding standard in § 2635.201(b)(1) was explicitly included in subpart B to correct for this tendency and to enhance the overall quality of employees' ethical decisionmaking.

Commenters on this section raised concerns with the new standard and the factors for applying the standard. OGE appreciates the concerns raised by commenters, which are examined in detail below. OGE has addressed these concerns by making appropriate adjustments to the standard, rather than adopting some of the commenters' requests for the outright removal of this section. The changes make the standard easier for employees to understand and apply.

A few commenters suggested that ethics training would be more effective than a regulatory change in ensuring that employees consider appearance issues before accepting gifts. OGE fully agrees with the commenters' suggestions that ethics education is important. Without this amendment of the regulation, however, there would not be a uniform standard upon which to base ethics training regarding appearance issues in connection with gifts. Prior to this amendment, the regulation cautioned only that “it is never inappropriate and frequently prudent for an employee to decline a gift,” but the regulation did not articulate an applicable standard or any factors for employees to use in identifying the frequently arising circumstances when it would be prudent to decline a gift. OGE believes it is imperative that the regulatory framework itself enable and encourage employees to meaningfully consider the appearances of accepting gifts. By articulating the standard and relevant factors, the amended § 2635.201(b)(1) will increase the value and uniformity of agency ethics training because that standard and those factors will become a focus of ethics training.

One commenter believed that the proposed standard creates confusion because it moves away from the previous system of bright-line rules regarding gift acceptance. Specifically, the commenter requested that OGE amend the regulation in a way that sets out definitive rules as to whether “a gift is simply permissible or impermissible, without further parsing the permissible gifts into additional categories, i.e., technically permissible and actually permissible.” OGE does not believe that the non-binding standard will create confusion because OGE has maintained the clear, uniform, and objective rules that are found in the current regulation. Section 2635.201(b)(1) augments those rules by encouraging employees to consider the appearances of their actions. The posited distinction between “technically permissible” and “actually permissible” is inaccurate because an employee will not face disciplinary action in the event that someone later subjectively disagrees with the employee's analysis. The bright-line rules provide a floor for ethical behavior, and the appearance analysis under § 2635.201(b) provides a mechanism with which to reach for a stronger, values-based ethical culture. This framework provides the certainty and uniformity of the existing rules, while furthering the underlying objective of increasing public trust by improving the ethical decisionmaking of employees.

The commenters also suggested that employees will feel compelled by this non-binding standard to always decline legally permissible gifts. OGE does not agree that the standard creates a presumption that all legally permissible gifts should be declined. Although some employees will decline legally permissible gifts after carefully analyzing them under the standard that § 2635.201(b)(1) establishes, the standard does not change the fact that the determination as to whether a legally permissible gift should be accepted is the employee's to make. Section 2635.201(b)(1) is designed to increase uniformity and promote public trust by articulating factors, which are informed by the ethical values consistent with the executive branch's Principles of Ethical Conduct, in order to guide the employee's decisionmaking process. This section provides employees an effective means of adequately assessing whether, notwithstanding a gift exception, the specific factual circumstances may raise appearance concerns weighing against acceptance of a gift.

In light of the comments referenced above, however, OGE has streamlined the language of § 2635.201(b). OGE has also clarified the overarching objective of that provision by placing the emphasis in § 2635.201(b)(1) on an assessment as to whether “a reasonable person with knowledge of the relevant facts would question the employee's integrity or impartiality.” In the proposed rule, substantially similar language appeared in the list of factors in § 2635.201(b)(2). Because this language articulates the standard to be applied, however, it is more appropriately included in paragraph (b)(1), which establishes the standard, than in paragraph (b)(2), which provides factors for determining whether the standard has been met. Using this “reasonable person” language in the articulated standard has the added benefit of addressing a commenter's concern regarding the potential for confusion, as executive branch employees have extensive experience applying this particular standard, which has long been used to address appearance concerns under § 2635.502. At the end of § 2635.201(b)(1), OGE has also added “as a result of accepting the gift” in order to tie the appearance concerns to the specific action giving rise to them.

As a final note, one commenter was concerned that the application of the reasonable person standard could vary, resulting in the “unequal application” of the standard. Reliance on a reasonable person standard, however, is not a novel approach in Government ethics. The Standards of Ethical Conduct at part 2635 have successfully employed the reasonable person standard for over two decades. See 5 CFR 2635.101(b)(14); 2635.502(a); cf. 2635.702(b) (“that could reasonably be construed”). In fact, when OGE first proposed the Standards of Ethical Conduct in 1991, OGE noted that the use of the reasonable person standard reflected both “case law and longstanding practice,” which “temper the appearance standard by reference to the perspective of a reasonable person with knowledge of the relevant facts.” 56 FR 33778, 33779 (July 23, 1991). OGE explained that the use of the reasonable person standard “is intended to ensure that the conduct of employees is judged by a standard of reasonableness.” Id. That reasoning continues to hold today.

Two commenters requested that OGE remove § 2635.201(b)(2), which sets out factors that employees may consider when determining whether to decline an otherwise permissible gift. These commenters requested the factors be removed because of their concern that the factors listed in § 2635.201(b)(2) are too complex and confusing, and will inevitably lead employees to decline permissible gifts. OGE is sensitive to these concerns and has revised the language to address them.

OGE reviewed each of the proposed factors closely to determine whether any could be removed, streamlined, or changed to eliminate unnecessary complexity or confusion. OGE removed several factors that appeared in the proposed rule on the basis that clarification of the reasonable person standard in § 2635.201(b)(1) in the final rule has rendered them unnecessary:

• Whether acceptance of the gift would lead the employee to feel a sense of obligation to the donor;

• Whether acceptance of the gift would cause a reasonable person to question the employee's ability to act impartially; and

• Whether acceptance of the gift would interfere with the employee's conscientious performance of official duties.

See 80 FR 74004, 74010 (Nov. 27, 2015). At the same time, OGE has added a straightforward factor focusing on whether “[t]he timing of the gift creates the appearance that the donor is seeking to influence an official action,” in order to provide a concrete example intended to remind employees that the timing of a gift can create the appearance that a person is seeking to influence the decisionmaking process.

OGE has also revised the factor articulated at § 2635.201(b)(2)(iv). The proposed language read: “Whether acceptance of the gift would reasonably create an appearance that the employee is providing the donor with preferential treatment or access to the Government.” OGE's intent was that the word “preferential” would be read to modify both “treatment” and “access.” In light of concerns the commenters expressed regarding the clarity of § 2635.201(b)(2) generally, OGE has determined that the proposed language could have been clearer in this respect. In reviewing this language, OGE also noted that the phrase “preferential treatment” is redundant of the phrase “preferential . . . access to the Government,” in that the specific preferential treatment at issue is the preferential access that the donor may be perceived as having received. The concern is that a donor may offer a gift that, by its nature, would provide the donor with significantly disproportionate access to the employee. This concern can arise in connection with gifts such as frequent lunches, trips, social invitations, free attendance at widely attended gatherings, and other items. If such gifts were to result in an employee spending considerable time with a donor, the donor may appear to have inordinate opportunities to discuss matters of interest to the donor and, thereby, unduly influence the employee. Accordingly, OGE has simplified this language and made it more specific. The language at § 2635.201(b)(2)(iv) now reads: “Acceptance of the gift would provide the donor with significantly disproportionate access.” This language should not be read as discouraging employees from attending events merely because they present opportunities to discuss official business. There is no requirement to provide exact parity in all cases with regard to the level of access afforded to those with competing viewpoints, but there is a value in guarding against any person, or multiple persons with a common interest or viewpoint, from enjoying significantly disproportionate access as a result of having given gifts to employees. An employee who is concerned about the level of access provided to those with a particular viewpoint may choose to decline the offered gifts or may take steps to ensure that those with different viewpoints are able to communicate with the employee, such as by taking their telephone calls, agreeing to meet with them in the employee's office, or convening a public forum.

OGE has also removed the following two factors:

• With regard to a gift of free attendance at an event, whether the Government is also providing persons with views or interests that differ from those of the donor with access to the Government;

• With regard to a gift of free attendance at an event, whether the event is open to interested members of the public or representatives of the news media.

OGE believes that these changes to § 2635.201(b)(2) diminish the potential for confusion created by the longer list of factors included in the proposed rule while continuing to provide guidance as to how employees should apply the standard in § 2635.201(b)(1) in the areas that OGE believes raise the greatest potential for appearance problems.

One commenter raised a concern about the language OGE used in § 2635.201(b)(4), which reminds employees to contact an appropriate agency ethics official if they have questions regarding whether acceptance of a gift is permissible and advisable. The commenter was concerned that the statement “[e]mployees who have questions regarding . . . whether the employee should decline a gift that would otherwise be permitted under an exception [emphasis in original],” seemed to indicate that there are “right and wrong” conclusions. OGE has not deleted the reference to advice from an ethics official because the regulation is sufficiently clear that the decision to decline or accept an otherwise permissible gift is the employee's to make. Although consulting an ethics official may assist the employee in making that decision, the regulation does not require such consultation. Section 2635.201(b)(3) explicitly states that an employee who does not decline a permissible gift under § 2635.201(b) has not violated the Standards of Ethical Conduct. At the same time, OGE believes that the reminder as to the availability of ethics advice will prove helpful to employees. Ethics officials can provide employees with valuable insights and guidance in assessing the reasonable person standard in individual cases because they possess experience in Government ethics, awareness as to how the Standards of Ethical Conduct are applied across the agency and across the executive branch, and knowledge of circumstances relevant to evaluating the effect on the public's trust of accepting certain gifts.

Nevertheless, to partly address the commenter's concern, OGE has deleted the reference to § 2635.107(b) at the end of § 2635.201(b)(4). After considering the commenter's concern, OGE recognized that the reference to § 2635.107(b) was potentially confusing because that section provides a safe harbor against disciplinary action in certain circumstances when an employee has consulted an agency ethics official. As § 2635.201(b)(3) makes clear, however, employees may not be disciplined under this provision and have no need for the safe harbor provision in connection with the appearance analysis under § 2635.201(b).

One commenter suggested that OGE should add examples to the regulation to indicate how to apply new § 2635.201(b). OGE has added Example 1 to paragraph (b) in order to illustrate how an employee may use the standard and factors found in § 2635.201(b). The same commenter also suggested that OGE provide additional guidance documents to further assist agency officials and employees in understanding how to apply the standard found in § 2635.201(b). OGE intends to provide additional guidance and training as needed on an ongoing basis.

OGE received no comments on § 2635.202. OGE is adopting the amendments to this section as proposed for the reasons described in the preamble to the proposed rule. A small change to Example 1 to paragraph (c) was made after the Supreme Court's recent decision in McDonnell v. United States, 579 U.S. __ 195 L. Ed. 2d 639 (2016), which limited the scope of the term “official act” as used in 18 U.S.C. 201(a)(3).

OGE received a number of comments on the definitions of the terms “gift,” “market value,” “indirectly solicited or accepted,” and “free attendance.” In regard to the definition of “gift,” all comments focused on the exclusions to the definition. The comments for these terms are separately addressed in greater detail below.

OGE received three comments on proposed Example 1 to § 2635.203(b)(1). Section 2635.203(b)(1) explains that the definition of “gift” for purposes of subpart B excludes “[m]odest items of food and refreshments, such as soft drinks, coffee and donuts, offered other than as part of a meal.” Proposed Example 1 to paragraph (b)(1) was included for the purpose of making explicit OGE's longstanding interpretation that alcohol is not a modest item of refreshment under § 2635.203(b)(1). Because none of the beverages currently listed in the regulation are alcoholic and the exclusion specifically refers to “soft,” meaning non-alcoholic drinks, OGE has long treated alcoholic beverages as not being part of the class of modest refreshments covered by the exclusion.

All three of the commenters were concerned that the example seemed to indicate that attendance at an event where alcohol is served is per se “improper.” To address this concern, OGE has removed the example altogether and amended the regulatory text of § 2635.203(b)(1) to exclude from the definition of “gift” “[m]odest items of food and non-alcoholic refreshments, such as soft drinks, coffee and donuts, offered other than as part of a meal.” This amendment codifies the interpretation that was previously set out in the proposed example. Although the carve-out from the definition of “gift” at § 2635.203(b)(1) for modest refreshments is limited to non-alcoholic beverages, this limitation does not impact the gift exceptions at 5 CFR 2635.204.

OGE received two comments on the proposed revisions to § 2635.203(b)(2). The first comment, from a professional association, was in favor of the proposal to modify the exclusion for presentation items. The second comment, from an individual, requested that OGE further amend the regulation to state that “items with little intrinsic value . . . intended primarily for presentation” are excluded from the definition of “gift” only if they “do not have significant independent use.” The individual noted that OGE used this phrase in proposed Example 2 to paragraph (b)(2) when explaining why a $25 portable music player would not be excluded from the definition of “gift” under this provision. OGE has decided not to adopt this change. As evidenced by the example, the fact that an item lacks other uses is a legitimate consideration in support of a finding that the item is intended “primarily for presentation.” The regulation does not, however, require that an item lack any potential other use in order to qualify as an item intended “primarily for presentation.”

OGE received one comment on the proposed example to § 2635.203(b)(7), which states that Federal employees may retain certain “travel promotional items, such as frequent flyer miles, received as a result of [] official travel, if done in accordance with 5 U.S.C. 5702, note, and 41 CFR part 301-53.” The commenter explained: (1) That employees who receive such frequent flyer miles should be encouraged to use such frequent flyer miles for subsequent official travel; and (2) that no personal use should be allowed for employees of the Federal Aviation Administration. OGE has not changed the substance of this example. As explained in the example, Congress passed a statute specifically permitting employees to accept these types of travel-related benefits. The General Services Administration (GSA) has primary authority for implementing that statute, and has done so through regulations found at 41 CFR part 301-53. To partly address the commenter's concern, however, OGE revised the language “if done in accordance with 5 U.S.C. 5702, note, and 41 CFR part 301-53,” to read “to the extent permitted by 5 U.S.C. 5702, note, and 41 CFR part 301-53,” in order to clarify that OGE's regulation does not create any new authority for accepting these travel related benefits beyond what Congress and GSA provided for in the statute and the regulation.

One commenter requested that OGE expand § 2635.203(b)(8) to exclude from the definition of “gift” free attendance at events where employees are speaking in their personal capacity on matters that are unrelated to their duties. The commenter noted that § 2635.203(b)(8) excludes free attendance in connection with official speaking engagements and requested a parallel exclusion for personal speaking engagements. OGE has not adopted this change. Normally, the Standards of Ethical Conduct would not prohibit an employee from accepting free attendance at an event at which the employee has a bona fide arrangement to speak in a personal capacity. This subject is addressed in § 2635.807(a)(2)(iii)(B), which permits employees to accept a waiver of attendance fees for speeches related to their official duties, and OGE has traditionally applied § 2635.202 consistently with that provision of § 2635.807 for speeches unrelated to official duties.

OGE received two comments on the proposed amendments to the definition of “market value,” as used throughout the regulation, as well as the examples following the definition. OGE proposed to amend “market value” to mean “the cost that a member of the general public would reasonably expect to incur to purchase the gift.” One commenter was generally in favor of the amendment, as well as the examples illustrating how the definition would be applied in various circumstances. The other commenter noted that Example 4 to paragraph (c) did not explicitly state that the tickets offered to the employee lacked a face value. OGE has amended Example 4 to indicate that the tickets provided to the employee in the example do not have a face value, and therefore the general rule used for calculating the market value of a ticket would not apply. OGE also amended Example 4 to further clarify the method of calculating the market value of such tickets.

OGE received one comment on § 2635.203(f), which establishes when a gift will be deemed to have been accepted or solicited indirectly. The commenter was in favor of OGE's amendment at § 2635.203(f)(2). OGE has adopted the language as proposed for the reasons set forth in the preamble to the proposed rule.

OGE received two comments in favor of the proposed subpart-wide definition of “free attendance” at § 2635.203(g). Both commenters supported OGE's amendment allowing employees who are presenting at an event to accept attendance at “speakers' meals” provided by the sponsor of the event. OGE has adopted the language as proposed for the reasons set forth in the preamble to the proposed rule.

Although OGE did not receive a specific comment on the title of the regulation, OGE has made a technical change to the title of this section for clarity and to more closely track the substance of the regulation.

OGE has also revised the introductory text to remind employees to consider the standard found in § 2635.201(b) when determining whether to rely on an exception. The revised language is modeled on the introductory text found in the current version of § 2635.204, but cross-references § 2635.201(b).

OGE received two comments requesting that OGE raise the regulatory dollar thresholds found in the gift exception at § 2635.204(a). Pursuant to § 2635.204(a), an employee may accept otherwise prohibited gifts not exceeding $20 per occasion so long as he or she does not accept more than $50 worth of gifts from the same person per year. In support of this request, one commenter pointed out the effect that inflation has had on the value of this de minimis threshold.

OGE carefully considered these commenters' suggestions. As OGE explained when it issued the final gift regulations, the de minimis exception was included to remove the need for a “laundry list of exceptions for small, unobjectionable gifts.” 57 FR 35006, 35016 (Aug. 7, 1992). The de minimis exception was intended to provide a uniform means for employees to accept only inexpensive and innocuous gifts on an infrequent basis. Id. OGE believes that the current dollar threshold continues to meet that narrow objective. OGE is concerned that raising the de minimis would encourage employees to accept, and private citizens to give, more expensive and more frequent gifts than employees are currently able to accept. Although some gifts that once fell at the higher end of the spectrum may now be precluded, OGE believes that the $20 threshold continues to be workable, permitting employees to accept on an infrequent basis most of the types of items that can be characterized as inexpensive and innocuous. In addition, the existing exclusions and exceptions from the gift rules permit employees to accept targeted items that are over $20 in carefully restricted circumstances (e.g., a gift from an employee's spouse). See 5 CFR 2635.204(b). Although $20 may not buy the sort of lunch that it bought in 1992 when the regulation was issued, no compelling argument has been made to support a conclusion that raising the cap on the blanket de minimis exception, in order to allow employees to accept more expensive and more frequent gifts, would strengthen the integrity of the executive branch's operations. Accordingly, OGE has decided not to adopt the commenters' suggestions to increase the cap.

OGE received one comment in support of the new Example 3 to § 2635.204(b), which provides guidance on assessing whether a gift provided by a social media contact falls within the bounds of the gift exception. OGE has adopted the text of § 2635.204(b) substantially as proposed for the reasons set forth in the preamble to the proposed rule.

OGE did not make changes based on comments received from two individuals on proposed § 2635.204(d). Section 2635.204(d) permits employees to accept gifts of certain awards and honorary degrees, including items incident to such awards and degrees. The first commenter suggested that OGE relocate the two examples following paragraph (d)(1) so that they would appear after paragraph (d)(2). OGE has not adopted the suggestion. These examples address paragraph (d)(1), which establishes the several requirements for accepting awards, and do not specifically address paragraph (d)(2), which defines the term “established program of recognition.”

The second commenter addressed the acceptance of qualifying honorary degrees from certain “foreign institution[s] of higher education.” See 80 FR 74004, 74007 (Nov. 27, 2015). The commenter suggested that OGE clarify the basis of the Government's concerns regarding the acceptance of emoluments from foreign governments. OGE has not adopted this change because the prohibition stems from the Emoluments Clause of the United States Constitution. See U.S. Const., art. 1, sec. 9, cl. 8. OGE is not the appropriate authority to delineate the basis for specific provisions of the Constitution.

OGE received one comment on the proposed amendments to § 2635.204(e), which sets forth various exceptions to the general prohibitions on accepting and soliciting gifts when such gifts are offered as a result of an outside business or employment relationship. The commenter was generally in favor of the amendments. OGE has retained the exception as proposed for the reasons set out in the preamble to the proposed rule.

OGE received a number of comments related to the exception at § 2635.204(g), permitting employees to accept offers of free attendance to widely attended gatherings (WAGs) if certain criteria are met. In the proposed rule, OGE presented a number of amendments to the WAG, including changes to: (1) Make it clear that an event does not qualify as a WAG if it does not present “an opportunity to exchange ideas and views among invited persons”; (2) require employees to obtain written authorizations before accepting gifts of free attendance at WAGs; and (3) require agency designees to weigh the agency's interest in employees' attendance at WAGs against the possibility that acceptance of gifts of free attendance will influence their decisionmaking or create the appearance that they will be influenced in their decisionmaking.

One commenter expressed concern about the proposed amendment to the definition of “widely attended gatherings.” The proposed language clarifies that events do not qualify as WAGs unless there is “an opportunity to exchange ideas and views among invited persons.” The commenter suggested that this language would narrow the rule to apply to only “panel or roundtable events.” OGE believes that this is a mischaracterization of the regulatory amendment. Nothing in the amendment would narrow the definition exclusively to roundtable or panel events. The amendment reflects only OGE's longstanding interpretation that the event must present an opportunity for an “exchange” or “interchange” of ideas among attendees. See OGE Informal Advisory Opinion 07 x 14 (Dec. 5, 2007).

Several commenters objected to the change requiring written authorizations because it might increase the workload of ethics officials. Three commenters raised workload concerns in connection with the requirement that an employee obtain a written authorization from an agency designee prior to accepting free attendance to a WAG, though one commenter acknowledged that a requirement to obtain written authorization “protects both the employee and the private sector sponsors.” OGE has not eliminated the requirement to obtain written authorization before an employee attends a WAG. Any additional burden on ethics officials will not be so substantial as to outweigh the potential benefits of recording WAG authorizations. In this regard, it is worth noting that agency ethics officials have long been required to make several of the findings required by § 2635.204(g)(3), as proposed. In addition, some agencies have already adopted the practice of recording all WAG authorizations in writing. In any case, most of the work required of ethics officials under the amended regulation will stem from the requirement to make a number of determinations that have always been required under the regulation. After making these determinations, ethics officials have discretion to determine the level of detail to include in the written authorization. The amended regulation does not, however, require a “formal written opinion” as one commenter suggested.

One commenter noted that the amended rule requires agencies to determine in all cases whether “[t]he agency's interest in the employee's attendance outweighs the concern that the employee may be, or may appear to be, improperly influenced in the performance of [his or her] official duties.” The regulation did not previously require this determination in every case, but agency officials have always been charged with evaluating “all the relevant circumstances of any proposed WAG before an employee is authorized to accept free attendance.” OGE Informal Advisory Opinion 07 x 14 (Dec. 5, 2007). The determination now required in all cases is consistent with this preexisting requirement, inasmuch as improper influence, or the appearance of improper influence, would necessarily have been a relevant circumstance to be analyzed under the regulation even prior to the current amendment.

Two commenters expressed concern that ethics officials will approve attendance at fewer events for substantive reasons. However, the new regulation does not significantly change the substantive analysis, which remains focused, as it always has been, on the potential for improper influence and the appearance of improper influence. Disapproval of a gift of free attendance, when an agency has determined that an employee's acceptance of the gift would result in improper influence or the appearance of improper influence, is a proper outcome under any responsible ethics regime.

OGE received two additional comments related to § 2635.204(g). One commenter posited a hypothetical case under § 2635.204(g)(1). OGE is not in a position to assess the interests of a hypothetical agency or other relevant factual circumstances not specified in the commenter's hypothetical. At the request of the other commenter, however, OGE has inserted a reference to the written determination requirement in proposed Example 4 to paragraph (g).

OGE received one comment from an agency on proposed § 2635.204(h), which permits an employee and accompanying guests to accept certain benefits that are provided at a “social event” so long as the person extending the invitation is not a prohibited source. The proposed rule added a requirement that employees receive a written determination that such attendance would not cause a reasonable person to question the employee's integrity if the event is sponsored by, or the invitation is from, an organization. The commenting agency questioned the purpose of this amendment and suggested that it could increase the workload of agency ethics officials.

Although OGE understands the programmatic consideration raised by the commenter, OGE does not believe that those concerns weigh significantly against the written determination requirement. In many cases, OGE believes that the analysis as to whether a reasonable person would question the employee's integrity or impartiality in attending will be relatively easy to assess, particularly given that the offeror cannot be a prohibited source. Likewise, the standard should be easier to meet if the circumstances indicate that the event is for purely social reasons or is open to a wide variety of attendees. Moreover, ethics officials have discretion to determine the level of detail to include in the written authorization and to choose an appropriate means, such as email, for transmitting the authorization. OGE does not, therefore, believe that the amended regulation will substantially increase the burden on ethics officials. At the same time, there is a heightened risk for, at a minimum, an appearance that the motivation for the gift is to advance a business objective when the sponsor of the event, or offeror of the invitation, is an organization. For this reason, OGE believes that the additional requirement with regard to organizations is warranted.

OGE has made three technical changes to the language of this exception for consistency with other sections and for clarity. First, OGE added the phrase “with knowledge of the relevant facts” to the language in § 2635.204(h)(3), which establishes a reasonable person standard for consistency with the wording of the reasonable person standard in § 2635.201(b) and elsewhere in the Standards of Ethical Conduct. See 5 CFR 2635.101(b)(14); 2635.501; 2635.502(a); 2635.502(c). Second, OGE changed “makes” to “has made” in § 2635.204(h)(3) in order to clarify that the determination to allow an employee to attend the social event must be made before the employee actually attends the event. Third, OGE replaced the legal citation to § 2635.201(b) at the end of the social invitations exception with the following plain language phrase: “consistent with § 2635.201(b).” None of these three technical changes alters what OGE intended to be the substantive meaning of the regulation.

OGE has made a technical correction to § 2635.204(l)(1) so that the language tracks the interpreting regulation for 5 U.S.C. 4111 at part 410 of this title.

Two professional associations and an individual commented on the new exception at § 2635.204(m). The exception permits employees to accept qualifying gifts of informational materials. The exception also sets out certain procedural safeguards and defines what constitutes “informational materials” for the purposes of this provision.

One professional association welcomed the addition of the new exception on the basis that it will allow a flow of useful information to employees. The second professional association also supported the new exception, but requested that OGE amend the rule in two ways: (1) Clarify that the rule would permit the acceptance of “marketing and promotional materials”; and (2) clarify that when a gift of informational materials exceeds $100, an agency may authorize the employee to accept the gift on behalf of the agency if the agency has separate statutory authority. OGE has decided not to revise the proposed exception to include “marketing and promotional materials” as a specific category of acceptable informational materials. Whether an item qualifies for the exception will depend on whether the factual circumstances support a determination that the item offered meets the specific criteria set forth in § 2635.204(m). OGE has likewise decided not to amend the regulatory text to clarify that agencies may accept gifts of informational materials when the gift exceeds $100. Agencies with gift acceptance authorities have established their own procedures and policies regarding the acceptance of such gifts consistent with their interpretations of those authorities, and OGE is not in a position to direct another agency on the use of its gift acceptance authority.

Another commenter raised two general concerns with the regulatory exception. The first concern is that employees who accept informational materials might sell them. Although it might prove somewhat difficult to sell used informational materials, OGE is generally sensitive to the underlying concern expressed by the commenter. To address this concern, OGE has amended the regulation to add an additional limitation on the use of this exception. As revised, the exception will now require employees to obtain written authorization from the agency designee before accepting informational materials from a single person that in the aggregate exceed $100 in a calendar year. The commenter's other concern is that gifts relating to an employee's official duties, the agency's mission, or a subject matter of interest to the agency “ought to be a gift to the Agency.” The commenter questions whether such gifts might be construed as augmenting an agency's appropriations. Such gifts would not implicate augmentation concerns, however, because, as with all of OGE's regulatory gift exceptions, the items accepted are for personal use, not the agency's use.

Following careful review of the regulation, OGE has also reorganized § 2635.204(m) to move the limitations on what constitutes permissible “informational materials” to § 2635.204(m)(2), which contains the definition of “informational materials.” OGE refined the language indicating that, to qualify as “informational material,” an item must be “primarily provided for educational or instructive purposes,” changing it to state more clearly that the item must be “educational or instructive in nature.” As previously written, the regulation could have been misconstrued as requiring employees to ascertain the donor's intent in offering an item. As modified, the regulation now makes clear that the focus is on the objective nature of the gift, and not the subjective intent of the donor. A corresponding change replaces “not including,” with “Are not primarily,” at the beginning of the phrase “Are not primarily created for entertainment, display, or decoration.” This change is intended to avoid excluding items that are clearly educational or instructive in nature but may have some tangential or incidental qualities that could arguably be characterized as entertaining or visually attractive. OGE believes this modification will make the rule easier to understand and apply.

OGE further reorganized the exception to reduce its structural complexity. As proposed, § 2635.204(m) had several tiers, including: a first tier denoted by numbers, such as the number “(2)”; a second tier denoted by lowercase roman numerals, such as the numeral “(ii)”; a third tier denoted by capital letters, such as the letter “(B)”; and a fourth tier denoted again by numbers, such as the number “(2).” By reorganizing the language of this section, OGE was able to eliminate the fourth tier.

OGE has made four other technical changes for consistency and clarity. First, OGE used the word “person” in paragraphs (m)(1)(i) and (ii) to be consistent with the language in § 2635.204(a), when aggregating gifts. Second, OGE changed the language “an agency designee makes a written determination that,” at § 2635.204(m)(1)(ii)(B) of the proposed rule, to “an agency designee has made a written determination after finding that,” now at § 2635.204(m)(1)(ii). The change makes the language of this paragraph consistent with the language used in § 2635.204(g)(3) and § 2635.204(h)(3). Third, OGE has added “provided that” to the opening language of § 2635.204(m)(1) in order to clarify that the $100 limit in § 2635.204(m)(1)(i) applies in every case unless an employee first obtains a written determination under § 2635.204(m)(1)(ii). Fourth, OGE has revised the reference to “programs and operations” of the agency so that it reads “programs or operations” of the agency. It was not OGE's intention to require that the subject matter relate to both a program and an operation, or to require that employees somehow distinguish “programs” from “operations.”

OGE received no comments on § 2635.205. OGE is adopting the amendments to this section as proposed for the reasons set forth in the preamble to the proposed rule. OGE, however, has replaced the period with a semi-colon in the phrase: “Accept a gift in violation of any statute; relevant statutes applicable to all employees include, but are not limited to,” found at § 2635.205(d). OGE has made this change for clarity because paragraph (d) in that section is part of a longer list that is connected by a semi-colon and the word “or” after paragraph (e) in that same section. By eliminating the period, OGE seeks to ensure that the period is not misconstrued as invalidating paragraphs (e) and (f) in the remainder of that list.

OGE received four comments on § 2635.206, which explains what steps an employee must take to properly dispose of a prohibited gift. OGE amended this section to provide additional guidance on what steps are required to comply with the disposition authorities. One commenter was generally supportive of the additional guidance provided by OGE. Three commenters expressed concern that OGE's amendment of § 2635.206(a)(1) to allow employees to destroy prohibited tangible gifts worth $100 or less was wasteful. These three commenters also recommended that OGE amend § 2635.206(a)(1) to permit employees to donate prohibited tangible gifts worth $100 or less to charity.

For the following reasons, OGE has not accepted the commenters' suggestions. Allowing the destruction of relatively low-value, tangible gifts provides useful flexibility, while continuing to prohibit employees from retaining impermissible gifts. Setting the value threshold at $100 establishes a reasonable range that imposes minimal administrative burden in determining whether most low value items qualify for destruction. Setting the threshold far below that level would increase transaction costs because official time would necessarily have to be expended researching the precise market value of inexpensive items in order to determine whether they could be destroyed. It bears noting that, as is explained in § 2635.206(a), an employee is not required to destroy prohibited gifts; destruction is only one of several authorized options for disposition. Other options include returning the gift to the donor, paying the donor the gift's market value, or not accepting the gift in the first instance. Whenever the value of an item approaches the higher end of the $100 range, employees and agency ethics officials may be disinclined to destroy the item; in fact, the administrative burden of researching the item's precise market value in order to avoid exceeding the permissible value threshold creates a natural incentive to choose another option for disposition of more expensive items.

Authorizing donations to charity in lieu of destruction would present other problems. OGE has considered and rejected this option in the past. See 57 FR 35006, 35015 (Aug. 7, 1992). Allowing an employee to direct that a gift be donated to a charity of the employee's choosing would be tantamount to permitting constructive receipt of the gift by the employee. OGE is concerned that employees may be able to claim tax deductions under the Internal Revenue Code for gifts donated to charity, in essence receiving the “gift” of a tax deduction in lieu of the original gift. OGE has also explained in the past that permitting donations “would create an incentive for donors to offer employees items they cannot accept and, in the case of highly visible employees, might result in their favorite charities profiting from their official positions.” Id. OGE remains concerned that authorizing donations to charity as a means to dispose of impermissible gifts could incentivize some employees to intentionally accept impermissible gifts for the purpose of donating them to their favorite charities.

OGE has, however, revised § 2635.206(a)(1) for clarity. In the proposed regulation, the first sentence read: “The employee must promptly return any tangible item to the donor, or pay the donor its market value, or, in the case that the tangible item has a market value not in excess of $100, the employee may destroy the item.” In the final regulation, that sentence now reads: “The employee must promptly return any tangible item to the donor or pay the donor its market value; or, in the case of a tangible item with a market value of $100 or less, the employee may destroy the item.” The meaning of the sentence is unchanged, but the revised sentence is easier to understand. In addition, OGE has removed the legal citation at the end of that paragraph, which referred to the definition of “market value” at § 2635.203(c), because the cross reference was unnecessary and potentially confusing to the reader.

As Director of the Office of Government Ethics, I certify under the Regulatory Flexibility Act (5 U.S.C. chapter 6) that this final rule would not have a significant economic impact on a substantial number of small entities because it primarily affects current Federal executive branch employees.

The Paperwork Reduction Act (44 U.S.C. chapter 35) does not apply because this regulation does not contain information collection requirements that require approval of the Office of Management and Budget.

For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. chapter 5, subchapter II), this final rule would not significantly or uniquely affect small governments and will not result in increased expenditures by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (as adjusted for inflation) in any one year.

Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select the regulatory approaches that maximize net benefits (including economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been designated as a “significant regulatory action,” although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, this rule has been reviewed by the Office of Management and Budget.

As Director of the Office of Government Ethics, I have reviewed this final rule in light of section 3 of Executive Order 12988, Civil Justice Reform, and certify that it meets the applicable standards provided therein.

Accordingly, for the reasons set forth in the preamble, the Office of Government Ethics is amending 5 CFR part 2635, as set forth below:

On March 9, 2015, FAS published a final rule, with request for comments, in the Federal Register (80 FR 12321) for the Agriculture Pima Trust and the Agriculture Wool Trust programs. The final rule, with request for comments, was published under RIN 0551-AA86. The final rule, with request for comments, established regulations and sought comments for the Agriculture Pima Trust program and for three of the four payments under the Agriculture Wool Trust program. The Agriculture Pima Trust and Agriculture Wool Trust programs were established in the Agricultural Act of 2014 (Farm Bill). The Farm Bill transferred to USDA the responsibility for administering the Agriculture Pima Trust and three of the four payments under the Agriculture Wool Trust beginning in 2015, but transferred the fourth payment, the Wool Duty Refund, beginning in 2016.

The following is a summary and discussion of the comments received relative to the Agriculture Pima Trust and the Agriculture Wool Trust programs along with the reasoning for the revisions made.

A commenter suggested that applicants not be required as noted in § 1471.1(b)(3)(iii), § 1471.1(b)(4), § 1471.10(b)(3)(iii), and § 1471.10(b)(4), to annually file IRS forms W-9 (U.S. person or resident alien) or the 1199A (direct deposit) with an application for either the Agriculture Pima Trust or Agriculture Wool Trust programs unless a change in the applicant's W-9 or 1199A information had occurred when compared to their previous year's application. This was deemed to be reasonable. Beginning in 2017, IRS forms W-9 and 1199A will only need to be filed if changes in the information have occurred.

A commenter noted that a technical correction is necessary in paragraphs (1) and (2) of § 1471.2(c) by closing the parentheticals after the word “insurance.” This correction will be made.

A commenter identified an error common to paragraphs (b)(1)(ii) and (b)(2)(ii) of § 1471.11, Payments to manufacturers of certain worsted wool fabrics. The payment formula for payments to eligible persons is provided for under this section. The payment formula mistakenly states in paragraph (ii) that payments will be calculated based on the eligible person's production in the preceding year. However, the payments are actually based on the eligible person's production of qualifying worsted wool fabric during calendar years 1999, 2000, and 2001. This correction will be made.

A commenter suggested that the scope of the monetization of the wool tariff rate quota payment as noted under § 1471.13(a)(2)(i) be expanded to include eligible entities, that are manufacturers and would otherwise be eligible for monetization payments, that import qualifying worsted wool into a free trade zone (FTZ), cut the wool and use it to make worsted wool suits for men and boys within the FTZ.

The monetization payment requires that the eligible entities receiving a monetization payment (1) import into the Customs territory of the United States the qualifying worsted wool directly or indirectly; (2) manufacture in the United States the qualifying worsted wool into worsted wool suits for men and boys; and (3) own the worsted wool at the time it's cut and manufactured.

An entity that manufactures the suits in an FTZ and does not export from the FTZ into the Customs territory of the United States the qualifying worsted wool directly or indirectly, does not qualify for this benefit because by definition the entity avoided paying the import duty on the qualifying worsted wool. However, an eligible entity that manufacturers the suits in an FTZ and exports into the Customs territory of the United States the qualifying worsted wool directly or indirectly and thus pays the import duty on the qualifying worsted wool, does qualify for this benefit. For the purpose of the monetization payment, the worsted wool suits for men and boys are manufactured in the U.S. and all environmental, worker safety, and wage protection laws, etc., would apply to this manufacturer.

USDA will also broaden the scope of eligible entities as it pertains to the wool yarn, wool fiber, and wool top compensation payment found at § 1471.14(a)(2)(i) to include those operating within a FTZ.

A commenter suggested that the definition of an eligible person found at § 1471.13(a)(2)(i) in the monetization of the wool tariff rate quota payment be modified to allow an eligible person to claim the annual dollar value and quantity of imported qualifying worsted wool fabric cut and sewn if the eligible person owned the wool at the time it was cut and sewn, whether the person actually cut and sewed the imported qualifying worsted wool or another person cut and sewed the wool on behalf of the eligible person. This was deemed reasonable and is already allowed under § 1471.13(d)(3)(i)(A) and (d)(3)(ii)(A).

USDA will also make this change as it pertains to the wool yarn, wool fiber, and wool top duty compensation payment found at § 1471.14(a)(2)(i).

A commenter suggested that applicants for the monetization of the wool tariff rate quota payment not be required to include direct imports on their annual application for this payment. The commenter's suggestion was based on their observance that countries of origin of imported qualifying worsted wool by direct importers is included on the Customs and Border Protection (CBP) form #7501, which is provided to the Secretary of Treasury every year, and thus it was redundant to also require this information to be included on the affirmation part of the annual application. Even though this information is provided to CBP each year, USDA will maintain the requirement as found at § 1471.13(d)(2)(iii)(A) and (B) that applicants for the monetization of the wool tariff rate quota payment include their direct and indirect imports on their annual application. Including direct and indirect imports on the application for this payment will make it easier for USDA to process the annual payments and to distribute them in a timely manner.

Regarding the monetization of the wool tariff rate quota payment, found at § 1471.13(a)(2), a commenter suggested that the definitions of eligible person and qualifying worsted wool, a provision eliciting specific business information, and the scope of the affirmation, be expanded to include all importers of qualifying worsted wool suitable for worsted wool suits, as opposed to importers of qualifying worsted wool that actually used the wool to make suits for men or boys. To support the commenter's position, the commenter cited statutory references to types of worsted wool fabrics categorized under the harmonized tariff schedule (HTS). However the commenter conflates statutory provisions authorizing the tariffs for HTS categories of worsted wool suitable for wool suits with defining the universe of eligible manufacturers who import qualifying worsted wool and are eligible for payments under this program. The wool tariff rate quota administered by the Secretary of Commerce, until its statutory sunset in 2014, in fact required that to benefit from the tariff reduction, the worsted wool had to be actually used for worsted wool suits. This monetization program provides payments to manufacturers who formerly benefitted from the tariff reduction. The requirement in the monetization payment that the qualifying worsted wool must be used by the manufacturer receiving the payment to make suits for men and boys will remain unchanged.

A commenter made a suggestion regarding the wool yarn, wool fiber, and wool top duty compensation payment found at § 1471.14(a)(2) that is similar to the comment above. The commenter suggested that the definitions of eligible person and qualifying wool, a provision eliciting specific business information, and the scope of the affirmation, be expanded from manufacturers that directly or indirectly imported qualifying wool and manufactured the qualifying wool, to include all importers of qualifying wool (whether or not the importer was also the manufacturer of the wool). To support this position, the commenter referred to statutory authority that did not require importers of qualifying wool to also be manufacturers of the qualifying wool. The commenter further stated that the wool duty refund program, of which only manufacturers of qualifying wool have participated, did not impose the requirement that the entity actually manufacture the qualifying wool. However the commenter is incorrect about what the statutory authority actually provides, and conflates extension of the duty suspension (that was applicable to all importers, regardless of whether they also manufactured men's and boy's wool suits) in section 5102 of the Trade Act of 2002, Public Law 107-210 and the wool duty refund payment program (that applied only to manufacturers of men's and boy's wool suits) in section 5101 of the Trade Act of 2002. The duty refund program administered by the U.S. Customs Service and by Customs and Border Protection in the Department of Homeland Security from 2002-2014 required that the importer must also be the manufacturer of the qualifying wool. The requirements in the wool yarn, wool fiber, and wool top duty compensation payment that the qualifying wool must be imported and must also be used for further manufacturing by the importing manufacturer will remain unchanged.

The Wool Duty Refund payment found at § 1471.12 was administered by the Department of Homeland Security's Customs and Border Protection (CBP) through 2015. In the Farm Bill, the Wool Duty Refund payment was established for the year 2016 through 2019 and was transferred to USDA. The Wool Duty Refund payment is open to U.S. entities that manufactured certain wool articles made with certain imported wool products during calendar years 2000, 2001 and 2002; received a 2005 payment under section 505 of the Trade and Development Act of 2000; and as of January 1st of the payment year, continues to be a manufacturer in the U.S. as provided for in Section 505(a) of the Trade and Development Act of 2000. FAS will administer the Wool Duty Refund payment for 2016-2019 exactly the same as it was administered by CBP.

This Executive Order requires careful evaluation of governmental actions that interfere with constitutionally protected property rights. This rule does not interfere with any property rights and, therefore, does not need to be evaluated on the basis of the criteria outlined in Executive Order 12630.

This final rule is issued in conformance with Executive Order 12866 and Administrative Procedure Act (5 U.S.C. 553). It has been determined to be not significant for the purposes of Executive Order 12866 and was not reviewed by OMB for this purpose. A cost-benefit assessment of this rule was not completed.

This final rule is not subject to Executive Order 12372, which requires intergovernmental consultation with State and local officials. See the notice related to 7 CFR part 3015, subpart V, published at 48 FR 29115 (June 24, 1983).

This final rule has been reviewed in accordance with Executive Order 12988. This rule would not preempt State or local laws, regulations, or policies unless they present an irreconcilable conflict with this rule. This rule would not be retroactive.

This final rule has been reviewed under Executive order 13132, “Federalism.” The policies contained in this final rule do not have any substantial direct effect on States, on the relationship between the Federal government and the States, or on the distribution of power and responsibilities among the various levels of government, nor does this final rule impose substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required.

This final rule has been reviewed for compliance with E.O. 13175. The policies contained in this final rule do not have tribal implications that preempt tribal law.

The Regulatory Flexibility Act does not apply to this final rule because FAS is not required by 5 U.S.C. 553 or any other law to publish a notice of proposed rulemaking with respect to the subject matter of this final rule.

No major civil rights impact is likely to result from the announcement of this final rule. It will not have a negative civil rights impact on very-low income, low income, moderate income, and minority populations.

The environmental impacts of this rule have been considered in a manner consistent with the provisions of the National Environmental Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations of the Council on Environmental Quality (40 CFR parts 1500-1508), and FAS regulations for compliance with NEPA (7 CFR part 799). FAS has determined that NEPA does not apply to this final rule and that no environmental assessment or environmental impact statement will be prepared.

This final rule does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA). Therefore, this rule is not subject to the requirements of sections 202 and 205 of UMRA.

FAS is committed to complying with the E-Government Act to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information, services, and for other purposes. The forms, regulations, and other information collection activities required to be utilized by a person subject to this final rule are available at: http://www.fas.usda.gov.

Accordingly, 7 CFR part 1471 is amended as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to various aircraft equipped with a BRP-Powertrain GmbH & Co KG (formerly Rotax Aircraft Engines) 912 A series engine. The NPRM was published in the Federal Register on September 8, 2016 (81 FR 62037). The NPRM proposed to correct an unsafe condition for the specified products and was based on mandatory continuing airworthiness information (MCAI) originated by an aviation authority of another country. The MCAI states:

You may examine the MCAI on the Internet at https://www.regulations.gov/document?D=FAA-2016-9000-0002.

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

We reviewed the relevant data and determined that air safety and the public interest require adopting this AD as proposed except for minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

We reviewed BRP-Powertrain GmbH & CO KG Rotax Aircraft Engines BRP Alert Service Bulletin ASB-912-069R1/ASB-914-051R1 (co-published as one document), Revision 1, dated July 22, 2016. The service information describes procedures for identifying and replacing defective carburetor floats. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section of this AD.

We estimate that this AD will affect 65 products of U.S. registry. We also estimate that it will take about 2 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Required parts will cost about $100 per product.

Based on these figures, we estimate the cost of this AD on U.S. operators to be $17,550, or $270 per product.

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

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

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

For the reasons discussed above, I certify this AD:

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

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

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

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

You may examine the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-9000; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone (800) 647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

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

Background

On March 24, 2016, the Bureau of Industry and Security (BIS) published a final rule, Temporary General License (81 FR 15633). The March 24 final rule amended the EAR by adding Supplement No. 7 to part 744 to create a temporary general license that returned, until June 30, 2016, the licensing and other policies of the EAR regarding exports, reexports, and transfers (in-country) to Zhongxing Telecommunications Equipment (ZTE) Corporation and ZTE Kangxun to that which were in effect prior to their addition to the Entity List on March 8, 2016.

On June 28, 2016, BIS published a final rule, Temporary General License: Extension of Validity (81 FR 41799), which extended the validity of the temporary general license until August 30, 2016. On August 19, 2016, BIS published a final rule, Temporary General License: Extension of Validity (81 FR 55372), which extended, for a second time, the validity of the Temporary General License until November 28, 2016. Details regarding the scope of the listing are at 81 FR 12004 (Mar. 8, 2016), (“Additions to the Entity List”). Details regarding the Temporary General License can be found in the March 24 final rule and in Supplement No. 7 to Part 744—Temporary General License.

BIS issued the March 24 final rule, and the June 28 and August 19 extension of validity final rules, in connection with a request to remove or modify the listings. The March 24 final rule, and the June 28 and August 19 final rules, specified that the temporary general license was renewable if the U.S. Government determined, in its sole discretion, that ZTE Corporation and ZTE Kangxun were performing their undertakings to the U.S. Government in a timely manner and otherwise cooperating with the U.S. Government in resolving the matter which led to the two entities' listing.

At this time, the U.S. Government has decided to extend the temporary general license until February 27, 2017. In order to implement this U.S. Government decision, this final rule revises the temporary general license to remove the date of November 28, 2016, and substitute the date of February 27, 2017. This final rule makes no other changes to the EAR.

Although the Export Administration Act expired on August 20, 2001, the President, through Executive Order 13222 of August 17, 2001, 3 CFR, 2001 Comp., p. 783 (2002), as amended by Executive Order 13637 of March 8, 2013, 78 FR 16129 (March 13, 2013) and as extended by the Notice of August 4, 2016, 81 FR 52587 (August 8, 2016), has continued the Export Administration Regulations in effect under the International Emergency Economic Powers Act. BIS continues to carry out the provisions of the Export Administration Act, as appropriate and to the extent permitted by law, pursuant to Executive Order 13222, as amended by Executive Order 13637.

1. Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been determined to be not significant for purposes of Executive Order 12866.

2. Notwithstanding any other provision of law, no person is required to respond to or be subject to a penalty for failure to comply with a collection of information, subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA), unless that collection of information displays a currently valid Office of Management and Budget (OMB) Control Number. This regulation involves collections previously approved by OMB under control number 0694-0088, Simplified Network Application Processing System, which includes, among other things, license applications and carries a burden estimate of 43.8 minutes for a manual or electronic submission. Total burden hours associated with the PRA and OMB control number 0694-0088 are not expected to increase as a result of this rule. You may send comments regarding the collection of information associated with this rule, including suggestions for reducing the burden, to Jasmeet K. Seehra, Office of Management and Budget (OMB), by email to [email protected], or by fax to (202) 395-7285.

3. This rule does not contain policies with Federalism implications as that term is defined in Executive Order 13132.

4. The provisions of the Administrative Procedure Act (5 U.S.C. 553) requiring notice of proposed rulemaking, the opportunity for public comment, and a delay in effective date are inapplicable because this regulation involves a military or foreign affairs function of the United States. (See 5 U.S.C. 553(a)(1)). If this rule were delayed to allow for notice and comment and a delay in effective date, then the national security and foreign policy objectives of this rule would be harmed. Because a notice of proposed rulemaking and an opportunity for public comment are not required to be given for this rule by 5 U.S.C. 553, or by any other law, the analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., are not applicable. Accordingly, no regulatory flexibility analysis is required and none has been prepared.

Accordingly, part 744 of the Export Administration Regulations (15 CFR parts 730 through 774) is amended as follows:

I. Background

The Used Car Rule requires dealers to display on used cars offered for sale a window sticker called a “Buyers Guide” containing warranty and other information. The Commission promulgated the Used Car Rule in 1984, and the Rule became effective in 1985.1 One of the principal goals of the Used Car Rule is to prevent oral misrepresentations and unfair omissions of material facts by used car dealers concerning warranty coverage. To accomplish that goal, the Rule provides a uniform method for disclosing warranty information on the “Buyers Guide.” The Rule requires used car dealers to disclose on the Buyers Guide whether they are offering a used car for sale with a dealer's warranty and, if so, the basic terms, including the duration of coverage, the percentage of total repair costs to be paid by the dealer, and the exact systems covered by the warranty. The Rule additionally provides that the Buyers Guide disclosures are to be incorporated by reference into the sales contract, and are to govern in the event of an inconsistency between the Buyers Guide and the sales contract. The Rule requires Spanish language versions of the Buyers Guide when dealers conduct sales in Spanish. The Rule also requires other disclosures that must be printed directly on the Buyers Guide, including: a suggestion that consumers ask the dealer if a pre-purchase inspection is permitted; a warning against reliance on spoken promises that are not confirmed in writing; and a list of fourteen major systems of a used motor vehicle and the major defects that may occur in these systems (“List of Systems”).

In July 2008, the Commission commenced its periodic regulatory review of the Rule (“Regulatory Review”) to examine its efficacy, costs, and benefits, and to determine whether to retain, to modify, or to rescind the Rule.2 The Commission also asked for public comments on the Spanish translation of the Buyers Guide, the List of Systems and defects on the back of the Buyers Guide, and whether to revise the Buyers Guide by adding boxes where dealers could disclose non-dealer warranties offered by third parties.3 The Commission received twenty-five comments from twenty-one commenters, including an automobile auction firm, an automotive repair firm, an online seller of used cars, automobile dealers, individual consumers, a consumer protection attorney, a group of consumer advocacy organizations, national automobile dealers' associations, state automobile dealers' associations, suppliers of dealer forms, county consumer protection agencies, the National Association of Attorneys General, the International Association of Lemon Law Administrators, and the Wisconsin Department of Transportation.4 Among other things, commenters recommended that the Commission require dealers to provide consumers with VHRs.5

In December 2012, the FTC issued a notice of proposed rulemaking (“NPRM”) with proposed changes to the Rule.6 In the NPRM, the Commission proposed adding a statement to the Buyers Guide advising consumers about the availability of VHRs and directing consumers to an FTC website for more information about those reports; changing the statement on the Buyers Guide that describes the meaning of “As Is” when a dealer offers to sell a used vehicle without a warranty; and adding a statement, in Spanish, to the English Buyers Guide advising Spanish-speaking consumers to ask for a Spanish Buyers Guide if they could not read the English version. The NPRM also requested comments on revising the Buyers Guide to include non-dealer warranty boxes and a revised List of Systems that contained airbags and catalytic converters. In response to the NPRM, the Commission received nearly 150 comments from members of the public, including automobile dealers, consumer attorneys, consumer advocacy organizations, automobile dealer associations, providers of VHRs, legal aid agencies, consumer protection agencies, and state attorneys general.7

After reviewing the comments, the Commission published a supplemental notice of proposed rulemaking (“SNPRM”).8 In the SNPRM, the Commission proposed additional modifications to address concerns raised by commenters and sought comments on alternative proposals and issues that commenters identified in response to the NPRM. The Commission proposed amending the Rule to require that dealers who had obtained a VHR on an individual vehicle indicate on the Buyers Guide that they had obtained such a report and would provide a copy to consumers who requested one. The proposal retained, with modifications, the statement proposed in the NPRM to encourage consumers to obtain VHRs, to search for safety recalls, and to visit a proposed FTC website for more information. The proposed amended Rule would not have required dealers to obtain VHRs and would not have mandated a specific type of VHR or designated a specific provider of the reports.

The Commission also proposed modifying the Buyers Guide statement that describes the meaning of an “As Is” sale in light of comments concerning a revision of the statement proposed in the NPRM. The “As Is” statement is meant to clarify that a dealer is offering the vehicle for sale without a warranty, i.e., without any undertaking or promise by the dealer to be responsible for post-sale repairs to the vehicle. The Commission also sought comments on providing boxes on the front of the Buyers Guide where dealers could disclose manufacturer and other non-dealer warranties, a Spanish statement on the English Buyers Guide advising Spanish-speaking consumers to ask for a Spanish Buyers Guide, and a revision to the descriptive language on the “Implied Warranties Only” Buyers Guide.

After reviewing the entire record, the Commission declines to adopt the approach proposed in the SNPRM, which would have required dealers that had obtained a VHR to check a new Buyers Guide box indicating that they had obtained a VHR and would provide a copy upon request. Instead, similar to what was proposed in the NPRM, the Commission has decided to add a statement to the Buyers Guide encouraging consumers to seek vehicle history information and directing consumers to an FTC website for more information. The Commission is aware that the marketplace for vehicle history information is changing rapidly and will continue to monitor developments in this area.

The Commission also has decided to revise the “As Is” statement proposed in the SNPRM. The revised statement in the Final Rule is:

(See Figure 1). The Commission is also adopting the revised “Implied Warranties Only” disclosure proposed in the NPRM for use in jurisdictions that prohibit “As Is” used vehicle sales.9 (Figure 2).

The Commission has decided to modify the Buyers Guide in other ways proposed in the NPRM and SNPRM. The modified Buyers Guide in the Final Rule includes boxes on the front of the Buyers Guide where dealers can disclose manufacturer and other non-dealer warranties. The Commission is also reformatting the Service Contract box on the front of the Buyers Guide to make it flush with the non-dealer warranty boxes.

The Commission is adding a statement in Spanish to the front of the English Buyers Guide. The statement alerts Spanish-speaking consumers who cannot read the English Buyers Guide to ask for a Spanish Buyers Guide, if the dealer conducts the sale in Spanish. The additional Spanish statement is not intended to change the Rule's existing requirement that dealers provide a Spanish Buyers Guide if the dealer conducts a sale in Spanish.

The Commission received forty-one comments during the SNPRM comment period from groups and individuals. The Commission has considered those comments as well as the comments submitted in response to the NPRM and the 2008 Regulatory Review in promulgating the Final Rule. Commenters on the three notices include consumer advocacy groups, industry trade associations, state attorneys general (“State AGs”),10 state regulatory agencies, attorneys who practice consumer law, and individual consumers.

The Commission has decided to modify the Buyers Guide by adding a statement that advises consumers to obtain VHRs and to visit an FTC website for more information. The Final Rule is similar to the approach proposed in the NPRM, in which the Commission proposed a Buyers Guide containing a statement that advised consumers to obtain VHRs and directed consumers to an FTC website for more information.11 In the SNPRM, the Commission proposed an alternative approach that would have required dealers who had obtained VHRs to check a box so indicating and to provide a copy of the report to consumers upon request. As described in greater detail below, commenters provided a range of views about both proposals and discussed various other approaches to disclosing vehicle history information.

The informational approach to VHRs adopted here should help reduce deception and consumer injury that could result from undisclosed or deceptive disclosure of title brands or other pieces of problematic history. It reduces the potential that, under the SNPRM approach, consumers will rely too much on particular VHRs and dealers as a source of mechanical condition information, and instead directs consumers to a source of information on the FTC's website which is independent of the dealer. Moreover, the informational approach does not appreciably increase the burden on dealers beyond that already imposed by the Rule. By recommending that consumers obtain their own VHRs from whatever source best suits their needs, the Buyers Guide may make consumers more educated about VHRs and prompt more consumers to make appropriate use of them.

In reaching this decision, the Commission has considered the differences in VHRs and providers, the strengths and limitations of VHRs, and the evolving development of the collection and distribution of vehicle history information. The Commission notes that consumers currently can gain access to VHRs at no cost from many dealers, automobile market websites, buying services, and other sources and can purchase VHRs at a nominal cost from commercial vendors. This approach balances the benefits to consumers of vehicle history information and the burden of requiring dealers to procure and disclose vehicle history information.

Vehicle history information is available from a variety of public and private sources. These sources include state titling agencies (e.g., departments of motor vehicles (“DMVs”)), the National Motor Vehicle Title Identification System (“NMVTIS”), and commercial vehicle history providers, such as CARFAX and Experian's AutoCheck.

NMVTIS is a nationwide electronic database of vehicle history information created pursuant to the Anti-Car Theft Act of 1992.12 NMVTIS was created to prevent the introduction or reintroduction of stolen motor vehicles into interstate commerce, to protect states and individual and commercial consumers from fraud, to reduce the use of stolen vehicles for illicit purposes including funding of criminal enterprises, and to provide consumers protection from unsafe vehicles.13 It is designed to enable nationwide access to title information submitted by state titling agencies, and information concerning junk or salvage vehicles that insurers, recyclers, and salvage yards are required by law to submit.14 It is intended to serve as a reliable source of title and brand history.15 NMVTIS is limited to providing data on five key indicators associated with preventing auto fraud and theft: Current title information, brand history, odometer reading, total loss history, and salvage history.16

Although NMVTIS is intended to be a reliable source of vehicle brand and title history, it does not contain detailed repair history and may not include significant damage history.17 For example, information on previous significant damage may not be included in NMVTIS if a vehicle was never determined to be a “total loss” by an insurer (or other appropriate entity) or branded by a DMV.18 On the other hand, an insurer may be required to report a vehicle as a “total loss” even if the state's titling agency does not brand it as “junk” or “salvage.” 19

The NMVTIS Web site, www.vehiclehistory.gov, contains live links to the Web sites of approved commercial vendors that sell NMVTIS reports to the public.20 Consumers can purchase NMVTIS reports from these vendors for a few dollars. Approved vendors to both consumers and dealers are subject to quality control standards designed to ensure consistency with the intent and purpose of the Anti-Car Theft Act and its implementing regulations.

Title and other vehicle history information are also available in commercial reports from vendors such as CARFAX and Experian's AutoCheck. CARFAX and AutoCheck enable consumers to purchase VHRs, and some dealers distribute them to consumers free of charge. CARFAX and AutoCheck obtain data from state titling agencies, insurers, repair facilities, automobile auctions, salvage facilities, and fleet rental firms. These reports can include information on prior ownership, usage, damage, repair history, etc. They may even disclose whether a vehicle has had regular oil changes. Both CARFAX and AutoCheck offer mobile apps that allow real-time access to their reports. In addition, both CARFAX and AutoCheck offer consumers an option to pay a flat fee to receive multiple reports.

Commercial VHRs may include vehicle condition data from sources other than NMVTIS.21 According to CARFAX, NMVTIS reports carry limited title, odometer, brand, and salvage/total loss information, whereas commercial reports may contain “a wealth of information about brands, total losses, prior wrecks, airbag deployments, open recalls, odometer readings, and even maintenance history.” 22 Experian noted that its AutoCheck VHRs can include information about fire and flood damage; accident damage, including the number and severity of any accidents; number of prior owners; auction inspection announcements; salvage, theft, or lemon; 23 fleet or rental use; frame damage; service and maintenance records; and manufacturer recalls.24

In the NPRM, the Commission proposed a statement on the Buyers Guide informing consumers about the availability of VHRs and advising consumers to obtain the reports. In response, many consumer advocacy groups, the State AG Group, and some NMVTIS vendors recommended that the Commission require dealers to obtain NMVTIS reports and/or adopt California Assembly Bill 1215 (“AB 1215”) (codified as Cal. Vehicle Code 11713.26), or some variation of it.25 AB 1215 requires dealers to obtain NMVTIS reports and to affix a warning label to a vehicle if the NMVTIS report shows a previous salvage or other state title brand or contains some other reported event, such as a total loss report from an insurance company. Broadly speaking, dealers' groups and the leading vendors of commercial VHRs opposed requiring dealers to obtain NMVTIS or commercial reports, or a regulation that would effectively choose one type of provider of VHRs over others.26

Rather than issuing a final rule based on the NPRM or AB 1215, the Commission published the SNPRM to seek comments on requiring dealers to disclose on the Buyers Guide if they had a VHR and to provide a copy of whatever report they had to requesting consumers. The SNPRM also invited public comments on several other approaches to vehicle history information proposed in the comments on the NPRM. The various approaches ranged from recommending that the Rule not address vehicle history information at all to approaches that generally fell somewhere between the NPRM's informational approach and the required disclosures of AB 1215.

The National Automobile Dealers Association (“NADA”) and the National Independent Automobile Dealers Association (“NIADA”) argue that a rule provision dealing with VHRs would exceed the Commission's authority.27 Specifically, they contend that the Used Car Rule was promulgated under Title I of the Magnuson-Moss Warranty Act, 15 U.S.C. 2309(b), which directs the Commission to initiate “a rulemaking proceeding dealing with warranties and warranty practices in connection with the sale of used motor vehicles,” and that vehicle history information is unrelated to warranty and warranty practices.28

NADA, but not NIADA, further argues that the Commission must use more elaborate rulemaking procedures than those specified by the Administrative Procedure Act (“APA”) 29 in order to reach certain independent dealers that sell used cars but (under NADA's interpretation) do not “service” them.30 Section 1029 of the Dodd-Frank Act (“DFA”) 31 authorizes the FTC to use the more informal APA rulemaking procedures to prescribe rules with respect to motor vehicle dealers that are “predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.” 12 U.S.C. 5519(a), (d). According to NADA, certain entities that are subject to the Used Car Rule (although apparently none of NADA's members themselves) are not “predominantly engaged in the sale and servicing” of motor vehicles because they only sell and do not service vehicles.32 NADA thus argues that, to reach these entities, any amendments affecting all dealers subject to the Used Car Rule must be promulgated using the heightened procedures required by section 18 of the FTC Act.33

NADA and NIADA argue that the Commission lacks statutory authority to issue these Rule amendments. That argument, however, founders on the mistaken premise that the Rule rests solely on the Magnuson-Moss Warranty Act and not also on the FTC Act. As discussed in more detail below, the Rule has historically rested on both Title I of the Magnuson-Moss Warranty Act and the Commission's authority under the FTC Act to issue rules addressing deceptive acts or practices. In the current proceeding, the Commission is issuing the rule amendments solely under the latter authority.

Ever since the Used Car Rule was promulgated, the Commission has made clear that the authority for the Rule “is derived from two sources”: Title I of the Magnuson-Moss Warranty Act and the FTC Act.34 The specific authority under the FTC Act is section 18, which authorizes the FTC to issue trade regulation rules that “define with specificity acts or practices which are unfair or deceptive” within the meaning of section 5 of the FTC Act.

The dual bases of statutory authority are also reflected in the Rule's existing provisions and the procedures that the Commission used to promulgate the Rule. Some of the current provisions in the Used Car Rule deal with unfair or deceptive acts or practices that are not directly related to warranties or warranty practices.35 Moreover, given that the Rule is in part a trade regulation rule, the Commission followed the more elaborate procedures in section 18 of the FTC Act when promulgating the Used Car Rule, not the simpler procedures that would have been available if the Rule had been issued solely under the Magnuson-Moss Warranty Act.

NADA and NIADA are thus incorrect in arguing that the VHR amendments exceed the FTC's rulemaking authority. The rule amendments are based solely on the Commission's authority under the FTC Act to issue rules addressing deceptive acts or practices. In particular, the VHR amendments will help prevent deception in the market for used vehicles, as previously discussed in the NPRM and as further explained herein.36 The Commission has properly acted under sections 5 and 18 of the FTC Act in promulgating the VHR amendments.

Section 1029 of the DFA authorizes standard APA rulemaking procedures when the Commission uses its section 5 and section 18 rulemaking authority to address unfair or deceptive acts or practices by motor vehicle dealers. The DFA defines a “motor vehicle dealer” to mean someone who is (1) licensed by a State or territory to sell motor vehicles, and (2) takes title, owns, or has physical custody of them.37

Section 1029(d) authorizes the FTC “to prescribe rules under sections 5 and 18(a)(1)(B) of the Federal Trade Commission Act” with respect to motor vehicle dealers that are “predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.” 38 The DFA authorizes the Commission to promulgate such rules “in accordance with” the APA procedures in 5 U.S.C. 553, “[n]otwithstanding section 18 of the Federal Trade Commission Act.” DFA 1029(d).

NADA argues that some non-franchised used car dealers are outside the scope of DFA 1029(a) because they sell but do not “service” vehicles.39 This argument, however, relies on an unduly narrow interpretation of “servicing.” Although the DFA does not define “servicing,” the plain meaning of that term, along with the statutory language in DFA 1029(b)(3), suggests that the term should be read broadly to encompass activities such as “repair, refurbishment, [or] maintenance,” as well as other services.40

That definition captures activities undertaken by essentially all used car dealers. For example, whether or not they offer post-sale repair or maintenance services, used car dealers routinely prepare vehicles for sale by addressing any obvious mechanical problems and, as the Commission has previously noted, by undertaking the “general industry practice of appearance reconditioning.” 41 Such activities are a type of “servicing” within the plain meaning of that term and fall easily within the category of “refurbishment” activities mentioned in DFA 1029(b)(3). Because the Commission previously determined that used car dealers “routinely” recondition vehicles, id., and NADA has not offered any evidence that used car dealers have stopped engaging in this “general industry practice,” the Commission finds that dealers' practice of reconditioning vehicles is sufficient to satisfy DFA 1029(a)'s “and servicing” language.

The legislative history of DFA 1029 likewise confirms that Congress intended to preserve the FTC's existing rulemaking authority over auto dealers but streamline the procedures applicable to all such dealers, not only to an arbitrarily defined subset of them. When Congress enacted section 1029 of DFA, Congress sought to achieve two ends. First, Congress was aware of and intended to preserve the FTC's existing authority over auto dealers. For example, Representative Frank said, “We are not increasing the authority that the FTC has. There is no further grant of powers other than what the FTC already has.” 42 Senator Dodd similarly stated, “The Federal Trade Commission has jurisdiction on—on automobile dealerships so we're not breaking new ground. We're just, in fact, providing some tools for them to do this job.” 43

Second, Congress was aware that the FTC's existing section 18 rulemaking process is time consuming and wanted to speed up the FTC's rulemaking process with respect to auto dealers. As Representative Frank explained, the reason for section 1029 was to “expedite the ability of the FTC to act responding to” concerns about dealers' unfair or deceptive acts or practices.44 Representative Watt noted that requiring the FTC to use its existing section 18 procedures “that could take up to eight years before you can do something to respond to some predatory practice” might create “very bad consequences.” 45

Congress never suggested that it intended to apply the expedited rulemaking procedures to only a subset of the car dealers who are subject to the FTC's jurisdiction. Moreover, Congress had no clear basis for requiring different rulemaking procedures for different used-car dealers depending on what types of post-sale services those dealers happened to offer. In short, NADA's argument not only conflicts with the statutory text and legislative history, but would serve no rational policy objective.

Finally, as discussed, NADA's argument about the scope of the FTC's APA rule-making authority rests on an unduly narrow interpretation of “servicing” that includes only post-sale activities and excludes pre-sale activities such as refurbishing. But NADA's members are franchised dealers who are required to offer post-sale or post-lease servicing and warranty work as part of their franchise agreements. NADA's procedural argument could thus apply only to a subset of the non-franchised dealers separately represented in part by NIADA, which, notably, does not make the argument. The record contains no data to support NADA's assumption that many non-franchised dealers provide no post-sale “servicing,” which suggests that NADA's argument on this point may have limited applicability even if the term “servicing” were construed narrowly to include only post-sale activities.

Some commenters raised arguments against including vehicle history information in the Buyers Guide. First, NADA and NIADA commented that the Rule and the Buyers Guide are limited to warranty disclosures and that the disclosure of vehicle history information is outside the scope of the Rule.46 As explained above in subsection (a), this argument is based on a misunderstanding of the Rule's purpose. From its inception, the Rule has addressed unfair or deceptive acts or practices as well as warranty practices.47 For this reason, the Buyers Guide already contains information that is primarily intended to help prevent consumer deception and that is not directly related to warranty disclosures, such as the spoken promises warning, the list of major defects and systems, and the advice to ask about a pre-purchase inspection.

The Commission concludes that incorporating vehicle history information into the Rule fits within the general framework of the existing Rule and would benefit consumers by reducing deception in the used car market. Encouraging consumers to obtain VHRs independently will serve to direct consumers to an additional source of pre-sale information that is not controlled by the dealer and thereby lessen the consumer's reliance on dealers for information. The incorporation of vehicle history information should help reduce deception by unscrupulous dealers, because any misrepresentations will be contradicted by information that consumers have obtained independently.

Second, NADA and CARFAX commented that including vehicle history information on the Buyers Guide is not necessary because dealers already obtain and share commercial VHRs with consumers.48 Of course, not all dealers obtain and share VHR information, and the prevalence of the practice among non-franchised independent dealers is unclear.49 In addition, unscrupulous dealers might provide out-of-date reports or pick reports that contain the least amount of negative data. A statement on the Buyers Guide about the availability of VHRs will help ensure that consumers are not deceived by such practices.

Finally, some commenters expressed doubt about the reliability of vehicle history information.50 NADA commented that, although general information related to vehicle history might be appropriate on a Commission website, a reference to specific commercial providers would not.51 NADA argued that consumers could gain a false sense of security from the reports, especially if they are required by the government and impliedly have the Commission's imprimatur on them.52 For those reasons, NADA commented that the FTC should include a disclaimer about the limitations of VHRs, if the reports are mentioned at all.53

A disclaimer, however, is unnecessary because the reports are typically dated and contain disclaimers about the limits of the data in them.54 In addition, the website listed on the Buyers Guide includes information about the limits of data in VHRs.

Some commenters approved of the informational approach proposed by the NPRM, i.e., adding a statement to the Buyers Guide advising consumers to obtain a VHR and directing consumers to an FTC website.55 Two vehicle history vendors commented that the FTC should avoid promoting a particular vendor or type of technology to deliver VHRs.56 In addition, the auto dealer associations recommended that the Rule not favor a particular source of vehicle history information.57 NIADA commented that the NPRM's proposed approach of directing consumers to a website and advising an independent inspection is “an acceptable compromise.” 58 Experian commented that the NPRM proposal “strikes a good balance in protecting used car consumers without being overly burdensome.” 59

The Commission has decided to use an informational approach to vehicle history that reduces consumer reliance on dealers for information. The chosen approach does not endorse any type of or vendor of vehicle history information. Encouraging consumers to obtain VHRs independently will reduce deception in the marketplace by directing consumers to sources of information about the vehicles that they are considering buying that are not controlled by the selling dealer and thereby reduce the potential for consumers to rely upon misrepresentations from unscrupulous dealers.

The commenters who recommended incorporating vehicle history information into the Rule proposed several different approaches. Some favored an informational approach; some recommended a Rule that, like AB 1215, would require dealers to obtain VHRs and to disclose information about them to consumers; some suggested various approaches in between. Below, the Commission discusses why it has declined to adopt three of the alternative approaches recommended by commenters.

First, in response to the NPRM and the SNPRM, the State AG Group, other regulators, and consumer advocacy groups stated that they prefer an approach like AB 1215 along with a requirement that dealers obtain and provide consumers with NMVTIS reports.60 For example, the National Consumer Law Center commented that dealers should be required to obtain a report that includes up-to-date vehicle history information from NMVTIS.61 Otherwise dealers might pick reports that contain the least amount of negative data, and VHR vendors might produce reports to cater to dealer demand for more favorable reports.62

The Commission, however, has decided that it will not adopt an amended Rule modeled on AB 1215 for the reasons already stated in the SNPRM.63 In addition, the Commission cannot give dealers the protection from liability for inaccuracies in NMVTIS reports provided by AB 1215.64 The Commission recognizes the limitations of VHR information as an indicator of a vehicle's current mechanical condition and does not wish to over-emphasize the value of VHR information over other potentially more probative sources of information, such as a pre-purchase mechanical inspection. In addition, requiring dealers to provide NMVTIS reports might discourage consumers from investigating other types of VHRs from other vendors.

Second, as an alternative to the AB 1215 approach, the State AG Group proposed a vehicle history disclosure model similar to the SNPRM with the addition of a “branded title checkbox” that the dealer would be required to check to indicate that the vehicle's title had a brand.65 Like the SNPRM, the State AG Group's proposal would not require dealers to obtain VHRs or designate a type of or vendor of VHRs.66

The “branded title check box” proposal from the State AG Group suffers from a number of practical problems if dealers are not also required to obtain either NMVTIS reports or other VHRs. Without a requirement that dealers obtain a VHR, the branded title check box could encourage dealers to forego VHRs entirely or to acquire only favorable ones. In addition, if an unchecked box, indicating that the dealer is unaware that the vehicle has a branded title, is incorporated into the contract as the dealer's affirmative representation that the vehicle in fact does not have a branded title, the dealer could face liability if a subsequent VHR shows a branded title. The lack of a checkmark could also suggest to consumers that the vehicle is in good condition when the lack of a checkmark is actually the far more limited representation that the dealer does not know whether the vehicle has a branded title.

Third, CAS commented that its preferred approach is “something of a hybrid” between AB 1215 and the State AG Group's approach.67 CAS would require dealers to obtain and to disclose NMVTIS reports, as required by AB 1215, and to check a box, similar to the branded title box suggested by the State AG Group, disclosing if the vehicle has a title brand.68 CAS envisions an improved disclosure box along with information about vehicle histories on the Buyers Guide and the FTC websites.69 Dealers who check the box would be required to provide a copy of any reports that they have obtained to requesting consumers.70 CAS would require dealers to keep any report that they view for as long as the dealer possesses the vehicle to which the report applies.71

As noted, the Commission has decided against following AB 1215 and requiring dealers to obtain NMVTIS reports.72 The Commission is also not adopting the branded title check box proposed by the State AG Group, and favored by CAS, for the reasons previously discussed.

The Commission is also not adopting the CAS approach because of the recordkeeping that it seems to necessarily entail. The CAS approach would impose new recordkeeping obligations by requiring dealers to keep copies of any reports that they view. The purpose of the CAS recordkeeping requirement is to prevent dealers from selecting favorable reports or from, for example, viewing reports online, but not printing or storing them, or obtaining information orally without ever viewing, or possessing, an actual report. But it is not clear how the Commission could construct detailed rules about when a dealer will be deemed to have viewed a report that would encompass all situations or how the Commission would enforce those rules if they could be devised.

As noted above, in the SNPRM, the Commission proposed requiring dealers who had obtained VHRs to check a box so indicating and to provide a copy of the report to consumers upon request. The SNPRM proposal also contained additional text recommending that consumers obtain a VHR, regardless of whether the box was checked, and advising that consumers visit an FTC website for information on how to obtain a VHR, how to search for safety recalls, and other topics. Many commenters criticized the SNPRM approach.

Consumer advocacy groups identified several problems with the SNPRM vehicle history approach. CAS, other consumer advocacy groups, and the State AG Group note that dealers could avoid revealing negative information in VHRs by, for example, picking and choosing among reports to select the most favorable report, discarding older (or newer) reports, selecting a report that showed the fewest problems, or selecting a vendor that generates reports showing minimal problems.73 As noted, CAS commented that it prefers the State AG Group's approach (requiring a title brand disclosure on the Buyers Guide and providing a copy of the most recent report from each vendor) if the Commission does not require dealers to provide NMVTIS reports.74 CAS notes that either approach could be supplemented with a requirement that dealers provide copies of the VHRs that the dealer possesses, but also tacitly acknowledges the difficulty in devising and implementing such a requirement.75

NADA further questioned the value of VHRs to consumers. NADA reiterated its earlier comments that VHRs are unreliable and of limited utility, which NADA states VHR vendors acknowledge in their own disclaimers about the accuracy, reliability, or completeness of the data in the reports.76 Given these limitations, NADA, and others, commented that the SNPRM's checkbox proposal could raise the prominence of VHR information in consumers' minds to an inappropriately high level.77

Dealers' groups identified several additional problems with the vehicle history approach proposed in the SNPRM. NADA questioned the need for a rule about VHRs in the first instance because most franchised dealers, and potentially other dealers, already provide VHRs to consumers and because of a lack of evidence that dealers fail to disclose known title brands.78 NADA commented that requiring dealers to indicate on the Buyers Guide whether they have a report and requiring dealers to provide it would make it less likely that dealers will continue to obtain and to distribute the reports because of the risk that the VHR information will be incorporated into the contract and that the dealer will be construed to have made a warranty about it.79 NIADA also raised concerns about dealer exposure to liability for third-party VHR information that the dealer does not control,80 which is potentially compounded by unreported repairs, poor reporting procedures, and different brands/classifications in each state.81

Both NADA and NIADA commented that the SNPRM does not define a VHR.82 NIADA stated that, without a definition, dealers would have to guess when to check a box indicating that they have a report.83 NIADA also noted that, in addition to the well-known providers of VHRs such as NMVTIS and commercial vendors, other sources, such as banks, insurers, and service facilities potentially have information on used cars that could be construed to constitute VHRs.84 NADA proposed defining VHRs as third-party reports from state titling agencies, NMVTIS, or commercial vendors.85

The commenters disagreed about whether dealers or consumers should be required to pay for copies of the VHRs contemplated by the SNPRM. Dealers' groups commented that dealers should be permitted to pass along their costs to consumers.86 That cost could increase depending upon how often dealers must provide the reports because, dealers' groups and others commented, the SNPRM does not identify the point in a transaction when a dealer would become obligated to provide the reports.87 Although NADA indicates that franchised dealers now routinely share VHR information with consumers,88 NADA questioned whether licensing agreements would permit dealers to share those reports with all potential customers if doing so were to be required by the Rule.89

Consumer advocacy groups, the State AG Group, and other commenters would place the costs of VHRs on dealers.90 NCLC commented that the dealer would need to purchase only one report per vehicle, and provide the reports to successive consumers, whereas those same consumers would each need to purchase a separate report for the same vehicle.91 Moreover, consumers who looked at several vehicles when shopping would need to purchase multiple reports.92 NCLC commented that asking consumers to obtain reports on their own is impractical because of the cost of the reports, especially multiple reports.93 NCLC and Consumers Union commented that some consumers might have Internet access only away from the dealership, at home or work, and would have to review the reports off-site and then return to the dealership to use the information.94

The American Association of Motor Vehicle Administrators supported disclosure of vehicle history data at the point of sale. Both it and the Virginia DMV commented that the FTC should recommend or reference only VHRs that integrate NMVTIS data because NMVTIS is a congressionally mandated database.95

A number of commenters urged the Commission to address safety recalls in an amended Rule. Several recommended that the Commission prohibit the sale of vehicles with open recalls.96 Other commenters urged the Commission to require dealers to disclose if a vehicle is subject to an unrepaired (i.e., “open”) recall 97 or at least to check if a vehicle is subject to an open recall.98 Consumers Union recommended two boxes where dealers would indicate whether they had (or had not) repaired a vehicle in compliance with any applicable recall notices.99

Rather than adopt these proposals, the Commission has decided to address safety recalls by including a Buyers Guide statement directing consumers to check for open safety recalls by visiting safercar.gov. The Commission recognizes the significant public safety concerns associated with vehicle recalls, including in the used car marketplace, and is aware that potential legislation to address this public safety issue is under consideration and has NHTSA's support.100 We believe that legislative bodies and NHTSA, as the federal agency primarily tasked with ensuring motor vehicle safety, are best situated to consider and resolve the many issues implicated by such proposals—including, for example, the competitive effects they would have on independent dealerships that are not authorized to make repairs, the effect they could have on used vehicle trade-ins, the fact that remedies for some recalls may remain unavailable for significant periods of time, and other factors affecting the costs and benefits to consumers.

The Commission does note, however, that under the FTC Act's existing prohibition on deceptive acts and practices, an advertiser's claims may trigger the need for the advertiser to disclose information about open safety recalls. For example, the Commission approved for public comment proposed consent orders concerning advertising that, according to the Commission's complaints, touted the benefits of rigorous inspections of used vehicles, but failed to disclose adequately that some of the vehicles were subject to open safety recalls.101 Those proposed settlements would curb deceptive conduct by requiring the respondents to qualify their inspection claims, wherever they make them, with clear and conspicuous disclosures informing consumers that their used vehicles may be subject to unrepaired recalls for safety issues and explaining how to determine whether an individual vehicle is subject to an open recall. Further, the proposed orders would prohibit the respondents from making misrepresentations regarding recall status or safety, and require them to notify recent past consumers regarding recalls.

The Commission has considered the comments and entire record and has decided to adopt a final rule similar to what it initially proposed in the NPRM. Accordingly, the Commission is revising the Buyers Guide to include a statement advising consumers to obtain a VHR and directing consumers to an FTC website for more information. The Buyers Guide VHR statement appears in Figures 1 and 2. The Spanish translation appears in Figures 4 and 5.

As described above, the views expressed by the commenters include those advocating that the Rule and the Buyers Guide should not address vehicle history information at all, those favoring an informational approach, and those favoring an approach that, like AB 1215, would require dealers to obtain VHRs (specifically a NMVTIS report in the case of AB1215) and to disclose information about them to consumers, and various approaches in between.

The Final Rule incorporates an informational approach to VHRs. Revising the Buyers Guide by directing consumers to obtain a vehicle history report should help reduce consumer injury and deception that could result from undisclosed or deceptive disclosure of title brands or other pieces of problematic history. The SNPRM approach could encourage consumers to rely too much on particular VHRs and dealers for mechanical condition information to the neglect of information available from sources independent of dealers. On the other hand, specifying the source of or type of VHR that consumers consult, such as AB 1215 does, could discourage consumers from choosing VHRs that best suit their needs. Finally, an informational approach to VHR disclosures should not increase the burden on dealers much beyond what the Rule already imposes.

The Commission agrees that the SNPRM approach to VHR disclosures suffers from practical problems raised by the commenters. Among these is whether the Commission must define a VHR, or adopt a standard, such as NMVTIS, for the minimum amount of information that a VHR must contain to comply with a VHR disclosure requirement. Another question is whether the Commission would have to define what it means to obtain a report and whether the Commission can prevent dealers from viewing a report online or discarding reports. Other problematic issues also would arise, such as whether consumers or dealers should bear the cost of the reports. If dealers bear the cost, should they be required to produce reports to all requesting consumers, or should they be required to provide reports only to bona fide potential customers rather than, for example, to all casual shoppers? The Commission notes that the SNPRM approach could create an incentive for dealers to shop for reports that minimize or do not include negative information and for vendors to produce such reports.

In addition, requiring dealers to produce any VHRs that the dealer possesses, as proposed by the SNPRM, could reduce the availability of VHRs that dealers currently provide because of dealer liability concerns. Such a requirement would likely necessitate an extensive, and potentially unwieldy, rule defining what constitutes a VHR and when a dealer will be deemed to have obtained a VHR that would likely be difficult to apply in all situations.

Moreover, the marketplace for VHRs is evolving rapidly. Consumers currently can purchase the reports from commercial vendors for between $2 and $40 per report and can also gain access to them at no cost from many dealers, automobile market websites, buying services, etc.102 The Commission is concerned that a mandatory approach to vehicle history information disclosure could have the unintended effect of impeding these developments and reducing consumer access to current and reliable vehicle history information.

The Commission is also adding language to the Buyers Guide statement directing consumers to check for open safety recalls by visiting safercar.gov. In its comment on the SNPRM, NHTSA recommended treating safety recalls in a manner similar to the SNPRM's treatment of VHRs. NHTSA proposed a box that dealers would check if they had searched for information about open recalls, which dealers would then be obligated to provide to consumers upon request.103 Given that the Commission is adopting an informational approach to VHRs by directing consumers to obtain them independently, the Commission is also adopting a similar approach to safety recall information.104

Table of Contents I. Executive Summary A. Purpose of the Final Rule B. Summary of the Major Provisions of the Final Rule C. Legal Authority D. Costs and Benefits II. Background A. History of the Rulemaking B. Summary of Comments to the Proposed Rule C. General Overview of the Final Rule III. Legal Authority IV. Comments on the Proposed Rule and FDA Response A. Introduction B. Description of General Comments and FDA Response C. Specific Comments and FDA Response V. Compliance Date VI. Economic Analysis of Impacts A. Introduction B. Summary of Costs and Benefits VII. Analysis of Environmental Impact VIII. Paperwork Reduction Act of 1995 IX. Federalism X. References I. Executive Summary A. Purpose of the Final Rule

On April 10, 2006, FDA issued a proposed rule to amend our regulations on CGMP to include new or revised requirements for the labeling, color, dedication, and design of medical gas containers and closures (71 FR 18039). The chief impetus for the proposed rule was a number of incidents in which a medical gas container holding a gas other than oxygen was erroneously connected to a health care facility's oxygen supply system, leading to serious injuries and deaths. In addition, FDA recognized that the regulation that conditionally exempts certain medical gases from certain otherwise-applicable prescription drug labeling regulations did not reflect either industry best practices or FDA's current regulatory expectations.

Following consideration of comments received and further internal deliberation, we are finalizing this rule as described in this document. The final rule is intended to increase the likelihood that the contents of medical gas containers are accurately identified and reduce the likelihood of the wrong gas being connected to a gas supply system or container. The final rule also modifies the medical gas conditional labeling exemption regulation such that it now largely reflects existing industry best practices and FDA's current regulatory expectations regarding the labeling of medical gases.

We received approximately 50 comments on the proposed rule. The most detailed comments were from industry trade associations. The other comments were largely from individual medical gas firms, consultants, or other industry stakeholders, and they generally expressed agreement with the trade associations' comments. We discuss all significant comments in section IV.

The final rule requires that portable cryogenic medical gas containers not manufactured with permanent gas use outlet connections have gas-specific use outlet connections that cannot be readily removed or replaced except by the manufacturer. The rule further requires that portable cryogenic medical gas containers and high-pressure medical gas cylinders meet certain labeling, naming, and color requirements. Principally, portable cryogenic medical gas containers are required to bear a 360° wraparound label identifying the contents of the container, and high-pressure medical gas cylinders are required to be colored on the shoulder of the container in the FDA-designated color or colors associated with the gas or gases held in the container. These requirements are intended to increase the likelihood that the contents of medical gas containers are accurately identified and reduce the likelihood of the wrong gas being connected to a gas supply system or container.

The final rule also revises the medical gas conditional labeling exemption regulation to add oxygen and nitrogen to the list of medical gases subject to the exemption, and to remove cyclopropane and ethylene from the list. The final rule further revises this regulation by adding new warning statement content to be included in oxygen labeling and by expanding the scope of the regulation to include medically appropriate mixtures of medical gases.

Medical gases are generally regulated as prescription drugs under sections 201(g)(1) and 503(b)(1) of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) (21 U.S.C. 321(g)(1) and 353(b)(1)) (though oxygen may be dispensed without a prescription for certain uses specified at section 576(b)(2) of the FD&C Act (21 U.S.C. 360ddd-1(b)(2)), and are subject to regulation under section 501(a)(2)(B) of the FD&C Act (21 U.S.C. 351(a)(2)(B)). Sections 575 and 576 of the FD&C Act (21 U.S.C. 360ddd and 360ddd-1) address the regulation of medical gases and designated medical gases. FDA is invoking its authority under sections 501(a)(2)(B), 502(f) (21 U.S.C. 352(f)), 576(a), and 701(a) (21 U.S.C. 371(a)) of the FD&C Act to create or modify CGMP and labeling regulations applicable to medical gases to ensure that they meet the requirements of the FD&C Act as to safety and have the identity and strength, and meet the quality and purity characteristics, that they purport or are represented to possess, and are labeled with adequate warnings and instructions for use.

The rule is expected to provide a modest net social benefit (estimated benefits minus estimated costs) to society. Costs are attributed to coloring medical gas containers, complying with the 360° wraparound label requirement for portable cryogenic containers, and requiring gas-specific use outlet connections on portable cryogenic containers to be permanently attached to the valve body (e.g., by silver brazing) or attached to the valve body using a locking mechanism or other appropriate device so that only the manufacturer can readily remove or replace them. Using a standard 10 year time period, we estimate annualized costs to range between $180,000 and $1.5 million using a 3 percent discount rate and between $210,000 and $1.8 million using a 7 percent discount rate. Benefits are attributed to reducing the probability that medical personnel accidentally administer the wrong gas to patients, resulting in serious injury or death. We estimate annualized benefits to range between $800,000 and $2.8 million using a 3 percent discount rate, and between $2.5 million and $8.3 million using a 7 percent discount rate. Together we estimate annualized net benefits to range between $620,000 and $1.3 million using a 3 percent discount rate, and between $2.3 million and $6.5 million using a 7 percent discount rate.

In the Federal Register of April 10, 2006, FDA issued a proposed rule to amend our regulations on CGMP to include new requirements for the labeling, color, dedication, and design of medical gas containers and closures. The chief impetus for issuance of the proposed rule was a number of incidents in which a medical gas container holding a gas other than oxygen was erroneously connected to a health care facility's oxygen supply system, leading to serious injuries and deaths. FDA was also concerned with reports of serious injuries attributable to contamination of high-pressure medical gas cylinders with residue of industrial cleaning solvents, likely as a result of inadequate cleaning during conversion of the cylinder from industrial to medical use. For a detailed account of these incidents, please refer to the proposed rule (71 FR 18039 at 18040-18041).

Accordingly, FDA proposed certain regulatory requirements intended to (1) reduce the likelihood of the wrong gas being attached to a gas supply system or container (and in particular to reduce the likelihood of a gas other than oxygen being connected to an oxygen supply system), (2) make the contents of medical gas containers more easily and accurately identifiable, and (3) reduce the risk of contamination of medical gases. Additionally, FDA proposed including medical air, oxygen, and nitrogen among, and excluding cyclopropane and ethylene from, the list of gases that are conditionally exempt from certain labeling requirements as described in § 201.161 (21 CFR 201.161). FDA solicited written comments on the proposed rule.

Following publication of the proposed rule, the Food and Drug Administration Safety and Innovation Act (FDASIA) was enacted (Pub. L. 112-144 (July 9, 2012)). Title XI, Subtitle B of FDASIA, “Medical Gas Product Regulation,” added new sections 575, 576, and 577 to the FD&C Act (21 U.S.C. 360ddd, 360ddd-1, and 360ddd-2), creating a new certification process for certain “designated” medical gases, including all of the gases listed at § 201.161 as amended by this rule. Section 575 of the FD&C Act defines the term “designated medical gas” to include oxygen, nitrogen, nitrous oxide, carbon dioxide, helium, carbon monoxide, and medical air that meet the standards set forth in an official compendium. Section 576 of the FD&C Act permits any person to file a request for certification of a medical gas as a designated medical gas for certain specified indications. A designated medical gas for which a certification is granted is deemed to have in effect an approved application under section 505 (New Drug Application) or 512 (New Animal Drug Application) of the FD&C Act (21 U.S.C. 355 or 360b) (see FD&C Act section 576(a)(3)(A)(i)). This approval applies to the designated medical gas alone or in combination, as medically appropriate, with one or more other designated medical gases for which certifications have been granted (Id.).

Section 576 of the FD&C Act also addresses the labeling and prescription drug status of designated medical gases. Section 576(a)(3)(A)(ii) of the FD&C Act, similar to the conditional labeling exemption at § 201.161(a), specifies how the labeling of designated medical gases may meet certain generally applicable statutory labeling requirements. Specifically, section 576(a)(3)(A)(ii) of the FD&C Act provides that the requirements of sections 503(b)(4) of the FD&C Act (regarding labeling of a drug as a prescription drug) and 502(f) of the FD&C Act (regarding inclusion of adequate directions for use and adequate warnings in drug labeling) are deemed to have been met for a designated medical gas if the labeling on the final use container for the medical gas bears: (1) The information required by section 503(b)(4); (2) a warning statement concerning the use of the medical gas as determined by the Secretary by regulation; and (3) appropriate directions and warnings concerning storage and handling. Section 576(b)(2)(B) of the FD&C Act further provides that, in the case of oxygen provided for certain uses specified at section 576(b)(2)(A), the requirements of section 503(b)(4) of the FD&C Act are deemed to have been met if the labeling bears a warning that the oxygen can be used for emergency use only and for all other medical applications a prescription is required. Finally, section 576(b) of the FD&C Act provides that designated medical gases shall generally be subject to the requirements of section 503(b)(1) of the FD&C Act (requiring that drugs meeting certain specified conditions be dispensed only upon prescription), while also providing that oxygen may be dispensed without a prescription for certain specified uses.

FDA received approximately 50 written comments on the proposed rule. Comments were submitted by trade associations representing the medical gas and home health care industries, medical gas firms, medical gas industry consultants and other industry stakeholders, and one State regulatory body.

The comments addressed the following topics, among others:

• The appropriate warning statements to be included in oxygen and medical air labeling.

• Safety issues associated with converting a gas container from industrial to medical use and how best to address them.

• The utility and appropriateness of coloring medical gas containers in whole or in part.

• The appropriate content and configuration of wraparound labeling on portable cryogenic medical gas containers.

• Estimated costs to comply with the proposed rule and whether such costs are justified under a cost-benefit analysis.

This final rule includes many of the provisions of the April 2006 proposed rule, with certain modifications described in section IV.C of this document. In particular, the final rule adds oxygen and nitrogen to, and removes cyclopropane and ethylene from, the list of medical gases in § 201.161(a) that are conditionally exempt from the labeling requirements of § 201.100(b)(2) and (3), and (c)(1). The final rule also requires that portable cryogenic medical gas containers and high-pressure medical gas cylinders meet certain labeling, naming, and coloring requirements as provided in new § 201.328. The final rule further requires that portable cryogenic medical gas containers not manufactured with permanent gas use outlet connections have gas-specific use outlet connections that cannot be readily removed or replaced except by the manufacturer by amending § 211.94 (21 CFR 211.94) through the addition of new paragraph (e).

This final rule also reflects revisions FDA is making to the April 2006 proposed rule in light of comments received. In addition to other changes discussed in section IV.C of this document, FDA is making the following significant changes to the proposed rule:

FDA is making additional revisions to § 201.161 in response to concerns raised by comments. First, in response to a comment questioning § 201.161(b)'s exclusion of gas mixtures from the scope of the § 201.161(a) conditional labeling exemptions applicable to certain medical gases, FDA is removing this exclusion. Second, in response to comments that oxygen labeling should bear a different warning statement from other medical gases listed at § 201.161, paragraph (a) of § 201.161 now includes new warning statement requirements specific to oxygen. Third, in response to comments that medical air labeling should bear a different warning statement from other medical gases listed at § 201.161, FDA has determined that medical air should be removed from the scope of the final rule, for the reasons discussed in section IV.C of this document. Fourth, FDA is also revising the regulation such that the warning statement that must be included on labeling to qualify for the labeling exemption must contain certain specified information, but need not consist of the exact words used in the regulation.

If the labeling on a final use container of a designated medical gas (or medically appropriate mixture of designated medical gases) includes the information required by section 503(b)(4) of the FD&C Act as well as the information required to obtain the conditional labeling exemptions provided at § 201.161(a) as revised by this rule, FDA will consider such labeling to meet the conditions set forth at section 576(a)(3)(A)(ii) of the FD&C Act, and, therefore, to have met the requirements of sections 503(b)(4) and 502(f) of the FD& C Act.

In § 211.94(e)(1) of the proposed rule, FDA proposed generally prohibiting cryogenic containers and high-pressure cylinders used to hold industrial gases from being converted to medical use to minimize the risk of contamination of medical gases by industrial contaminants or cleaning solvents. As discussed further in section IV.C of this document, FDA agrees with comments stating that such a prohibition would be unnecessarily costly, as these types of contamination incidents appear to be rare and existing regulations regarding cleaning and inspection of drug containers and closures are sufficient to address this issue. Accordingly, FDA is not finalizing this proposed requirement.

Medical gases are generally regulated as prescription drugs under sections 201(g)(1) and 503(b)(1) of the FD&C Act (though oxygen may be dispensed without a prescription for certain uses specified at section 576(b)(2) of the FD&C Act, and are subject to regulation under section 501(a)(2)(B) of the FD&C Act. Sections 575 and 576 of the FD&C Act address the regulation of medical gases and designated medical gases. Under sections 501(a)(2)(B), 502(f), and 701(a) of the FD&C Act, FDA has the authority to create and modify CGMP and labeling regulations to ensure that drugs meet the requirements of the FD&C Act as to safety and have the identity and strength, and meet the quality and purity characteristics, that they purport or are represented to possess, and are labeled with adequate warnings and instructions for use. Medical gas containers, closures, and labeling are integral parts of medical gas drug products and play a critical role in ensuring that these products are safe and have the appropriate identity, strength, quality, and purity. Medical gas mix-ups have caused deaths and serious injuries. These incidents have occurred despite current regulations and guidance addressing the safe handling of medical gases. FDA is therefore invoking the authority granted by sections 701(a), 501(a)(2)(B), 502(f), and 576(a) of the FD&C Act to issue CGMP and labeling regulations designed to facilitate the safe use of medical gases and to ensure that medical gases are labeled with adequate warnings and instructions for use. The specific requirements in these regulations will help to ensure the safety of these products.

We describe and respond to comments on the proposed rule in this section. We respond to certain comments on the Preliminary Regulatory Impact Analysis (PRIA) in the Final Regulatory Impact Analysis (see Section VI). For ease of identification, the word “Comment,” in parentheses, will appear before the comment's description, and the word “Response,” in parentheses, will appear before our response. The number assigned to each comment is purely for organizational purposes and does not signify the comment's value or importance or the order in which it was received. Many of the comments voiced the same or highly similar concerns and made the same or highly similar recommendations; these comments have been consolidated where possible.

(Comment 1) Many comments contend that FDA's proposal does not reflect the risk-based principles that have historically been enunciated in connection with recent CGMP policy. These comments state that risk-based principles focus regulation on critical areas that are likely to achieve the greatest public health impact. Thus, these comments state that because the impact of FDA's proposed rule is disproportionate to and beyond the scope of any public health risk associated with medical gases, it is inconsistent with the Agency's risk-based approach for CGMP. The comments further contend that the incidents cited in the preamble of the proposed rule do not support the number of requirements proposed, and that a single requirement in the proposed rule—requirement for secure connections on portable containers—would have prevented all but one of the fatalities cited in the preamble.

(Response 1) FDA agrees in part with these comments and has, following reanalysis of expected costs and benefits, declined to adopt certain provisions in the proposed rule and has revised other proposed provisions to more efficiently achieve public health objectives. Many of the requirements in the final rule are consistent with what we understand to be industry practices (Refs. 1-3). We continue to believe that medical gas containers and closures, such as portable cryogenic containers and high-pressure cylinders, are integral parts of the drug product and play a critical role in ensuring that the drug provided to the patient has the appropriate identity, strength, quality, and purity. Accordingly, we believe that this rule, as finalized, is fully consistent with FDA's risk-based approach to CGMP regulation.

(Comment 2) Many comments contend that FDA significantly underestimated the costs to industry imposed by the rule as proposed. These comments estimate these potential costs to be in the range of $855 million to $1.3 billion, as opposed to FDA's estimate of $950,000 to $1.2 million. These comments request that the cost assumptions and conclusions contained in the preamble to the proposed rule be critically reexamined by the Department of Health and Human Services and the Office of Management and Budget (OMB).

(Response 2) We considered these concerns, as appropriate, in preparing the Final Regulatory Impact Analysis (see Section VI).

FDA proposed adding medical air, oxygen, and nitrogen to the list of gases conditionally exempted by § 201.161(a) from the labeling requirements of § 201.100(b)(2) and (3), and (c)(1). FDA proposed these changes because, based on its years of regulatory experience with these gases, FDA believed that compliance with § 201.100(b)(2) and (3), and (c)(1) would be unnecessary if the warning statement and storage and handling directions required to obtain the conditional § 201.161(a) labeling exemptions were included in the labeling of such gases and the labeling and coloring requirements found in proposed § 211.94(e)(4) were met. FDA also proposed removing cyclopropane and ethylene from § 201.161(a), as these gases are no longer used in medical procedures because they are flammable and pose a risk of explosion or fire.

Comments support these proposed changes to the list of exempted gases. Many comments expressed concern, however, over how these proposed changes would affect the labeling of oxygen and medical air. These concerns are set forth in comments 3 and 4, followed by FDA's response.

(Comment 3) Many comments express significant concerns with FDA's proposal to add oxygen to the list of gases at § 201.161(a) without providing a warning statement specific to oxygen. The warning statement at § 201.161(a)(1) previously provided that the gas may only be used by or under the supervision of a licensed practitioner. These comments argue that requiring this statement for oxygen could eliminate the ability of first responders to administer oxygen without a prescription. These comments also note that the labeling on oxygen containers that has long been in use by the industry, which provides for use without a prescription in certain situations when administered by properly trained personnel, would no longer be acceptable and would need to be changed. These comments state that further changes are needed to address these issues.

(Comment 4) Many comments further note that the warning statement at § 201.161(a) does not include certain warnings currently included on oxygen labels. For instance, widely used oxygen labeling warns that uninterrupted use of high concentrations of oxygen over a long duration without monitoring its effect on oxygen content of arterial blood may be harmful and that oxygen should not be used on patients who have stopped breathing unless used in conjunction with resuscitative equipment.

(Response to Comments 3 and 4) FDA is further revising § 201.161(a)(1) in response to these comments.

Prior to the revisions finalized in this rule, § 201.161(a) provided that if the labeling of the medical gases listed in the rule—carbon dioxide, cyclopropane, ethylene, helium, and nitrous oxide intended for drug use—bore a specified warning statement and any needed directions concerning the conditions for storage and warnings against the inherent dangers in the handling of the specific compressed gas, those gases would be exempt from certain otherwise-applicable labeling requirements concerning the recommended or usual dosage, the drug's route of administration, and adequate directions for use. Section 201.161(b) provided that the exemption in § 201.161(a) did not apply to any mixture of the gases covered by the regulation with oxygen or with each other. In the 2006 proposed rulemaking FDA proposed adding oxygen, medical air, and nitrogen, and removing cyclopropane and ethylene, from the scope of § 201.161, but proposed no other changes to the rule.

As many comments point out, the warning statement previously specified at § 201.161(a)(1) differs significantly from the warning statement that has long been in use on oxygen labeling. FDA agrees with these comments that this oxygen-specific warning statement is more useful and appropriate for oxygen than the general warning statement previously specified at § 201.161(a)(1).

FDA further agrees with these comments that conditioning the § 201.161(a) labeling exemptions on inclusion of a warning statement limiting oxygen to prescription use would be inconsistent with the longstanding use of oxygen without a prescription in certain situations. It would also be inconsistent with new section 576(b)(2)(B) of the FD&C Act which, as discussed in section II.A of this document, provides that, in the case of oxygen provided without a prescription for certain uses specified at section 576(b)(2)(A), the requirements of section 503(b)(4) of the FD&C Act shall be deemed to have been met if the labeling bears a warning that the oxygen can be used for emergency use only and for all of other medical applications a prescription is required.

Therefore, § 201.161(a)(1)(i) of this final rule provides warning statement requirements specific to oxygen, as well as an additional warning statement requirement for oxygen that may be provided for certain uses without a prescription. FDA believes most oxygen containers currently marketed in the United States bear labeling that satisfies these new requirements (Ref. 1).

(Comment 5) Some comments express concerns with FDA's proposal to add medical air to the list of gases at § 201.161(a) without providing a warning statement specific to medical air. These comments point out that widely used medical air labeling indicates that medical air may be used without a prescription by properly trained personnel for breathing support, while for all other uses a prescription is required. These comments note that such labeling would be inconsistent with the warning statement previously specified at § 201.161(a)(1), which provided that the gas may only be used by or under the supervision of a licensed practitioner.

(Response 5) FDA acknowledges the comments that certain non-prescription uses of medical air are medically appropriate, and, accordingly, that the `prescription only' warning statement at § 201.161(a)(1)(i) as finalized by this rule is not appropriate for medical air. FDA is not finalizing the proposal to add medical air to the list of gases at § 201.161, and the question of what constitutes an appropriate warning statement for medical air remains under consideration by FDA.

(Comment 6) Many comments note that the proposed rule does not address labeling for medical gas mixtures, but rather leaves in place § 201.161(b)'s exclusion of gas mixtures from the scope of the § 201.161(a) conditional labeling exemptions. These comments recommend for the short term that § 201.161(b) remain as currently published but that FDA nonetheless permit these medical gas mixtures to be labeled consistent with industry practice, which utilizes the warning statement previously specified at § 201.161(a)(1).

(Response 6) FDA notes that, as discussed in section II.A of this document, following publication of the proposed rule new section 576(a)(3)(A)(i) was added to the FD&C Act by FDASIA. This new section provides that designated medical gases for which a certification is granted are deemed alone or in combination, as medically appropriate, with one or more other designated medical gases for which certifications have been granted to have in effect an approved application.

Accordingly, FDA is further revising § 201.161(a)(1) in response to these comments. Specifically, FDA has determined that medically appropriate mixtures of the gases listed at § 201.161(a) should be eligible for the conditional labeling exemptions provided by § 201.161(a). Accordingly, in this final rule FDA is removing the § 201.161(b) exclusion and is specifying that the general warning statement requirements applicable to the gases listed at § 201.161(a) (other than oxygen) are also applicable to medically appropriate mixtures of the listed gases (see § 201.161(a)(1)(ii) of this final rule).

(Comment 7) A comment requests that medical xenon be added to the list of exempted gases in § 201.161(a) as it is used clinically as a general anesthetic and as a diagnostic and test agent.

(Response 7) FDA disagrees that medical xenon should be added to the list of gases for which the § 201.161(a) conditional labeling exemptions are available. Xenon is not a designated medical gas and is not otherwise approved for use as a general anesthetic. Certain xenon gas radioisotopes have been approved as diagnostic agents, but these products have approved prescription drug labeling. Accordingly, it would be inappropriate to add xenon gas to the list of gases at § 201.161(a).

(Comment 8) Many comments contend that the content in proposed § 211.94(e)(4) is misplaced by being located in part 211 (21 CFR part 211, CGMP requirements) rather than part 201 (21 CFR part 201, labeling requirements). These comments recommend that any proposed labeling requirements be included in part 201.

(Response 8) FDA largely agrees with these comments and is reorganizing this content in the final rule. Specifically, the labeling content requirements in proposed § 211.94(e)(4) are being finalized under new § 201.328, while requirements that medical gas labels and coloring materials be resistant to wear and, in the case of labels, not susceptible to inadvertent removal, have been retained in § 211.94(e).

In § 211.94(e)(4) of the proposed rule (renumbered as § 201.328(a)(1) in this final rule), FDA proposed to require portable cryogenic containers to bear 360° wraparound labeling that meets naming, lettering, and placement specifications.

(Comment 9) Many comments expressed concern about the proposed requirement that the word “Medical” precede the name of the gas on the wraparound label. These comments state that there is a risk that users would focus on the “Medical” designation and ignore the more significant information, i.e., the identity of the gas itself (e.g., oxygen versus nitrogen). Therefore, these comments recommend removing this requirement from the final rule. Some of these comments also state that this naming requirement would be inconsistent with the “established name” of the gas, e.g., Oxygen USP or Nitrogen NF (see definition of “established name” at section 502(e)(3) of the FD&C Act). As an alternative, one comment proposes that the rule refer to the product name and provide that either the word “Medical” may precede, or “USP” or “NF” may follow, the product name.

(Response 9) FDA proposed adding the word “Medical” to the wraparound label to distinguish containers labeled with medical gases from containers holding industrial gases. This proposed requirement was intended to make the contents of the containers more readily and accurately identified by persons responsible for handling and connecting them to medical gas supply systems in hospitals or other health care facilities and thereby reduce the likelihood of medical gas mix-ups. However, FDA agrees with the comments that inclusion of the word “Medical” in the name of the gas would be inconsistent with the established names of medical gases.

Accordingly, as set forth in § 201.328(a)(2), FDA will instead require that the portable cryogenic containers bear a label (either the wraparound label or a separate label) near the top of the container but below the top seam weld that includes the phrase “For Medical Use,” “Medical Gas,” or some similar phrase that indicates the gas is for medical use in conspicuous lettering.

FDA has also reconsidered the proposed requirement that gases be identified on the wraparound label by their “standard names.” Section 502(e) of the FD&C Act provides that a drug product is misbranded unless its label bears the established name of the drug, if there is such a name. All of the gases listed at § 201.328(c) have established names. Thus, the proposed requirement regarding “standard names” is not necessary, and we are removing this concept from the final rule.

(Comment 10) A few of the parties providing comments state that while they agree with the proposed requirement at § 211.94(e)(4)(i)(E) that the label be placed “as close to the top of the container as possible but below the top weld seam”, they object to the following phrase: “. . . so that it cannot be easily detached or worn” (§ 211.94(e)(4)(i)(F)). These comments express concern that if the label is worn or detached by the user, for whatever reason, the manufacturer may be considered to be not in compliance with the proposed rule requirements, when in fact the firm may have properly placed the label.

(Response 10) FDA agrees that this proposed requirement should be revised. The key issue is that the wraparound label be affixed such that it is not susceptible to wear or to being inadvertently removed during normal use, and FDA is revising this requirement accordingly (see § 211.94(e)(2) of this final rule).

(Comment 11) Many comments note that the minimum lettering height requirement for the name of the gas on the wraparound label in the proposed rule (23/4 inches) is inconsistent with the industry practice (minimum letter height of 2 inches). According to these comments, requiring 23/4 inch letters will reduce the number of times the name can be fully printed on the label, and will come at a considerable expense to those suppliers that currently comply with the 2-inch industry practice.

(Response 11) FDA is revising the minimum letter height requirement in consideration of these comments. The final rule states that the lettering height for the name of the gas on the label must be at least 2 inches high (see § 201.328(a)(1)(ii) of this final rule).

(Comment 12) Many comments support color-coding high-pressure cylinders, but are concerned that FDA may be placing undue emphasis on this means of identification. These comments contend that health care personnel should primarily rely on the label to identify the gas or gases in a container, and argue that reliance on color is problematic because of the variability of lighting conditions, color fading, and potential personnel colorblindness. Other comments state that reliance on color coding would appear to contradict training programs that industry and FDA have implemented to prevent mix-ups, as the consistent and fundamental themes of these training programs has been to emphasize that the label should be the primary indicator of a container's contents.

(Response 12) FDA agrees that the wording on the label should be used as the primary means of identifying a drug product. Requiring color coding of high-pressure cylinders, which we understand is already industry practice (Ref. 2), simply provides an additional safeguard to facilitate accurate identification of the drug product and detection of potential errors. Additionally, § 211.25 addresses the need to train qualified personnel in the manufacture, processing, packing, or holding of a drug product. Proper training should help mitigate against the possibility that users might improperly rely solely on the cylinder's color to identify its contents.

(Comment 13) Many comments recommend removing the requirement of “colored in whole” for non-aluminum high-pressure cylinders. These comments state that the current industry practice is to paint the shoulder to match the designated color for that medical gas. This is based on manufacturer recommendations that some non-aluminum high-pressure cylinders should not be painted in whole due to concerns about concealing defects.

(Response 13) FDA agrees with these comments. Thus, the final rule requires only that high-pressure medical gas cylinders be colored on the shoulder portion of the cylinder (see § 201.328(b)), which is consistent with what FDA understands to be industry practice (Ref. 2).

(Comment 14) Many comments dispute FDA's assumption that a large majority of high-pressure medical gas cylinders are already in compliance with the proposed coloring requirements. These comments note that portions of the shoulders of many cylinders are painted white to make retest information more visible, and that the upper neck portion of many cylinders are not painted a color based on the contents of the cylinder.

(Response 14) The cylinder coloring requirement in the final rule (see § 201.328(b)) would not require recoloring of cylinders colored in the manner described in the comments. As long as the cylinder shoulder is colored in the FDA-designated color or colors, the upper neck portion of the cylinder need not be that same color and use of white to make retesting information on a portion of the shoulder of the cylinder more visible is acceptable.

(Comment 15) Many comments recommend removal of the requirement that high-pressure medical gas cylinders containing mixtures of gases be painted in rough proportion to the fractions of gases contained in the mixture. These comments express concern that this method may cause the end user to ignore the label and rely on color proportions to identify the contents of a mixture. Additionally, these comments recommend that the following language be incorporated in the regulation: “when color marking consists of 2 or more colors, the pattern shall permit a portion of the colors to be seen together when viewed from the top,” which is consistent with industry practice.

(Response 15) FDA agrees with these comments. Therefore, FDA is revising the rule to require that the color for every constituent gas be visible when the cylinder is viewed from the top, and to remove the proportionality requirement.

(Comment 16) Many comments recommend removing the proposed requirement (at § 211.94(e)(4)(i)(G) in the proposed rule) that if the shoulder portion of a portable cryogenic medical gas container is colored, the color used must be the FDA-designated color of the gas held in the container. These comments point out that painting cryogenic containers with dark colors causes increased heat absorption, accelerating the rate of product venting, which could lead to unsafe conditions. These comments also note that large cryogenic containers made from carbon steel are painted in whole (including on the shoulder) in a light-reflective color, which would not necessarily correspond to the FDA-designated color or colors of the gas or gases held in the container.

(Response 16) FDA agrees with these concerns and is revising the proposed coloring requirement for portable cryogenic medical gas containers. As set forth in § 201.328(a)(1)(v) of the final rule, a portable cryogenic medical gas container may only be colored, in whole or in part, in the color or colors designated at § 201.328(c) if the gas or gases held in the container correspond to that color or those colors. The container may still be colored in a light-reflective color such as white (or some other color that is not an FDA-designated gas color), or simply not colored at all.

Finally, FDA is revising color requirements for the wraparound label such that they only apply to portable cryogenic medical gas containers that hold a single gas (see § 201.328(a)(1)(i) of this final rule). FDA believes that multiple colors on a single wraparound label—either in the lettering or in the background—may be impractical. Firms may still choose to follow the color scheme at § 201.328(a)(1)(i) for portable cryogenic medical gas containers that hold gas mixtures or blends, but will not be required to do so.

In § 211.94(e)(1) of the proposed rule, FDA proposed prohibiting cryogenic containers and high-pressure cylinders used to hold industrial gases from being converted to medical use, subject to limited exceptions.

(Comment 17) Many comments oppose any requirements to dedicate high-pressure cylinders and cryogenic containers to solely one use—industrial or medical. These comments contend that the root cause of the contamination incidents involving high-pressure cylinders discussed in the preamble to the proposed rule was the improper cleaning of cylinders, regardless of whether the cylinders previously held gases intended for medical or industrial use. These comments argue that the costs that would be associated with implementing this rule are not justified considering that the preamble to the proposed rule identified only two contamination incidents leading to injuries. According to these comments, these costs would include procuring additional containers (and associated assets), tracking individual containers over their useful life, marking containers for industrial or medical use, and increased distribution expenses. These comments further argue that FDA significantly underestimated the costs associated with this requirement in the economic analysis provided in the preamble to the proposed rule.

Many comments state that the proposed prohibition on conversion of medical gas containers from industrial to medical use is unwarranted because existing CGMP requirements, particularly § 211.94(c) (requiring cleaning of containers and closures to assure they are suitable for their intended use) and § 211.100(a) (requiring written procedures for process and production control designed to assure drug products have the identity, strength, quality, and purity they purport or are represented to possess), are adequate to prevent contamination associated with such conversion. These comments further argue that the proposed rule is inconsistent with FDA's past advice that medical gas assets can be converted from industrial to medical use and need not be dedicated to industrial use provided the items in question undergo validated cleaning procedures when converted to medical use.

(Response 17) FDA has reevaluated this proposed requirement in light of these concerns. FDA has determined that the risk of contamination associated with converting gas containers from industrial to medical use is relatively low, and can be fully addressed if the manufacturer, in compliance with §§ 211.84(a), 211.94(c), 211.100, and other applicable CGMP regulations, employs adequate, validated cleaning and production control strategies when performing such conversion. FDA also agrees with the comments that the proposed requirement to dedicate containers to either industrial or medical use would be quite expensive to implement, and, in light of our assessment that existing regulations are adequate to address this concern, not cost-justified. Accordingly, we are removing this requirement from the final rule.

(Comment 18) One comment states that the incidents dated March 20, 1998, and March 27, 1996, attributed in the proposed rule to contamination likely associated with conversion of high-pressure cylinders from industrial to medical use, could have been ignition events involving polytetraethylene seals or sealing tape. The comment suggests that a more detailed description of these events should be provided in order to make clear that the odors and compounds detected were from improper cleaning and not from ignition events.

(Response 18) As stated, FDA has reevaluated the necessity of the proposed non-conversion requirement and is removing it from the final rule.

In § 211.94(e)(3) of the proposed rule, FDA proposed to require that portable cryogenic medical gas containers not manufactured with permanent gas use outlet connections have gas-specific use outlet connections that cannot be readily removed or replaced except by the manufacturer. FDA is finalizing this provision (renumbered as § 211.94(e)(1)) with certain minor modifications explained in this document.

(Comment 19) Many comments support this requirement, as it would have a positive impact on patient safety by making medical gas mix-ups less likely. In fact, these comments recommend that the rule be extended to other outlets typically found on portable cryogenic medical gas containers, namely, the vent outlet and liquid fill/withdrawal outlet.

(Response 19) FDA is not aware of mix-up incidents involving the vent outlet valves or with liquid fill/withdrawal outlets, and such hypothetical mix-ups do not seem likely, given that the gas use outlet connection should be the only connection used to connect a portable cryogenic container to a health care facility's gas supply system. Accordingly, FDA believes that it is not necessary to extend the secure gas-specific use outlet connection requirement to vent outlets or liquid fill/withdrawal outlets.

(Comment 20) Some comments propose that the Agency slightly modify the exemption for “small cryogenic gas containers for use by individual patients” from the proposed definition of “portable cryogenic medical gas containers.” These comments note that some liquid oxygen home units designed for use by individual patients are, in fact, also used in certain situations to fill other containers for use by patients. These comments are concerned that if the exemption is not clarified, these liquid oxygen home units may be subject to the secure gas use outlet connection rule if they are used to fill other containers. Accordingly, these comments propose that the exemption be revised to include “small cryogenic gas containers designed for use by individual patients at their residence, including health care facilities” (emphasis added).

(Comment 21) Many comments propose that FDA clarify in the rule that the requirement for secure gas-specific use outlet connections is inapplicable to cryogenic containers that are too large (e.g., tank trucks, trailers, rail cars) to be connected to a medical gas supply system.

(Response to Comments 20 and 21) FDA agrees that the definition of “portable cryogenic medical gas container” as used in the rule should be clarified. As such, we are clarifying in the final rule that cryogenic gas containers not designed to be connected to a medical gas supply system, including tank trucks, trailers, rail cars, and liquid oxygen home units, are exempt from the secure gas-specific use outlet connection requirement.

(Comment 22) A comment recommends that base units used to fill portable containers for use by patients in hospitals and other health care facilities, and large cryogenic containers that may be placed on trailers along with vaporizers and that are used as emergency backup when repairs are performed on the health care facility's permanent storage system, also be excluded from the rule. The comment states that because these base units and containers remain within the control of the medical gas manufacturer, and not the consumer, the risk of an improper connection is substantially reduced.

(Response 22) FDA does not agree that base units used to fill portable containers for use by patients in hospitals and other health care facilities and large cryogenic containers that may be placed on trailers along with vaporizers and that are used as emergency backup when repairs are performed on the health care facility's permanent storage system should be excluded from the rule. We believe that requiring such containers (which are designed to be connected to a medical gas supply system) to have secure gas-specific use outlet connections will help minimize the likelihood that an incorrect gas is connected to a gas distribution system or container.

(Comment 23) Many comments express concern with the discussion of records maintenance in the proposed rule. The PRIA indicated that there could be a slight increase in the medical gas industry's container closure records maintenance activities under § 211.184 if the industry chooses to use locking valves or devices to bring portable cryogenic containers into compliance with the secure gas-specific use outlet connection requirement. The proposed rule stated that under existing § 211.184(b), records of the results of any test or examination of a container closure under § 211.82(a) must be maintained, and that under existing § 211.184(c), an individual inventory record must be maintained for each container closure. FDA estimated that about 10 percent of the existing inventory of portable cryogenic containers would need to be modified to comply with the secure gas-specific use outlet connection requirement, that the industry would choose to comply through use of locking valves or devices (rather than silver brazing, which is more expensive), and that the records maintenance activities associated with this work would amount to about 2 minutes per locking device per year, resulting in an annualized records maintenance cost of about $54,000 dollars per year. The estimate of 2 minutes per locking device per year includes time associated with the initial inspection of the locking valve or device by the manufacturer (71 FR 18039 at 18048-18049).

The comments express concern that the proposed rule's reference to § 211.184(c) in particular entails a change of policy from FDA's historic application of records maintenance regulations to the medical gas industry and amounts to a new records maintenance expectation for medical gas containers and closures that would cost the industry between $376 and $665 million dollars to meet. The comments appear to reach this much higher number by assuming that it would be necessary to serialize valves and/or permanently mark all valves and connections on portable cryogenic containers to meet what they contend are FDA's new records maintenance expectations.

(Response 23) FDA does not believe that serializing or permanently marking all valves and connections on portable cryogenic containers is necessary to satisfy the requirements of § 211.184. FDA did not intend to announce new or heightened records maintenance expectations for medical gas container closures in the proposed rule. While FDA believes that the records maintenance activities used to arrive at the estimate in the PRIA section for the records maintenance costs associated with the secure gas-specific use outlet connection requirement are appropriate, medical gas manufacturers may employ alternative records maintenance procedures to document any work performed to bring container closures into compliance with the secure gas-specific use outlet connection requirement.

As discussed in the Final Regulatory Impact Analysis (see Section VI), the estimated records maintenance costs associated with the secure gas use outlet connections requirements have been revised to range between $70 and $3,500. This reduction in estimated costs is largely driven by updated information showing that the number of portable cryogenic containers in the market is much lower than was thought at the time the proposed rule was issued.

(Comment 24) A comment requests that the final rule include a requirement that all personnel handling medical gases have documented competency training. This comment states that medical gases are USP listed and should be delivered by qualified personnel, such as respiratory therapists (who, according to this comment, are the only health care professionals specifically educated and competency-tested in all aspects of oxygen therapy).

(Response 24) In § 211.25 individuals engaged in the manufacture, processing, packing, or holding of a drug product (which would include a medical gas manufacturer's delivery personnel) are required to have the education, training, and experience necessary to perform assigned functions. Further, we are not aware that actual administration of medical gases to patients is part of the function of medical gas delivery personnel, so it is not clear why such personnel would need to be trained to administer gases to patients. We believe the existing regulation (§ 211.25) is sufficient to address any issues that may arise regarding the qualifications of a medical gas manufacturer's delivery personnel.

This rule is effective January 17, 2017. Affected firms and persons are encouraged to comply as soon as possible after the effective date. We recognize, however, that while most of the requirements of this final rule are already industry practices (Refs. 1-3), such practices are not ubiquitous. Accordingly, the compliance date is May 17, 2017. We believe it would be reasonable for affected firms and persons to fully implement this final rule in that amount of time.

(Comment 25) FDA received several comments that the 60-day time period proposed for implementation of the proposed rule is insufficient. These comments state that the proposal will impact every portable cryogenic container and request that FDA provide a reasonable transition period consistent with FDA precedents.

(Response 25) FDA agrees, and is establishing a compliance date that is 180 days after publication of the final rule in the Federal Register, as noted previously. The Agency believes that it would be reasonable for affected firms and persons to fully implement the final rule in this amount of time. Furthermore, to avoid any contradiction with this compliance date, and for purposes of clarity, FDA is removing paragraph (c) of § 201.161, which states that regulatory action may be initiated with respect to any article shipped within the jurisdiction of the FD&C Act contrary to the provisions of this section after 60 days following publication of this section in the Federal Register.

We have examined the impacts of the final rule under Executive Order 12866, Executive Order 13563, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Orders 12866 and 13563 direct us to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). We believe that this final rule is not a significant regulatory action as defined by Executive Order 12866.

The Regulatory Flexibility Act requires us to analyze regulatory options that would minimize any significant impact of a rule on small entities. Because the final rule imposes new burdens on small entities, we cannot certify that the final rule will not have a significant economic impact on a substantial number of small entities.

The Unfunded Mandates Reform Act of 1995 (section 202(a)) requires us to prepare a written statement, which includes an assessment of anticipated costs and benefits, before issuing “any rule that includes any Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any 1 year.” The current threshold after adjustment for inflation is $146 million, using the most current (2015) Implicit Price Deflator for the Gross Domestic Product. FDA does not expect this final rule to result in an expenditure in any year that meets or exceeds this amount.

This final rule amends the CGMP and labeling regulations for medical gases. These amendments include the following: (1) Portable cryogenic medical gas containers not manufactured with permanent gas use outlet connections must have gas-specific use outlet connections that cannot be readily removed or replaced except by the manufacturer; (2) portable cryogenic medical gas containers must have a 360° wraparound label that clearly identifies the container's contents and conforms to certain placement, lettering, and other requirements; (3) high-pressure medical gas cylinders (and portable cryogenic medical gas containers, if colored) must be colored using an FDA-designated standard color (or colors in the case of gas mixtures); (4) the list of medical gases that are conditionally exempt from certain otherwise-applicable labeling requirements has been revised; and (5) the warning statements required to be on final use containers to qualify for the conditional exemption from certain otherwise-applicable labeling requirements have been modified for oxygen and medical air.

The rule is expected to provide a modest net social benefit (estimated benefits minus estimated costs) to society. Costs are attributed to coloring medical gas containers, complying with the 360° wraparound label requirement for portable cryogenic containers, and requiring gas-specific use outlet connections on portable cryogenic containers to be permanently attached to the valve body (e.g., by silver brazing) or attached to the valve body using a locking mechanism or other appropriate device so that only the manufacturer can readily remove or replace them. Using a standard 10 year time period, we estimate annualized costs to range between $0.18 million to $1.5 million using a 3 percent discount rate and $0.21 million to $1.8 million using a 7 percent discount rate. Benefits are attributed to reducing the probability that medical personnel accidentally administer the wrong gas to patients, resulting in serious injury or death. We estimate annualized benefits to approximately range between $0.8 million to $2.8 million using a 3 percent discount rate, and $2.5 million to $8.3 million using a 7 percent discount rate. Together we estimate annualized net benefits to range between $0.62 million to $1.3 million using a 3 percent discount rate, and $2.3 million to $6.5 million using a 7 percent discount rate.

FDA also examined the economic implications of the rule as required by the Regulatory Flexibility Act. If a rule will have a significant economic impact on a substantial number of small entities, the Regulatory Flexibility Act requires us to analyze regulatory options that would lessen the economic effect of the rule on small entities. The rule imposes new costs to small entities. We estimate the rule's one-time costs to roughly range between 0.0001 percent and 0.13 percent of average annual revenues.

The full analysis of economic impacts is available in the docket for this final rule (Ref. 4) and at http://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/EconomicAnalyses/default.htm.

We have determined under 21 CFR 25.30(j) and (k) 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.

This final rule contains information collection requirements that are subject to review by the OMB under the Paperwork Reduction Act of 1995 (the PRA) (44 U.S.C. 3501-3520). The title, description, and respondent description of the information collection provisions are shown in this section with an estimate of the third-party disclosure and recordkeeping burdens. Included in the estimate is the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing each collection of information.

Title: Medical Gas Containers and Closures; Current Good Manufacturing Practice Requirements.

Description: The final rule revises FDA's labeling and CGMP regulations to include new requirements for the label, color, and design of medical gas containers and closures. These requirements are intended to make the contents of medical gas containers more readily identifiable and to reduce the likelihood that the wrong gas will be connected to a medical gas supply system.

Description of Respondents: Persons and businesses, including small businesses and manufacturers, involved in the processing, manufacturing, transportation, handling, and administration of designated medical gases. FDA's database of establishments that manufacture medical gases includes about 2,500 such establishments.

We estimate the burden for the collection of information as follows:

Third-party disclosure: Table 1 shows the estimated one-time third-party disclosure burden. Upon implementation of the requirements under the final rule, we expect respondents will have realized the associated burden. In our subsequent PRA evaluation conducted in connection with requesting a renewal of OMB's approval of the information collection associated with this rule (assuming that initial approval occurs), we will adjust our estimate accordingly.

A gas listed at § 201.161(a) is exempt from certain labeling requirements if its labeling bears, among other things, a warning statement that conforms to § 201.161(a)(1). Section 201.161(a)(1)(i) specifies the content to be included in a warning statement for oxygen and § 201.161(a)(1)(ii) specifies the content to be included in a warning statement for nitrogen, carbon dioxide, helium, nitrous oxide, and any medically appropriate combinations of any of the gases listed in § 201.161(a). FDA believes most medical gases are already labeled in a manner that complies with § 201.161(a) as finalized. Furthermore, because § 201.161(a) provides the warning statement content to be included in medical gas labeling, the inclusion of these warning statements on medical gas labeling is not considered a “collection of information” subject to review under the PRA. See 5 CFR 1320.3(c)(2) (providing that “the public disclosure of information originally supplied by the Federal government to the recipient for the purpose of disclosure to the public is not included” within the definition of “collection of information”).

Under § 201.328(a)(1), each portable cryogenic medical gas container must be conspicuously marked with a 360° wraparound label identifying its contents. The identity of the medical gas held in the container must be printed on the label in one of the following ways: Using lettering that appears in the standard color designated for the gas in § 201.328(c) and that is printed against a white background, or using lettering that appears in white against a background that is painted in the standard color for the gas as designated in § 201.328(c). The lettering for the name of the gas on the label must be at least 2 inches high; the name of the gas must be printed continuously around the label and be capable of being read around the entire container; the label must be on the sidewall of the container, as close to the top of the container as possible but below the top weld seam; and, if the shoulder portion of a portable cryogenic gas container is colored, the color used must be the standard color or colors designated in § 201.328(c) for the gas or gases held within the container.

Under § 201.328(a)(2), the 360° wraparound label required in § 201.328(a)(1), or a separate label, must include in conspicuous lettering the phrase “For Medical Use,” “Medical Gas,” or some similar phrase that indicates the gas is for medical use. Finally, under § 211.94(e)(2), the wraparound label must be affixed to the container in a manner that does not interfere with other labeling and such that it is not susceptible to becoming worn or inadvertently detached during normal use, and the wraparound label must be reasonably resistant to fading, durable when exposed to atmospheric conditions, and not readily soluble in water.

We estimate that there are approximately 35,000 portable cryogenic containers in medical gas service that are subject to the labeling requirements at § 201.328(a). As discussed in the Economic Analysis of Impacts, FDA conservatively estimates that all manufacturers will choose to comply with § 201.328(a) by removing any existing wraparound labels from all portable cryogenic containers and replacing them with wraparound labels that meet all of the requirements at § 201.328(a). Thus, on average, each manufacturer would need to add labels to (or re-label) approximately 14 containers (35,000 ÷ 2,500). FDA estimates that approximately 6 minutes would be required to remove any existing wraparound label and attach a new wraparound label to each container. Thus, the total burden third-party disclosure burden hours associated with § 201.328(a)(1) and (2) is approximately 3,500 hours (2,500 × 14 × 0.10 hours).

Section 201.328(a)(1)(v) also provides that a portable cryogenic cylinder may only be colored in the color or colors designated in § 201.328(c) if the gas or gases held within the container correspond to that color or those colors. Alternatively, the container may be colored in a light-reflective color such as white (or some other color which is not an FDA-designated gas color), or simply not colored at all. Based on discussions with subject matter experts, we believe that few to no cryogenic containers will require recoloring as a result of this requirement, and therefore we estimate no third-party disclosure burden associated with this requirement.

Under § 201.328(b), high-pressure medical gas cylinders must be colored on the shoulder with the colors designated in § 201.328(c) for the gas contained in the cylinder, and such colors must be visible when viewed from the top of the cylinder. Under § 211.94(e)(2), the materials used for coloring medical gas containers must be reasonably resistant to fading, durable when exposed to atmospheric conditions, and not readily soluble in water. Based on information contained in the Economic Analysis of Impacts (see Section VI), we estimate that as many as 10 percent of the estimated 24.6 million high-pressure cylinders in medical service will require coloring or recoloring to comply with § 201.328(b). Thus, on average, each manufacturer would need to color 984 containers (2.46 million ÷ 2,500). We conservatively estimate that it will take an average of 6 minutes to color a cylinder. Thus, the total third-party disclosure burden hours associated with § 201.328(b) is approximately 246,000 hours (2,500 × 984 × 0.10 hours).

Recordkeeping: Table 2 shows the estimated annual recordkeeping burden associated with the information collection.

Section 211.94(e)(1) requires that portable cryogenic medical gas containers that are not manufactured with permanent gas use outlet connections must have gas-specific use outlet connections that are attached to the valve body so that they cannot be readily removed or replaced except by the manufacturer. A small portion of the existing inventory of portable cryogenic containers would need to be modified to comply with this requirement, and manufacturers must maintain records in accordance with § 211.184 for drug product containers. As discussed in the Economic Analysis of Impacts (see Section VI), FDA conservatively estimates that manufacturers will need to secure the gas use outlets of as many as 1,750 portable cryogenic containers to bring them into compliance with the final rule. As a result each manufacturer would incur annual recordkeeping under § 211.184 incident to bringing, on average, 0.7 containers into compliance with the secure gas use outlet connection requirement (1,750 ÷ 2,500). Consistent with our estimate in the proposed rule, this should require an average of 2 minutes (0.033 hours) per container. This results in an annual burden of 58 hours (2,500 × 0.7 × 0.033 hours) for 1,750 records.

The information collection provisions of this final rule have been submitted to OMB for review, as required by section 3507(d) of the PRA. Before the effective date of this final rule, FDA will publish a notice in the Federal Register announcing OMB's decision to approve, modify, or disapprove the information collection provisions in this final rule. An Agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

We have analyzed this final rule in accordance with the principles set forth in Executive Order 13132. FDA has determined that the rule does not contain policies that have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Accordingly, we conclude that the rule does not contain policies that have federalism implications as defined in the Executive order and, consequently, a federalism summary impact statement is not required.

The following reference is on display in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852, and is available for viewing by interested persons between 9 a.m. and 4 p.m., Monday through Friday; it is also available electronically at http://www.regulations.gov. FDA has verified the Web site address, as of the date this document publishes in the Federal Register, but Web sites are subject to change over time.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, 21 CFR parts 201 and 211 are amended as follows:

I. Background

In FR Doc 2016-26668, that was placed on public inspection at the Office of the Federal Register on November 2, 2016 and scheduled for publication in the Federal Register on November 15, 2016, there were technical errors that are identified and corrected in this correcting document.

In the CY 2017 PFS final rule, we inadvertently omitted or included language in § 410.79(b), (c)(1)(ii) and (iv), (c)(2)(i) and § 424.59(a)(1) and (5), (b)(4)(i), and (e)(2)(i).

Under 5 U.S.C. 553(b) of the Administrative Procedure Act (APA), the agency is required to publish a notice of the proposed rule in the Federal Register and provide a period for public comment before the provisions of a rule take effect. In addition, section 553(d) of the APA mandates a 30-day delay in effective date after issuance or publication of a rule. Sections 553(b)(B) and 553(d)(3) of the APA provide for exceptions from the APA notice and comment, and delay in effective date requirements. Section 553(b)(B) of the APA authorizes an agency to dispense with normal notice and comment rulemaking procedures for good cause if the agency makes a finding that the notice and comment process is impracticable, unnecessary, or contrary to the public interest; and includes a statement of the finding and the reasons for it in the rule. In addition, section 553(d)(3) of the APA allows the agency to avoid the 30-day delay in effective date where such delay is contrary to the public interest and the agency includes in the rule a statement of the finding and the reasons for it.

In our view, this correcting document does not constitute a rulemaking that would be subject to these requirements. This document merely corrects technical errors in the CY 2017 PFS final rule. The corrections contained in this document are consistent with, and do not make substantive changes to, the policies and payment methodologies that were proposed subject to notice and comment procedures in the CY 2017 PFS final rule. As a result, the correction made through this correcting document is intended to resolve inadvertent errors so that the rule accurately reflects the policies in the final rule.

Even if this were a rulemaking to which the notice and comment and delayed effective date requirements applied, we find that there is good cause to waive such requirements. Undertaking further notice and comment procedures to incorporate the corrections in this document into the CY 2017 PFS final rule or delaying the effective date of the corrections would be contrary to the public interest because it is in the public interest to ensure that the rule accurately reflects the public comment period. Further, such procedures would be unnecessary, because we are not making any substantive revisions to the final rule, but rather, we are simply correcting the Federal Register document to reflect the policies in the final rule. For these reasons, we believe there is good cause to waive the requirements for notice and comment and delay in effective date.

In FR Doc. 16-26668 appearing on page 80170 in the Federal Register of Tuesday, November 16, 2016, the following corrections are made:

Federal regulations at 50 CFR 648.82(n)(2)(ii) require the Regional Administrator to close a common pool Trimester Total Allowable Catch (TAC) Area for a stock when 90 percent of the Trimester TAC is projected to be caught. The closure applies to all common pool vessels fishing with gear capable of catching that stock for the remainder of the trimester.

As of November 5, 2016, the common pool fishery has caught approximately 87 percent of the Trimester 2 TAC (4.2 mt) for Georges Bank (GB) cod. We project that 90 percent of the Trimester 2 TAC was caught by November 7.

Effective November 15, 2016, the GB Cod Trimester TAC Area is closed for the remainder of Trimester 2, through December 31, 2016, to all common pool vessels fishing with trawl gear, sink gillnet gear, and longline/hook gear. The GB Cod Trimester TAC Area consists of statistical areas 521, 522, 525, and 561. The area reopens at the beginning of Trimester 3 on January 1, 2017.

The intent of the trimester TAC area closure is to close the area where 90 percent of the catch of the stock has occurred. However, data indicate that common pool vessels have caught approximately 35 percent of the total catch in Trimester 2 from outside the statistical areas that will be affected by the closure described above. Federal regulations at § 648.86(o) authorize the Regional Administrator to adjust the possession and trip limits for common pool vessels to prevent the overharvest or underharvest of the common pool quotas. Therefore, the possession and trip limits for GB cod, are reduced as shown in Table 1, effective November 15, 2016, through December 31, 2016. This is intended to prevent the common pool from exceeding its sub-annual catch limit, but still allow for landing incidental catch of GB cod in areas not affected by the closure.

On January 1, 2017, common pool possession and trip limits for GB cod will return to the initial limits set by Framework Adjustment 55 to the Northeast Multispecies Fishery Management Plan (FMP).

If a vessel declared its trip through the Vessel Monitoring System (VMS) or the interactive voice response system, and crossed the VMS demarcation line prior to November 15, 2016, it may complete its trip within the Trimester TAC Area. Additionally, such vessels are not subject to the new possession and trip limits for that trip. A vessel that has set gillnet gear prior to November 15, 2016, may complete its trip by hauling such gear.

Any overage of the Trimester 1 or 2 TACs must be deducted from the Trimester 3 TAC. Any uncaught portion of the Trimester 1 and Trimester 2 TACs is carried over into the next trimester. If the common pool fishery exceeds its sub-ACL for the 2016 fishing year, the overage must be deducted from the common pool's sub-ACL for fishing year 2017. However, any uncaught portion of the common pool's sub-ACL may not be carried over into the following fishing year.

Weekly quota monitoring reports for the common pool fishery are on our Web site at: http://www.greateratlantic.fisheries.noaa.gov/ro/fso/MultiMonReports.htm. We will continue to monitor common pool catch through vessel trip reports, dealer-reported landings, VMS catch reports, and other available information, and, if necessary, we will make additional adjustments to common pool management measures.

This action is required by 50 CFR part 648 and is exempt from review under Executive Order 12866.

The Assistant Administrator for Fisheries, NOAA, finds good cause pursuant to 5 U.S.C. 553(b)(B) and 5 U.S.C. 553(d)(3) to waive prior notice and the opportunity for public comment and the 30-day delayed effectiveness period because it would be impracticable and contrary to the public interest.

Regulations require the Regional Administrator to close a trimester TAC area to the common pool fishery when 90 percent of the Trimester TAC for a stock has been caught. Updated catch information only recently became available indicating that the common pool fishery caught 90 percent of its Trimester 2 TAC for GB cod by November 7, 2016. The time necessary to provide for prior notice and comment, and a 30-day delay in effectiveness, prevents the immediate closure of the GB Cod Trimester 2 TAC Area and reduction of the common pool's GB cod possession and trip limits. Delaying the effective date of a closure and possession and trip limit reduction increases the likelihood that the common pool fishery will exceed its quota of GB cod to the detriment of this stock, which could undermine management objectives of the Northeast Multispecies FMP.

Additionally, an overage of the common pool quota could cause negative economic impacts to the common pool fishery as a result of overage paybacks in a future trimester or fishing year.

The reader can find regulations governing the herring fishery at 50 CFR part 648. The regulations require annual specification of the overfishing limit, acceptable biological catch, annual catch limit (ACL), optimum yield, domestic harvest and processing, U.S. at-sea processing, border transfer, and sub-ACLs for each management area. The 2016 Domestic Annual Harvest is 103,045 metric tons (mt); the 2016 sub-ACL allocated to Area 1B is 4,600 mt, and 138 mt of the Area 1B sub-ACL is set aside for research (78 FR 61828, October 4, 2013). The 2016 Area 1B sub-ACL was decreased to 2,941 mt to account for the 1,521 mt overage in 2014 catch. For management Area 1B, the catch of sub-ACL is currently allocated to the seasonal period from May 1 through December 31. There is no catch currently allocated to the seasonal period from January 1 through April 30. Therefore, under current regulations, vessels are prohibited from fishing for herring in or from Area 1B during the January 1 through April 30 period.

The regulations at § 648.201 require that when the NMFS Administrator of the Greater Atlantic Region (Regional Administrator) projects herring catch will reach 92 percent of the sub-ACL allocated in any of the four management areas designated in the Atlantic Herring Fishery Management Plan (FMP), NMFS will prohibit herring vessel permit holders from fishing for, catching, possessing, transferring, or landing more than 2,000 lb (907.2 kg) of herring per trip and landing more than once per calendar day in or from the specified management area for the remainder of the directed fishery closure period. The Regional Administrator monitors the herring fishery catch in each of the management areas based on dealer reports, state data, and other available information. NMFS publishes notification in the Federal Register of the date that the catch is projected to reach 92 percent of the management area sub-ACL, and of the closure of the directed fishery and a 2,000-lb (907.2-kg) trip possession limit in the management area for the remainder of the seasonal closure period. Vessels that have entered port before the closure date may offload and sell more than 2,000 lb (907.2 kg) of herring from Area 1B, from that trip. During the directed fishery closure, vessels may transit Area 1B with more than 2,000 lb (907.2 kg) of herring on board only under the conditions specified below.

The Regional Administrator has determined, based on dealer reports and other available information, that the herring fleet will catch 92 percent of the total herring sub-ACL allocated to Area 1B for the 2016 seasonal period from May 1 through December 31, 2016, by November 18, 2016. Therefore, effective 0001 hr local time, November 18, 2016, federally permitted vessels may not fish for, catch, possess, transfer, or land more than 2,000 lb (907.2 kg) of herring per trip and land more than once per calendar day, in or from Area 1B through December 31, 2016, except that vessels that have entered port before 0001 hr on November 18, 2016, may offload and sell more than 2,000 lb (907.2 kg) of herring from Area 1B from that trip after the closure. During the directed fishery closure, November 18, 2016, through December 31, 2016, a vessel may transit through Area 1B with more than 2,000 lb (907.2 kg) of herring on board, provided the vessel did not catch more than 2,000 lb (907.2 kg) of herring in Area 1B and its fishing gear is not available for immediate use as defined by § 648.2. Effective 0001 hr, November 18, 2016, federally permitted dealers may not receive herring from federally permitted herring vessels that harvest more than 2,000 lb (907.2 kg) of herring from Area 1B through 2400 hr local time, December 31, 2016, unless it is from a trip landed by a vessel that entered port before 0001 hr on November 18, 2016. Under current regulations during the seasonal period from January 1, 2017, through April 30, 2017, vessels are prohibited from fishing for, catching, possessing, transferring, or landing herring from Area 1B during this seasonal period. Vessels may transit area 1B with herring on board provided such herring were caught in an area or areas with sub-ACL available and that all fishing gear is stowed and not available for immediate use as defined in § 648.2, and the vessel is issued a permit that authorizes the amount of herring on board for the area where the herring was harvested. Beginning on May 1, 2017, the 2017 allocation for Area 1B is expected to become available.

This action is required by 50 CFR part 648 and is exempt from review under Executive Order 12866.

NMFS finds good cause pursuant to 5 U.S.C. 553(b)(B) to waive prior notice and the opportunity for public comment because it would be contrary to the public interest and impracticable. The herring fishery opened for the 2016 fishing year on January 1, 2016, and Management Area 1B opened on May 1, 2016. Data indicating the herring fleet will have landed at least 92 percent of the 2016 sub-ACL allocated to Area 1B have only recently become available. Landings data is updated on a weekly basis, and NMFS monitors catch data on a daily basis as catch increases toward the limit for the area. Further, high-volume catch and landings in this fishery increase total catch relative to the sub-ACL quickly. This action is a required response to that recently available data and closes the directed herring fishery and imposes a 2,000-lb (907.2-kg) possession limit for Management Area 1B through December 31, 2016, under current regulations. The regulations at § 648.201(a) require such action to ensure that herring vessels do not exceed the 2016 sub-ACL allocated to Area 1B. If implementation of this closure is delayed to solicit prior public comment, the sub-ACL for Area 1B for this fishing year may be exceeded, thereby undermining the conservation objectives of the FMP. If sub-ACLs are exceeded, the excess must also be deducted from a future sub-ACL and would reduce future fishing opportunities. Also, the public had prior notice and full opportunity to comment on this process when these provisions were put in place. Based on these considerations, NMFS further finds, pursuant to 5 U.S.C. 553(d)(3), good cause to waive the 30-day delayed effectiveness period for the reasons stated above.