Reporting of Offsets Agreements in Sales of Weapon Systems or Defense-Related Items to Foreign Countries or Foreign Firms, 19466-19471 [E9-9514]
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19466
Federal Register / Vol. 74, No. 81 / Wednesday, April 29, 2009 / Proposed Rules
(2) Airbus Model A340–200 and A340–300
series airplanes, all serial numbers.
Subject
(d) Air Transport Association (ATA) of
America Code 28: Fuel.
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Reason
(e) The mandatory continuing
airworthiness information (MCAI) states:
An A340 operator has reported an
uncommanded engine N°4 shut down during
taxi after landing.
The root cause of this event has been
identified as failure of the fuel pump NonReturn Valve (NRV) preventing the collector
cell jet pump from working. This led to
engine N°4 collector cell fuel level to drop
below the pump inlet and consequently
causing engine N°4 flame out.
A330 aircraft which have a similar design
are also impacted by this issue.
Multiple NRV failures in combination with
failure modes trapping fuel could potentially
increase the quantity of unusable fuel on
aircraft possibly leading to fuel starvation
which could result in engine in-flight shut
down and would constitute an unsafe
condition.
To prevent such an event, this
Airworthiness Directive (AD) requires a
periodic operational test to check the correct
operation of NRV and to apply the associated
corrective actions.
The corrective action includes replacing
any failed NRV with a new NRV.
Actions and Compliance
(f) Unless already done, do the following
actions.
(1) For Model A330 series airplanes: At the
later of the times in paragraphs (f)(1)(i) and
(f)(1)(ii) of this AD, perform an operational
test for correct functioning of the NRV and
apply all applicable corrective actions, in
accordance with instructions defined in
Airbus Mandatory Service Bulletin A330–28–
3108, including Appendix 1, dated October
13, 2008. Do all applicable corrective actions
before further flight.
(i) Within 24 months or 8,000 flight hours
after the effective date of this AD, whichever
occurs first.
(ii) Before the accumulation of 10,000
flight hours after the first flight of the
airplane.
(2) For Model A340–200 and –300 series
airplanes: At the later of the times in
paragraphs (f)(2)(i) and (f)(2)(ii) of this AD,
perform an operational test for correct
functioning of the NRV and apply all
applicable corrective actions in accordance
with instructions defined in Airbus
Mandatory Service Bulletin A340–28–4123,
including Appendix 1, dated October 13,
2008. Do all applicable corrective actions
before further flight.
(i) Within 24 months or 9,000 flight hours
after the effective date of this AD, whichever
occurs first.
(ii) Before the accumulation of 25,000
flight hours after the first flight of the
airplane.
(3) Repeat the operational test specified in
paragraph (f)(1) or (f)(2) of this AD at the
applicable interval in paragraph (f)(3)(i) or
(f)(3)(ii) of this AD.
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(i) For Model A330 airplanes: At intervals
not to exceed 10,000 flight hours.
(ii) For Model A340–200 and –300
airplanes: At intervals not to exceed 25,000
flight hours.
(4) Submit a report of the findings (both
positive and negative) of the inspection
required by paragraph (f)(1) or (f)(2) of this
AD to Airbus, at the time specified in
paragraph (f)(4)(i) or (f)(4)(ii) of this AD, as
applicable. The report must include the
information specified in Appendix 1 of
Airbus Mandatory Service Bulletins A330–
28–3108 and A340–28–4123, both dated
October 13, 2008, as applicable. Send the
report to Airbus Department SEEE6, Airbus
Customer Services Directorate, 1 Rond Point
Maurice Bellonte, 31707 Blagnac Cedex
France, ATTN: SDC32 Technical Data and
Documentation Services; fax: +33 5 61 93 28
06; e-mail: sb.reporting@airbus.com.
(i) If the inspection was done after the
effective date of this AD: Submit the report
within 30 days after the inspection.
(ii) If the inspection was done on or prior
to the effective date of this AD: Submit the
report within 30 days after the effective date
of this AD.
Mandatory Service Bulletins A330–28–3108
and A340–28–4123, both including
Appendix 1, both dated October 13, 2008; for
related information.
Issued in Renton, Washington, on April 15,
2009.
Ali Bahrami,
Manager, Transport Airplane Directorate,
Aircraft Certification Service.
[FR Doc. E9–9713 Filed 4–28–09; 8:45 am]
BILLING CODE 4910–13–P
DEPARTMENT OF COMMERCE
Bureau of Industry and Security
15 CFR Part 701
[Docket No. 080722875–8876–01]
RIN 0694–AE40
FAA AD Differences
Reporting of Offsets Agreements in
Sales of Weapon Systems or DefenseRelated Items to Foreign Countries or
Foreign Firms
Note 1: This AD differs from the MCAI
and/or service information as follows: No
Differences.
AGENCY: Bureau of Industry and
Security, Department of Commerce.
ACTION: Proposed rule.
Other FAA AD Provisions
(g) The following provisions also apply to
this AD:
(1) Alternative Methods of Compliance
(AMOCs): The Manager, International
Branch, ANM–116, FAA, has the authority to
approve AMOCs for this AD, if requested
using the procedures found in 14 CFR 39.19.
Send information to ATTN: Vladimir
Ulyanov, Aerospace Engineer, International
Branch, ANM–116, Transport Airplane
Directorate, FAA, 1601 Lind Avenue SW.,
Renton, Washington 98057–3356; telephone
(425) 227–1138; fax (425) 227–1149. Before
using any approved AMOC on any airplane
to which the AMOC applies, notify your
appropriate principal maintenance inspector
(PMI) or the principal avionics inspector
(PAI), as appropriate, or lacking a principal
inspector, your local Flight Standards District
Office.
(2) Airworthy Product: For any
requirement in this AD to obtain corrective
actions from a manufacturer or other source,
use these actions if they are FAA-approved.
Corrective actions are considered FAAapproved if they are approved by the State
of Design Authority (or their delegated
agent). You are required to assure the product
is airworthy before it is returned to service.
(3) Reporting Requirements: For any
reporting requirement in this AD, under the
provisions of the Paperwork Reduction Act,
the Office of Management and Budget (OMB)
has approved the information collection
requirements and has assigned OMB Control
Number 2120–0056.
Related Information
(h) Refer to MCAI European Aviation
Safety Agency Airworthiness Directive 2008–
0209, dated November 27, 2008; and Airbus
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SUMMARY: The Bureau of Industry and
Security (BIS) is proposing to amend the
Reporting of Offsets Agreements in
Sales of Weapon Systems or DefenseRelated Items to Foreign Countries or
Foreign Firms regulation (15 CFR part
701) to update and provide clarification
with regard to the information U.S.
companies are required to submit each
year to BIS to support the preparation of
the annual report to Congress on offsets
in defense trade.
DATES: Comments must be received by
June 29, 2009.
ADDRESSES: You may submit comments,
identified by RIN 0694–AE40, by any of
the following methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• E-mail: OffsetReport@bis.doc.gov.
Include ‘‘RIN 0694–AE40’’ in the subject
line of the message.
• Fax: 202–482–5650.
• Mail/Hand Delivery: Offset Program
Manager, U.S. Department of
Commerce, Bureau of Industry and
Security, Office of Strategic Industries
and Economic Security, Room 3876,
14th Street and Pennsylvania Avenue,
NW., Washington, DC 20230, ATTN:
RIN 0694–AE40.
FOR FURTHER INFORMATION CONTACT:
Ronald DeMarines, Office of Strategic
Industries and Economic Security, tel.
(202) 482–3755, e-mail
rdemarin@bis.doc.gov.
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Federal Register / Vol. 74, No. 81 / Wednesday, April 29, 2009 / Proposed Rules
SUPPLEMENTARY INFORMATION:
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Background
The Defense Production Act
Amendments of 1992 required the
Secretary of Commerce to promulgate
regulations for U.S. firms to furnish
information regarding sales of defense
articles or defense services to foreign
countries or foreign firms when such
sales are made pursuant to a contract
subject to an offset agreement exceeding
$5,000,000 in value. The Secretary of
Commerce designated BIS as the
organization responsible for
promulgating such regulations. The
Reporting of Offsets Agreements in
Sales of Weapon Systems or DefenseRelated Items to Foreign Countries or
Foreign Firms regulation (15 CFR part
701) (hereinafter, the ‘‘Offset Reporting
Regulation’’) was first published in
1994. The information provided by U.S.
firms pursuant to the Offset Reporting
Regulation is aggregated and used to
determine the impact of offset
transactions on the defense
preparedness, industrial
competitiveness, employment, and trade
of the United States. Summary reports
are submitted annually to the Congress
pursuant to Section 309 of the Defense
Production Act of 1950, as amended.
Reasons for the Changes Proposed by
This Rule
The changes proposed in this rule are
a result of an internal BIS review of the
data that has been collected in the past
pursuant to the Offset Reporting
Regulation. The changes in this
proposed rule clarify the information
BIS is seeking from companies. BIS
anticipates that these changes will lead
to less ambiguity and more consistency
in submissions from industry and thus
will allow BIS to improve the
assessment of the economic effects of
offsets on defense trade.
This proposed rule is also in response
to a recommendation made by the
Government Accountability Office
(GAO) in its June 26, 2008 report
entitled Defense Production Act:
Agencies Lack Policies and Guidance
for Use of Key Authorities (GAO–08–
854). In its report, the GAO stated that
Commerce provides useful summaries
of offsets issues in its annual report to
Congress, but that the type of data
collected from prime contractors limits
the ability of BIS to effectively analyze
the impact of offsets on the U.S.
economy. Consequently, the GAO
recommended that Commerce update its
offset reporting regulation to request
more precise information on the
industry sectors that offset activity was
occurring in from prime contractors, in
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order to improve the assessment of the
economic effects of offsets.
The revisions proposed in this rule
are not anticipated to impose significant
new burdens on parties subject to the
reporting requirements of the Offset
Reporting Regulation.
Specific Changes That Would be Made
by This Proposed Rule
This rule would amend the last
sentence of § 701.1 of the Offset
Reporting Regulation to reflect that
Commerce has already submitted and
will continue to submit reports to
Congress. The current § 701.1 suggests
only that Commerce will be submitting
reports in the future.
In addition, this rule would amend
certain definitions in § 701.2 of the
Offset Reporting Regulation to reflect
BIS’s 15-year experience in preparing
the report to Congress. Specifically, the
illustrative list of activities listed in the
definition of ‘‘offset transaction’’ in
§ 701.2(f) would be updated. Activities
not commonly reported to BIS would be
removed (i.e., countertrade, barter,
counterpurchase, and buy back) and
replaced with activities that are
frequently reported (i.e., credit
assistance, training, and purchase). This
list remains illustrative.
This rule also would amend the
definitions for ‘‘direct offset’’ and
‘‘indirect offset’’ in § 701.2(g) and
§ 701.2(h) of the Offset Reporting
Regulation. The current references to
‘‘defense articles’’ and ‘‘defense goods’’
in the definitions of ‘‘direct offset’’ and
‘‘indirect offset’’ would be deleted to
clarify that U.S. firms are required to
report on all offset transactions for
which offset credit of $250,000 or more
has been claimed from a foreign
representative, even if the offset
transaction itself does not involve a
defense article or service (i.e., items or
services controlled pursuant to the
International Traffic in Arms
Regulations (22 CFR Parts 120–130)
(ITAR)). Companies regularly report
information to Commerce on offset
transactions that do not involve defense
articles or defense services. This change
would clarify the intent of the reporting
requirement and would reflect current
reporting practices. Companies are
required to keep records of each offset
transaction for which offset credit is
claimed, so this information is readily
available to firms that are required to
report under this section. The
definitions would further be clarified
and examples would be provided to
illustrate the differences between direct
and indirect offsets.
This rule would modify § 701.4 of the
Offset Reporting Regulation by
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reordering the section in a logical
fashion, beginning with the reporting
period and date by which reports shall
be submitted to BIS, followed by
updated reporting instructions, and
finally the contents of the required
reports to BIS related to offset
agreements and offset transactions
concluded during the reporting period.
BIS feels that this reordering will make
it easier for those affected by this
regulation to identify all of the
information they need to submit timely
and accurate reports. This section
would also note that BIS publishes an
annual notice in the Federal Register to
remind companies of their
responsibility to report on offset
agreements and transactions and the
deadline.
This rule would update the reporting
instructions described in § 701.4(b) of
the Offset Reporting Regulation
regarding the address to which reported
offsets data should be submitted,
including through the addition of a new
e-mail address. Reports are now
requested to be submitted in both
hardcopy format and electronic format
when possible. This rule would also
delete references to outdated software
and hardware formats described in
§ 701.4(c) of the Offset Reporting
Regulation.
The provisions of the Offset Reporting
Regulation currently describing the
contents of reports on offsets
transactions (§ 701.4(d)) and offsets
agreements entered into (§ 701.4(e))
would also be reordered so that offset
agreement reporting requirements
would be described in § 701.4(c)(1) and
then offset transaction reporting
requirements would be described later
in § 701.4(c)(2). BIS believes it makes
more sense to first describe reporting
requirements for offsets agreements, and
then describe reporting requirements for
offsets transactions taken pursuant to
offsets agreements. In addition,
terminology would be updated and
revised to ensure consistency
throughout Part 701. BIS had used the
term ‘‘weapon system’’ in § 701.4(d) and
§ 701.4(e). The proposed rule would
replace the term ‘‘weapon system’’ with
‘‘military export sale,’’ a defined term in
§ 701.2, which BIS believes is a more
appropriate term in § 701.4 because not
all reported defense sales with offset
agreements are of weapon systems.
Further, additional clarifying changes
would be made to the descriptions of
information required to be reported
under § 701.4 of the Offset Reporting
Regulation.
This proposed rule would eliminate
the requirement, currently found in
§ 701.4(e)(1)(iii) of the Offset Reporting
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Federal Register / Vol. 74, No. 81 / Wednesday, April 29, 2009 / Proposed Rules
Regulation, that companies report the
names and titles of the signatories to
offset agreements. BIS believes that this
information is not necessary for the
preparation of BIS’s annual report to
Congress. Under proposed
§ 701.4(c)(1)(iv), companies would
instead be required to report only the
identity of the foreign government
agency or branch that is a signatory to
the offset agreement.
The proposed rule would also
separate the reporting requirements on
offset agreement performance measures
and non-performance penalties
currently found in § 701.4(e)(1)(vii) of
the Offset Reporting Regulation. The
current section contemplates that nonperformance penalties would be
included in a description of
performance measures. However, BIS
experience has revealed that such
penalties are best treated as a separate
category. Accordingly, Sections
701.4(c)(1)(viii) and 701.4(c)(1)(ix) in
the proposed rule clarify the reporting
requirements concerning offset
agreement performance measures and
non-performance penalties respectively
and include lists of examples for each
based on data collected during the past
15 years.
The proposed rule would require
companies to assign the appropriate
North American Industry Classification
System (NAICS) code(s) to each military
export sale for which there is an offset
agreement triggering a reporting
requirement (see proposed
§ 701.4(c)(1)(iii)), and to each offset
transaction reported under the Offset
Reporting Regulation (see proposed
§ 701.4(c)(2)(iv)). NAICS is the standard
industrial classification system used in
the United States. In the current
regulation, BIS asks industry to classify
offset transactions by broad industry
classification and provide a name and
description of the military export sale.
Firms are directed to the Standard
Industrial Classification (SIC) codes for
assistance in identifying an appropriate
industry category for offset transactions.
The SIC has been replaced by the
NAICS. (See 62 FR 17288, Apr. 4, 1997.)
All companies that conduct business
with the U.S. Government are required
to classify their products and services,
including those regularly involved in
military export sales reported to
Commerce, in accordance with the
NAICS (See Central Contractor
Registration Handbook, https://
www.ccr.gov). The U.S. Census Bureau
posts instructions on its Web site on
how to properly classify products and
services in accordance with the NAICS.
Requiring respondents to classify
military export sales and offset
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transactions by NAICS codes will
ensure that submissions under the
Offset Reporting Regulation are
prepared in a consistent manner. This
change will also allow BIS to gather
more accurate information on military
export sales and offset transactions
because NAICS is more specific and will
enhance BIS’s ability to assess the
economic impact of offsets on the U.S.
industrial base by allowing BIS to better
utilize other data published by
statistical agencies of the U.S.
Government. BIS has included
illustrative examples in § 701(c)(1)(iii)
and § 701(c)(2)(iv) of the proposed rule
on classifying military export sales and
offset transactions by NAICS codes.
This proposed rule also would require
companies to report for each offset
transaction the date when the related
offset agreement was signed
(§ 701.4(c)(2)(ii)). This data will allow
BIS to better track the fulfillment of
offset agreements and identify trends in
offset transaction activity. Companies
involved in defense exports and offset
agreements are required to keep records
of each offset transaction for which
offset credit is claimed so they can
accurately account for their obligations,
so this information is readily available
to firms reporting under this section.
The proposed rule also would revise
examples of offset transaction
categories. Section 701.4(d)(1)(vii) in the
current regulation, entitled ‘‘Description
of Offset Product/Service’’, would be
replaced by § 701.4(c)(2)(iii), entitled
‘‘Offset Transaction Category.’’ The
categories of offset transactions listed as
examples in the new section more
accurately reflect the types of offset
transactions that have been reported to
BIS since 1994. In particular, the
category of ‘‘cash payment’’ will be
removed, and the categories of ‘‘licensed
production’’, ‘‘overseas investment’’,
and ‘‘credit assistance’’ will be added,
as will a suggestion that other categories
could be labeled ‘‘other’’ and
accompanied by a description.
Finally, this rule would add a new
section, § 701.6, to the Offset Reporting
Regulation, to describe the penalties
available under the Defense Production
Act should companies not comply with
this regulation. Willful violation of the
Defense Production Act may result in
punishment by fine or imprisonment, or
both. The maximum penalty provided
by the Defense Production Act is a
$10,000 fine, or one year in prison, or
both. The government may also seek an
injunction from a court of appropriate
jurisdiction to prohibit the continuance
of any violation of, or to enforce
compliance with, the Defense
Production Act.
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Rulemaking Requirements
1. This rule has been determined to be
significant for purposes of Executive
Order 12866.
2. Notwithstanding any other
provision of law, no person is required
to respond to nor 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
contains a collection previously
approved by the OMB under control
number 0694–0084, which carries a
burden hour estimate of nine hours for
a reporting firm to prepare and submit
once per year. In addition, this proposed
rule will amend that collection for
reporting on offset agreements and
transactions by NAICS code, which
carries an estimated burden of three
hours for companies submitting annual
reports to BIS. The 60-day comment
period on this proposed rule will also
serve as the public comment period
regarding the burden of the collection of
information associated with preparation
and submission of offset agreements and
transactions by NAICS code. Send
comments regarding this burden
estimate or any other aspect of this
collection of information, including
suggestions for reducing the burden, to
Jasmeet K. Seehra, Office of
Management and Budget, by e-mail at
jseehra@omb.eop.gov or by fax to (202)
395–7285 and to the Offsets Program
Manager, Bureau of Industry and
Security, Department of Commerce, as
indicated in the ADDRESSES section of
this proposed rule.
3. This rule does not contain policies
with Federalism implications as that
term is defined in Executive Order
13132.
4. The Regulatory Flexibility Act
(RFA), as amended by the Small
Business Regulatory Enforcement
Fairness Act of 1996 (SBREFA), 5 U.S.C.
601 et seq., generally requires an agency
to prepare a regulatory flexibility
analysis of any rule subject to the notice
and comment rulemaking requirements
under the Administrative Procedure Act
(5 U.S.C. 553) or any other statute,
unless the agency certifies that the rule
will not have a significant economic
impact on a substantial number of small
entities. Under section 605(b) of the
RFA, however, if the head of an agency
certifies that a rule will not have a
significant impact on a substantial
number of small entities, the statute
does not require the agency to prepare
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Federal Register / Vol. 74, No. 81 / Wednesday, April 29, 2009 / Proposed Rules
a regulatory flexibility analysis.
Pursuant to section 605(b), the Chief
Counsel of Regulations, Department of
Commerce, certified to the Chief
Counsel for Advocacy, Small Business
Administration, that this proposed rule,
if promulgated, will not have a
significant impact on a substantial
number of small entities for the reasons
explained below. Consequently, BIS has
not prepared a regulatory flexibility
analysis.
Small entities include small
businesses, small organizations and
small governmental jurisdictions. For
purposes of assessing the impacts of this
proposed rule on small entities, small
entity is defined as: (1) A small business
according to RFA default definitions for
small business (based on SBA size
standards), (2) a small governmental
jurisdiction that is a government of a
city, town, school district or special
district with a population of less than
50,000, and (3) a small organization that
is any not-for-profit enterprise which is
independently owned and operated and
is not dominant in its field. BIS has
determined that this final rule would
not affect any of these categories of
small entities.
Since BIS began collecting in 1994,
virtually all of the submissions that it
received are from a small number of
very large companies that do not meet
the SBA size standards for a small
business. Since 1994, the number of
companies that submit data to BIS
pursuant to this regulation has been less
than 25 per year. On average, the
companies that submit data to BIS have
annual revenues well in excess of $1
billion. For instance, in the most recent
year in which BIS collected data
pursuant to this regulation, only four of
the 25 companies that submitted data
had reported revenue of less than $1
billion with the lowest revenue at $120
million. According to SBA’s size
standards, the maximum annual
revenue for a small business is $33.5
million and the maximum number of
employees is between 500 and 1,000.
Some small businesses likely are
involved in fulfilling offset obligations
by acting as subcontractors to the large
prime contractors that report directly to
BIS, meaning that they report indirectly
to BIS pursuant to this section.
However, this proposed rule will not
significantly increase the burden on
such companies. The information
collected by BIS pursuant to this section
is already collected by such small
businesses so that they can accurately
account for their obligations under the
offset agreement and report them to the
prime contractor. The only new
reporting requirement in this proposed
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rule is the classification of offset
agreements and transactions by NAICS
code. Even subcontractors involved in
the manufacture of defense articles are
likely to conduct business with the U.S.
government and, therefore, be required
to classify their products and services,
in accordance with the NAICS (See
Central Contractor Registration
Handbook, https://www.ccr.gov). In
addition, the U.S. government takes
steps to facilitate selection of the correct
NAICS code by private parties. The U.S.
Census Bureau posts instructions on its
Web site on how to properly classify
products and services in accordance
with the NAICS. BIS has included
illustrative examples in § 701(c)(1)(iii)
and § 701(c)(2)(iv) on classifying
military export sales and offset
transactions by NAICS codes.
In addition, small governmental
entities and small organizations, not
being businesses, are not likely to be
involved in international defense trade,
and would therefore have no reason to
submit data to BIS pursuant to this
regulation. Consequently, this proposed
rule, if promulgated, will not have a
significant impact on a substantial
number of small entities.
List of Subjects in 15 CFR Part 701
Administrative practice and
procedure, Arms and munitions,
Business and industry, Exports,
Government contracts, Reporting and
recordkeeping requirements.
For the reasons set forth in the
preamble, the National Security
Industrial Base Regulations (15 CFR
parts 700–709) are amended as follows:
PART 701—AMENDED
1. The authority citation for part 701
is revised to read as follows:
Authority: 50 U.S.C. App. 2099 and
Executive Order 12919, 59 FR 29525, 3 CFR,
1994 Comp. 901 and Executive Order 13286,
68 FR 10619, 3 CFR, 2003 Comp. 166.
2. In § 701.1, revise the last sentence
in the section to read:
§ 701.1
Purpose.
* * * Summary reports are
submitted annually to Congress
pursuant to Section 309 of the Defense
Production Act of 1950, as amended.
3. In § 701.2, revise paragraphs (f), (g),
and (h) to read as follows:
§ 701.2
Definitions.
*
*
*
*
*
(f) Offset Transaction—Any activity
for which the U.S. firm claims credit for
full or partial fulfillment of the offset
agreement. Activities to implement
offset agreements include co-
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19469
production, technology transfer,
subcontracting, credit assistance,
training, licensed production, overseas
investment, and purchases.
(g) Direct Offset—an offset transaction
directly related to the article(s) or
service(s) exported or to be exported
pursuant to the military export sales
agreement. For example, a U.S. firm
subcontracting with a foreign firm to
supply a subassembly for a defense
article exported pursuant to that
military export sales agreement could be
a direct offset.
(h) Indirect Offset—an offset
transaction unrelated to the article(s) or
service(s) exported or to be exported
pursuant to the military export sales
agreement. For example, a U.S. firm coproducing, with a foreign government or
foreign firm, an item unrelated to an
article or service exported pursuant to
that military export sales agreement
could be an indirect offset.
4. Section 701.4 is revised to read as
follows:
§ 701.4
Procedures.
(a) Reporting period. The Department
of Commerce publishes a notice in the
Federal Register annually reminding
the public that U.S. firms are required
to report annually on contracts for the
sale of defense-related items or defenserelated services to foreign governments
or foreign firms that are subject to offset
agreements exceeding $5,000,000 in
value. U.S. firms are also required to
report annually on offset transactions
completed in performance of existing
offset commitments for which offset
credit of $250,000 or more has been
claimed from the foreign representative.
Such reports must be submitted to the
Department of Commerce no later than
June 15 of each year for offset agreement
and transaction data for the previous
calendar year.
(b) Reporting instructions.
(1) To avoid double counting, firms
shall report only offset transactions that
they are directly responsible for
reporting to the foreign customer (i.e.,
prime contractors shall report for their
subcontractors if the subcontractors are
not a direct party to the offset
agreement).
(2) Reports must be submitted in
hardcopy to the Offset Program
Manager, U.S. Department of
Commerce, Bureau of Industry and
Security, Room 3876, 14th Street and
Pennsylvania Avenue, NW.,
Washington, DC 20230, and as an e-mail
attachment to OffsetReport@bis.doc.gov.
E-mail attachments must include the
information in a computerized
spreadsheet or database format. If
unable to submit a report in
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computerized format, companies should
contact the Offset Program Manager for
guidance. All submissions must include
a point of contact (name and telephone
number) and must be submitted by a
company official authorized to provide
such information.
(c) Reports must include the
information described below. Any
necessary comments or explanations
relating to the information shall be
footnoted and supplied on separate
sheets attached to the reports.
(1) Reporting on offset agreements.
U.S. firms shall provide an itemized list
of new offset agreements entered into
during the reporting period, including
the information about each such
agreement described in paragraphs
(c)(1)(i) through (c)(1)(ix) of this section.
(i) Name of foreign country. Identify
the country of the foreign entity
involved in the military export sale
associated with the offset agreement.
(ii) Description of the military export
sale. Provide a name and description of
the defense article and/or defense
service referenced in the military export
sale, as well as the date (month and
year) of the related offset agreement.
(iii) Military export sale classification.
Identify the six-digit North American
Industry Classification System (NAICS)
code(s) associated with the military
export sale. Refer to U.S. Census
Bureau’s United States NAICS Manual
for a listing of applicable NAICS codes
(www.census.gov/epcd/www/
naics.html). Paragraphs (c)(1)(iii)(A)
through (c)(1)(iii)(E) of this section
provide examples that illustrate how to
select the appropriate NAICS code in
the instances described therein.
(A) Example 1. Company A enters
into an offset agreement associated with
the sale of 24 fighter aircraft and guided
missiles to country B. Fighter aircraft
manufacturing is classified in the North
American Industry Classification
System (NAICS) as NAICS 336411,
Aircraft Manufacturing. Guided missiles
are classified in the NAICS as NAICS
336414, Guided Missile and Space
Vehicle Manufacturing.
(B) Example 2. Company B enters into
an offset agreement associated with the
sale of a navigation system for a fleet of
military aircraft to country C.
Navigation system manufacturing is
classified in the NAICS as NAICS
334511, Search, Detection, Navigation,
Guidance, Aeronautical, and Nautical
System and Instrument Manufacturing.
(C) Example 3. Company C enters into
an offset agreement associated with the
sale of radio communication equipment
to country D. Radio communication
equipment is classified in the NAICS as
NAICS 334220, Radio and Television
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Broadcasting and Wireless
Communication Equipment
Manufacturing.
(D) Example 4. Company D enters into
an offset agreement associated with the
sale of 30 aircraft engines to country E.
Aircraft engines are classified in the
NAICS as NAICS 336412, Aircraft
Engine and Engine Parts Manufacturing.
(E) Example 5. Company E enters into
an offset agreement associated with the
sale of armored vehicles to country F.
Armored vehicles are classified in the
NAICS as NAICS 336992, Military
Armored Vehicle, Tank, and Tank
Component Manufacturing.
(iv) Foreign party to offset agreement.
Identify the foreign government agency
or branch that is the signatory to the
offset agreement.
(v) Military export sale value. Provide
the dollar value of the military export
sale. Should the military export sale
involve more than one NAICS code,
please separately list the values
associated with each NAICS code.
(vi) Offset agreement value. Provide
the value of the offset agreement.
(vii) Offset agreement term. Identify
the term of the offset agreement in
months.
(viii) Offset agreement performance
measures. Identify each category that
describes the offset agreement’s
performance measures: best efforts,
accomplishment of obligation, or other
(please describe).
(ix) Offset agreement penalties for
non-performance. Identify each category
that describes the offset agreement’s
penalties for non-performance. For
example, the agreement may include
penalties such as liquidated damages,
debarment from future contracts, added
offset requirements, fees, commissions,
bank credit guarantees, or other (please
describe).
(2) Reporting on offset transactions.
U.S. firms shall provide an itemized list
of offset transactions completed during
the reporting period, including the
elements listed in paragraphs (c)(2)(i)
through (c)(2)(x) of this section for each
such transaction (estimates are
acceptable when actual figures are
unavailable; estimated figures shall be
followed by the letter ‘‘E’’).
(i) Name of foreign country. Identify
the country of the foreign entity
involved in the military export sale
associated with the offset transaction.
(ii) Description of the military export
sale. Provide a name and description of
the defense article and/or defense
service referenced in the military export
sale associated with the offset
transaction, as well as the date the offset
agreement was signed (month and year).
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(iii) Offset transaction category.
Identify each category that describes the
offset transaction: co-production,
technology transfer, subcontracting,
training, licensing of production,
overseas investment, purchasing, credit
assistance or other (please describe).
(iv) Offset transaction classification.
Identify the six-digit North American
Industry Classification System (NAICS)
code(s) associated with the offset
transaction. Refer to U.S. Census
Bureau’s United States NAICS Manual
for a listing of applicable NAICS codes
(https://www.census.gov/epcd/www/
naics.html). Paragraphs (c)(2)(iv)(A)
through (c)(2)(iv)(E) of this section
provide examples that illustrate how to
select the appropriate NAICS code in
the instances described therein.
(A) Example 1. Company A completes
an offset transaction by co-producing
aircraft engines in country B. Aircraft
engine manufacturing is classified in the
NAICS as NAICS 336412, Aircraft
Engine and Engine Parts Manufacturing.
(B) Example 2. Company B completes
an offset transaction by licensing the
production of automotive electrical
switches in country C. Company B also
assists in structuring a wholesale
distribution network for these products.
Automotive electrical switch
manufacturing is classified in the
NAICS as NAICS 335931, Current
Carrying Wiring Device Manufacturing,
and the wholesale distribution network
is classified in the NAICS as NAICS
423120, Motor Vehicle Supplies and
New Parts Merchant Wholesalers.
(C) Example 3. Company C completes
an offset transaction by transferring
technology to establish a biotechnology
research center in country D.
Biotechnology research and
development is classified in the NAICS
as NAICS 541711, Research and
Development in Biotechnology.
(D) Example 4. Company D completes
an offset transaction by purchasing steel
forgings from a steel mill in country E.
Steel forgings are classified in the
NAICS as NAICS 331111, Iron and Steel
Mills.
(E) Example 5. Company E completes
an offset transaction by providing
training assistance services in country F
to certain plant managers. Training
assistance is classified in the NAICS as
NAICS 611430, Professional and
Management Development Training.
(v) Offset transaction type. Identify
the offset transaction as a direct offset
transaction, an indirect offset
transaction, or a combination of both.
(vi) Name of offset performing entity.
Identify, by name, the entity performing
the offset transaction on behalf of the
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U.S. entity that entered into the offset
agreement.
(vii) Name of offset receiving entity.
Identify the foreign entity receiving
benefits from the offset transaction.
(viii) Actual offset value. Provide the
dollar value of the offset transaction
without taking into account multipliers
or intangible factors. Should the offset
transaction involve more than one
NAICS code, please list the values
associated with each NAICS code.
(ix) Offset credit value. Provide the
dollar value credits claimed by the
offset performing entity, including any
multipliers or intangible factors. Should
an offset transaction involve more than
one NAICS code, please list the values
associated with each NAICS code.
(x) Offset transaction performance
location. Name the country where each
offset transaction was fulfilled, such as
the purchasing country, the United
States, or a third country.
5. Section 701.6 is added to read as
follows:
§ 701.6 Violations, penalties, and
remedies.
(a) Willful violation of the Defense
Production Act may result in
punishment by fine or imprisonment, or
both. The maximum penalty provided
by the Defense Production Act is a
$10,000 fine, or one year in prison, or
both.
(b) The government may seek an
injunction from a court of appropriate
jurisdiction to prohibit the continuance
of any violation of, or to enforce
compliance with, the Defense
Production Act and this regulation.
Dated: April 21, 2009.
Matthew S. Borman,
Acting Assistant Secretary for Export
Administration.
[FR Doc. E9–9514 Filed 4–28–09; 8:45 am]
BILLING CODE 3510–JT–P
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R03–OAR–2008–0898; FRL–8898–5]
tjames on PRODPC75 with PROPOSALS
Approval and Promulgation of Air
Quality Implementation Plans;
Pennsylvania; Transportation
Conformity Requirements
Environmental Protection
Agency (EPA).
ACTION: Proposed rule.
AGENCY:
SUMMARY: EPA proposes to approve the
State Implementation Plan (SIP)
revision submitted by the
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Commonwealth of Pennsylvania for
Transportation Conformity
Requirements. In the Final Rules section
of this Federal Register, EPA is
approving the State’s SIP submittal as a
direct final rule without prior proposal
because the Agency views this as a
noncontroversial submittal and
anticipates no adverse comments. A
detailed rationale for the approval is set
forth in the direct final rule. If no
adverse comments are received in
response to this action, no further
activity is contemplated. If EPA receives
adverse comments, the direct final rule
will be withdrawn and all public
comments received will be addressed in
a subsequent final rule based on this
proposed rule. EPA will not institute a
second comment period. Any parties
interested in commenting on this action
should do so at this time.
DATES: Comments must be received in
writing by May 29, 2009.
ADDRESSES: Submit your comments,
identified by Docket ID Number EPA–
R03–OAR–2008–0898 by one of the
following methods:
A. https://www.regulations.gov. Follow
the on-line instructions for submitting
comments.
B. E-mail: febbo.carol@epa.gov.
C. Mail: EPA–R03–OAR–2008–0898,
Carol Febbo, Chief, Energy, Radiation
and Indoor Environment Branch,
Mailcode 3AP23, U.S. Environmental
Protection Agency, Region III, 1650
Arch Street, Philadelphia, Pennsylvania
19103.
D. Hand Delivery: At the previouslylisted EPA Region III address. Such
deliveries are only accepted during the
Docket’s normal hours of operation, and
special arrangements should be made
for deliveries of boxed information.
Instructions: Direct your comments to
Docket ID No. EPA–R03–OAR–2008–
0898. EPA’s policy is that all comments
received will be included in the public
docket without change, and may be
made available online at https://
www.regulations.gov, including any
personal information provided, unless
the comment includes information
claimed to be Confidential Business
Information (CBI) or other information
whose disclosure is restricted by statute.
Do not submit information that you
consider to be CBI (or otherwise
protected) through https://
www.regulations.gov or e-mail. The
https://www.regulations.gov Web site is
an ‘‘anonymous access system’’, which
means EPA will not know your identity
or contact information unless you
provide it in the body of your comment.
If you send an e-mail comment directly
to EPA without going through https://
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19471
www.regulations.gov, your e-mail
address will be automatically captured
and included as part of the comment
that is placed in the public docket and
made available on the Internet. If you
submit an electronic comment, EPA
recommends that you include your
name and other contact information in
the body of your comment and with any
disk or CD–ROM you submit. If EPA
cannot read your comment due to
technical difficulties and cannot contact
you for clarification, EPA may not be
able to consider your comment.
Electronic files should avoid the use of
special characters, any form of
encryption, and be free of any defects or
viruses.
Docket: All documents in the
electronic docket are listed in the
https://www.regulations.gov index.
Although listed in the index, some
information is not publicly available,
i.e., CBI or other information whose
disclosure is restricted by statute.
Certain other material, such as
copyrighted material, is not placed on
the Internet and will be publicly
available only in hard copy form.
Publicly available docket materials are
available either electronically in https://
www.regulations.gov or in hard copy
during normal business hours at the Air
Protection Division, U.S. Environmental
Protection Agency, Region III, 1650
Arch Street, Philadelphia, Pennsylvania
19103. Copies of the State submittal are
available at Pennsylvania Department of
Environmental Protection, Bureau of Air
Quality Control, Rachel Carson State
Office Building, 400 Market Street, 12th
Floor, Harrisburg, PA 17105–8468.
FOR FURTHER INFORMATION CONTACT:
Martin Kotsch, (215) 814–3335, or by email at kotsch.martin@epa.gov.
For
further information, please see the
information provided in the direct final
action, with the same title, that is
located in the ‘‘Rules and Regulations’’
section of this Federal Register
publication.
SUPPLEMENTARY INFORMATION:
Dated: April 15, 2009.
William C. Early,
Acting Regional Administrator, Region III.
[FR Doc. E9–9842 Filed 4–28–09; 8:45 am]
BILLING CODE 6560–50–P
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[Federal Register Volume 74, Number 81 (Wednesday, April 29, 2009)]
[Proposed Rules]
[Pages 19466-19471]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-9514]
=======================================================================
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DEPARTMENT OF COMMERCE
Bureau of Industry and Security
15 CFR Part 701
[Docket No. 080722875-8876-01]
RIN 0694-AE40
Reporting of Offsets Agreements in Sales of Weapon Systems or
Defense-Related Items to Foreign Countries or Foreign Firms
AGENCY: Bureau of Industry and Security, Department of Commerce.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Bureau of Industry and Security (BIS) is proposing to
amend the Reporting of Offsets Agreements in Sales of Weapon Systems or
Defense-Related Items to Foreign Countries or Foreign Firms regulation
(15 CFR part 701) to update and provide clarification with regard to
the information U.S. companies are required to submit each year to BIS
to support the preparation of the annual report to Congress on offsets
in defense trade.
DATES: Comments must be received by June 29, 2009.
ADDRESSES: You may submit comments, identified by RIN 0694-AE40, by any
of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: OffsetReport@bis.doc.gov. Include ``RIN 0694-
AE40'' in the subject line of the message.
Fax: 202-482-5650.
Mail/Hand Delivery: Offset Program Manager, U.S.
Department of Commerce, Bureau of Industry and Security, Office of
Strategic Industries and Economic Security, Room 3876, 14th Street and
Pennsylvania Avenue, NW., Washington, DC 20230, ATTN: RIN 0694-AE40.
FOR FURTHER INFORMATION CONTACT: Ronald DeMarines, Office of Strategic
Industries and Economic Security, tel. (202) 482-3755, e-mail
rdemarin@bis.doc.gov.
[[Page 19467]]
SUPPLEMENTARY INFORMATION:
Background
The Defense Production Act Amendments of 1992 required the
Secretary of Commerce to promulgate regulations for U.S. firms to
furnish information regarding sales of defense articles or defense
services to foreign countries or foreign firms when such sales are made
pursuant to a contract subject to an offset agreement exceeding
$5,000,000 in value. The Secretary of Commerce designated BIS as the
organization responsible for promulgating such regulations. The
Reporting of Offsets Agreements in Sales of Weapon Systems or Defense-
Related Items to Foreign Countries or Foreign Firms regulation (15 CFR
part 701) (hereinafter, the ``Offset Reporting Regulation'') was first
published in 1994. The information provided by U.S. firms pursuant to
the Offset Reporting Regulation is aggregated and used to determine the
impact of offset transactions on the defense preparedness, industrial
competitiveness, employment, and trade of the United States. Summary
reports are submitted annually to the Congress pursuant to Section 309
of the Defense Production Act of 1950, as amended.
Reasons for the Changes Proposed by This Rule
The changes proposed in this rule are a result of an internal BIS
review of the data that has been collected in the past pursuant to the
Offset Reporting Regulation. The changes in this proposed rule clarify
the information BIS is seeking from companies. BIS anticipates that
these changes will lead to less ambiguity and more consistency in
submissions from industry and thus will allow BIS to improve the
assessment of the economic effects of offsets on defense trade.
This proposed rule is also in response to a recommendation made by
the Government Accountability Office (GAO) in its June 26, 2008 report
entitled Defense Production Act: Agencies Lack Policies and Guidance
for Use of Key Authorities (GAO-08-854). In its report, the GAO stated
that Commerce provides useful summaries of offsets issues in its annual
report to Congress, but that the type of data collected from prime
contractors limits the ability of BIS to effectively analyze the impact
of offsets on the U.S. economy. Consequently, the GAO recommended that
Commerce update its offset reporting regulation to request more precise
information on the industry sectors that offset activity was occurring
in from prime contractors, in order to improve the assessment of the
economic effects of offsets.
The revisions proposed in this rule are not anticipated to impose
significant new burdens on parties subject to the reporting
requirements of the Offset Reporting Regulation.
Specific Changes That Would be Made by This Proposed Rule
This rule would amend the last sentence of Sec. 701.1 of the
Offset Reporting Regulation to reflect that Commerce has already
submitted and will continue to submit reports to Congress. The current
Sec. 701.1 suggests only that Commerce will be submitting reports in
the future.
In addition, this rule would amend certain definitions in Sec.
701.2 of the Offset Reporting Regulation to reflect BIS's 15-year
experience in preparing the report to Congress. Specifically, the
illustrative list of activities listed in the definition of ``offset
transaction'' in Sec. 701.2(f) would be updated. Activities not
commonly reported to BIS would be removed (i.e., countertrade, barter,
counterpurchase, and buy back) and replaced with activities that are
frequently reported (i.e., credit assistance, training, and purchase).
This list remains illustrative.
This rule also would amend the definitions for ``direct offset''
and ``indirect offset'' in Sec. 701.2(g) and Sec. 701.2(h) of the
Offset Reporting Regulation. The current references to ``defense
articles'' and ``defense goods'' in the definitions of ``direct
offset'' and ``indirect offset'' would be deleted to clarify that U.S.
firms are required to report on all offset transactions for which
offset credit of $250,000 or more has been claimed from a foreign
representative, even if the offset transaction itself does not involve
a defense article or service (i.e., items or services controlled
pursuant to the International Traffic in Arms Regulations (22 CFR Parts
120-130) (ITAR)). Companies regularly report information to Commerce on
offset transactions that do not involve defense articles or defense
services. This change would clarify the intent of the reporting
requirement and would reflect current reporting practices. Companies
are required to keep records of each offset transaction for which
offset credit is claimed, so this information is readily available to
firms that are required to report under this section. The definitions
would further be clarified and examples would be provided to illustrate
the differences between direct and indirect offsets.
This rule would modify Sec. 701.4 of the Offset Reporting
Regulation by reordering the section in a logical fashion, beginning
with the reporting period and date by which reports shall be submitted
to BIS, followed by updated reporting instructions, and finally the
contents of the required reports to BIS related to offset agreements
and offset transactions concluded during the reporting period. BIS
feels that this reordering will make it easier for those affected by
this regulation to identify all of the information they need to submit
timely and accurate reports. This section would also note that BIS
publishes an annual notice in the Federal Register to remind companies
of their responsibility to report on offset agreements and transactions
and the deadline.
This rule would update the reporting instructions described in
Sec. 701.4(b) of the Offset Reporting Regulation regarding the address
to which reported offsets data should be submitted, including through
the addition of a new e-mail address. Reports are now requested to be
submitted in both hardcopy format and electronic format when possible.
This rule would also delete references to outdated software and
hardware formats described in Sec. 701.4(c) of the Offset Reporting
Regulation.
The provisions of the Offset Reporting Regulation currently
describing the contents of reports on offsets transactions (Sec.
701.4(d)) and offsets agreements entered into (Sec. 701.4(e)) would
also be reordered so that offset agreement reporting requirements would
be described in Sec. 701.4(c)(1) and then offset transaction reporting
requirements would be described later in Sec. 701.4(c)(2). BIS
believes it makes more sense to first describe reporting requirements
for offsets agreements, and then describe reporting requirements for
offsets transactions taken pursuant to offsets agreements. In addition,
terminology would be updated and revised to ensure consistency
throughout Part 701. BIS had used the term ``weapon system'' in Sec.
701.4(d) and Sec. 701.4(e). The proposed rule would replace the term
``weapon system'' with ``military export sale,'' a defined term in
Sec. 701.2, which BIS believes is a more appropriate term in Sec.
701.4 because not all reported defense sales with offset agreements are
of weapon systems. Further, additional clarifying changes would be made
to the descriptions of information required to be reported under Sec.
701.4 of the Offset Reporting Regulation.
This proposed rule would eliminate the requirement, currently found
in Sec. 701.4(e)(1)(iii) of the Offset Reporting
[[Page 19468]]
Regulation, that companies report the names and titles of the
signatories to offset agreements. BIS believes that this information is
not necessary for the preparation of BIS's annual report to Congress.
Under proposed Sec. 701.4(c)(1)(iv), companies would instead be
required to report only the identity of the foreign government agency
or branch that is a signatory to the offset agreement.
The proposed rule would also separate the reporting requirements on
offset agreement performance measures and non-performance penalties
currently found in Sec. 701.4(e)(1)(vii) of the Offset Reporting
Regulation. The current section contemplates that non-performance
penalties would be included in a description of performance measures.
However, BIS experience has revealed that such penalties are best
treated as a separate category. Accordingly, Sections 701.4(c)(1)(viii)
and 701.4(c)(1)(ix) in the proposed rule clarify the reporting
requirements concerning offset agreement performance measures and non-
performance penalties respectively and include lists of examples for
each based on data collected during the past 15 years.
The proposed rule would require companies to assign the appropriate
North American Industry Classification System (NAICS) code(s) to each
military export sale for which there is an offset agreement triggering
a reporting requirement (see proposed Sec. 701.4(c)(1)(iii)), and to
each offset transaction reported under the Offset Reporting Regulation
(see proposed Sec. 701.4(c)(2)(iv)). NAICS is the standard industrial
classification system used in the United States. In the current
regulation, BIS asks industry to classify offset transactions by broad
industry classification and provide a name and description of the
military export sale. Firms are directed to the Standard Industrial
Classification (SIC) codes for assistance in identifying an appropriate
industry category for offset transactions. The SIC has been replaced by
the NAICS. (See 62 FR 17288, Apr. 4, 1997.)
All companies that conduct business with the U.S. Government are
required to classify their products and services, including those
regularly involved in military export sales reported to Commerce, in
accordance with the NAICS (See Central Contractor Registration
Handbook, https://www.ccr.gov). The U.S. Census Bureau posts
instructions on its Web site on how to properly classify products and
services in accordance with the NAICS. Requiring respondents to
classify military export sales and offset transactions by NAICS codes
will ensure that submissions under the Offset Reporting Regulation are
prepared in a consistent manner. This change will also allow BIS to
gather more accurate information on military export sales and offset
transactions because NAICS is more specific and will enhance BIS's
ability to assess the economic impact of offsets on the U.S. industrial
base by allowing BIS to better utilize other data published by
statistical agencies of the U.S. Government. BIS has included
illustrative examples in Sec. 701(c)(1)(iii) and Sec. 701(c)(2)(iv)
of the proposed rule on classifying military export sales and offset
transactions by NAICS codes.
This proposed rule also would require companies to report for each
offset transaction the date when the related offset agreement was
signed (Sec. 701.4(c)(2)(ii)). This data will allow BIS to better
track the fulfillment of offset agreements and identify trends in
offset transaction activity. Companies involved in defense exports and
offset agreements are required to keep records of each offset
transaction for which offset credit is claimed so they can accurately
account for their obligations, so this information is readily available
to firms reporting under this section.
The proposed rule also would revise examples of offset transaction
categories. Section 701.4(d)(1)(vii) in the current regulation,
entitled ``Description of Offset Product/Service'', would be replaced
by Sec. 701.4(c)(2)(iii), entitled ``Offset Transaction Category.''
The categories of offset transactions listed as examples in the new
section more accurately reflect the types of offset transactions that
have been reported to BIS since 1994. In particular, the category of
``cash payment'' will be removed, and the categories of ``licensed
production'', ``overseas investment'', and ``credit assistance'' will
be added, as will a suggestion that other categories could be labeled
``other'' and accompanied by a description.
Finally, this rule would add a new section, Sec. 701.6, to the
Offset Reporting Regulation, to describe the penalties available under
the Defense Production Act should companies not comply with this
regulation. Willful violation of the Defense Production Act may result
in punishment by fine or imprisonment, or both. The maximum penalty
provided by the Defense Production Act is a $10,000 fine, or one year
in prison, or both. The government may also seek an injunction from a
court of appropriate jurisdiction to prohibit the continuance of any
violation of, or to enforce compliance with, the Defense Production
Act.
Rulemaking Requirements
1. This rule has been determined to be significant for purposes of
Executive Order 12866.
2. Notwithstanding any other provision of law, no person is
required to respond to nor 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 contains
a collection previously approved by the OMB under control number 0694-
0084, which carries a burden hour estimate of nine hours for a
reporting firm to prepare and submit once per year. In addition, this
proposed rule will amend that collection for reporting on offset
agreements and transactions by NAICS code, which carries an estimated
burden of three hours for companies submitting annual reports to BIS.
The 60-day comment period on this proposed rule will also serve as the
public comment period regarding the burden of the collection of
information associated with preparation and submission of offset
agreements and transactions by NAICS code. Send comments regarding this
burden estimate or any other aspect of this collection of information,
including suggestions for reducing the burden, to Jasmeet K. Seehra,
Office of Management and Budget, by e-mail at jseehra@omb.eop.gov or by
fax to (202) 395-7285 and to the Offsets Program Manager, Bureau of
Industry and Security, Department of Commerce, as indicated in the
ADDRESSES section of this proposed rule.
3. This rule does not contain policies with Federalism implications
as that term is defined in Executive Order 13132.
4. The Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C.
601 et seq., generally requires an agency to prepare a regulatory
flexibility analysis of any rule subject to the notice and comment
rulemaking requirements under the Administrative Procedure Act (5
U.S.C. 553) or any other statute, unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Under section 605(b) of the RFA, however, if
the head of an agency certifies that a rule will not have a significant
impact on a substantial number of small entities, the statute does not
require the agency to prepare
[[Page 19469]]
a regulatory flexibility analysis. Pursuant to section 605(b), the
Chief Counsel of Regulations, Department of Commerce, certified to the
Chief Counsel for Advocacy, Small Business Administration, that this
proposed rule, if promulgated, will not have a significant impact on a
substantial number of small entities for the reasons explained below.
Consequently, BIS has not prepared a regulatory flexibility analysis.
Small entities include small businesses, small organizations and
small governmental jurisdictions. For purposes of assessing the impacts
of this proposed rule on small entities, small entity is defined as:
(1) A small business according to RFA default definitions for small
business (based on SBA size standards), (2) a small governmental
jurisdiction that is a government of a city, town, school district or
special district with a population of less than 50,000, and (3) a small
organization that is any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field. BIS
has determined that this final rule would not affect any of these
categories of small entities.
Since BIS began collecting in 1994, virtually all of the
submissions that it received are from a small number of very large
companies that do not meet the SBA size standards for a small business.
Since 1994, the number of companies that submit data to BIS pursuant to
this regulation has been less than 25 per year. On average, the
companies that submit data to BIS have annual revenues well in excess
of $1 billion. For instance, in the most recent year in which BIS
collected data pursuant to this regulation, only four of the 25
companies that submitted data had reported revenue of less than $1
billion with the lowest revenue at $120 million. According to SBA's
size standards, the maximum annual revenue for a small business is
$33.5 million and the maximum number of employees is between 500 and
1,000.
Some small businesses likely are involved in fulfilling offset
obligations by acting as subcontractors to the large prime contractors
that report directly to BIS, meaning that they report indirectly to BIS
pursuant to this section. However, this proposed rule will not
significantly increase the burden on such companies. The information
collected by BIS pursuant to this section is already collected by such
small businesses so that they can accurately account for their
obligations under the offset agreement and report them to the prime
contractor. The only new reporting requirement in this proposed rule is
the classification of offset agreements and transactions by NAICS code.
Even subcontractors involved in the manufacture of defense articles are
likely to conduct business with the U.S. government and, therefore, be
required to classify their products and services, in accordance with
the NAICS (See Central Contractor Registration Handbook, https://www.ccr.gov). In addition, the U.S. government takes steps to
facilitate selection of the correct NAICS code by private parties. The
U.S. Census Bureau posts instructions on its Web site on how to
properly classify products and services in accordance with the NAICS.
BIS has included illustrative examples in Sec. 701(c)(1)(iii) and
Sec. 701(c)(2)(iv) on classifying military export sales and offset
transactions by NAICS codes.
In addition, small governmental entities and small organizations,
not being businesses, are not likely to be involved in international
defense trade, and would therefore have no reason to submit data to BIS
pursuant to this regulation. Consequently, this proposed rule, if
promulgated, will not have a significant impact on a substantial number
of small entities.
List of Subjects in 15 CFR Part 701
Administrative practice and procedure, Arms and munitions, Business
and industry, Exports, Government contracts, Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, the National Security
Industrial Base Regulations (15 CFR parts 700-709) are amended as
follows:
PART 701--AMENDED
1. The authority citation for part 701 is revised to read as
follows:
Authority: 50 U.S.C. App. 2099 and Executive Order 12919, 59 FR
29525, 3 CFR, 1994 Comp. 901 and Executive Order 13286, 68 FR 10619,
3 CFR, 2003 Comp. 166.
2. In Sec. 701.1, revise the last sentence in the section to read:
Sec. 701.1 Purpose.
* * * Summary reports are submitted annually to Congress pursuant
to Section 309 of the Defense Production Act of 1950, as amended.
3. In Sec. 701.2, revise paragraphs (f), (g), and (h) to read as
follows:
Sec. 701.2 Definitions.
* * * * *
(f) Offset Transaction--Any activity for which the U.S. firm claims
credit for full or partial fulfillment of the offset agreement.
Activities to implement offset agreements include co-production,
technology transfer, subcontracting, credit assistance, training,
licensed production, overseas investment, and purchases.
(g) Direct Offset--an offset transaction directly related to the
article(s) or service(s) exported or to be exported pursuant to the
military export sales agreement. For example, a U.S. firm
subcontracting with a foreign firm to supply a subassembly for a
defense article exported pursuant to that military export sales
agreement could be a direct offset.
(h) Indirect Offset--an offset transaction unrelated to the
article(s) or service(s) exported or to be exported pursuant to the
military export sales agreement. For example, a U.S. firm co-producing,
with a foreign government or foreign firm, an item unrelated to an
article or service exported pursuant to that military export sales
agreement could be an indirect offset.
4. Section 701.4 is revised to read as follows:
Sec. 701.4 Procedures.
(a) Reporting period. The Department of Commerce publishes a notice
in the Federal Register annually reminding the public that U.S. firms
are required to report annually on contracts for the sale of defense-
related items or defense-related services to foreign governments or
foreign firms that are subject to offset agreements exceeding
$5,000,000 in value. U.S. firms are also required to report annually on
offset transactions completed in performance of existing offset
commitments for which offset credit of $250,000 or more has been
claimed from the foreign representative. Such reports must be submitted
to the Department of Commerce no later than June 15 of each year for
offset agreement and transaction data for the previous calendar year.
(b) Reporting instructions.
(1) To avoid double counting, firms shall report only offset
transactions that they are directly responsible for reporting to the
foreign customer (i.e., prime contractors shall report for their
subcontractors if the subcontractors are not a direct party to the
offset agreement).
(2) Reports must be submitted in hardcopy to the Offset Program
Manager, U.S. Department of Commerce, Bureau of Industry and Security,
Room 3876, 14th Street and Pennsylvania Avenue, NW., Washington, DC
20230, and as an e-mail attachment to OffsetReport@bis.doc.gov. E-mail
attachments must include the information in a computerized spreadsheet
or database format. If unable to submit a report in
[[Page 19470]]
computerized format, companies should contact the Offset Program
Manager for guidance. All submissions must include a point of contact
(name and telephone number) and must be submitted by a company official
authorized to provide such information.
(c) Reports must include the information described below. Any
necessary comments or explanations relating to the information shall be
footnoted and supplied on separate sheets attached to the reports.
(1) Reporting on offset agreements. U.S. firms shall provide an
itemized list of new offset agreements entered into during the
reporting period, including the information about each such agreement
described in paragraphs (c)(1)(i) through (c)(1)(ix) of this section.
(i) Name of foreign country. Identify the country of the foreign
entity involved in the military export sale associated with the offset
agreement.
(ii) Description of the military export sale. Provide a name and
description of the defense article and/or defense service referenced in
the military export sale, as well as the date (month and year) of the
related offset agreement.
(iii) Military export sale classification. Identify the six-digit
North American Industry Classification System (NAICS) code(s)
associated with the military export sale. Refer to U.S. Census Bureau's
United States NAICS Manual for a listing of applicable NAICS codes
(www.census.gov/epcd/www/naics.html). Paragraphs (c)(1)(iii)(A) through
(c)(1)(iii)(E) of this section provide examples that illustrate how to
select the appropriate NAICS code in the instances described therein.
(A) Example 1. Company A enters into an offset agreement associated
with the sale of 24 fighter aircraft and guided missiles to country B.
Fighter aircraft manufacturing is classified in the North American
Industry Classification System (NAICS) as NAICS 336411, Aircraft
Manufacturing. Guided missiles are classified in the NAICS as NAICS
336414, Guided Missile and Space Vehicle Manufacturing.
(B) Example 2. Company B enters into an offset agreement associated
with the sale of a navigation system for a fleet of military aircraft
to country C. Navigation system manufacturing is classified in the
NAICS as NAICS 334511, Search, Detection, Navigation, Guidance,
Aeronautical, and Nautical System and Instrument Manufacturing.
(C) Example 3. Company C enters into an offset agreement associated
with the sale of radio communication equipment to country D. Radio
communication equipment is classified in the NAICS as NAICS 334220,
Radio and Television Broadcasting and Wireless Communication Equipment
Manufacturing.
(D) Example 4. Company D enters into an offset agreement associated
with the sale of 30 aircraft engines to country E. Aircraft engines are
classified in the NAICS as NAICS 336412, Aircraft Engine and Engine
Parts Manufacturing.
(E) Example 5. Company E enters into an offset agreement associated
with the sale of armored vehicles to country F. Armored vehicles are
classified in the NAICS as NAICS 336992, Military Armored Vehicle,
Tank, and Tank Component Manufacturing.
(iv) Foreign party to offset agreement. Identify the foreign
government agency or branch that is the signatory to the offset
agreement.
(v) Military export sale value. Provide the dollar value of the
military export sale. Should the military export sale involve more than
one NAICS code, please separately list the values associated with each
NAICS code.
(vi) Offset agreement value. Provide the value of the offset
agreement.
(vii) Offset agreement term. Identify the term of the offset
agreement in months.
(viii) Offset agreement performance measures. Identify each
category that describes the offset agreement's performance measures:
best efforts, accomplishment of obligation, or other (please describe).
(ix) Offset agreement penalties for non-performance. Identify each
category that describes the offset agreement's penalties for non-
performance. For example, the agreement may include penalties such as
liquidated damages, debarment from future contracts, added offset
requirements, fees, commissions, bank credit guarantees, or other
(please describe).
(2) Reporting on offset transactions. U.S. firms shall provide an
itemized list of offset transactions completed during the reporting
period, including the elements listed in paragraphs (c)(2)(i) through
(c)(2)(x) of this section for each such transaction (estimates are
acceptable when actual figures are unavailable; estimated figures shall
be followed by the letter ``E'').
(i) Name of foreign country. Identify the country of the foreign
entity involved in the military export sale associated with the offset
transaction.
(ii) Description of the military export sale. Provide a name and
description of the defense article and/or defense service referenced in
the military export sale associated with the offset transaction, as
well as the date the offset agreement was signed (month and year).
(iii) Offset transaction category. Identify each category that
describes the offset transaction: co-production, technology transfer,
subcontracting, training, licensing of production, overseas investment,
purchasing, credit assistance or other (please describe).
(iv) Offset transaction classification. Identify the six-digit
North American Industry Classification System (NAICS) code(s)
associated with the offset transaction. Refer to U.S. Census Bureau's
United States NAICS Manual for a listing of applicable NAICS codes
(https://www.census.gov/epcd/www/naics.html). Paragraphs (c)(2)(iv)(A)
through (c)(2)(iv)(E) of this section provide examples that illustrate
how to select the appropriate NAICS code in the instances described
therein.
(A) Example 1. Company A completes an offset transaction by co-
producing aircraft engines in country B. Aircraft engine manufacturing
is classified in the NAICS as NAICS 336412, Aircraft Engine and Engine
Parts Manufacturing.
(B) Example 2. Company B completes an offset transaction by
licensing the production of automotive electrical switches in country
C. Company B also assists in structuring a wholesale distribution
network for these products. Automotive electrical switch manufacturing
is classified in the NAICS as NAICS 335931, Current Carrying Wiring
Device Manufacturing, and the wholesale distribution network is
classified in the NAICS as NAICS 423120, Motor Vehicle Supplies and New
Parts Merchant Wholesalers.
(C) Example 3. Company C completes an offset transaction by
transferring technology to establish a biotechnology research center in
country D. Biotechnology research and development is classified in the
NAICS as NAICS 541711, Research and Development in Biotechnology.
(D) Example 4. Company D completes an offset transaction by
purchasing steel forgings from a steel mill in country E. Steel
forgings are classified in the NAICS as NAICS 331111, Iron and Steel
Mills.
(E) Example 5. Company E completes an offset transaction by
providing training assistance services in country F to certain plant
managers. Training assistance is classified in the NAICS as NAICS
611430, Professional and Management Development Training.
(v) Offset transaction type. Identify the offset transaction as a
direct offset transaction, an indirect offset transaction, or a
combination of both.
(vi) Name of offset performing entity. Identify, by name, the
entity performing the offset transaction on behalf of the
[[Page 19471]]
U.S. entity that entered into the offset agreement.
(vii) Name of offset receiving entity. Identify the foreign entity
receiving benefits from the offset transaction.
(viii) Actual offset value. Provide the dollar value of the offset
transaction without taking into account multipliers or intangible
factors. Should the offset transaction involve more than one NAICS
code, please list the values associated with each NAICS code.
(ix) Offset credit value. Provide the dollar value credits claimed
by the offset performing entity, including any multipliers or
intangible factors. Should an offset transaction involve more than one
NAICS code, please list the values associated with each NAICS code.
(x) Offset transaction performance location. Name the country where
each offset transaction was fulfilled, such as the purchasing country,
the United States, or a third country.
5. Section 701.6 is added to read as follows:
Sec. 701.6 Violations, penalties, and remedies.
(a) Willful violation of the Defense Production Act may result in
punishment by fine or imprisonment, or both. The maximum penalty
provided by the Defense Production Act is a $10,000 fine, or one year
in prison, or both.
(b) The government may seek an injunction from a court of
appropriate jurisdiction to prohibit the continuance of any violation
of, or to enforce compliance with, the Defense Production Act and this
regulation.
Dated: April 21, 2009.
Matthew S. Borman,
Acting Assistant Secretary for Export Administration.
[FR Doc. E9-9514 Filed 4-28-09; 8:45 am]
BILLING CODE 3510-JT-P
