55696 Federal Register / Vol. 62, No. 207 / Monday, October 27, 1997 / Rules and Regulations

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 187

[Docket No. 28967; Amendment No. 187–

10]

RIN 2120–AG14

Fees for Providing Production

Certification-Related Services Outside

the United States

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Final rule.

SUMMARY: This document establishes

fees by voluntary agreement for

production certification-related services

pertaining to aeronautical products

manufactured or assembled outside the

United States. In addition, the

document outlines the methodology for

determining the fees, describes how and

when the FAA will provide these

services, and describes the method for

payment of fees. This rule will allow the

FAA to recover certain costs incurred in

providing requested production

certification-related services abroad and

will help to ensure that such services

are provided in a responsive and timely

manner.

EFFECTIVE DATE: October 22, 1997.

FOR FURTHER INFORMATION CONTACT:

Ramona L. Johnson, Production and

Airworthiness Certification Division,

AIR–200, Aircraft Certification Service,

Federal Aviation Administration, 800

Independence Avenue, SW.,

Washington, DC 20591, telephone: (202)

267–7145.

SUPPLEMENTARY INFORMATION:

Availability of Final Rule

This document may be downloaded

from the FAA regulations section of the

FedWorld electronic bulletin board

(telephone: 703–321–3339) or the

Federal Register’s electronic bulletin

board (telephone: 202–512–1661).

Internet users may access the FAA’s

web page at http://www.faa.gov or the

Federal Register’s web page at http://

www.access.gpo.gov/suldocs to

download recently published

rulemaking documents.

Any person may obtain a copy of this

final rule by submitting a request to the

Federal Aviation Administration, Office

of Rulemaking, ARM–1, 800

Independence Avenue, SW.,

Washington, DC 20591, or by calling

(202) 267–9680. Communications must

reference the amendment number or

docket number of this final rule.

Persons interested in being placed on

the mailing list for future Notices of

Proposed Rulemaking and Final Rules

should request a copy of Advisory

Circular (AC) No. 11–2A, Notice of

Proposed Rulemaking Distribution

System, which describes the application

procedure.

Small Entity Inquiries

The Small Business Regulatory

Enforcement Fairness Act of 1996

(SBREFA) requires the FAA to report

inquiries from small entities concerning

information on, and advice about,

compliance with statutes and

regulations within the FAA’s

jurisdiction, including interpretation

and application of the law to specific

sets of facts supplied by a small entity.

The FAA’s definitions of small

entities may be accessed through the

FAA’s web page http://www/faa.gov/

avr/arm/sbrefa.htm, by contacting a

local FAA official, or by contacting the

FAA’s Small Entity Contact listed

below.

If you are a small entity and have a

question, contact your local FAA

official. If you do not know how to

contact your local FAA official, you may

contact Charlene Brown, Program

Analyst Staff, Office of Rulemaking,

ARM–27, Federal Aviation

Administration, 800 Independence

Avenue, SW, Washington, DC 20591, 1–

888–551–1594. Internet users can find

additional information on SBREFA in

the ‘‘Quick Jump’’ section of the FAA’s

web page at http://www.faa.gov and

may send electronic inquiries to the

following Internet address: 9–AWA–

SBREFA@faa.dot.gov.

Background

Statement of Problem

Under Title 49 U.S.C. 44701, the FAA

is responsible for the regulation and

promotion of safety of flight. Title 49

U.S.C. 44704(b) authorizes the FAA

Administrator to issue production

certificates. Section 44704(b) provides,

in part, that:

The Administrator shall issue a production

certificate authorizing the production of a

duplicate of any aircraft, aircraft engine,

propeller, or appliance for which a type

certificate has been issued when the

Administrator finds the duplicate will

conform to the certificate. On receiving an

application, the Administrator shall inspect,

and may require testing * * *.

The production certification-related

services that the FAA provides to fulfill

its statutory responsibilities may be

generally described as follows:

1. Processing applications for the

following: production under a type

certificate only, production under an

approved production inspection system,

production under a production

certificate or extension of a production

certificate, production under a technical

standard order authorization, and

production under a parts manufacturer

approval. The processing of applications

includes a review of data, response to

the applicant, and evaluation of the

applicant’s further responses as

necessary.

2. Certificate management of the

manufacturing facility quality assurance

system.

3. Witnessing tests and performing

conformity inspections of articles.

4. Managing designees.

5. Investigating incidents, accidents,

allegations and other unusual

circumstances.

These FAA services are provided to

Production Approval Holders (PAH). A

person who holds a parts manufacturer

approval (PMA), a Technical Standard

Order (TSO) authorization, or a

production certificate (PC), or who

holds a type certificate (TC) and

produces under that TC, is referred to as

a PAH. The regulatory services provided

to a PAH include: initial PAH

qualification, ongoing PAH and supplier

surveillance, designee management,

conformity inspections; as well as initial

PAH qualification and ongoing

surveillance for production certificate

extensions outside the United States.

The specialists who perform these

functions on behalf of the FAA are

Aviation Safety Inspectors, Aviation

Safety Engineers, and Flight Test Pilots.

Currently, the FAA performs

production certification-related services

both domestically and internationally. It

does not issue production approvals

outside of the United States. However,

in some situations, the FAA allows a

PAH to use suppliers outside the United

States if parts or sub-assemblies can be

100 percent inspected by the PAH upon

their receipt in the United States or if

parts or sub-assemblies are produced

under a PAH’s supplier control system

that has been approved by the PAH and

accepted by the FAA. Under certain

circumstances, production outside the

United States of complex parts, subassemblies, or products is approved by

the FAA on a case-by-case basis.

PAHs who choose to perform

manufacturing outside the United States

receive significant and special benefits.

These benefits often depend on whether

the PAH can obtain FAA oversight at

the manufacturing site when the PAH

needs the service. Since it is FAA’s

responsibility to prescribe and enforce

standards in the interest of safety for the

design, materials, workmanship,

construction, and performance of civil
Federal Register / Vol. 62, No. 207 / Monday, October 27, 1997 / Rules and Regulations 55697

aeronautical products, the FAA’s

oversight of manufacturing facilities

located outside the United States helps

ensure safety and marketability.

The Need for Rulemaking

Globalization of the aircraft

manufacturing industry increases the

challenges to the FAA in carrying out its

statutory mandate to ensure that safety

and airworthiness standards for civil

aircraft are being met during

manufacture.

Limited resources make it difficult for

the FAA to oversee these diverse and

complex international ventures by PAHs

when and where the services are

needed. Congress recognized the impact

of FAA’s resource limitations in the

Federal Aviation Administration

Authorization Act of 1994, PL 103–305

(108 State. 1569). As stated in

Conference, H.R. Rep. No. 103–677 on

H.R. 2739:

Safety regulatory efforts to keep pace with

the trend of globalization can be hampered

by resource constraints * * * the Aircraft

Certification Service should be able to offset

expenditures made in support of aircraft or

airline safety regulatory programs of both

U.S. and foreign owned companies outside

the United States.

In addition, under Title V of the

Independent Offices of Appropriations

Act of 1952 (IOAA), 31 U.S.C. 9701,

Congress authorized agencies such as

the FAA to establish a fair and equitable

system for recovering the cost for any

service, such as the issuance of a

certificate, that provides a special

benefit to an individual beyond those

that accrue to the general public. Title

31 U.S.C. 9701(a) provides, in part, as

follows:

It is the sense of the Congress that each

service or thing of value provided by an

agency (except a mixed-ownership

Government corporation) to a person (except

a person on official business of the United

States Government) is to be self-sustaining to

the extent possible.

Title 31 U.S.C. 9701(b) further provides:

The head of each Federal agency (except a

mixed-ownership Government corporation)

may prescribe regulations establishing the

charge for a service or thing of value

provided by the agency. Regulations

prescribed by the heads of executive agencies

shall be as uniform as practicable. Each

charge shall be—

(1) fair; and

(2) based on—

(A) the costs to the Government;

(B) the value of the service or thing to the

recipient;

(C) public policy or interest served; and

(D) other relevant facts.

The Rule

This rule allows PAHs to enter into a

voluntary agreement with the FAA for

the provision of production

certification-related services outside the

United States on mutually agreed terms

and conditions. This will be available to

PAHs who elect to use organizations or

facilities outside the United States to

manufacture, assemble, or test

aeronautical products after September

30, 1997.

An agreement for services between

the PAHs and the FAA for production

certification-related services for

products manufactured, assembled, or

tested outside the United States will

allow the FAA to provide services upon

request in a more responsive and timely

manner than otherwise is available. By

charging for its services outside the

United States when needed by the

PAHs, the FAA will be able to support

the PAH’s more complex manufacturing

activities and provide acceptance of

parts, sub-assemblies, and products that

would otherwise need to be

disassembled when received in the

United States. Under this rule, when

production certification-related services

are requested and provided outside the

United States, no duplication of FAA

work or reinspection of parts in the

United States is anticipated, except as

otherwise required of domestic

manufactured parts during the PAH

receiving inspection process.

The rule simply makes oversight

resources available in a more timely and

effective fashion, permitting PAHs to

pay for FAA oversight services.

Guidelines for Cost Recovery

The FAA developed this rule

consistent with the IOAA and with the

Office of Management and Budget’s

(OMB) Circular A–25, entitled ‘‘User

Charges.’’

Fees under this rule may be assessed

to PAHs who agree to pay for certain

special benefits conferred by FAA’s

production certification-related services

outside the United States. These special

benefits will include, but are not limited

to: (1) services rendered at the time and

location requested by an applicant; (2)

services for the issuance of a required

production approval at the time and

location requested by the applicant; and

(3) services to assist an applicant or

certificate holder in complying with its

regulatory obligations at the time and

location requested by the applicant.

The FAA has determined that all

services associated with the issuance,

amendment, or inspection of a

production certificate or approval as

detailed in this rule will be subject to

cost recovery. All direct and indirect

costs incurred by the FAA in providing

the special benefits outside of the

United States as detailed by this rule

will be recovered. Each fee will not

exceed the FAA’s cost of providing the

service to the recipient. Calculation of

agency costs will be performed as

accurately as is reasonable and

practical, and will be based on the

specific expenses identified to the

smallest practical unit.

To determine the smallest practical

unit for the various FAA services

covered, a letter of application will be

made by the PAH to the FAA requesting

FAA production certification-related

services outside the United States. The

application procedure will apply to any

PAH; i.e., holders or applicants for

production under a type certificate only,

under an approved production

inspection system, under a production

certificate or extension of a production

certificate, under a technical standard

order authorization, or under a parts

manufacturer approval. Based on the

details provided in the application, the

FAA will estimate the cost and terms of

providing the requested services to the

PAH outside the United States and

detail those costs to the applicant. If the

applicant desires the services, the

applicant will then request the

provision of those services from the

FAA. A written agreement between the

applicant and the FAA will then be

entered into if the PAH and the FAA

can mutually agree to all terms.

Methodology for Fee Determination and

Collection

Fee Determination

The FAA will recover the full cost

associated with providing production

certification-related services by

agreement outside of the United States.

Costs to be recovered include personnel

compensation and benefits (PC&B),

travel and transportation costs, and

other agency costs.

PC&B: For the purpose of these

computations, average PC&B rates for

participating Aircraft Certification

Service employees will be charged per

each agreed activity. PC&B charges will

reflect the actual hours spent

participating in the activity as well as

preparatory time, travel time, and the

time spent on follow-up activities.

Travel and transportation costs:

These charges will include all costs

pertaining to domestic, local, and

international transport of persons and

equipment. These costs may include

fares, vehicle rental fees, mileage

payment, and any expenses related to

transportation such as baggage transfer,

insurance for equipment during

transport, and communications. FAA

personnel will adhere to all U.S.

Government travel regulations.
55698 Federal Register / Vol. 62, No. 207 / Monday, October 27, 1997 / Rules and Regulations

Fees will be charged for lodging,

meals, and incidental expenses in

accordance with U.S. Government per

diem rates, rules, and regulations.

Incidental expenses include fees, tips,

and other authorized expenses.

Other agency costs: Also included in

these computations will be other direct

costs; for example, all printing and

reproduction services, supplies and

materials purchased for the activity,

conference room rental, and other

activity-related expenses. An additional

percentage charge, as established by the

FAA in accordance with OMB Circular

A–25, will be added to the total cost of

this activity to compensate for agency

overhead.

The Aircraft Certification Service of

the FAA maintains a data system to

which employees submit periodic

records identifying the number of work

hours used to provide service to

customers. Travel vouchers are also

submitted and audited. This data will be

maintained for each applicant and

project. The Aircraft Certification

Service tracks work hour records

quarterly to determine the costs

associated with providing its services.

This information will be used in

assessing and adjusting fees. In this

manner, the FAA will be able to assure

applicants that they are paying only for

expenses incurred in connection with

services provided to that specific

applicant.

Fee Collection

All charges will be estimated and

agreed upon between the FAA and the

applicant before the FAA provides

services under the agreement.

Payment of estimated fees will be

made to the FAA in advance for all

production certification-related

activities scheduled during the

upcoming 12-month calendar period

unless a shorter period is mutually

agreeable between the PAH and the

FAA. The amounts set forth in the cost

estimate will be adjusted to recover the

FAA’s full costs. If costs are expected to

exceed the estimate by more than 10

percent, notification will be made to the

applicant as soon as possible. No

services will be provided until the FAA

receives the full estimated payment for

the agreed to period. As activities are

completed, the full costs of the activities

will be charged against the advance

account. Any remaining funds will

either be returned or applied to future

activities as requested by the applicant.

Payment for services rendered by the

FAA will be in the form of a check,

money order, draft, or wire transfer, and

will be payable in U.S. currency to the

FAA and drawn on a U.S. bank. Bank

processing fees, when charged to the

United States Government, will also be

added to the fees charged to the

applicants.

In any case where an applicant has

failed to pay the agreed estimated fee for

FAA services, the FAA may suspend or

deny any application for service and

may suspend or revoke any productionrelated approval granted.

In accordance with the agreement that

will be signed by the FAA and the

applicant (Appendix C(d)(3)), this

arrangement may be terminated at any

time by either party by providing 60

days written notice to the other party.

Any such termination will allow the

FAA an additional 120 days to close out

its activities.

The FAA plans to issue an Advisory

Circular further detailing the

requirements of the application as well

as providing other pertinent guidance

and information.

Correction to Notice

In Notice No. 97–11, (62 FR 38008),

the authority citation is revised to delete

49 U.S.C. 106(m) to properly reflect

FAA’s authority to enter into

agreements. That authority is 49 U.S.C.

106(l)(6). This has been corrected in this

rule.

In another correction, in Appendix C

to part 187(c), Definitions, ‘‘Production

approval holder’’ was listed as ‘‘U.S.

production approval holder’’. This was

an error and is revised. Also this has

been corrected in the rule.

Finally, although used throughout the

NPRM in discussing items to be

inspected, the word ‘‘part’’ was

inadvertently omitted from the

definition of ‘‘Manufacturing facility’’

found in Appendix C (c). This has been

corrected in the rule.

Discussion of Comments

The FAA considered a total of 242

comments on the proposed rule, of

which 232 were identical or nearly

identical. Of the total number of

comments, 38 were received before the

comment period closed on August 14,

1997, and 204 were received after the

comment period closed. Comments

were received from: the International

Association of Machinists and

Aerospace Workers (IAM) (one from the

IAM President as well as 227 additional

comments from its lodges and

members), the Aerospace Industries

Association of America (AIA) (two

comments), the General Aviation

Manufacturers Association (GAMA) and

AIA (a joint comment), the NORDAM

Group (submitted twice), the Timken

Company, the Parker Hannifin

Corporation, the Bureau Veritas of

France, individuals (seven), and from a

law firm. For the purposes of

responding to the comments, the FAA

has grouped together, for discussion,

comments with essentially identical

analyses. All comments received were

carefully considered prior to the

issuance of the final rule.

Several of the comments addressed

multiple issues and some of the issues

were addressed by many commenters.

As a result, the FAA responses to the

comments are organized, not by

individual comment, but by the

following general issues: employment

issues, safety and quality issues, cost

issues, and miscellaneous issues.

Employment Issues

IAM’s President’s comments, the local

lodges’ comments, and the members’

comments opposed the proposal for

similar reasons. They state that the

proposal would facilitate the ability of

PAHs to substitute products

manufactured by facilities and suppliers

located outside the United States for

products manufactured in the United

States. The result would be a loss of

high pay, high skill production jobs in

the United States.

The FAA disagrees with the analyses

of these comments. The rule is designed

to allow the FAA to provide special

production certification-related services

to PAHs and suppliers outside the

United States when and where these

services are needed and paid for by the

PAH. The rule is not designed to, as

claimed by the commenters, ‘‘expedite

the manufacture of aerospace parts off

shore.’’ Nor do the commenters provide

any data that this rule will specifically

have the effects claimed.

For over 15 years, the FAA has

performed production certificationrelated services both domestically and

internationally for PAHs that have used

facilities and suppliers located outside

of the United States. The use of these

facilities and suppliers has increased

over time for several reasons; one reason

is that customers outside the United

States have purchased U.S. aerospace

products on the condition that a share

of the product be manufactured in their

countries. These conditions are known

as ‘‘offset’’ agreements. This rule takes

no position on the use of offsets.

However, the FAA is required by law to

provide production certification-related

services outside the United States to

ensure that the product conforms to

FAA’s safety requirements. As seen in

more detail in the International Trade

Impact section of this Preamble and in

the Final Regulatory Evaluation of the

rule, the FAA recognizes that the

indirect effect of this rule may increase
Federal Register / Vol. 62, No. 207 / Monday, October 27, 1997 / Rules and Regulations 55699

the use of facilities and suppliers

outside the United States. This increase

may not be at the expense of production

that would otherwise occur in the

United States. As explained in the

International statement and regulatory

evaluation, it is anticipated that this

rule may indirectly result in an overall

increase in the production of U.S.

aircraft due to expanded access to

export markets.

The language of the final rule has

been clarified in Appendix C, paragraph

(d)(1) to reflect the voluntary nature of

the agreement.

Safety Issues

IAM also states that the rule will

increase the use of repair stations

outside the United States. In

conjunction with their contention that

the FAA will not be able to monitor

overseas facilities as effectively as it

monitors facilities in the United States,

IAM suggests the possibility of an

increase in the use of ‘‘bogus’’ or

unapproved parts into the aviation

system. As a result, IAM contends that

this rule will adversely effect air

transportation safety.

The FAA disagrees with this

comment. In order to maintain the level

of safety required, the regulations

specific to the manufacture of

commercial products (aircraft, aircraft

engines, or propellers) and parts thereof

are contained in Title 14, Code of

Federal Regulations (14 CFR) part 21

(part 21), Certification Procedures for

Products and Parts. Products and parts

manufactured anywhere in the world for

use by U.S. manufacturers under part 21

must conform to an FAA-approved type

design and be manufactured in

accordance with an approved

production certificate or parts

manufacturing approval (PMA). The

type design consists of drawings and

specifications that define the

configuration and design features of the

product. An approved production

certificate or PMA contains a

manufacturer’s quality/inspection

control system that describes the

methods, tests, and inspections

necessary to ensure that each product or

part produced conforms with the type

design and is in a condition for safe

operation.

This rule does not change the basic

FAA approach to meeting its statutory

responsibility. The FAA will continue

to inspect parts manufactured in the

United States and the FAA will

continue, as resources allow, to inspect

parts manufactured outside the United

States by PAHs. If resources are

insufficient, the FAA will continue to

require that the parts be fully

inspectable in the United States, or be

inspected by appropriate civil aviation

authorities (CAA). The rule adds the

option of having the FAA perform safety

assessments at non-U.S. facilities to

confirm compliance with FAA

regulations if the PAH desires to

provide the financial resources and the

FAA can accommodate the PAH’s

request. This rule will continue the

FAA’s past and current efforts to ensure

both the safety of and the manufacture

of aerospace products wherever those

products are manufactured.

Also, the comments regarding the use

of foreign repair stations, as well as

repairs on products, are outside the

scope of this rulemaking. The

regulations for maintenance and repair

are covered under 14 CFR part 43,

Maintenance, Preventive Maintenance,

Rebuilding, and Alteration, and part

187, Fees, Appendix A.

However, one possible byproduct of

this rule is that it could result in a

greater FAA presence outside the

United States which could deter, rather

than encourage, the manufacturer(s) of

‘‘bogus parts.’’ Arguably, this could

increase safety for not only U.S. aviation

users, but all aviation users.

Parker Hannifin Corporation suggests

that the FAA adopt the ISO 9000 quality

system as the ‘‘worlds’’ quality system,

thereby, eliminating the burden for the

additional oversight needed to monitor

these suppliers. The commenter asserts

that safety would not be jeopardized,

and the FAA could work with the

‘‘foreign aviation authorities’’ to monitor

the suppliers.

The FAA disagrees with this

comment. United States law requires the

FAA to prescribe minimum

performance standards for

manufacturers. The ISO 9000 series of

quality standards do not provide the

same level of safety as the regulations

promulgated by the FAA. Additionally,

ISO 9000 is an industry developed

quality standard subject to change in an

unpredictable fashion outside the

authority of the FAA. The FAA could

not meet its statutory obligation through

this standard and the commenter

provided no data in support of its view

that FAA’s adoption of ISO 9000 in lieu

of this and other existing rules could

provide an equivalent level of safety.

The AIA and an individual

commenter suggest that the FAA

recognize that other CAAs could

provide oversight and audits on behalf

of the FAA. Then, ‘‘the requirement for

the FAA to perform PAH certification

services could be waived and this

would be more cost effective. This

solution should be allowed as mutually

agreed to by the FAA and the PAH.’’

Also, Bureau Veritas of France (a private

consulting firm) states that it wants to

contract for inspection services with the

FAA.

The FAA agrees in part with this

comment. Where possible, the FAA has

entered into bilateral airworthiness

agreements with other CAAs to perform,

as appropriate, inspection services.

However, it is not currently possible to

cover through bilateral agreements every

needed service at every desired location.

Also, as to the suggestion that a private

company could provide these services,

the FAA believes at this time the agency

is best suited to perform these services

for PAHs under U.S. law.

This rule allows for a voluntary

agreement between the FAA and the

PAH to cover production that cannot be

inspected in the United States or

through bilaterals by CAAs. This is an

alternate method for the PAH to obtain

the production certification-related

services they need to comply with the

regulations. Also, it should be noted

most CAAs currently charge a fee for

their services when inspecting on behalf

of the FAA.

One individual commenter states that

once the PAH has demonstrated a

satisfactory quality assurance system

and the systemic and periodic oversight

in accordance with that system, the

FAA could rely upon the PAH’s

evaluation (audit).

The FAA agrees in part with this

comment. Once PAHs and suppliers

have established and maintained an

effective quality assurance system,

surveillance could be reduced.

However, the FAA is mandated by law

to perform certain functions, including

evaluations (auditing) and random

inspections, to assure that PAHs remain

in compliance with regulations. The

rule allows for the FAA and the PAH to

consider this type of situation in

agreeing what inspection services

outside the United States are needed to

meet the goals of the PAH and the

requirements of the FAA.

The AIA and GAMA state that this

rule should only apply to ‘‘priority

parts.’’

The FAA agrees with this comment.

The FAA expects to continue to focus

its resources on conducting

surveillances at PAH and ‘‘priority part’’

supplier facilities, unless safety

concerns (e.g., supplier control

problems) mandate otherwise. However,

the FAA will consider each situation on

a case-by-case basis as each PAH

requests services.

Various commenters express concerns

over ‘‘a potential degradation in part

quality and air safety brought about
55700 Federal Register / Vol. 62, No. 207 / Monday, October 27, 1997 / Rules and Regulations

through low cost labor acquired in

foreign countries.’’

The FAA disagrees with this

comment. In order to maintain the level

of safety required, the FAA promulgates

regulations specific to the manufacture

of commercial products. Products and

parts manufactured for use by U.S.

manufacturers anywhere in the world

must conform to the regulations by

having an FAA-approved type design

and be manufactured in accordance

with an approved production certificate

or PMA. This rule is not for the purpose

of allowing PAHs to use low cost labor

nor does the FAA believe that this rule

could increase FAA inspection of parts

outside the United States. In fact, it

could increase the amount of parts

manufactured overseas under direct and

appropriate FAA inspection/

surveillance resulting in enhanced

safety.

Cost Issues

Parker Hannifin Corp., AIA, and

GAMA are concerned that this rule

‘‘initiates double taxation.’’ ‘‘We as

taxpayers already pay for government

employee compensation and

administrative overhead expenses for

services rendered’’, and ‘‘that services

should be funded through general

revenues.’’

The FAA disagrees with the comment.

The FAA does not have the resources to

provide full production certificationrelated services by agreement

throughout the world. This rule affords

the PAH an opportunity to expedite the

receipt of the services where and when

the PAH needs those services. This rule

is a voluntary way for the FAA to

provide services to the industry in a

more responsive and timely manner

using industry rather than taxpayer

funds. But the FAA will continue to

provide inspection services overseas as

resources permit. In addition, the rule

allows recipients of specific FAA

services, rather than the general

taxpayer, to pay for those specific

services.

Also, AIA and GAMA believe that

only marginal (direct) costs should be

recovered.

The FAA disagrees with the comment.

Pursuant to OMB Circular A–25, the

FAA is directed to recover the full cost

associated with providing production

certification-related services outside the

United States. Costs to be recovered

include personnel compensation and

benefits, travel and transportation costs,

and other agency costs. Also, this

practice is consistent with the fees

charged by other Federal agencies for

similar services.

The AIA and GAMA further state that

for many industries, budgets are

established based on a different

calendar year than that of the

government. They contend that this

difference may create a difficulty for the

PAHs budgeting for future FAA

services.

The FAA agrees with this comment.

The FAA has designed its procedures to

accommodate differing accounting years

between Government and industry.

Applicants for these services can

request and arrange for services on any

mutually agreeable periodic basis.

The language of the final rule has

been clarified in Appendix C, paragraph

(f), to reflect this change.

The AIA and GAMA are concerned

that ‘‘real time’’ business decisions

would be constrained by the Federal

budget process.

The FAA agrees in part with this

comment. The FAA’s goal is to provide

a flexible alternative which can quickly

respond to ‘‘real time’’ needs. However,

there are limits to FAA’s ability to

respond to every situation immediately.

Nevertheless, the rule allows the FAA

greater flexibility to respond and,

thereby, improve its coordination with

business.

Several commenters express concern

regarding how the FAA will manage the

program under this rule.

The FAA is developing the necessary

procedures to implement the rule that

will provide requirements for PAHs

application, FAA/industry

memorandum of agreement, and

accounting and reporting systems.

Concurrent with publication of NPRM

No. 97–11, the FAA has published a

notice of availability of Proposed

Advisory Circular 187–XX. The final

advisory circular will be issued in the

near future.

The AIA contends that a statement in

the preamble is incorrect because some

U.S. suppliers could lose business. The

statement follows: ‘‘This proposed rule

would not impose any additional costs

on any members of society other than

those requesting FAA production

certification-related services for

manufacturing outside the United

States.

The FAA agrees with this comment to

the extent that some U.S. suppliers

could be adversely affected, but does

not agree with the commenter that this

effect will be substantial. The rule

recognizes the long standing U.S.

industry practice of conducting

manufacturing outside the United States

and, where possible, allows for FAA

inspection services by agreement.

The Timken Company estimates that

the proposed rule, if enacted, would

cost his company $80,000 in the first

year for no discernible benefit to his

company.

The FAA cannot agree or disagree

with this comment, as the commenter

did not provide supporting data.

The AIA and GAMA state ‘‘that cost

recovery charges should not be assessed

at suppliers based on allegations,

otherwise a PAH may suffer

considerable expense because of

unfounded allegations (perhaps by a

competitor).’’

The FAA disagrees with this

comment. The FAA will not recover

costs associated with special

investigations (e.g., investigations

resulting from accidents and incidents,

suspected unapproved part). However,

if safety concerns should arise (e.g.,

supplier control problems) which

require changes to agreements, those

agreements will be renegotiated or

terminated.

Miscellaneous Issues

The IAM questions whether FAA

resources would be stretched too thin to

be effective and responsive under this

rule.

The FAA disagrees with this

comment. The FAA will increase its

staffing levels to accommodate

additional work load if voluntary

agreements require such an increase.

The final rule language has been

clarified (Appendix C, paragraph (d)(3))

to state the FAA will provide services

on request only when it can reasonably

do so.

The AIA and GAMA suggest that ‘‘any

foreign cost recovery scheme must

apply only to new programs or supplier

arrangements. Existing arrangements

must be undisturbed by its

implementation.’’

The FAA agrees in part with this

comment. This rule does not require

existing arrangements to be changed.

However, if companies with existing

international suppliers did not apply,

they would have an economic advantage

over new entrants in the international

market place, thereby impeding

international competitiveness. All PAHs

have the option to voluntarily apply.

The AIA and GAMA recommend that

a policy be established to preclude

wasteful practices by FAA, such as:

multiple visits to a single country/area

by FAA personnel, multiple visits to a

supplier by various FAA regions;

increased audits of foreign suppliers

over and above normal FAA

surveillance, etc.

The FAA agrees with the comment.

Future voluntary agreements will be

incorporated into FAA planning to

minimize inefficient practices.
Federal Register / Vol. 62, No. 207 / Monday, October 27, 1997 / Rules and Regulations 55701

The AIA and GAMA suggest that an

appeal process be addressed as part of

the rule when the FAA revokes an

approval.

The FAA agrees with this comment.

Title 14, CFR part 13 provides such an

appeal process.

NORDAM Group expresses concern

regarding FAA support to those PAHs

who made a voluntary agreement to pay

for ‘‘better services’’ versus those PAHs

who did not.

The FAA disagrees with this

comment. As stated previously, this rule

provides the option to PAHs to obtain

inspection services by agreement when

the FAA does not have resources to

perform these services. The FAA will

continue to provide services when and

where resources permit. The FAA will

treat all requests in a fair manner,

consistent with its responsibilities.

The language of the final rule has

been clarified in Appendix C, paragraph

(d)(1), to reflect that the agreement is an

option available to a PAH who chooses

to use suppliers located outside the U.S.

NORDAM Group asks: ‘‘if foreignlocated sub-tier vendors (suppliers) are

covered;’’ ‘‘if the rule will constitute a

way around the Bilateral Aviation

Safety Agreement (BASA) process;’’ and

‘‘does it make a difference where their

PAH is located? (U.S. or foreign).’’

The FAA responds to the comments

with the following: any FAA-approved

PAH who uses suppliers at any level

outside the United States will have the

option to request services under this

rule. Also, this rule does not circumvent

the BASA process. PAHs have the

option to utilize suppliers in any other

country. However, it is not assumed that

the FAA can call upon another authority

through the Bilateral Airworthiness

Agreement (BAA) or BASA process to

assist with its oversight responsibilities.

While a BASA recognizes that a CAA

has the capability and authority to

perform reciprocal services, a CAA may

not have sufficient staff and resources to

support specific U.S. PAH activities.

The FAA can only ask for the CAA’s

assistance, not guarantee it. If the PAH

needs the FAA to perform services that

a CAA cannot perform due to the lack

of resources, time, experience, or

authority (i.e., Aircraft Certification

Service Evaluation Program (ACSEP)),

routine evaluations and surveillance), a

voluntary agreement may be needed.

Also, as discussed in Advisory Circular,

AC 21–20B, Supplier Surveillance

Procedures, the CAA may charge the

PAH or it’s suppliers to perform services

on behalf of the FAA. It does not matter

where the PAH is located. Again, this

option is available to any PAH who

chooses to use suppliers located outside

the U.S.

The AIA and GAMA state that if the

PAH chooses to use a supplier in a nonbilateral country then the FAA should

not charge the PAHs for the training

provided to the other country’s

authority.

The FAA agrees with the comment.

The training FAA may provide to

another authority is not applicable to

the cost of production certificationrelated services the FAA will provide.

An IAM Local, Air Transport District

143, has a concern that employees of a

foreign aircraft manufacturer are not

randomly tested for drugs and do not

follow Occupation Safety Health

Administration (OSHA) standards

similar to those in the United States.

This comment does not address

matters within the scope of this rule.

Also, it should be noted that the FAA

does not require aircraft manufacturing

employees to be randomly tested for

drugs in the United States.

NORDAM Group asks ‘‘will the

foreign PAH’s agreement to pay before

the project begins, constitute a blank

check and thus create an incentive for

the FAA to maximize its revenues?’

The voluntary agreements between

the PAH and FAA include a detailed

schedule of services. This schedule will

identify the types of specialists needed

and the number of hours projected for

work on each project. Payment to the

FAA would only include funding for

work agreed to in the schedule of

services. The FAA will not collect any

funds for which specific activities or

work projects have not been identified.

The language of the final rule has

been clarified in Appendix C, paragraph

(e), to reflect that only actual FAA costs

of providing the services will be

charged. Also, the term ‘‘prepaid’’ has

been replaced with ‘‘estimated’’ to better

reflect the terms of the agreement.

The AIA and the law firm of

Winthrop, Stimson, Putman, and

Roberts both request an extension to the

comment period in this rulemaking.

Both state they need additional time for

distribution of the NPRM to members

for review, analysis, and return of

comments.

The FAA did not approve this

request. As noted above, the FAA has

considered, to the extent practical,

comments received prior to the issuance

of the final rule. As over 200 comments

were received and considered, it is clear

most commenters had adequate time to

submit comments and further delay was

not in the public interest.

Meeting

At the request of the IAM, a meeting

was held with OMB on October 20,

1997. The IAM representative stated

that, while the aerospace industry was

in a boom right now, the IAM was

concerned about the future. The IAM

foresaw a time when other countries

would seek to expand their share of

aerospace production. The IAM’s

concerns extend primarily to China,

Japan, and third world countries. The

IAM said that the NPRM states that the

rulemaking facilitates manufacturing

outside the United States, and urged

that the government resist pressures to

permit or encourage this practice.

The IAM representative also stated

that it was currently possible to trace

the materials and components of every

aircraft part to ‘‘when it was born.’’ The

IAM representative expresses concern

that this ability would be diminished

with respect to parts manufactured

outside the United States.

International Compatibility

The FAA has reviewed corresponding

International Civil Aviation

Organization international standards

and recommended practices and Joint

Aviation Authorities requirements and

has identified no comparable

requirements applicable to this rule.

Paperwork Reduction Act

Information collection requirements

in this rule have been approved by the

Office of Management and Budget

(OMB) under the provisions of the

Paperwork Reduction Act of 1995 (44

U.S.C. 3507(d)), and have been assigned

OMB Control Number 2120–0615.

Regulatory Evaluation Summary

Changes to Federal regulations must

undergo several economic analyses.

First, Executive Order 12866 directs that

each Federal agency shall propose or

adopt a regulation only upon a reasoned

determination that the benefits of the

intended regulation justify the costs.

Second, the Regulatory Flexibility Act

of 1980 requires agencies to analyze the

economic effect of regulatory changes

on small entities. Third, the Office of

Management and Budget directs

agencies to assess the effect of

regulatory changes on international

trade. In conducting these analyses, the

FAA has determined that this rule: (1)

will generate benefits that justify its

costs; (2) will not have a significant

impact on a substantial number of small

entities; and (3) will not constitute a

barrier to international trade. These

analyses, available in the docket, are

summarized below.
55702 Federal Register / Vol. 62, No. 207 / Monday, October 27, 1997 / Rules and Regulations

As previously stated, the fee will be

that amount necessary for the FAA to

recover its full costs. The FAA has

determined that an average hourly fee

will be about $120. On that basis, the

FAA calculates that the first year fees

will total about $4.038 million (in 1997

dollars). Due to an anticipated increase

in the number of requests for FAA

production certification-related services

outside the United States as the

aerospace industry grows, these annual

fees will increase to about $5.912

million (in 1997 dollars) in the fifth

year, after which they would remain

stable.

In addition, the FAA has determined

that it will take an applicant 60 hours

of legal, management, and engineering

time for a PAH to complete the

paperwork required for the first

agreement. After that first year, it will

take 20 hours of legal, management, and

engineering time for a PAH to complete

the paperwork for each succeeding

agreement.

The primary benefit from this rule

will be that it will allow the FAA to

perform its safety inspection functions

in a more efficient, cost-effective

manner. The final rule allows the FAA

to be more responsive to PAHs; thereby

reducing the time between when the

PAH requests the service and the time

when the FAA provides it. This

enhanced responsiveness will increase

the integration of new and innovative

safety technology developed outside the

United States into aircraft and enhance

the safety of the aircraft fleet. Further,

although the rule’s purpose is to

facilitate safety inspections, not to

promote production outside the United

States, it will allow the FAA to fulfill its

safety inspection functions for PAH

offset agreements (where a certain

percentage of the aircraft must be

manufactured or assembled in the

country). As a result, it will make the

PAH more competitive in the global

aviation market. Finally, it will require

recipients of specific services from the

FAA, rather than the general taxpayer,

to pay for these services.

Regulatory Flexibility Determination

The Regulatory Flexibility Act of 1980

(RFA) was enacted by Congress to

ensure that small entities are not

unnecessarily and disproportionately

burdened by Federal regulations. The

RFA requires a Regulatory Flexibility

Analysis if a rule has a significant

(positive or negative) economic impact

on a substantial number of small

entities.

The rule will primarily affect PAHs

that have facilities and suppliers located

outside the United States. Although the

rule may have an indirect adverse effect

on some small U.S. suppliers, it may

also have an indirect positive effect on

other small U.S. suppliers. As a result,

the FAA has determined that the rule

will not have a significant impact on a

substantial number of small entities.

International Trade Impact Analysis

The growing globalization of aircraft

manufacturing has increased

competition among manufacturers. In

order for PAHs to remain competitive,

they need to have the flexibility to

compete on an equal footing with their

competitors located throughout the

world. Further, many overseas

purchasers of a PAH product often

contractually require that some

percentage of the product be produced

in their own country.

The rule could affect international

trade through: (1) the amount of the

FAA fee; and (2) facilitating the use of

facilities and suppliers outside the

United States.

Charging a fee for the FAA’s

production certification-related services

for facilities and suppliers outside the

United States could slightly raise the

costs of using them. One commenter

stated that the rule would cost his

company $80,000 per year for no gain in

benefit. However, the rule will provide

PAHs with more timely FAA provision

of those services, thereby reducing the

time to manufacture the product. Two

commenters stated that the fees were

needed to provide these necessary FAA

services when they are needed. After

careful review and evaluation, the FAA

has determined that the amount of the

fee will have only a minimal affect on

a PAH’s decision to use a facility or

supplier located outside of the United

States, and, therefore, have only a

minimal affect on international trade.

With respect to the use of facilities

and suppliers outside the United States,

the rule will provide PAHs with more

timely FAA provision of production

certification-related services. This

enhanced FAA responsiveness should

reduce some of the production time lost

as a result of these facilities and

suppliers waiting for the FAA service.

Consequently, the rule could increase

the productivity of those facilities and

suppliers and, thereby, could lower

costs to the U.S. PAHs that use them.

An additional consideration is that

many buyers outside the United States

require offset agreements through which

an aerospace product seller guarantees

that a percentage of the product is built

in that country. If the U.S. manufacturer

cannot guarantee that percentage, then a

non-U.S. manufacturer who can

guarantee that percentage will have a

competitive advantage in selling its

product. The rule will also increase the

productivity of these facilities and

suppliers and, therefore, lower costs to

the U.S. PAHs that use them.

The effects of the rule on international

trade are difficult to predict and will

also be influenced by FAA’s

implementation of the rule. For the most

part, FAA intends to direct its

certification activities, consistent with

the practice of U.S. manufacturers,

towards the use of existing, experienced

aviation manufacturers as opposed to

setting up new production facilities

overseas. However, to perform its safety

responsibilities, FAA must be able to

effectively provide manufacturing

oversight of these overseas

manufacturers. To the extent that

services are not provided because of

FAA budgetary and administrative

constraints, U.S. manufacturers and our

country’s competitive position will be

harmed.

By providing these existing services

in a more timely, effective fashion, FAA

believes that the final rule will have the

net effect of improving our international

competitiveness while minimizing any

adverse effects on domestic suppliers.

Federalism Implications

The regulations herein will not have

substantial direct effects on the States,

on the relationship between the national

government and the States, or on the

distribution of power and

responsibilities among the various

levels of government. Therefore, in

accordance with Executive Order 12612,

it is determined that this rule will not

have sufficient federalism implications

to warrant the preparation of a

Federalism Assessment.

Unfunded Mandates Reform Act

This rule does not contain any

Federal intergovernmental or private

sector mandate because all fees are

entered into by voluntary agreement.

Therefore, the requirements of Title II of

the Unfunded Mandates Reform Act of

1995 do not apply.

Conclusion

For the reasons discussed above, in

the preamble, and based on the findings

in the Regulatory Flexibility

Determination and the International

Trade Impact Analysis, the FAA has

determined that this regulation is a

‘‘significant regulatory action’’ under

Executive Order 12866, Regulatory

Planning and Review, issued October 4,

1993. However, the FAA certifies that

this rule will not have a significant

economic impact, positive or negative,

on a substantial number of small entities
Federal Register / Vol. 62, No. 207 / Monday, October 27, 1997 / Rules and Regulations 55703

under the criteria of the Regulatory

Flexibility Act. This rule is considered

significant under DOT Regulatory

Policies and Procedures (44 FR 11034,

February 26, 1979) and Order DOT

2100.5, Policies and Procedures for

Simplification, Analysis, and Review of

Regulations, of May 22, 1980. Also, this

rule is considered significant and has

been reviewed by OMB. Further, the

requirements of Title II of the Unfunded

Mandates Reform Act of 1995 will not

apply to this rule. A regulatory

evaluation of the rule, including a

Regulatory Flexibility Determination

and International Trade Impact

Analysis, has been placed in the docket.

A copy may be obtained by contacting

the person identified under FOR FURTHER

INFORMATION CONTACT.

List of Subjects in 14 CFR Part 187

Administrative practice and

procedures, Air transportation.

The Amendment

In consideration of the foregoing, the

Federal Aviation Administration

amends part 187 of Title 14, Code of

Federal Regulations (14 CFR part 187) as

follows:

PART 187—FEES

1. The authority citation for part 187

is revised to read as follows:

Authority: 31 U.S.C. 9701; 49 U.S.C.

106(g), 49 U.S.C. 106(l)(6), 40104–40105,

40109, 40113–40114, 44702.

2. Sections 187.15(a) and (b) are

revised to read as follows:

§ 187.15 Payment of fees.

(a) The fees of this part are payable to

the Federal Aviation Administration by

check, money order, wire transfer, or

draft, payable in U.S. currency and

drawn on a U.S. bank prior to the

provision of any service under this part.

(b) Applicants for the FAA services

provided under this part shall pay any

bank processing charges on fees

collected under this part, when such

charges are assessed on U.S.

Government.

* * * * *

3. Section 187.17 is added to read as

follows:

§ 187.17 Failure by applicant to pay

prescribed fees.

If an applicant fails to pay fees agreed

to under Appendix C of this part, the

FAA may suspend or deny any

application for service and may suspend

or revoke any production certificationrelated approval granted.

4. Appendix C is added to read as

follows:

Appendix C to Part 187—Fees for

Production Certification-Related

Services Performed Outside the United

States

(a) Purpose. This appendix describes the

methodology for the calculation of fees for

production certification-related services

outside the United States that are performed

by the FAA.

(b) Applicability. This appendix applies to

production approval holders who elect to use

manufacturing facilities or supplier facilities

located outside the United States to

manufacture or assemble aeronautical

products after September 30, 1997.

(c) Definitions. For the purpose of this

appendix, the following definitions apply:

Manufacturing facility means a place

where production of a complete aircraft,

aircraft engine, propeller, part, component, or

appliance is performed.

Production certification-related service

means a service associated with initial

production approval holder qualification;

ongoing production approval holder and

supplier surveillance; designee management;

initial production approval holder

qualification and ongoing surveillance for

production certificate extensions outside the

United States; conformity inspections; and

witnessing of tests.

Supplier facility means a place where

production of a part, component, or

subassembly is performed for a production

approval holder.

Production approval holder means a

person who holds an FAA approval for

production under type certificate only, an

FAA approval for production under an

approved production inspection system, a

production certificate, a technical standard

order authorization, or a parts manufacturer

approval.

(d) Procedural requirements.

(1) Applicants may apply for FAA

production certification-related services

provided outside the United States by a letter

of application to the FAA detailing when and

where the particular services are required.

(2) The FAA will notify the applicant in

writing of the estimated cost and schedule to

provide the services.

(3) The applicant will review the estimated

costs and schedule of services. If the

applicant agrees with the estimated costs and

schedule of services, the applicant will

propose to the FAA that the services be

provided. If the FAA agrees and can provide

the services requested, a written agreement

will be executed between the applicant and

the FAA.

(4) The applicant must provide advance

payment for each 12-month period of agreed

FAA service unless a shorter period is agreed

to between the Production Approval Holder

and FAA.

(e) Fee determination.

(1) Fees for FAA production certificationrelated services will consist of: personnel

compensation and benefit (PC&B) for each

participating FAA employee, actual travel

and transportation expenses incurred in

providing the service, other agency costs and

an overhead percentage.

(2) Fees will be determined on a case-bycase basis according to the following general

formula:

W1H1+ W2H2 etc., + T + O

Where:

W1H1=hourly PC&B rate for employee 1,

times estimated hours

W2H2=hourly PC&B rate for employee 2, etc.,

times estimated hours

T=estimated travel and transportation

expenses

O=other agency costs related to each activity

including overhead.

(3) In no event will the applicant be

charged more than the actual FAA costs of

providing production certification-related

services.

(4) If the actual FAA costs vary from the

estimated fees by more than 10 percent,

written notice by the FAA will be given to

the applicant as soon as possible.

(5) If FAA costs exceed the estimated fees,

the applicant will be required to pay the

difference prior to receiving further services.

If the estimated fees exceed the FAA costs,

the applicant may elect to apply the balance

to future agreements or to receive a refund.

(f) Fees will be reviewed by the FAA

periodically and adjusted either upward or

downward in order to reflect the current

costs of performing production certificationrelated services outside the United States.

(1) Notice of any change to the elements of

the fee formula in this Appendix will be

published in the Federal Register.

(2) Notice of any change to the

methodology in this Appendix and other

changes for the fees will be published in the

Federal Register.

Issued in Washington, DC, on October 22,

1997.

Jane F. Garvey,

Administrator.

[FR Doc. 97–28467 Filed 10–23–97; 10:36am]

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