8188 Federal Register / Vol. 60, No. 29 / Monday, February 13, 1995 / Rules and Regulations

3 In addition to the core capital elements, Tier 1

may also include certain supplementary capital

elements during the transition period subject to

certain limitations set forth in section III of this

statement of policy.

4An exception is allowed for intangible assets

that are explicitly approved by the FDIC as part of

the bank’s regulatory capital on a specific case

basis. These intangibles will be included in capital

for risk-based capital purposes under the terms and

conditions that are specifically approved by the

FDIC.

(2) Tier 1 capital limitations. (i) The

maximum allowable amount of deferred

tax assets that are dependent upon

future taxable income, net of any

valuation allowance for deferred tax

assets, will be limited to the lesser of:

(A) The amount of deferred tax assets

that are dependent upon future taxable

income that is expected to be realized

within one year of the calendar quarterend date, based on projected future

taxable income for that year; or

(B) Ten percent of the amount of Tier

1 capital that exists before the deduction

of any disallowed purchased mortgage

servicing rights, any disallowed

purchased credit card relationships, and

any disallowed deferred tax assets.

(ii) For purposes of this limitation, all

existing temporary differences should

be assumed to fully reverse at the

calendar quarter-end date. The recorded

amount of deferred tax assets that are

dependent upon future taxable income,

net of any valuation allowance for

deferred tax assets, in excess of this

limitation will be deducted from assets

and from equity capital for purposes of

determining Tier 1 capital under this

part. The amount of deferred tax assets

that can be realized from taxes paid in

prior carryback years and from the

reversal of existing taxable temporary

differences generally would not be

deducted from assets and from equity

capital. However, notwithstanding the

above, the amount of carryback

potential that may be considered in

calculating the amount of deferred tax

assets that a member of a consolidated

group (for tax purposes) may include in

Tier 1 capital may not exceed the

amount which the member could

reasonably expect to have refunded by

its parent.

(3) Projected future taxable income.

Projected future taxable income should

not include net operating loss

carryforwards to be used within one

year of the most recent calendar quarterend date or the amount of existing

temporary differences expected to

reverse within that year. Projected

future taxable income should include

the estimated effect of tax planning

strategies that are expected to be

implemented to realize tax

carryforwards that will otherwise expire

during that year. Future taxable income

projections for the current fiscal year

(adjusted for any significant changes

that have occurred or are expected to

occur) may be used when applying the

capital limit at an interim calendar

quarter-end date rather then preparing a

new projection each quarter.

(4) Unrealized holding gains and

losses on available-for-sale debt

securities. The deferred tax effects of

any unrealized holding gains and losses

on available-for-sale debt securities may

be excluded from the determination of

the amount of deferred tax assets that

are dependent upon future taxable

income and the calculation of the

maximum allowable amount of such

assets. If these deferred tax effects are

excluded, this treatment must be

followed consistently over time.

(5) Intangible assets acquired in

nontaxable purchase business

combinations. A deferred tax liability

that is specifically related to an

intangible asset (other than purchased

mortgage servicing rights and purchased

credit card relationships) acquired in a

nontaxable purchase business

combination may be netted against this

intangible asset. Only the net amount of

the intangible asset must be deducted

from Tier 1 capital. When a deferred tax

liability is netted in this manner, the

taxable temporary difference that gives

rise to this deferred tax liability must be

excluded from existing taxable

temporary differences when

determining the amount of deferred tax

assets that are dependent upon future

taxable income and calculating the

maximum allowable amount of such

assets.

4. Section I.A.1. of appendix A to part

325 is amended by revising the first

paragraph following the definitions of

Core capital elements to read as follows:

Appendix A to Part 325—Statement of Policy

on Risk-Based Capital

* * * * *

I. * * *

A. * * *

1. * * *

At least 50 percent of the qualifying total

capital base should consist of Tier 1 capital.

Core (Tier 1) capital is defined as the sum of

core capital elements 3 minus all intangible

assets other than mortgage servicing rights

and purchased credit card relationships 4 and

minus any disallowed deferred tax assets.

* * * * *

5. Section I.B. of Appendix A to part

325 is amended by adding a new

paragraph (5) immediately after

paragraph (4) and preceding the final

undesignated paragraph of Section I.B.

to read as follows:

* * * * *

I. * * *

B. * * *

(5) Deferred tax assets in excess of the limit

set forth in § 325.5(g). These disallowed

deferred tax assets are deducted from the

core capital (Tier 1) elements.

* * * * *

Appendix A to Part 325 [Amended]

6. Table I in Appendix A to part 325

is amended by redesignating footnote 3

as footnote 4, by adding a new entry at

the end under ‘‘Core Capital (Tier 1)’’

and by adding a new footnote 3 to read

as follows:

TABLE I.—DEFINITION OF QUALIFYING

CAPITAL

[Note: See footnotes at end of table]

Components

Minimum requirements and limitations

after transition period

Core Capital

(Tier 1) * * *

* * * * *

Less: Certain deferred tax assers.3

* * * * *

3 Deferred tax assets are subject to the capital limitations set forth in § 325.5(g).

* * * * *

By order of the Board of Directors.

Dated at Washington, D.C., this 31st day of

January 1995.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Acting Executive Secretary.

[FR Doc. 95–3179 Filed 2–10–95; 8:45 am]

BILLING CODE 6714–01–P

CONSUMER PRODUCT SAFETY

COMMISSION

16 CFR Part 1500

Statement of Policy or Interpretation;

Enforcement Policy for Art Materials

AGENCY: Consumer Product Safety

Commission.

ACTION: Final rule; statement of

enforcement policy.

SUMMARY: In 1988, Congress enacted the

Labeling of Hazardous Art Materials Act

which mandated a labeling standard

and certain other requirements for art

materials. Based on its experience

enforcing these requirements, the

Commission is issuing a statement of

enforcement policy to more clearly

apprise the public of its intended

enforcement focus.
Federal Register / Vol. 60, No. 29 / Monday, February 13, 1995 / Rules and Regulations 8189

DATES: Effective Date; February 13,

1995.

Applicability Dates: For items for

which this policy relieves a restriction,

this policy is applicable for products

introduced into interstate commerce on

or after February 13, 1995. For items

against which the Commission

previously stated it would not enforce

under LHAMA, the policy becomes

applicable for products introduced into

interstate commerce on or after August

14, 1995.

FOR FURTHER INFORMATION CONTACT:

Mary Toro, Division of Regulatory

Management, Office of Compliance and

Enforcement, Consumer Product Safety

Commission, Washington, DC 20207;

telephone (301) 504–0400.

SUPPLEMENTARY INFORMATION:

A. Background

In 1988, Congress enacted the

Labeling of Hazardous Art Materials Act

(‘‘LHAMA’’), 15 U.S.C. 1277. Through

LHAMA, Congress expressed its desire

that art materials should be labeled to

warn consumers of potential chronic

hazards. LHAMA mandated a voluntary

standard, ASTM D 4236, with certain

modifications, as a mandatory

Commission rule under section 3(b) of

the Federal Hazardous Substances Act

(‘‘FHSA’’).

On October 9, 1992, the Commission

issued a notice in the Federal Register

that codified the standard as mandated

by Congress. 57 FR 46626. (At that time,

the Commission also issued guidelines

for determining when a product

presents a chronic hazard, and a

supplemental regulatory definition of

the term ‘‘toxic’’ that explicitly includes

chronic toxicity.) The standard is

codified at 16 CFR 1500.14(b)(8).

LHAMA and the standard it mandated

provide certain requirements for art

materials. Under these requirements, the

producer or repackager of an art

material must submit the product’s

formulation to a toxicologist to

determine whether the art material has

potential to produce chronic adverse

health effects through customary or

reasonably foreseeable use. If the

toxicologist determines that the art

material has this potential, the producer

or repackager must use suitable labeling

on the product. The producer or

manufacturer of the art material must

submit to the Commission (1) the

criteria the toxicologist uses to

determine whether the producer/

repackager’s product presents a chronic

hazard and (2) a list of art materials that

require chronic hazard labeling. The

standard also requires that the product

bear or be displayed with a conformance

statement indicating that it has been

reviewed in accordance with the

standard. The standard, which is set

forth at 16 CFR 1500.14(b)(8), and

section 2(p) of the FHSA, 15 U.S.C.

1261(p), provide additional information

on the required content of labels and the

conformance statement.

B. The Scope of ‘‘Art Materials’’

1. The Statute and Previous Commission

Interpretation

The requirements described above

apply to ‘‘art materials’’ as broadly

defined in LHAMA. The term art

material is defined in the statute as ‘‘any

substance marketed or represented by

the producer or repackager as suitable

for use in any phase of the creation of

any work of visual or graphic art of any

medium.’’ 15 U.S.C. 1277(b)(1). The

definition applies to art materials

intended for users of any age, but

excludes pesticides, drugs, devices, and

cosmetics subject to other federal

statutes, Id. 1277(b) (1) and (2).

When the Commission issued the

final rule implementing the LHAMA

provisions on October 9, 1992, it

recognized that the statutory definition

of art material could be interpreted to

reach far beyond the common

perception of the meaning of that term.

Accordingly, the Commission identified

three categories of products that it

would not enforce the LHAMA

requirements against, although they

arguably fall within the statutory

definition of art materials. Specifically,

the Commission stated that it would not

enforce the LHAMA requirements

against tools, implements, and furniture

that were used in the process of creating

a work of art but do not become part of

the work of art (called ‘‘category 3

products’’ in the October 9, 1992

notice). Examples provided of items that

might fall into this category were

drafting tables and chairs, easels,

picture frames, canvas stretchers,

potter’s wheels, hammers, chisels, and

air pumps for air brushes.

The Commission also delineated two

general categories of products which

could fall within the statutory definition

and against which the Commission

would enforce the LHAMA

requirements. The October 9, 1992

notice identified these items as products

which actually become a component of

the work of art (e.g., paint, canvas, inks)

(previously ‘‘category 1 products’’) and

products closely and intimately

associated with the creation of an art

work (e.g., brush cleaners, solvents,

photo developing chemicals)

(previously ‘‘category 2 products’’).

2. The Statement of Enforcement Policy

The distinctions made in the October

9, 1992 notice have proved

unsatisfactory in the practical

enforcement of the LHAMA

requirements. The staff has found that

these categories, and enforcement

policies based on the categories, may

lead to inconsistent determinations.

Thus, the Commission began to

reconsider its enforcement of the

LHAMA requirements against certain

products. On March 8, 1994, the

Commission published a proposed

Enforcement Policy for Art Materials. 59

FR 10761. Today, the Commission is

finalizing its enforcement policy

essentially as it was proposed. This

notice restates the enforcement policy,

clarifies several issues, and responds to

public comments received on the

proposal. This interpretation will

supersede the enforcement policy stated

in the October 9, 1992 notice and other

related interpretations.

The Commission will focus its

enforcement efforts on items that have

traditionally been considered art

materials, such as paints, inks, solvents,

pastes, ceramic glazes, and crayons, and

on other items that may present a risk

of chronic injury. This enforcement

policy will not compromise public

safety because there is virtually no risk

of chronic health effects with the types

of products and materials—such as

paper or hard plastic—that the

Commission will not enforce against.

Also, even if such products presented

such a risk, the Federal Hazardous

Substances Act, 15 U.S.C. 1261(p),

requires cautionary labeling for any

article intended or packaged for

household use if it contains a hazardous

substance. This includes, but is not

limited to, art materials that, under

reasonably foreseeable conditions of

purchase, storage, or use, may be used

in or around the household. Unless

expressly exempted, children’s articles

are banned under the FHSA if they are

or contain a hazardous substance. The

Commission believes that the public

interest will be better served by this

exercise of enforcement discretion

because the staff can use its limited

resources more efficiently to pursue

enforcement actions against those art

materials that present the greatest risk of

chronic health effects.

The Commission will not enforce

against the following types of products

under LHAMA.

(1) General use products. The

Commission will not take enforcement

action under LHAMA against general

use products which might incidentally

be used to create art, unless a particular
8190 Federal Register / Vol. 60, No. 29 / Monday, February 13, 1995 / Rules and Regulations

product is specifically packaged,

promoted, or marketed in a manner that

would lead a reasonable person to

conclude that it is intended for use as

an art material. Examples of such

general use products are common wood

pencils, pens, markers, and chalk. For

enforcement purposes, the Commission

presumes that these types of items are

not art materials. The presumption can

be overcome, however, by evidence that

such an item is intended for specific use

in creating art. Factors the Commission

will consider to determine the status of

such items include how the items are

packaged (e.g., packages of multiple

colored pencils, chalks, or markers

unless promoted for non-art material

uses are likely to be art materials), how

they are marketed and promoted (e.g.,

pencils and pens intended specifically

for sketching and drawing are likely to

be art materials), and where they are

sold (e.g., products sold in an art supply

store are likely to be art materials).

(2) Tools, implements, and furniture.

The Commission will not take

enforcement action under LHAMA

against tools, implements, and furniture

used in the creation of a work of art,

such as brushes, chisels, easels, picture

frames, drafting tables and chairs,

canvas stretchers, potter’s wheels,

hammers, and air pumps for air brushes.

In this policy statement the Commission

expands the scope of what were referred

to as ‘‘category 3’’ art materials in the

October 9, 1992 notice. Based on the

Commission’s enforcement experience,

the Commission will consider some

items that it previously categorized as

closely and intimately associated with

creation of a work of art (previously

‘‘category 2’’ products) to be tools,

implements and furniture. The

Commission believes that these items

(brushes, kilns, and molds) are better

characterized as tools and implements

against which the Commission will not

enforce the LHAMA requirements. The

Commission believes this revised

interpretation is more consistent with

the purposes of LHAMA. They are not

like the more traditional art materials

mentioned in LHAMA floor debates,

and they are unlikely to pose a chronic

hazard to the user.

(3) Surface materials. The

Commission will not take enforcement

action under LHAMA against the

surface materials to which an art

material is applied. Examples are

coloring books and canvas. In many

instances, an art material is applied to

a surface such as paper, plastic, wood,

or cloth. These surfaces continue to be

components of the work of art and thus

art materials, but are now characterized

as products against which the

Commission will not enforce the

LHAMA requirements.

(4) Specific Materials. The

Commission will also not take

enforcement action under LHAMA

against the following specifically

enumerated materials: paper, cloth,

plastic, film, yarn, threads, rubber, sand,

wood, stone, tile, masonry, and metal.

Several of these materials are often used

as a surface for art work while others are

used to create the work of art itself.

Regardless of whether such items are

used as a surface or not, the

Commission will not enforce the

LHAMA requirements against them.

The guidance given in (3) and (4)

above does not apply if the processing

or handling of a material exposes users

to chemicals in or on the material in a

manner which makes those chemicals

susceptible to being ingested, absorbed

through the skin, or inhaled. The

Commission believes that in most cases,

the surfaces and specific materials listed

do not present a chronic risk. These

types of materials are unlikely to allow

exposure. However, if it is likely that

reasonably foreseeable handling or use

of the material would expose the

consumer to chemicals, the Commission

will enforce all LHAMA requirements

with respect to that product. This is a

question of potential exposure, not the

manufacturer’s assessment of hazard.

Thus, even if the chemical to which the

consumer might be exposed is

potentially non-hazardous, the

Commission would enforce the LHAMA

requirements, including review by a

toxicologist. This is consistent with

Congress’s intention that a toxicologist,

not the manufacturer, should assess the

potential chronic hazard.

For example, paper stickers marketed

or promoted as art materials often have

an adhesive backing that users lick. The

act of licking the backing can result in

the ingestion of chemicals, and the

LHAMA requirements will therefore be

enforced. For self-adhesive stickers, on

the other hand, which present little risk

of exposure, the staff will generally

refrain from enforcement unless there is

reason to believe that the nature of a

particular sticker and its intended use

presents a genuine risk of exposure to a

potential chemical hazard either by

ingestion or absorption.

Another example involves plastic. If

the artistic use for which the plastic is

intended requires heating or melting it

in a manner that results in the emission

of chemical vapors, the LHAMA

requirements will be enforced.

C. Craft and Hobby Kits and Supplies

1. Kits

a. Previous Interpretation

In enforcing LHAMA, the

Commission has encountered the

question of the applicability of LHAMA

requirements to certain craft or hobby

kits. The basic issue centers on the

meaning of the term ‘‘work of art.’’ In

previous letters to industry, the staff has

advised that the determination depends

on whether the end product produced

from the kit would be primarily

functional or aesthetic. If the former

were true, the staff has said that the end

product would not be a work of art and

none of the components would be art

materials. If the latter were true, the end

product would be a work of art and all

of the components of the kit would be

art materials. This distinction proved

difficult for practical enforcement, and

has raised the possibility of inconsistent

enforcement results. For example, if the

same paints that were included in a kit

to make a working model airplane were

also included in a paint-by-number set,

under the staff’s previous interpretation,

the Commission would enforce the

LHAMA requirements against the paints

in the second kit, but not in the first.

b. Statement of Enforcement Policy

After considering the above, as well as

the purpose of LHAMA to alert

consumers to the potential dangers

associated with products used in the

creation of art, the Commission

published its proposed policy to clarify

its enforcement of LHAMA concerning

craft and hobby kits. The Commission is

finalizing that aspect of the policy as

proposed. As explained below, the

Commission believes that its LHAMA

enforcement should include both (1)

kits to make items for display and (2)

kits which involve decorating an item,

regardless of the end use of the item

created. Models and similar kits to make

hobby or art/craft items can have dual

purposes, both functional and for

display. In addition, when a consumer

creatively decorates a functional object,

it arguably becomes a work of art just as

decorated canvas or paper would.

Therefore, the Commission believes that

materials for decorating and assembling

models and art/craft items come within

the reach of LHAMA. The Commission

believes that the following

interpretation is more workable than the

previous one and is consistent with the

intent of Congress.

For kits that include materials to

decorate products whether the products

are functional, for display, or both, the

Commission will enforce the LHAMA
Federal Register / Vol. 60, No. 29 / Monday, February 13, 1995 / Rules and Regulations 8191

requirements against materials in the kit

that are intended to decorate or

assemble an item in the kit—i.e.,

traditional art materials, such as, paints,

crayons, colored pencils, adhesives, and

putties—even if the finished product is

a toy or other item whose primary use

may be functional. Thus, for a kit that

contains a plastic toy or a paint-by

number board, along with paints or

adhesives to decorate or assemble the

item, the Commission will expect the

paints and adhesives in each case to

meet all the LHAMA requirements.

However, as explained in section B.2.(3)

& (4) above pertaining to surfaces and

specific materials, the Commission

would not enforce the requirements

against the plastic toy or the board.

For kits that package an item that

would be subject to enforcement under

this policy together with an item that

would not, any necessary chronic

hazard statements or labeling, including

any required conformance statement,

must appear on the outer container or

wrapping of the kit, or must be visible

through it, and must specify the item to

which the statement or labeling refers.

Any conformance statement must be

visible at the point of sale. In addition

to being visible at the point of sale, any

required chronic hazard warning label

must be on the immediate package of

the item that is subject to LHAMA as

well as on accompanying literature

where there are instructions for use. See

16 CFR 1500.125.

2. Enforcement Policy for Separate

Supplies

As stated in the March 8, 1994

proposal, the Commission will enforce

LHAMA requirements against materials

intended to decorate art and craft,

model and hobby items, such as paints,

even if they are sold separately and not

part of a kit. Similarly, paints or markers

intended for decorating clothes will be

considered art materials for enforcement

purposes since they are intended for

decorating clothing, even though the

resulting item, the garment, has a

functional purpose. Note that as

explained in section B above, the

Commission would not enforce the

requirements against the surface upon

which the art material is applied,

regardless of the primary use of the

finished product.

The status of glues, adhesives, and

putties will depend on their intended

use. Some illustrative examples follow.

Glues which are marketed for general

repair use only would not be art

materials, and the Commission will not

enforce the LHAMA requirements

against them. Glue sticks for glue guns

which are for art or craft use would be

considered art materials. Spray

adhesives and rubber cements will

normally be considered art materials

unless they are marketed for some

specialty non-art use. School pastes and

glues will also be considered art

materials.

D. Conformance Statement

Section 1500.14(b)(8)(i)(C)(7) of the

LHAMA rule requires that a

conformance statement appear with an

art material. In the preamble to the

original LHAMA rule, the Commission

stated that every art material must

display either a conformance statement

or a hazard warning, but not both. See

57 FR 46629, October 9, 1992.

The Commission has reviewed this

matter in light of one comment it

received opposing the Commission’s

policy on this issue and its experience

enforcing the LHAMA requirements.

The Commission agrees with the

commenter and is now modifying its

policy concerning the conformance

statement.

The language of the standard that was

mandated by LHAMA is not entirely

clear on this question. 16 CFR

1500.14(b)(8)(i)(C). However, based on

its experience enforcing LHAMA, the

Commission agrees with the commenter

that there is the potential for confusion

if some products that have been

reviewed according to the standard

display a conformance statement but

others do not. Thus, the Commission’s

policy is that a conformance statement

must appear with all toxicologistreviewed art materials subject to

LHAMA regardless of whether they also

have a hazard warning statement. A

subsection has been added to the

enforcement policy,

§ 1500.14(b)(8)(iv)(C), stating this

policy. Since the conformance statement

constitutes ‘‘other cautionary labeling’’

as defined in 16 CFR

1500.121(a)(2)(viii), it must comply with

the conspicuousness requirements of 16

CFR 1500.121 (c) and (d), including the

type-size requirement laid out in Table

1 of 1500.121(c)(2).

E. Response to Comments

1. General

The Commission heard from six

commenters on its proposed

enforcement policy. For the most part,

commenters supported the

Commission’s effort to clarify its

enforcement intentions in this area. For

example, one commenter stated that the

proposed enforcement policy alleviates

practical problems, follows common

sense, is consistent with Congressional

intent, and appropriately focuses on

intended use. However, commenters did

raise several specific criticisms of

certain aspects of the proposed policy.

These comments and the Commission’s

responses are discussed below.

2. Scope of ‘‘Art Materials’’

One commenter suggested changing

16 CFR 1500.14(b)(8)(iv)(A)(1) to state

that markers sold in art supply stores

are art materials, rather than likely to be

art materials.

The Commission declines to make

this change. For general use products,

the Commission will look at a variety of

factors, including packaging, marketing,

and where the item is sold. Often a

single factor will not be determinative.

For example, along with other markers,

an art supply store might sell highlighters which are clearly promoted for

use by students in marking textbooks.

These are probably general use

products, and the enforcement policy

should be flexible enough to allow this

determination.

The Writing Instrument

Manufacturer’s Association (‘‘WIMA’’),

a trade association for the writing

instrument industry, commented that it

generally supported the proposed

enforcement policy but suggested that

cased pencils (referred to as common

wood pencils in the proposed policy)

should generally be considered art

materials. WIMA asserted that these

pencils are generally considered in the

industry to be art materials and are used

for drawing and sketching. Another

commenter argued that if the

enforcement policy considers these

general use pencils not to be art

materials, products from China and

other countries without consumer

protection laws will flood the market.

The Commission declines to make

this change in the enforcement policy.

The Commission believes that common

pencils, much like pens or markers, are

generally used as writing materials.

Under the policy, specific pencils that

are intended primarily for drawing or

sketching (such as colored pencils) will

be considered art materials for

enforcement purposes. Of course, pencil

makers who wish to submit their

formulations to a toxicologist for

evaluation and label them accordingly

may do so. However, the Commission

will not enforce the LHAMA

requirements against common pencils

unless they are specifically intended or

marketed as art materials. Whether

products are produced domestically or

imported, they are all subject to the

consumer protection laws and

regulations of this country if they are

sold here. With respect to the comment

concerning imports from countries
8192 Federal Register / Vol. 60, No. 29 / Monday, February 13, 1995 / Rules and Regulations

without consumer protection laws,

CPSC reminds the commenter that

imports are subject to the same

requirements as products made in this

country.

One commenter stated support for the

proposed enforcement policy’s

treatment of brushes, kilns, and molds,

finding it to be consistent with other

CPSC policy interpretations. CPSC

agrees.

3. Actual Toxicity Hazards

One commenter argued that the

proposed enforcement policy would

allow products which present chronic

toxicity hazards to consumers to evade

the review required by LHAMA. The

commenter stated that items ‘‘such as

pencils, paper, fabric, paint brushes,

and sand have all been found to present

chronic toxicity hazards in the past

* * *.’’

The Commission’s scientific staff

examined this comment, and does not

agree. Neither the Commission nor the

staff have concluded that any of the

listed items typically present chronic

toxicity hazards. The staff has in the

past examined some uses of some of

these materials outside of the context of

art materials. For example, children’s

playsand was evaluated to see if the

sand posed a hazard through tremolite

asbestos or non-asbestos tremolite. No

such hazard was established. Paper has

been found to contain extremely small

amounts of dioxin, but the amount is so

small that the risk is negligible. Through

its enforcement policy, the Commission

is attempting to focus enforcement

efforts on items that may actually harm

consumers. The Commission believes

this policy furthers that goal. It is worth

noting that in the unlikely event that

any of these items were found to be

dangerous, the labeling and banning

provisions of the Federal Hazardous

Substances Act (15 U.S.C. 1261 (f), (p),

and (q)(1), and 15 U.S.C. 1263) still

apply.

Another commenter agreed with the

Commission’s focus on potential for

genuine risk of exposure but suggested

that the language of the proposed policy

be changed in 16 CFR

1500.14(b)(8)(iv)(A) (3) and (4) to state

that the user’s exposure must be to a

hazardous chemical before the

Commission will enforce LHAMA

against the materials listed in those

subsections. In the sections referred to,

the enforcement policy provides that the

Commission will not enforce the

LHAMA requirements against surface

materials and certain specifically

enumerated materials unless it is likely

that handling or processing the material

may expose the user to chemicals in or

on the material.

The Commission declines to make the

commenter’s suggested change. As

explained in section B.2 above, although

the Commission believes that generally

there will not be a chronic hazard with

use of these materials, the Commission

is concerned that a situation could arise

in which a unique manner of handling

or using these materials could pose a

risk of exposure. An example is paper

stickers with adhesive that is licked.

The commenter’s suggestion would put

the manufacturer in the position of

deciding whether a particular chemical

is hazardous. However, Congress

intended that this determination be

made by the toxicologist reviewing a

product’s formulation. The enforcement

policy concerns the initial question of

whether exposure is likely, not whether

a chemical is hazardous. Thus, under

the Commission’s enforcement policy, if

there is the potential for exposure to a

chemical from a surface or specifically

enumerated material, the LHAMA

requirements will be enforced.

4. Enforcing LHAMA Against NonHazardous Products

Comments suggested that all art

materials should have to comply with

LHAMA regardless of actual risk, and

that the items listed in the proposed

enforcement policy should not be

excluded from enforcement efforts.

They noted that the conformance

statement on a non-hazardous product

tells the consumer that the product has

been cleared by a toxicologist. An

unlabeled product, on the other hand,

could either have been evaluated as

non-toxic, or not evaluated at all. Thus

the commenters argue that the

Commission should enforce against all

art materials, whether hazardous or not.

In response, the Commission notes

that focusing its enforcement efforts is

important to ensure that the

enforcement program is as effective as

possible through the effective use of the

Commission’s limited resources. The

Commission believes that the categories

of products against which it will no

longer enforce present virtually no risk

of exposing consumers to chronic

toxicity hazards. No evidence of

consumer confusion was presented with

the comments, and we think any such

confusion should be minimal.

5. Conformance Statement and

Warnings

As explained above, one commenter

argued that the conformance statement

should accompany all art materials,

including those that also require a

hazard warning. The preamble to the

original LHAMA rule stated that every

art material must display either a

conformance statement or a hazard

warning, but not both. See 57 FR 46629,

October 9, 1992.

The Commission has reviewed this

issue in light of this comment and its

experience. For reasons explained in

greater detail above, the Commission

agrees with the commenter and has

added a subsection to the enforcement

policy making this change.

6. Other Labeling Issues

One commenter noted that some

labels bear adequate safe handling

instructions, but do not list the chronic

hazards that necessitate these

precautions. LHAMA and the ASTM

standard clearly require that both the

chronic hazard and the safety

instructions be on the label.

Another commenter noted that

facially adequate labels should be

examined for accuracy. The

Commission considers this a very

important issue. If labels are inaccurate,

the labels and the standard itself

become meaningless to the consumer. It

is clearly unacceptable for labels to

indicate that they have been reviewed

by a toxicologist (by display of the

conformance statement) if they in fact

have not.

7. Kits and Supplies

One commenter stated specific

support for the proposed enforcement

policy concerning kits and separate

supplies.

8. Status of Enforcement Policy

One commenter argued that the

Commission is actually exempting

certain products from the FHSA, and it

is therefore improper to issue an

enforcement policy rather than a

regulation under section 3(c) of the

FHSA (15 U.S.C. 1262(c)). The

commenter argued that the enforcement

policy would create confusion.

The Commission disagrees with this

comment. This policy does not exempt

any items from the FHSA. First, the

policy does not grant exemptions from

the LHAMA provisions, but rather

clarifies the Commission’s

interpretation of the statutory term ‘‘art

material’’ and informs the public that

the Commission’s enforcement efforts

under LHAMA will be directed against

those products that present the greatest

risk. Through this policy, the

Commission is explaining what that

means in practice. The policy explains

how the Commission will interpret the

statutory definition of ‘‘art material’’ for

purposes of enforcement and that it

does not intend to enforce LHAMA
Federal Register / Vol. 60, No. 29 / Monday, February 13, 1995 / Rules and Regulations 8193

requirements against certain items or

materials which are unlikely to present

a chronic hazard. The Commission

believes that the policy, with its general

guidance and specific examples, will

help to clarify existing confusion. The

enforcement policy will be published in

the CFR with the LHAMA regulations so

that all will be aware of Commission

policy. In addition, the policy has no

impact on the enforcement of other

provisions of the FHSA, such as recall

or notice actions under section 15 of the

FHSA, as to art materials.

Focusing enforcement efforts to make

them maximally effective is an

appropriate use of an enforcement

policy. The commenter stated that

enforcement policies should clarify

where an agency will take action, rather

than where it will not. No authority was

cited for this proposition, and the

Commission is not aware of any such

authority.

However, the Commission is

modifying the language of section

1500.14(b)(8)(iv)(A)(1) slightly to clarify

its interpretation with respect to that

one category of products. The

Commission does not consider the

products described in that subsection

(products intended for general use) to be

art materials under the statutory

definition. This is now stated explicitly

in that subsection.

9. Effective Date

One commenter requested that

manufacturers have one year to comply

with this enforcement policy, rather

than six months. No data were

submitted as to why compliance in six

months would be unduly burdensome.

The Commission believes that six

months is adequate time to submit

formulae to toxicologists and comply

with relevant labeling requirements.

The Commission will, however, apply

the policy to those products initially

introduced into interstate commerce

after six months, rather than those

manufactured or imported after that

date.

10. Prohibition of Lead in Children’s

Products

One commenter suggested that the

Commission should prohibit the use of

lead in products intended or marketed

for the use of children. This comment is

beyond the scope of this enforcement

policy. However, we remind the

commenter that the hazard of lead in

consumer products intended for

children is dealt with by regulations

under the CPSA, 16 CFR 1303.4, and

provisions of the FHSA, 15 U.S.C. 1261

(f)(1)(A) & (q)(1)(A).

F. Environmental Considerations

The Commission has considered

whether issuance of this enforcement

statement will produce any

environmental effects and has

determined that it will not. The

Commission’s regulations at 16 CFR

1021.5(c)(1) state that rules and safety

standards ordinarily have little or no

potential to affect the human

environment, and therefore, do not

require an environmental impact

statement or environmental assessment.

The Commission believes that, as with

such standards, this enforcement policy

would have no adverse impact on the

environment.

G. Regulatory Flexibility Act

Certification

The Regulatory Flexibility Act

generally requires agencies to prepare

proposed and final regulatory analyses

describing the impact of a rule on small

businesses and other small entities.

Section 605 of the Act provides that an

agency is not required to prepare a

regulatory flexibility analysis if the head

of an agency certifies that the rule will

not have a significant economic impact

on a substantial number of small

entities. The Commission believes that

this enforcement statement will have

little effect on businesses in general or

on small businesses in particular.

Accordingly, the Commission concludes

that its enforcement statement

concerning the labeling of hazardous art

materials would not have any

significant economic effect on a

substantial number of small entities.

H. Authority

Section 10 of the FHSA gives the

Commission authority to issue

regulations for the efficient enforcement

of the FHSA. 15 U.S.C. 1269(a). This

provision authorizes the Commission to

issue statements of enforcement policy

in which the Commission explains how

it intends to enforce a Commission

requirement.

I. Applicability Date

Since this notice issues an

interpretative rule/statement of policy,

no particular applicability date is

required by the Administrative

Procedure Act. 5 U.S.C. 553(d)(2). The

Commission recognizes, however, that

as to items against which the

Commission previously stated that it

would not enforce LHAMA,

manufacturers will need time to bring

their products into compliance. Thus,

this policy regarding such items applies

to products introduced into interstate

commerce on or after 6 months from the

date this policy is published in the

Federal Register. The Commission

believes that this is adequate time to

submit formulae to toxicologists and

comply with relevant labeling

requirements. As to those items where

this policy relieves a restriction, the

policy becomes applicable for such

products introduced into interstate

commerce on or after the date of

publication of this notice.

List of Subjects in 16 CFR Part 1500

Arts and crafts, Consumer protection,

Hazardous materials, Hazardous

substances, Imports, Infants and

children, Labeling, Law enforcement,

Toys.

For the reasons given above, the

Commission amends 16 CFR 1500.14 as

follows:

PART 1500—[AMENDED]

1. The authority citation for part 1500

continues to read as follows:

Authority: 15 U.S.C. 1261–1277.

2. Section 1500.14 is amended by

adding a new paragraph (b)(8)(iv) to

read as follows:

§ 1500.14 Products requiring special

labeling under section 3(b) of the Act.

* * * * *

(b) * * *

(8) * * *

(iv) Policies and interpretations.

(A) For purposes of enforcement

policy, the Commission will not

consider as sufficient grounds for

bringing an enforcement action under

the Labeling of Hazardous Art Materials

Act (‘‘LHAMA’’) the failure of the

following types of products to meet the

requirements of § 1500.14(b)(8) (i)

through (iii).

(1) Products whose intended general

use is not to create art (e.g., common

wood pencils, and single colored pens,

markers, and chalk), unless the

particular product is specifically

packaged, promoted, or marketed in a

manner that would lead a reasonable

person to conclude that it is intended

for use as an art material. Factors the

Commission would consider in making

this determination are how an item is

packaged (e.g., packages of multiple

colored pencils, chalks, or markers

unless promoted for non-art materials

uses are likely to be art materials), how

it is marketed and promoted (e.g.,

pencils and pens intended specifically

for sketching and drawing are likely to

be art materials), and where it is sold

(e.g., products sold in an art supply

store are likely to be art materials). The

products described in this paragraph do

not meet the statutory definition of ‘‘art

material.’’
8194 Federal Register / Vol. 60, No. 29 / Monday, February 13, 1995 / Rules and Regulations

1 59 FR 66674 (December 28, 1994).

2Rules 1.14(d)(2), 1.15(c)(2) and 1.15(a)(2)(iii).

For a complete discussion of the recently adopted

risk assessment rules, see 59 FR 66674.

3See 59 FR 66674, at 66682, n.35 (Director of

Division of Trading and Markets is generally

delegated the authority to act on behalf of the

Commission with respect to the risk assessment

rules).

(2) Tools, implements, and furniture

used in the creation of a work of art

such as brushes, chisels, easels, picture

frames, drafting tables and chairs,

canvas stretchers, potter’s wheels,

hammers, air pumps for air brushes,

kilns, and molds.

(3) Surface materials upon which an

art material is applied, such as coloring

books and canvas, unless, as a result of

processing or handling, the consumer is

likely to be exposed to a chemical in or

on the surface material in a manner

which makes that chemical susceptible

to being ingested, absorbed, or inhaled.

(4) The following materials whether

used as a surface or applied to one,

unless, as a result of processing or

handling, the consumer is likely to be

exposed to a chemical in or on the

surface material in a manner which

makes that chemical susceptible to

being ingested, absorbed, or inhaled:

paper, cloth, plastics, films, yarn,

threads, rubber, sand, wood, stone, tile,

masonry, and metal.

(B) For purposes of LHAMA

enforcement policy, the Commission

will enforce against materials including,

but not limited to, paints, crayons,

colored pencils, glues, adhesives, and

putties, if such materials are sold as part

of an art, craft, model, or hobby kit. The

Commission will enforce the LHAMA

requirements against paints or other

materials sold separately which are

intended to decorate art, craft, model,

and hobby items. Adhesives, glues, and

putties intended for general repair or

construction uses are not subject to

LHAMA. However, the Commission will

enforce the LHAMA requirements

against adhesives, glues, and putties

sold separately (not part of a kit) if they

are intended for art and craft and model

construction uses. This paragraph

(b)(8)(iv)(B) applies to products

introduced into interstate commerce on

or after August 14, 1995.

(C) Commission regulations at

§ 1500.14(b)(8)(i)(C)(7) require that a

statement of conformance appear with

art materials that have been reviewed in

accordance with the Commission

standard. The Commission interprets

this provision to require a conformance

statement regardless of the presence of

any chronic hazard warnings.

(D) Nothing in this enforcement

statement should be deemed to alter any

of the requirements of the Federal

Hazardous Substances Act (‘‘FHSA’’),

such as, but not limited to, the

requirement that any hazardous

substance intended or packaged in a

form suitable for household use must be

labeled in accordance with section 2(p)

of the FHSA.

Dated: February 6, 1995.

Sadye E. Dunn,

Secretary, Consumer Product Safety

Commission.

[FR Doc. 95–3450 Filed 2–10–95; 8:45 am]

BILLING CODE 6355–01–P

COMMODITY FUTURES TRADING

COMMISSION

17 CFR Part 140

Delegation of Authority to the Director

of the Division of Trading and Markets

AGENCY: Commodity Futures Trading

Commission.

ACTION: Final rules.

SUMMARY: The Commodity Futures

Trading Commission (‘‘Commission’’) is

delegating to the Director of the Division

of Trading and Markets, and to such

members of the Commission staff acting

under the Director’s direction as the

Director may designate from time to

time, the authority to perform all

functions reserved to the Commission

under the recently adopted risk

assessment requirements for holding

company systems in §§ 1.14 and 1.15 of

the Commission’s regulations. The

delegation should result in more

expeditious treatment of exemption

requests, which will benefit futures

commission merchants (‘‘FCMs’’) and

the Commission.

EFFECTIVE DATE: February 13, 1995.

FOR FURTHER INFORMATION CONTACT:

Lawrence T. Eckert, Attorney Adviser,

Division of Trading and Markets,

Commodity Futures Trading

Commission, 2033 K Street N.W.,

Washington D.C. 20581. Telephone

(202) 254–8955.

SUPPLEMENTARY INFORMATION:

I. Delegation

On December 21, 1994, the

Commission adopted Rules 1.14 and

1.15 to implement the risk assessment

authority set forth in Section 4f(c) of the

Commodity Exchange Act.1 These rules

generally require FCMs that are subject

to the rules to maintain and file with the

Commission certain information

concerning their financial activities and

the activities of their material affiliates.

In promulgating the risk assessment

rules, and at the suggestion of

commenters on the proposed rules, the

Commission reserved, in Rules

1.14(d)(3) and 1.15(c)(3), the authority

to exempt any FCM from any of the

provisions of either Rule 1.14 or Rule

1.15 if the Commission finds that the

exemption is not contrary to the public

interest and the purposes of the

provisions from which the exemption is

sought. Additionally, the rules permit

the Commission to exempt an FCM

affiliated with a ‘‘Reporting Futures

Commission Merchant’’ from the

recordkeeping and reporting

requirements of the rules, and permit

the Commission to request information

to supplement an FCM’s filings with the

Commission if the Commission

determines that additional information

is necessary for a complete

understanding of a particular affiliate’s

financial impact on the FCM’s

organizational structure.2

The Commission has determined to

codify in Part 140 the delegation of its

authority under the risk assessment

rules to the Director of the Division of

Trading and Markets.3 Accordingly, the

Commission is hereby amending its

delegation of authority to the Director of

the Division of Trading and Markets set

forth in Rule 140.91, which currently

governs authority to perform functions

on behalf of the Commission with

respect to the minimum financial and

related reporting requirements for FCMs

and introducing brokers under Rules

1.10, 1.12, 1.16 and 1.17, by adding to

it the authority to act on behalf of the

Commission with respect to all

functions reserved to the Commission

under Rules 1.14 and 1.15. The

Commission further notes that

paragraph (b) of Rule 140.91 will

continue to provide that the Director

may submit any matter delegated under

the rule to the Commission for its

consideration.

II. Related Matters

A. Administrative Procedure Act

The Commission has determined that

this delegation of authority relates

solely to agency organization, procedure

and practice. Therefore, the provisions

of the Administrative Procedure Act, 5

U.S.C. 553, which generally require

notice of proposed rule making and

which provide other opportunities for

public participation, are not applicable.

The Commission further finds that,

because the rule has no adverse effect

upon a member of the public, there is

good cause to make it effective

immediately upon publication in the

Federal Register.