Document ID: FDA-2010-N-0646-0018
Agency: fda
Document Type: Rule
Title: Tobacco Products: Exemptions From Substantial Equivalence Requirements
Posted Date: 2011-07-05T04:00Z

[Federal Register: July 5, 2011 (Volume 76, Number 128)]
[Rules and Regulations]               
[Page 38961-38975]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05jy11-1]                         

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[[Page 38961]]

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Parts 16 and 1107

[Docket No. FDA-2010-N-0646]
RIN 0910-AG39

 
Tobacco Products, Exemptions From Substantial Equivalence 
Requirements

AGENCY: Food and Drug Administration, HHS.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Food and Drug Administration (FDA) is issuing this final 
rule to establish procedures for requesting an exemption from the 
substantial equivalence requirements of the Family Smoking Prevention 
and Tobacco Control Act (Tobacco Control Act). The final rule describes 
the process and statutory criteria for requesting an exemption and 
explains how FDA reviews requests for exemptions. This regulation 
satisfies the requirement in the Tobacco Control Act that FDA issue 
regulations implementing the exemption provision.

DATES: This rule is effective August 4, 2011.

FOR FURTHER INFORMATION CONTACT: Annette Marthaler, Center for Tobacco 
Products, Food and Drug Administration, 9200 Corporate Blvd., 
Rockville, MD 20850-3229, 877-287-1373, annette.marthaler@fda.hhs.gov.

SUPPLEMENTARY INFORMATION:

I. Introduction

    In the Federal Register of January 6, 2011 (76 FR 737), FDA issued 
a notice of proposed rulemaking (NPRM) to establish a procedure for 
requesting an exemption from the substantial equivalence requirements 
of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) applicable 
to tobacco products. This final rule establishes procedures for 
requesting an exemption under section 905(j)(3) of the FD&C Act (21 
U.S.C. 387e(j)(3)). Among the procedures included in this final rule is 
the requirement that a request for an exemption and all information 
supporting the request be submitted in an electronic format. The final 
rule also addresses FDA's review of an exemption request and 
establishes procedures for rescinding an exemption. The final rule adds 
these requirements at Sec.  1107.1 (21 CFR 1107.1).
    The FD&C Act requires manufacturers to obtain an order under 
section 910(c)(1)(A)(i) of the FD&C Act (21 U.S.C. 387j(c)(1)(A)(i)) 
before they may introduce a new tobacco product into interstate 
commerce unless either: (1) FDA has issued an order finding the new 
tobacco product to be substantially equivalent to an appropriate 
predicate tobacco product and in compliance with the requirements of 
the FD&C Act or (2) the tobacco product is exempt from the requirements 
related to substantial equivalence under a regulation issued under 
section 905(j)(3) of the FD&C Act (see also section 910(a)(2)(A); 21 
U.S.C. 387j(a)(2)(A)). This final rule is issued under section 
905(j)(3)(B) of the FD&C Act, which requires that FDA issue regulations 
to implement the provision on exemptions from the substantial 
equivalence requirements of the Tobacco Control Act by July 1, 2011. 
(21 U.S.C. 387e(j)(3)(B); section 6 of the Tobacco Control Act). 
Section 905(j)(3)(A) of the FD&C Act provides that FDA may exempt from 
the requirements relating to the demonstration of substantial 
equivalence, tobacco products that are modified by adding or deleting a 
tobacco additive, or by increasing or decreasing the quantity of an 
existing tobacco additive, if FDA determines that: (1) The modification 
would be a minor modification of a tobacco product that can be sold 
under the FD&C Act; (2) a substantial equivalence report is not 
necessary to ensure that permitting the tobacco product to be marketed 
would be appropriate for protection of the public health; and (3) an 
exemption is otherwise appropriate.

II. Overview of the Final Rule

    We considered all of the comments to the NPRM and the information 
submitted with the comments. After considering the comments and to 
clarify the information to be submitted in an exemption request, we 
have changed proposed Sec.  1107.1(b) to state that an exemption 
request must identify the tobacco product(s) that is the subject of the 
exemption request and, as required by part 25 (21 CFR part 25), include 
an environmental assessment. On our own initiative, we also made minor 
edits to the introductory language in proposed Sec.  1107.1(b) to more 
clearly state that all submissions need to be legible and in the 
English language. As discussed in the NPRM, FDA will provide 
information on its Web site on submitting an exemption request in an 
electronic format that FDA can review, process, and archive (e.g., 
information on electronic media and methods of transmission) (http://
www.fda.gov/TobaccoProducts/default.htm).
    In response to comments expressing concern regarding the potential 
burden of requesting an exemption and after reconsidering the burden 
estimates, we have revised the burden estimates to more accurately 
reflect what we believe the burden will be for requesting an exemption. 
This is discussed in further detail in sections VII and VIII of this 
document.

III. Comments on the Proposed Rule

    We received 13 comments on the NPRM. Comments were received from 
individuals, a trade association, and tobacco product manufacturers. To 
make it easier to identify comments and our responses, the word 
``Comment,'' in parentheses, will appear before each comment, and the 
word ``Response,'' in parentheses, will appear before each response. We 
have combined similar comments under one comment. In addition, several 
sets of comments included comments on the ``Guidance for Industry and 
FDA Staff--Section 905(j) Reports: Demonstrating Substantial 
Equivalence for Tobacco Products'' (76 FR 789, January 6, 2011); those 
comments will be considered as part of FDA's review of that document.

A. General Comments

    (Comment 1) Several comments generally objected to the rulemaking, 
stating, for example, that there ``should not be an exemption for the 
product'' and suggesting instead that tobacco products be removed from 
the market. We received one comment that expressed concern about using 
the term

[[Page 38962]]

``approval'' with respect to tobacco products because it implies that 
FDA sanctioned the product.
    (Response) The issuance of a rule implementing the substantial 
equivalence exemption provision of the FD&C Act is explicitly required 
by section 905(j)(3)(B) of the FD&C Act. The statute requires FDA to 
implement the exemptions provision through rulemaking. This regulation 
fulfills that directive by establishing the procedures manufacturers 
must follow in order to request an exemption from the substantial 
equivalence provisions of the law. Neither the proposed nor final rule 
uses the term ``approval.''
    (Comment 2) One comment stated that we failed to satisfy our 
statutory obligation to implement the FD&C Act and its provision 
authorizing exemptions from the statute's substantial equivalence 
requirements. This comment continued by stating that the proposed rule 
was not a meaningful attempt to comply with the statutory directive 
``to issue regulations to implement'' the exemption provision and that, 
at most, the proposed rule ``would act as a placeholder to allow FDA to 
defer indefinitely its responsibilities under section 905(j)(3)(B).'' 
The comment stated that the proposed rule failed to give the exemption 
provision either meaningful substantive content or a viable procedural 
pathway. The comment also stated that this ``dereliction'' was 
concerning given the amount of time that has passed since the Tobacco 
Control Act was enacted.
    (Response) We disagree with these comments. The statute requires 
FDA to implement the exemptions provision through rulemaking. This 
regulation fulfills that directive by establishing the procedures 
manufacturers must follow in order to request an exemption from the 
substantial equivalence provisions of the law. The rule provides a 
premarket pathway that will facilitate granting exemptions for tobacco 
products with minor modifications to additives that meet the statutory 
criteria. Many of the comments provided us with detailed information 
about the wide range of modifications made to tobacco product 
additives; these comments support the need for an exemption regulation 
that will accommodate various minor modifications to additives that 
meet the exemption criteria.
    (Comment 3) One comment suggested that the rulemaking does not 
further the objectives of the Tobacco Control Act and will require the 
unnecessary expenditure of FDA and industry resources on submissions 
that have no bearing on the goals sought to be achieved by the Tobacco 
Control Act.
    (Response) We disagree. The exemption pathway is a significant part 
of the regulatory scheme Congress enacted to achieve the goals of the 
Tobacco Control Act. The FD&C Act, as amended by the Tobacco Control 
Act, requires that new tobacco products undergo some type of premarket 
review by the FDA. This premarket review may be through a premarket 
application (section 910(b) of the FD&C Act; 21 U.S.C. 387j(b)), a 
substantial equivalence report (section 905(j); 21 U.S.C. 387e(j)), or 
a request for an exemption from the substantial equivalence 
requirements (section 905(j)(3)) (section 910(a)(2); 21 U.S.C. 
387j(a)(2)). To ensure appropriate oversight over tobacco products, it 
is crucial that FDA have information about modifications to additives 
in tobacco products in order to determine whether the modifications are 
minor and, accordingly, whether it is appropriate to exempt the tobacco 
product from the substantial equivalence requirements of the statute 
(assuming the other required findings can be made).
    (Comment 4) Some comments stated that FDA needs to address the 
meaning of ``new tobacco product'' before issuing a final exemption 
regulation. One commenter stated that ``simply repeating the language 
of the statute is insufficient,'' noting that the statutory definition 
of ``new tobacco product'' includes the term ``modification'' and, 
depending on how broadly the term ``modification'' is interpreted, 
``potentially thousands of products that Congress intended to 
grandfather could be swept into the category of `new tobacco products' 
simply because they have undergone routine, consistency-maintaining 
adjustments that have no public health significance.'' The commenter 
further stated that the lack of notice regarding the meaning of the 
terms ``new tobacco product'' and ``modification'' raises due process 
and Administrative Procedure Act concerns because it is ``difficult for 
interested persons to provide meaningful commentary on a proposed 
exemption from requirements applicable only to `new tobacco products' 
when FDA has not revealed its understanding of what constitutes a `new 
tobacco product.'''
    (Response) The FD&C Act, as amended in 2009 by the Tobacco Control 
Act, defines ``new tobacco product'' at section 910(a)(1) as ``any 
tobacco product (including those products in test markets) that was not 
commercially marketed in the United States as of February 15, 2007; or 
any modification (including a change in design, any component, any 
part, or any constituent, including a smoke constituent, or in the 
content, delivery or form of nicotine, or any other additive or 
ingredient) of a tobacco product where the modified product was 
commercially marketed in the United States after February 15, 2007.'' 
The definition expressly states that a new tobacco product includes 
``any'' modification of a tobacco product where the modified product 
was commercially marketed in the United States after February 15, 2007. 
Therefore, FDA disagrees with the suggestion in the comments that the 
term ``new tobacco product'' has not been sufficiently defined.
    (Comment 5) Some comments stated that there are categories of 
routine, consistency-maintaining adjustments that are not intended to 
alter the chemical or perception properties of the product and that, 
therefore, should not be treated as modifications for which a premarket 
application, substantial equivalence report, or exemption request 
should be required. The comments cited to various provisions of the 
FD&C Act, such as the good manufacturing practice provisions under 
section 906(e) of the FD&C Act and the notifications under section 
904(c) (21 U.S.C. 387d(c)), as support for their view that these 
``routine consistency maintaining adjustments'' are not 
``modifications'' for which premarket review is required, because these 
other provisions are intended to ensure that we receive information on 
these types of adjustments and, consequently, these provisions would 
otherwise be rendered meaningless. Other comments similarly stated that 
adjustments made in response to variations in manufacturing, and 
differences in materials from lot to lot that are necessary to maintain 
consistent product characteristics, should not be considered 
modifications. Some comments identified specific adjustments that 
should not be considered modifications, including specific adjustments 
to compensate for the inherent variability of tobacco, the need for 
multiple suppliers for components, and adjustments made at the 
supplier's initiative to maintain consistency. The comments stated that 
if ``modification'' were interpreted to include these adjustments, 
``that excessively broad interpretation would result in hundreds of 
legally marketed products being swept into the statutory and regulatory 
regime for `new tobacco products' even though they would not have 
changed in any meaningful way'' and that this would impose severe

[[Page 38963]]

burdens on both FDA and industry. One comment noted that a dictionary 
definition of ``modification'' supported excluding these 
``adjustments'' from the scope of modification.
    (Response) As previously discussed, the FD&C Act defines the term 
``new tobacco product'' as specifically including any modification of a 
tobacco product where the product was commercially marketed after 
February 15, 2007. The statutory definition is not limited to 
modifications intended to have a certain effect or that are more than a 
routine adjustment of the product. While FDA agrees that the FD&C Act's 
reporting obligations and other requirements related to tobacco 
products would apply to tobacco products modified as the commenters 
suggest, we disagree that these various requirements suggest that these 
types of modifications would not subject the modified tobacco product 
to the premarket requirements for new tobacco products. Manufacturers 
and interested parties should refer to FDA's Web site for guidance on 
current enforcement policies related to premarket requirements for 
tobacco products (http://www.fda.gov/TobaccoProducts/default.htm).
    (Comment 6) Some comments stated that a broad construction of 
``modification'' in the definition of new tobacco product would allow 
FDA to eliminate grandfathered products because, for example, 
consistency-maintaining changes are routinely made to ``grandfathered'' 
products to ensure continued consistency of the tobacco product.
    (Response) We use the term ``grandfathered'' to refer to those 
tobacco products that were commercially marketed in the United States 
as of February 15, 2007. Under the FD&C Act, a ``grandfathered'' 
product is not a ``new tobacco product'' and is not subject to the 
statute's premarket requirements unless the product has been modified 
after February 15, 2007. The statute provides that if there has been 
``any modification (including a change in design, any component, any 
part, or any constituent, including a smoke constituent, or in the 
content, delivery, or form of nicotine, or any other additive or 
ingredient) of [the] tobacco product where the modified product was 
commercially marketed in the United States after February 15, 2007'' 
the modified product is considered a ``new tobacco product,'' and is 
subject to the premarket requirements. (Section 910(a)(1); 21 U.S.C. 
387j(a)(1).) This rule is consistent with that provision.
    (Comment 7) Some comments stated that the proposed rule envisions 
an application and approval process for obtaining exemptions that is 
``procedurally indistinguishable from the process for obtaining a 
substantial equivalence order.''
    (Response) We disagree with these comments because, as provided in 
Sec.  1107.1, the information required for a new product in an 
exemption request is significantly different from the information 
submitted in a substantial equivalence report. Furthermore, after 
examining the detailed comments and information submitted to the NPRM, 
including information on the range of modifications made to tobacco 
products, we have reconsidered the estimates of the numbers and hours 
of submissions. We do not expect that an exemption request will be as 
lengthy or detailed as a 905(j) substantial equivalence report. We 
believe that the exemption pathway will be an efficient pathway to 
market when used for tobacco products with minor modifications to 
additives, where the modifications meet the criteria in section 
905(j)(3) of the FD&C Act and where tobacco product manufacturers 
provide the information required in Sec.  1107.1. Sections VII and VIII 
of this document provide additional information on the revised burden 
estimates.
    (Comment 8) Several comments suggested that FDA define ``minor 
modification.''
    (Response) FDA declines to include in the rule a specific 
definition of the term ``minor'' because the meaning of the term may 
vary depending on the type of tobacco product. To enable FDA to 
determine whether a particular modification is minor and therefore may 
be exempted from the substantial equivalence requirements, the 
manufacturer must submit the information in Sec.  1107.1(b), including 
information explaining why the modification is minor. Given that this 
program is just beginning, FDA does not have the experience needed at 
the present time to provide a useful definition of ``minor 
modifications.'' Although FDA is not defining ``minor modifications'' 
in this rule, as FDA gains experience in evaluating exemption requests, 
FDA will consider issuing a rulemaking defining minor modifications.
    (Comment 9) Several comments suggested that FDA should use the 
510(k) program applicable to medical devices as a model in implementing 
the substantial equivalence and exemption provisions. For example, the 
comments suggested that FDA place the burden on manufacturers to make 
the initial determination as to whether the modification is minor 
according to the criteria in section 905(j)(3) of the FD&C Act. The 
comments continued by suggesting that FDA could issue a guidance with a 
decision-tree to facilitate the identification of changes that would 
not generally require FDA premarket review. Other comments suggested 
that reports regarding changes that do not impact public health should 
not be required to be reported to FDA, but rather should be documented 
by the manufacturer in a memorandum to file, similar to the 
requirements for medical devices cleared through premarket 
notifications (510(k)s).
    (Response) FDA did consider the requirements applicable to medical 
devices when developing this rule, but concluded those requirements are 
inconsistent with section 905(j)(3) of the FD&C Act. Section 905(j)(3) 
specifically requires FDA to make certain findings, including a 
determination of whether the modification would be a minor modification 
of a tobacco product that can be sold under the FD&C Act, when 
determining whether to exempt a tobacco product from the requirement to 
demonstrate substantial equivalence.

B. Comments on Categories of Exemptions

    (Comment 10) Several comments also suggested that FDA revise the 
proposed rule to create actual categories of minor modifications, or 
identify specific modifications, that meet the statutory criteria for 
exemption. The comments suggested that specific categories of changes 
could be exempted under section 905(j)(3) of the FD&C Act, including 
changes intended to ensure consistency or minor blend changes (e.g., to 
ensure that the specifications of a tobacco product are consistently 
met), changes that do not raise public health concerns (e.g., changes 
to additives that have been deemed by FDA as not harmful to health or 
changes reported to FDA under section 904(c)), changes in ``commodity'' 
ingredients (e.g., changes in ingredient suppliers or use of 
interchangeable ingredients obtained from different manufacturers which 
are within pre-defined specification tolerances for use in the tobacco 
product), changes in packaging text or graphics where the manufacturer 
does not know whether, or does not intend that, the ingredient will 
become incorporated in the consumed product. One comment stated that, 
once the Agency decides to grant an exemption request for a particular 
additive, it should establish a categorical exemption for a range of 
levels of that additive that would then apply to all similar products

[[Page 38964]]

(e.g., all cigarettes or all smokeless tobacco products). One comment 
suggested that the Agency develop a generic catalog of minor 
modifications that are classed by tobacco product type and 
manufacturing process upon which small manufacturers could rely in 
asserting that product modifications are exempt from the substantial 
equivalence requirements.
    (Response) As discussed previously, in developing the proposed 
rule, we considered various approaches, including whether to include 
categories of exemptions in this initial rulemaking, but determined 
that we do not currently have sufficient information to enable us to 
make the findings required by the statute to support establishing 
categories of exemptions. However, we believe this information will 
develop as we review exemption requests and we intend to establish 
categories of exemptions when we have such information.
    We have changed proposed Sec.  1107.1(b) to clarify that a request 
for an exemption must identify the tobacco product(s) that is/are the 
subject of the exemption request. Although we are not establishing 
categories of exemptions at this time, manufacturers may submit one 
exemption request for multiple tobacco products if the request 
identifies the specific products and the information submitted under 
Sec.  1107.1(b) applies to all the specified products. Finally, a 
manufacturer may submit an exemption request for a tobacco product(s) 
for a minor modification of an additive if the manufacturer specifies a 
range with a maximum and minimum as has been typically used for that 
tobacco product; again, the request must include the information 
required in Sec.  1107.1(b) in order for us to make the necessary 
findings.
    As discussed in the NPRM, FDA intends to provide technical and 
other nonfinancial assistance to small tobacco product manufacturers in 
complying with the premarket requirements of sections 905 and 910 of 
the FD&C Act, along with other requirements of the FD&C Act. Small 
tobacco product manufacturers may contact FDA at 
smallbiz.tobacco@fda.hhs.gov for assistance. Additionally, FDA is 
considering the best way to provide information about what kinds of 
modifications have been determined to be minor. One option might be to 
create a public database of exemption determinations that may help 
inform manufacturers when preparing exemption requests. We would 
appreciate feedback from manufacturers about whether they would be 
concerned about disclosure of exemption determinations and whether 
disclosing them would provide useful information. The other option 
would be for FDA to issue guidance in Question and Answer form which 
could be updated with new information on a regular basis.
    (Comment 11) One comment suggested that the final rule should allow 
an exemption request to cover multiple products or a category of 
products and allow for modifications within a certain range. As one 
example, the comment suggested that, if supported by appropriate 
toxicological data, an exemption should allow a manufacturer to add a 
particular ingredient to any of its cigarette products up to a 
specified level, without requiring the manufacturer to file a 
substantial equivalence report or a separate exemption request for each 
product. Some comments urged adoption of a final rule that would 
establish a process focused on whether the addition of, or an increase 
in, the amount of an additive would increase the toxicity of the 
tobacco product. Similarly, other comments suggested that an exemption 
is appropriate when certain types of minor modifications would not 
increase the inherent public health risks of the product.
    (Response) As discussed previously, a single exemption request may 
be submitted for multiple tobacco products. Note that manufacturers 
must identify each tobacco product proposed to be included within the 
exemption and include the information required by Sec.  1107.1(b) in 
the request. Also, a manufacturer may submit an exemption request for a 
tobacco product(s) for a modification of an additive within a specified 
range. As provided in Sec.  1107.1(c), the Agency's determination on 
whether to grant an exemption request will be based on whether the 
criteria in section 905(j)(3) of the FD&C Act are met.
    (Comment 12) One comment stated that the language of section 
910(a)(2)(A)(ii) of the FD&C Act ``contemplates that exemptions from 
substantial equivalence will be categorical in nature, based on general 
regulations promulgated ex ante'' and the statute does not require an 
affirmative ``order.''
    (Response) We disagree with the comment suggesting that section 
910(a)(2)(A)(ii) requires categorical exemptions; the language the 
comment refers to states that an order under section 910(c)(1)(A)(i) 
for a new tobacco product is required unless ``the tobacco product is 
exempt from the requirements of section 905(j) pursuant to a regulation 
issued under section 905(j)(3).'' This rule implements section 
905(j)(3)'s exemption provision by establishing a pathway for 
manufacturers to seek exemptions from the substantial equivalence 
requirements of the FD&C Act. An exemption granted through this pathway 
would be an exemption ``pursuant to a regulation issued under section 
905(j)(3).'' The rule is also consistent with language in section 
905(j)(3) of the FD&C Act requiring FDA to make specific 
determinations, and language in section 905(j)(1)(A)(ii) of the FD&C 
Act that indicates that FDA must affirmatively ``grant'' an exemption.
    (Comment 13) Some comments requested that the Agency use its 
general rulemaking authority under section 701(a) of the FD&C Act to 
broaden the rule to include exemptions for more than just the addition 
or deletion of a tobacco additive, for example, to exempt minor 
modifications resulting from a company's change in vendors, blend 
maintenance adjustments, or adjustments in cigarette ventilation to 
maintain consistent strength of taste in response to agronomic 
variations. Similarly, some comments stated that FDA could issue other 
types of exemptions based on the ``where otherwise appropriate'' 
language in section 905(j)(3) of the FD&C Act. For example, the comment 
suggested we rely on this language to issue industry-wide exemptions 
for materials and/or components that are mandated by state or Federal 
law (such as Fire Safe Compliance paper).
    (Response) Under section 905(j)(3), FDA may exempt from the 
requirements relating to the demonstration of substantial equivalence 
only tobacco products that are modified by adding or deleting a tobacco 
product additive, or increasing or decreasing the quantity of an 
existing tobacco additive, if FDA makes three specific findings. One of 
these findings is that the exemption is otherwise appropriate. Thus, 
under the statutory language, exemptions from substantial equivalence 
requirements are limited to modifications of additive levels; the 
``otherwise appropriate'' language is not a separate ground for 
exempting a tobacco product from the substantial equivalence 
requirements of the statute.
    (Comment 14) Some comments suggested that the reduction or 
elimination of an additive should be categorically exempt from the 
substantial equivalent requirements. These comments referred to section 
904(c)(3), which requires manufacturers to notify FDA within 60 days 
after entering a product into the market when a manufacturer 
``eliminates or decreases an existing additive, or adds or increases an 
additive that has by

[[Page 38965]]

regulation been designated by the Secretary as an additive that is not 
a human or animal carcinogen, or otherwise harmful to health under 
intended conditions of use.'' One comment suggested that the final rule 
should categorically exempt such modifications in recognition of the 
Congressional determination that additions or increases of 
``designated'' additives do not require premarket review before a 
manufacturer enters a product into the market. The comment also 
suggested merging the exemption process with the ``designation'' 
process under section 904(c)(3).
    (Response) As discussed previously, we do not have sufficient 
information at this time to establish categorical exemptions, although 
we intend to establish categorical exemptions as information develops. 
Thus, comments related to the designation of additives that are not 
human or animal carcinogens as being one category of modifications that 
should be exempted are premature and outside the scope of this 
regulation.

C. Comments on Specific Provisions of the Rule

    (Comment 15) One comment discussed the proposed certification 
provision and noted that Congress excluded any consideration of 
behavioral effects from the substantial equivalence evaluation and in 
the evaluation of exemption requests for minor modifications. 
Similarly, other comments requested clarification that the rule would 
not require tobacco manufacturers to conduct behavioral research 
because the proposed rule might be read as meaning that a manufacturer 
would need to conduct behavioral research on minors in order to 
evaluate a product's appeal to minors. One comment stated that the data 
and certification requirements pose insurmountable practical problems 
because the comment did not believe that sufficiently sensitive tools 
exist to measure addictiveness, appeal to, or use by, minors. The 
comment stated, however, that toxicity data would likely be needed to 
evaluate some minor modification exemption requests and that data 
should be presented in a truthful manner. The comment suggested that if 
the Agency believes a certification is necessary, a more appropriate 
requirement would be similar to 21 CFR 807.87(k) (this provision 
requires that a premarket notification (510(k)) include a statement 
that the submitter believes, to the best of his or her knowledge, that 
all data and information submitted are truthful and accurate and that 
no material fact has been omitted).
    (Response) We did not intend for the proposed rule to imply that 
behavioral research must be conducted or submitted to support a 
certification. Rather, the rule requires only that the certification 
summarize the supporting evidence, which could be a literature review, 
previous studies, or other information. The certification is intended 
to provide us with assurance that there is a basis for making the 
findings required by section 905(j)(3) of the FD&C Act.

D. Comments on FDA's Implementation of the Rule and Review of Requests

    (Comment 16) Several comments stated that the proposed rule would 
create an enormously burdensome process, similar to a premarket 
application, for minor modifications to tobacco products. For example, 
several comments noted that, if finalized, the rule would require a 
tobacco product manufacturer to submit three reports to FDA regarding 
the requested minor modification: The initial minor modification 
report, a 905(j)(1)(A)(ii) report, and a separate report under section 
904(c)(2) or (c)(3) for any change in a tobacco additive. One comment 
stated that this would create a duplicative process that would exceed 
the requirements for new tobacco product applications and modified risk 
tobacco products, and other comments stated that the reporting of 
certain changes to additives in section 904(c)(2) would be rendered 
meaningless. Some comments stated that the process established in the 
proposed rule--requiring submission of an exemption request and, once 
granted, submission of a report under section 905(j)(1)(A)(ii) of the 
FD&C Act--is more burdensome and potentially lengthier than submission 
of a 905(j) substantial equivalence report or a premarket tobacco 
application.
    (Response) These comments refer in part to the requirement that a 
manufacturer who obtains an exemption is also required to report to FDA 
under section 905(j)(1)(A)(ii) of the FD&C Act (this requirement is not 
addressed in this rulemaking). Specifically, section 905(j)(1)(A)(ii) 
of the FD&C Act requires the applicant to report to FDA at least 90 
days prior to introducing or delivering for introduction into 
interstate commerce the tobacco product that is the subject of the 
exemption, the basis for the applicant's determination that ``the 
tobacco product is modified within the meaning of [section 905(j)(3)], 
the modifications are to a product that is commercially marketed and in 
compliance with the requirements of this Act, and all of the 
modifications are covered by exemptions granted by FDA pursuant to 
[section 905(j)(3)].'' In addition, this submission must describe 
``action taken by [the applicant] to comply with the requirements under 
section 907 (21 U.S.C. 387g) that are applicable to the tobacco 
product'' (section 905(j)(1)(B) of the FD&C Act). As noted earlier, the 
FD&C Act does set up distinct notification and reporting requirements, 
including those in sections 904(c) and 905(j)(1)(A)(ii), related to 
additives. In addition, in some cases the statute does require 
manufacturers to make multiple submissions before they may market a new 
tobacco product. We expect, however, that the overall exemption pathway 
to market will be less burdensome than the substantial equivalence or 
premarket application pathways to market. In addition, as discussed 
previously, a single exemption request may be submitted for multiple 
tobacco products, as long as each tobacco product is identified and the 
information required by Sec.  1107.1(b) is submitted with the request. 
Also, a manufacturer may submit an exemption request for a modification 
of an additive within a specified range, which would minimize potential 
burden and duplication of information. Moreover, a manufacturer may 
submit the information required by 904(c)(2) in conjunction with the 
submission of a section 905(j)(1)(A)(ii) report.
    (Comment 17) Several comments noted that the proposed process 
provided no time limit for FDA review of exemption requests and, 
consequently, a manufacturer may have to wait a long time for FDA to 
review its request for an exemption for a minor modification to its 
tobacco product. One comment suggested that FDA should make a decision 
on an exemption request within 90 days. This comment also suggested 
that one way to achieve more efficient review would be to allow a 
manufacturer to provide the notification required under section 
905(j)(1)(A)(ii) at the same time FDA reviews the exemption request 
(submitting the information for an exemption request with the report 
under 905(j)(1)(A)(ii)); another comment suggested that the 
manufacturer document the exemption in its files rather than submit the 
section 905(j)(1)(A)(ii) report. These comments suggested that these 
approaches would eliminate the inefficiency of requiring an Agency 
decision on an exemption request before a manufacturer could

[[Page 38966]]

submit a 90-day notification under section 905(j)(1)(A)(ii) of the FD&C 
Act.
    (Response) We agree that review of exemption requests should occur 
in a timely manner, and we do not expect the review process to be 
lengthy if the request includes the information stated in Sec.  
1107.1(b). We do not expect that the information submitted in an 
exemption request will be as lengthy or detailed as in a 905(j) 
substantial equivalence report. We understand that concerns regarding 
the length of time needed to prepare a submission were due in large 
part to the burden estimates in the NPRM; as discussed previously, 
however, we have revised our burden estimates. More discussion on the 
burden estimate can be found at sections VII and VIII of this 
rulemaking.
    We disagree, however, that the report under section 
905(j)(1)(A)(ii) of the FD&C Act could be made in conjunction with an 
exemption request under Sec.  1107.1 or that documenting the 
information specified in section 905(j)(1)(A)(ii) in the manufacturer's 
files would be appropriate. Section 905(j) requires that each person 
who proposes to begin the introduction or delivery for introduction 
into interstate commerce for commercial distribution a new tobacco 
product must submit either a report under section 905(j)(1)(A)(i) 
demonstrating that the new tobacco product is substantially equivalent 
to an appropriate predicate product, or a report under section 
905(j)(1)(A)(ii) stating the basis for their determination that the 
product is modified within the meaning of section 905(j)(3), the 
modifications are to a commercially marketed product, and that the 
modifications are covered by exemptions granted by FDA. Thus, 
documenting the information in the manufacturer's files would not be 
appropriate. Furthermore, the information required in a report under 
section 905(j)(1)(A)(ii) that ``all of the modifications are covered by 
exemptions granted by [FDA]'' will not be available until FDA grants 
the exemption; thus, the report under section 905(j)(1)(A)(ii) may not 
be submitted simultaneously with the exemption request.
    (Comment 18) One comment proposed an alternative rule that would 
require manufacturers to report to FDA ``a baseline list'' that would 
include ``maximum use levels'' of each additive in each product, the 
maximum use levels (MULs) of each tobacco type used in that category, 
and the established ranges for all other design parameters used in 
products in that category.'' The comment suggested that FDA could use 
these reports to create a composite list of MULs and established design 
parameter ranges for each product category based on information from 
grandfathered products and other legally marketed products. The 
composite list would be published in the Code of Federal Regulations. 
Manufacturers would be required to submit changes to its baseline list 
to reflect any new tobacco products the manufacturer has legally 
introduced into the market. Through an amendment process, tobacco 
manufacturers could increase MULs or expand design parameter ranges 
when there is evidence that use levels or design parameters are 
``generally recognized as appropriate for public health.'' The comment 
stated that its proposal would also clarify that adjustments to tobacco 
products that are not intended to alter the chemical or perception 
properties of the product are not ``modifications'' and thus do not 
make the product a new tobacco product subject to premarket 
requirements.
    (Response) In general, we disagree that this alternative would 
appropriately implement section 905(j)(3) of the FD&C Act. We note, for 
example, that a key premise of the alternative is the definition of 
``modification'' which, in the alternative, would be defined, with 
certain exceptions, as ``any change made by a tobacco product 
manufacturer * * * that is intended to or does alter the chemical or 
perception properties of the product.'' This definition is inconsistent 
with the language of section 910(a) of the FD&C Act, which does not 
include intent as an element of the definition of ``modification.''
    (Comment 19) Some comments suggested that, because regulations 
implementing section 905(j)(3) are not yet in place, FDA should 
exercise enforcement discretion for tobacco products that might use 
that pathway to market when the regulations are in place. These 
comments suggested that exemptions from reporting are essential to a 
workable system and FDA is bound to receive a significant volume of 
submissions for minor and inconsequential changes to tobacco products 
before such exemptions are issued.
    (Response) This final rule implements the exemption provision 
pathway to market and renders this comment moot.
    (Comment 20) One commenter requested an extension of the comment 
period.
    (Response) FDA declines to extend the comment period in an effort 
to ensure that the exemption pathway becomes available as required by 
statute. As indicated in the preamble to the proposed rule, however, 
FDA anticipates that there will be further guidance and rulemakings on 
this topic and will request comment accordingly.

IV. Effective Date

    For the effective date of this final rule see the DATES section of 
this document.

V. Legal Authority

    Section 905(j)(3)(A) of the FD&C Act provides that FDA may exempt 
from the requirements relating to the demonstration of substantial 
equivalence tobacco products that are modified by adding or deleting a 
tobacco additive, or increasing or decreasing the quantity of an 
existing tobacco additive, if FDA determines the modification would be 
a minor modification of a tobacco product that can be sold under the 
FD&C Act; a substantial equivalence report is not necessary to ensure 
that permitting the tobacco product to be marketed would be appropriate 
for protection of the public health; and an exemption is otherwise 
appropriate. Section 905(j)(3)(B) of the FD&C Act requires that FDA 
issue regulations to implement the provision on exemptions from the 
substantial equivalence requirements of the Tobacco Control Act. FDA is 
issuing this rule as required by section 905(j)(3)(B) of the FD&C Act. 
Additionally, section 701(a) of the FD&C Act (21 U.S.C. 371) gives FDA 
general rulemaking authority to issue regulations for the efficient 
enforcement of the FD&C Act.

VI. Environmental Impact

    The Agency has determined under Sec.  25.30(h) that this action is 
of a type that does not individually or cumulatively have a significant 
effect on the human environment. Therefore, neither an environmental 
assessment nor an environmental impact statement is required.

VII. Analysis of Impacts

A. Introduction

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

[[Page 38967]]

regulatory action under Executive Order 12866.
    The Regulatory Flexibility Act requires Agencies to analyze 
regulatory options that would minimize any significant impact of a rule 
on small entities. Because the exemption pathway put into place by this 
rule provides an option that potentially reduces costs, the Agency 
certifies that the final rule will not have a significant economic 
impact on a substantial number of small entities.
    Section 202(a) of the Unfunded Mandates Reform Act of 1995 requires 
that Agencies prepare a written statement, which includes an assessment 
of anticipated costs and benefits, before proposing ``any rule that 
includes any Federal mandate that may result in the expenditure by 
State, local, and Tribal governments, in the aggregate, or by the 
private sector, of $100,000,000 or more (adjusted annually for 
inflation) in any one year.'' The current threshold after adjustment 
for inflation is $136 million, using the most current (2010) Implicit 
Price Deflator for the Gross Domestic Product. FDA does not expect this 
final rule to result in any 1-year expenditure that would meet or 
exceed this amount.

B. Public Comments Concerning Impact Analysis

    FDA received several comments covering such topics as the accuracy 
of FDA's assessment of social costs and benefits, the accuracy of 
burden estimates, compliance with requirements such as Executive Order 
12866 and the Regulatory Flexibility Act, and the effect of this rule 
on small businesses.
    (Comment 21) One comment stated that bringing a modified product to 
market under the proposed exemption pathway could cost as much or 
possibly more than filing a section 905(j) report alone because the 
Agency estimated that requesting an exemption and filing a section 
905(j) report would each require 360 hours. Bringing a product to 
market under an exemption would require both submissions.
    (Response) This comment reflects some misunderstanding of the 
nature of the reports submitted under 905(j) of the FD&C Act with and 
without substantial equivalence exemptions. In the absence of an 
exemption, a report demonstrating substantial equivalence under section 
905(j)(1)(A)(i) must be submitted. If an exemption has been requested 
and granted, a report must still be submitted under section 
905(j)(1)(A)(ii), but it will cite the exemption(s) in place of 
demonstrating substantial equivalence. The 360-hour estimate refers to 
a section 905(j) report demonstrating substantial equivalence. A report 
citing an exemption would be far shorter.
    (Comment 22) One comment stated that FDA incorrectly concluded that 
the proposed rule was not significant under Executive Order 12866.
    (Response) FDA should have stated that the proposed rule was not 
economically significant. We have added that statement to the final 
rule.
    (Comment 23) One comment argued that FDA's conclusion that the 
proposed rule does not impose social costs is ``irrational,'' 
``erroneous,'' and ``so unreasonable as to be arbitrary and 
capricious.'' The comment further stated that FDA ``inappropriately 
stacks the deck'' by using a baseline scenario in which there are no 
exemptions and that by this reasoning, ``it is literally impossible for 
its exemption rule to impose costs, regardless of how burdensome or 
byzantine an exemption pathway the rule sets forth.'' In light of the 
statutory mandate to implement exemptions, the no-exemption scenario 
cannot be treated as the baseline. Finally, the comment argued that FDA 
had not complied with its obligation to rationally consider the costs 
of the rule compared with alternative means of implementing exemptions.
    (Response) FDA disagrees that the proposed rule would impose social 
costs. The current regulatory framework requires submission of a 
substantial equivalence report (or a premarket application) before 
introducing any new tobacco product, and without rulemaking this 
framework would continue into the future. Substantial equivalence 
reports have a substantial burden, preliminarily estimated at 360 
hours. Use of this baseline is appropriate and does not ``stack the 
deck.'' The Office of Management and Budget's (OMB's) Circular A-4 
states that the baseline ``should be the best assessment of the way the 
world would look absent the proposed action.'' Without this rule, all 
new tobacco products would be required to submit a premarket 
application or substantial equivalence report.
    We do not argue that under the stated baseline it is literally 
impossible for this exemption rule to impose costs. We acknowledge the 
theoretical possibility that uncertainty regarding the kinds of product 
modifications that may be granted an exemption and the amount of 
supporting evidence that will be required as the basis for an exemption 
could impose additional social costs. We think this is extremely 
unlikely, especially in the long run, because uncertainty will be 
reduced as manufacturers gain experience with the regulatory regime. 
Although the theoretical possibility exists that this rule could 
increase costs in the short run, we therefore do not anticipate that it 
will increase costs in the long run.
    The comment seems to imply that a regulatory alternative in which 
certain types of modifications are automatically exempted should be 
used as the baseline. This suggestion confuses the choice of baseline 
with an analysis of alternatives. Nevertheless, FDA recognizes that 
there are regulatory alternatives, such as identifying categories of 
modifications that are exempt, that could have reduced costs more than 
this rule will. That is why in the future, when the Agency has 
sufficient information to do so, FDA may identify categories of 
modifications that are exempt.
    This comment may be reacting to the apparent lack of cost savings 
under the exemption pathway, or the perceived large cost of both the 
exemption and substantial equivalence pathways. As discussed elsewhere 
in this preamble, FDA now believes it significantly overestimated the 
burden of requesting an exemption. Our current estimate, based on new 
information, indicates that the exemption pathway will offer cost 
savings.
    (Comment 24) One comment argued that based on the history of FDA's 
510(k) Program, it is clear that the broad interpretation of the 
section 905(j) reporting mandate embodied in current guidance 
(``Guidance for Industry and FDA Staff--Section 905(j) Reports: 
Demonstrating Substantial Equivalence for Tobacco Products'' (76 FR 
789, January 6, 2011)) will ``impose an incredible and unnecessary 
administrative burden on the Agency and the tobacco product 
manufacturing industry.'' Many of the submissions will be unnecessary 
for protection of the public health. FDA estimated that 905(j)(3) 
reports will cost $35,000 each, ``evidencing the burden on industry of 
an onerous reporting mandate.''
    (Response) FDA acknowledges that tobacco product manufacturers may 
face new challenges in complying with the various provisions of the 
Tobacco Control Act. However, this rule will not impose any new 
obligations on manufacturers. In the absence of this rule, all 
modifications leading to new tobacco products would require the 
demonstration of substantial equivalence (if not submission of a 
premarket application), as discussed previously in this document. This 
rule provides an alternative pathway to substantial equivalence and 
premarket applications for marketing new tobacco products and may 
reduce both industry

[[Page 38968]]

costs and the burden on FDA of reviewing submissions.
    (Comment 25) A comment argued that the approach taken in FDA's 
impact analysis is legally deficient because it would allow the Agency 
to skirt its obligations under the Regulatory Flexibility Act by 
assuming any regulation issued to implement substantial equivalence 
exemptions is cost free. The comment further stated that FDA can only 
avoid the requirements of the Regulatory Flexibility Act by certifying 
that the rule will not have a significant impact on a substantial 
number of small businesses and that such a certification must be 
reasonably supported.
    (Response) FDA disagrees that the Agency has skirted any 
obligations under the Regulatory Flexibility Act. FDA proposed to 
certify that the rule would not have a significant impact on a 
substantial number of small entities because compared to the 
appropriate baseline, the rule would offer an alternative channel that 
may reduce costs. See the Response to Comment 23 for a discussion of 
the baseline on this issue.
    (Comment 26) A comment argued that the approach taken in FDA's 
impact analysis is legally deficient because it would allow the Agency 
to skirt its obligations under Executive Order 12866 by assuming any 
regulation issued to implement substantial equivalence exemptions is 
cost free. FDA must rationally compare the costs and benefits of the 
proposed rule and consider reasonable alternatives. After assessing 
costs and benefits FDA must proceed ``only upon a reasoned 
determination that the benefits of the intended regulation justify its 
costs.''
    (Response) FDA disagrees. For regulatory actions which are not 
economically significant, Executive Order 12866 requires a statement of 
potential costs and benefits. FDA has rationally compared the costs and 
benefits of the proposed rule according to the correct baseline, as 
explained in the Response to Comment 23. An analysis of regulatory 
alternatives is only required for economically significant rules.
    (Comment 27) A comment argued that the approach taken in FDA's 
impact analysis is legally deficient because it would allow the Agency 
to skirt its obligations under the Administrative Procedure Act. 
``FDA's assumption that the cost of its proposed rule is zero 
demonstrates that FDA's assessment of social costs is so unreasonable 
as to be arbitrary and capricious.''
    (Response) FDA disagrees with the assertion that the Agency's 
assessment of social costs is unreasonable, arbitrary, or capricious. 
See the Response to Comment 23 for a discussion about the baseline for 
details.
    (Comment 28) A comment argued that FDA's impact analysis is 
unreasonable because after incorrectly concluding that the proposed 
rule is costless, FDA conducts a cursory impact analysis quantifying 
the cost of preparing an exemption request.
    (Response) FDA concluded that the proposed rule was highly unlikely 
to impose social costs. We do not conclude or state that preparing and 
submitting a request for exemption would be without cost. The question 
of interest in the impact analysis is the cost of marketing a new 
tobacco product through the exemption pathway compared to the cost of 
marketing a new tobacco product through the substantial equivalence 
pathway. FDA provided an estimate of the absolute cost of obtaining an 
exemption to allow the reader to make additional comparisons.
    (Comment 29) A comment argued that FDA's impact analysis is 
unreasonable and ``so misguided as to demonstrate that FDA has no real 
understanding of the practical consequences of its proposed rule for 
the industry it is charged with regulating.''
    (Response) FDA disagrees that the analysis is misguided or that the 
Agency has no understanding of the industry it is charged with 
regulating. However, the Agency does acknowledge that because statutory 
deadlines compelled us to start developing a rule for substantial 
equivalence exemptions before substantial equivalence reporting 
requirements went into effect, there was considerable uncertainty 
surrounding our estimates as well as the process itself. For this 
reason we repeatedly requested comment throughout the preliminary 
impact analysis. Because we have gained additional information and 
experience since publishing the proposed rule, we have revised our 
estimates as discussed in the paragraphs that follow.
    (Comment 30) Multiple comments asserted that FDA's impact analysis 
is unreasonable and dramatically underestimates the costs and burdens 
associated with the proposed rule. One comment stated that if FDA takes 
the position that routine, minor adjustments to maintain consistency 
trigger the need for an exemption or substantial equivalence report, 
then FDA's best estimate that 50 exemption requests will be submitted 
per year is ``absurdly low.'' Multiple comments indicated that there 
will be at least several hundred exemption requests submitted per year, 
possibly several thousand. One comment stated that it is arbitrary to 
estimate that 50 of 233 new products introduced each year would be the 
subject of an exemption request; FDA's approach based on counting new 
products is flawed because manufacturers will have to file potentially 
hundreds of exemption requests each year for existing tobacco products; 
and, the estimate that FDA will request additional information for 40 
requests per year is also far too low.
    (Response) The estimates referred to by this comment are not 
estimates of the cost of this rule, but estimates of the absolute cost 
of preparing exemption requests. As described in the preliminary 
regulatory impact analysis, this rule offers a potentially cost-
reducing additional pathway for marketing a subset of new tobacco 
products.
    Based on the original estimate that 233 new products are introduced 
each year, FDA disagrees that it was arbitrary to choose 50 as our best 
estimate of how many exemption requests we would receive. Because the 
statute sets specific criteria for when exemptions may be granted, we 
can clearly expect that not all new products would be eligible.
    Since publication of the proposed rule, FDA has gained additional 
information from viewing comments and initial substantial equivalence 
reports and through other activities within the usual scope of 
operation for FDA's Center for Tobacco Products. We now know more about 
the range and frequency of modifications that are made to tobacco 
products. Based on this new information, we have revised upward the 
number of exemption requests we expect to receive to 500 per year. We 
now anticipate requesting additional information for 150 of these 
requests.
    (Comment 31) Comments argued that FDA provided ``no basis 
whatsoever,'' ``reasonable or otherwise'' for its estimates that it 
will take 360 hours to prepare an exemption request and 50 hours to 
respond to a request for additional information. Comments further 
argued that these estimates are arbitrary and capricious and do not 
comply with requirements under the Paperwork Reduction Act (the PRA), 
the Regulatory Flexibility Act, and Executive Order 12866; preparing 
these submissions will take substantially longer than estimated; and 
the lack of basis for the burden estimate is clear because the same 
burden estimate, 360 hours, was used for demonstration of substantial 
equivalence and requesting a substantial equivalence exemption.
    (Response) The estimates referred to by this comment are not 
estimates of the

[[Page 38969]]

cost of this rule, but estimates of the absolute cost of preparing an 
exemption request. FDA disagrees that these estimates are too low and 
are completely without basis. The processes FDA is implementing for 
substantial equivalence reports and substantial equivalence exemptions 
are completely new, so there is considerable uncertainty around the 
time that such submissions will take to prepare. The estimates in the 
proposed rule represented the Agency's best estimates at the time, 
based on the requirements set out in the rule and other submission 
processes administered by the Agency. There was no ideal submission 
process to which to compare a substantial equivalence exemption 
request. Although comments have asserted that the time it takes to 
request an exemption was underestimated, no alternative estimates were 
provided. The fact that the burden estimates were originally the same 
for demonstrating substantial equivalence and requesting an exemption 
reflected an effort to be conservative in estimating the cost savings 
offered by this rule and uncertainty surrounding these burdens.
    Since publication of the proposed rule, FDA has gained additional 
information from reviewing comments and initial substantial equivalence 
reports and through other activities within the usual scope of 
operation for FDA's Center for Tobacco Products. We now know more about 
the range of modifications that are made to tobacco products and are 
persuaded that we overestimated the time that will be required to 
prepare and submit an exemption request. Based on the limited 
information required relative to a substantial equivalence report, we 
now estimate that an exemption request for a suitable product, meeting 
the requirements set forth in this rule, could be prepared in 12 hours, 
and that a response to a request for additional information could be 
prepared in 3 hours. For more detail see section VIII of this document.
    (Comment 32) One comment argued that FDA does not show how costs 
will be reduced through this rule because the cost of demonstrating 
substantial equivalence is not estimated.
    (Response) As noted by many comments, FDA initially estimated that 
demonstrating substantial equivalence and requesting an exemption would 
each take 360 hours, which would imply that on average costs would not 
actually be reduced by this rule (though costs could certainly be 
reduced for some subset of potentially eligible new tobacco products). 
The initial estimate of the time required to prepare a substantial 
equivalence report is currently being updated based on initial 
submissions to the Agency, but we anticipate that the updated estimate 
will remain substantially higher than our downwardly revised estimate 
of the cost of preparing an exemption request.
    (Comment 33) Comments argued that uncertainty about the 
circumstances under which FDA would request additional information 
makes it more difficult for manufacturers to determine whether it will 
be less costly to request an exemption and that FDA should provide 
additional information regarding the types of modifications that will 
be considered for exemption requests. One comment further argued that 
spending 360 hours on an exemption request that is ultimately denied, 
and then submitting a substantial equivalence report, wastes resources.
    (Response) FDA disagrees that it is prudent to provide additional 
information at this time regarding the types of modifications that will 
be considered for an exemption, as explained elsewhere in the preamble. 
We also note that based on current information, we estimate the burden 
of submitting an exemption request to be far lower than initially 
estimated. the cost of responding to a request for additional 
information will also be lower than initially estimated, and fewer 
resources will be expended if an exemption request is ultimately 
denied. Nevertheless, it is up to the individual manufacturer to make a 
reasoned determination as to whether the likelihood that an exemption 
is granted justifies the cost of submitting an exemption request. The 
criteria set forth in the statute and this rule will form the basis for 
that determination.
    (Comment 34) A comment argued that in estimating the time required 
to prepare an exemption request, FDA has not considered the ``massive 
amount of confusion and uncertainty'' that will stem from the lack of 
clear definition of ``minor modification'' or clear standards for what 
modifications would be eligible for exemptions.
    (Response) The statute and this rule plainly state that only 
modifications pertaining to tobacco product additives could be eligible 
for an exemption. The time we have estimated that it takes to submit an 
exemption request reflects the reality that we have not set up 
categories of modifications which are automatically exempt. Instead the 
manufacturer must provide an explanation as to why the modification 
should be exempt, following the requirements of this rule.
    (Comment 35) A comment asserted that FDA discounts the possibility 
that overall submission costs could increase as a result of the 
uncertainty generated by the proposed rule and pointed out that FDA 
does not estimate the annual number or percentage of exemption requests 
it expects to deny. The comment argues that because the number of 
exemption requests will far exceed 50 per year, the number of requests 
denied due to inadequate information regarding the exemption criteria 
will be higher than FDA anticipates. The comment further states that 
``having failed to provide any meaningful guidance on the exemption 
criteria in the nearly 2 years since the Family Smoking Prevention and 
Tobacco Control Act was signed into law, FDA cannot blithely assume 
that the criteria will somehow become clear in time to save 
manufacturers from incurring major, unnecessary costs in preparing 
exemption requests that are denied because they are found not to meet 
criteria that FDA has not divulged.'' A similar comment argues that the 
cost savings of this rule are merely theoretical.
    (Response) FDA disagrees with the characterization that the Agency 
discounted the possibility that overall submission costs could 
increase. This possibility was discussed in the preliminary analysis 
precisely because the Agency did not feel it should be ignored. FDA 
maintains the conclusion that in the long run, absolute costs for 
preparing exemption requests will certainly not exceed the baseline 
costs for demonstrating substantial equivalence because manufacturers 
always have the option available of demonstrating substantial 
equivalence for these products. Manufacturers can limit the number of 
exemption requests which are ultimately denied by adhering to the 
criteria for an exemption set forth in the statute and this rule. Only 
modifications pertaining to additives could possibly be eligible. 
Although costs could theoretically be generated in the near term, this 
is unlikely because the cost savings likely to result from a single 
exemption is high relative to the cost of preparing a single exemption 
request.
    While we agree that the number of exemption requests will be higher 
than initially estimated, we do not attempt to estimate the number (or 
proportion) that will ultimately be denied because it depends on the 
quality and suitability of the submissions. In light of currently 
available information, the exemption pathway is reasonably expected to 
offer cost savings.

[[Page 38970]]

    (Comment 36) Comments argued that due to the high estimated cost of 
preparing exemption requests, FDA should assist small businesses by 
setting up categorical exemptions and developing a catalog of minor 
modifications (by product type and manufacturing process) that are 
exempt from substantial equivalence requirements.
    (Response) Our reasons for not setting up categorical exemptions at 
this time are discussed elsewhere in the preamble. FDA reiterates that 
this rule activates an additional pathway for marketing new tobacco 
products, providing manufacturers with an option that may reduce costs. 
Therefore this rule imposes no incremental burden from which to provide 
relief.
    However, FDA also acknowledges that setting up categorical 
exemptions or developing a catalog of minor modifications could offer 
greater potential cost savings for tobacco product manufacturers, many 
of which are small, in complying with requirements under the Tobacco 
Control Act. That is why the Agency may choose to set up categorical 
exemptions in the future when there is more information about what 
categories would be appropriate.
    (Comment 37) Manufacturers commented that FDA should issue 
industry-wide exemptions from 905(j) requirements, or 910 requirements 
if applicable, for modifications that are required to comply with a 
change in state or Federal law because not exempting such modifications 
could cause small manufacturers to go out of business and would place 
an undue burden on small manufacturers.
    (Response) FDA disagrees that declining to broaden the scope of the 
exemption pathway places an undue burden on small manufacturers. FDA 
reiterates that this rule establishes an additional pathway for 
marketing new tobacco products, providing manufacturers with an option 
that may reduce costs. Therefore this rule imposes no incremental 
burden from which to provide relief. For changes in additives, small 
manufacturers may request an exemption. The absolute cost of requesting 
an exemption is expected to be far less than originally estimated, and 
the potential cost savings relative to demonstrating substantial 
equivalence far greater. Although broadening the scope of the exemption 
pathway could offer a larger potential reduction in costs, FDA declines 
to do so as explained elsewhere in the preamble.
    (Comment 38) Manufacturers commented that the estimated 360 hours 
it would take to prepare an exemption request would be an unduly 
burdensome requirement to place on small manufacturers for the addition 
or deletion of an additive, or a change in the quantity of an additive. 
The comments stated that small manufacturers do not have in-house 
scientists or engineers who can spend all their time preparing 
exemption requests and could be driven out of business by this 
requirement.
    (Response) As discussed previously in this document, FDA has 
revised downward the estimate of the time it takes to prepare an 
exemption request. FDA reiterates that because this rule activates an 
alternative pathway for marketing new tobacco products that may reduce 
costs, it imposes no incremental burden from which to provide relief. 
Regardless of whether the preparation of submissions to FDA is done 
entirely in-house or with the help of contractors, the cost should not 
increase as a result of this rule. Small manufacturers would have to 
prepare substantial equivalence reports for all new products (not 
requiring a premarket application) in the absence of this rule. Small 
manufacturers may realize some savings by submitting exemption requests 
for a subset of their new products rather than demonstrating 
substantial equivalence.

C. Baseline

    Under the current regulatory framework, tobacco product 
manufacturers must submit to FDA either a premarket application or a 
report under section 905(j)(1)(A)(i) demonstrating substantial 
equivalence to an appropriate predicate product, and FDA must issue the 
appropriate corresponding order, before a new tobacco product may be 
introduced or delivered for introduction into interstate commerce. This 
rulemaking activates a third option, the substantial equivalence 
exemption pathway for marketing new tobacco products. Compared with the 
cost associated with the current baseline, this rule may result in cost 
savings if tobacco manufacturers request, and are granted, substantial 
equivalence exemptions for some new tobacco products.

D. Number of Affected Entities

    This final rule may potentially apply to any tobacco product 
manufacturer or importer whose products are regulated under the Tobacco 
Control Act. Statistics of U.S. Businesses data indicate that there are 
20 domestic cigarette manufacturers and 46 other tobacco product 
manufacturers (U.S. Census, 2009). Because other tobacco product 
manufacturers would include cigar and pipe tobacco manufacturers, not 
all 46 firms represent manufacturers that are currently regulated under 
the Tobacco Control Act.\1\ An unknown number of importers would be 
affected.\2\ It is possible that not all potentially affected 
manufacturers and importers will choose to request exemptions.
---------------------------------------------------------------------------

    \1\ A possible offsetting factor is that these data only include 
firms with payroll, and there could be some small tobacco product 
manufacturers without payroll.
    \2\ Manufacturers, wholesalers, and retailers could all 
theoretically import tobacco products. Census data do not 
distinguish firms that import from firms that do not.
---------------------------------------------------------------------------

E. Number of Exemption Requests

    The number of new products introduced in a given year is the 
theoretical maximum number that could be introduced under a substantial 
equivalence exemption. However, some new products may not be 
substantially equivalent to an appropriate predicate tobacco product 
and will require premarket authorization under section 910(c), in which 
case they will certainly not be eligible for an exemption. The 
remaining products could demonstrate substantial equivalence in a 
905(j)(1)(A)(i) report. Under this final rule, a subset of those 
substantially equivalent products will be eligible for possible 
introduction into interstate commerce through the substantial 
equivalence exemption pathway.
    FDA considers AC Nielsen scanner data, industry comments, and 
experience from substantial equivalence reports submitted since passage 
of the Tobacco Control Act in order to estimate the number of 
exemptions that may be requested on an annual basis. We assume the 
average number of new products introduced annually will be 
approximately the same going forward as in recent years. However, it is 
also possible that requirements imposed by the Tobacco Control Act will 
lead manufacturers to introduce new products at a lower rate in the 
future.
    Using AC Nielsen scanner data covering late 2007 to late 2009, FDA 
counts a Universal Product Code (UPC) as introduced in 2008 if total 
dollar sales in late 2007 were zero, but total dollar sales in 2008 
were greater than zero. With this definition, FDA finds that 628 new 
cigarette UPCs, 215 new chewing tobacco UPCs, 36 new smoking tobacco 
UPCs (excluding pipe tobacco), and 36 new cigarette paper UPCs were 
introduced in 2008. This sums to an estimated 915 new UPCs in 2008.
    Unique UPCs are often assigned to different types of packaging for 
otherwise identical products. In the preliminary regulatory impact 
analysis,

[[Page 38971]]

FDA excluded from consideration new UPCs that appeared to be for 
products that differed from existing products only in packaging. In 
response to comments stating that our initial approach undercounted new 
tobacco products because of the extremely minor changes that are often 
made to existing products, we consider all new UPCs in this final 
regulatory impact analysis. The number of new UPCs still may not 
accurately reflect the number of new tobacco products if enough 
modifications are so minor that they do not trigger a UPC change. FDA 
does not know the extent to which this may be the case, but based on 
comments from industry and experience with substantial equivalence 
reports, relatively minor modifications are more common than originally 
thought.
    As outlined previously, some new products may require premarket 
authorization under section 910(c), and an unknown proportion of the 
remaining products would be introduced through the exemption pathway. 
This rule does not require a one-to-one correspondence between the 
exemption requests and new products introduced through the exemption 
pathway. Based on the number and content of substantial equivalence 
reports FDA has received so far, FDA estimates that in the first years 
after the procedure is in place, 500 exemption requests will be 
submitted per year covering 750 new tobacco products. This number has 
been revised upward substantially from the estimate in the preliminary 
regulatory impact analysis as FDA has learned from industry comments 
and from substantial equivalence reports that tobacco product 
manufacturers make many small modifications to their products which may 
qualify for an exemption. FDA anticipates requesting additional 
information to support 150 of those exemption requests. This number is 
uncertain because it depends on the quality of the initial requests.

F. Benefits and Costs

    The main effect of this final rule would be a potential reduction 
in the costs of introducing new tobacco products compared with the 
current baseline. Under the baseline scenario, all new products that do 
not undergo premarket review under section 910(c) must submit a 
substantial equivalence report under section 905(j)(1)(A)(i). If an 
exemption request is submitted and granted, a manufacturer would be 
able to submit a different 905(j) report in which, under section 
905(j)(1)(A)(ii), a discussion of the exemption(s) is used in place of 
the demonstration of substantial equivalence. On a per-product basis, 
when one exemption request covers one new tobacco product, the cost 
savings attributable to this rule equals the difference between the 
cost of demonstrating substantial equivalence and the cost of both 
requesting an exemption and submitting a report under section 
905(j)(1)(A)(ii).\3\ The savings could be greater in cases in which a 
single exemption request is used for multiple products.
---------------------------------------------------------------------------

    \3\ An environmental assessment would be required with either 
pathway.
---------------------------------------------------------------------------

    FDA has concluded that we significantly overestimated the burden of 
requesting a substantial equivalence exemption as we prepared the 
proposed rule. The estimate, 360 hours, was based in part on other 
submission processes the Agency has direct experience with, but there 
was no ideal existing submission process to which to compare a 
substantial equivalence exemption request. We did not yet have 
experience reviewing the substantial equivalence reports this pathway 
provides an exemption from. Since publication of the proposed rule, we 
have gained additional information from reviewing comments and initial 
substantial equivalence reports and through other activities within the 
usual scope of operation of FDA's Center for Tobacco Products. We now 
know more about the range of modifications that are made to tobacco 
products. Based on the limited information required to be submitted 
relative to a substantial equivalence report, we now estimate that 
preparing an exemption request will require 12 hours for the 
requirements of Sec.  1107.1(b)(1) through Sec.  1107.1(b)(8). We also 
estimate an additional 12 hours will be required to prepare the 
environmental assessment, for a total of 24 hours. For more detail on 
the estimate, see section VIII of this document, which explains that an 
exemption request does not require a comparison to a predicate or 
inclusion of information on multiple characteristics, but rather 
requires limited information for the product that is the subject of the 
exemption request and on the modification of the additive.
    Based on the requirements set forth in the codified language, FDA 
anticipates that preparation of most sections would require technical 
scientific and engineering expertise. Legal input and review would also 
play a role. Therefore, in valuing the time cost, FDA uses the weighted 
average of tobacco manufacturing industry-specific hourly wages for 
life, physical, and social science occupations ($30.91), architecture 
and engineering occupations ($40.93), and legal occupations ($71.83) 
(Ref. U.S. BLS, 2010). FDA assigns these occupational categories 
weights of 40 percent, 40 percent, and 20 percent. The resulting 
composite wage is $43.10. FDA then doubles this amount to $86.20 to 
account for benefits and overhead. Multiplying this wage by the burden 
estimates above yields a cost per exemption request of $1,034 for the 
requirements of Sec.  1107.1(b)(1) through Sec.  1107.1(b)(8) and an 
additional $1,034 for the environmental assessment, or a total of 
$2,069. FDA anticipates that when it asks a manufacturer to provide 
additional information in support of an exemption request, it will take 
an average of 3 hours to prepare the additional information. Using the 
same hourly cost of labor, providing additional information is 
estimated to result in an additional cost of $259.
    Under the Tobacco Control Act, completion of the substantial 
equivalence pathway for marketing a new tobacco product requires 
submission of a report under section 905(j)(1)(A)(ii). This is a basic 
requirement that is expected to take 3 hours. Valued at a wage of 
$86.20, it would then cost $259 to submit one report under section 
905(j)(1)(A)(ii).
    In the case that one exemption request covers one product and the 
exemption is granted without a request for additional information, the 
substantial equivalence exemption pathway (consisting of an exemption 
request, including an environmental assessment, and a subsequent report 
under section 905(j)(1)(A)(ii) for a product embodying one 
modification) would take 27 hours at a cost of $2,328. These are 
elective costs in that firms will not choose this pathway unless the 
potential savings relative to demonstrating substantial equivalence 
justifies the risk of submitting an exemption request that is 
ultimately denied. The preliminary time burden estimate for submitting 
a substantial equivalence report under section 905(j)(1)(A)(i) was 360 
hours. This estimate is currently being updated based on the initial 
submissions to the Agency, but for a new tobacco product satisfying the 
criteria for an exemption, we anticipate that the burden of preparing a 
substantial equivalence report and an environmental assessment will 
continue to be appreciably higher than the burden described previously 
for utilizing the exemption pathway.
    Based on FDA's expectation that 500 exemption requests will be 
received per year, the absolute cost of preparing exemption requests 
would be $517,224 for the requirements of Sec.  1107.1(b)(1) through 
Sec.  1107.1(b)(8) and an additional

[[Page 38972]]

$517,224 for the environmental assessments. The absolute cost of 
replying to requests for additional information would be $38,792 if, as 
anticipated, we ask for additional information supporting 150 of the 
500 requests. If these exemptions are cited in the 905(j)(1)(A)(ii) 
reports for 750 new products, those reports would cost an additional 
$193,959. If all these exemptions were granted, the total savings 
attributable to this rule would be the difference between the cost of 
bringing all 750 products to market through the substantial equivalence 
pathway and the sum of the four costs enumerated above. However, the 
cost savings is expected to be lower because it is unlikely that all 
the requested exemptions would be granted.
    In order to grant an exemption, FDA must find, among other things, 
that a report demonstrating substantial equivalence would not be 
necessary to ensure that permitting the tobacco product to be marketed 
would be appropriate for protection of the public health. Furthermore, 
an exemption could be rescinded if found to be inappropriate, and the 
process for rescission would depend on whether there is a serious risk 
to public health. Therefore, FDA does not anticipate that setting up 
this mechanism for obtaining substantial equivalence exemptions will 
result in costs to public health.
    Under this final rule, there may still be some uncertainty on the 
part of manufacturers about what kinds of product modifications may be 
granted an exemption and how much supporting evidence will be required 
as the basis for an exemption. If some manufacturers are more 
conservative in requesting exemptions than FDA would be in granting 
them, they may not fully avail themselves of the potential cost 
savings. Alternatively, if some manufacturers are too optimistic about 
what types of modifications will be exempt, they will incur higher 
costs because they will have to submit substantial equivalence reports 
in addition to having submitted unsuccessful exemption requests.
    FDA acknowledges the theoretical possibility that overall 
submission costs could increase as the result of this uncertainty. This 
would happen if so many unsuccessful exemption requests were submitted 
that the excess costs associated with them exceeded any cost savings 
from exemptions that were granted. This situation is unlikely to occur, 
especially in the long run. The cost of submitting an exemption request 
is expected to be low relative to the potential savings. As time goes 
on and manufacturers gain experience with submission costs and the 
requirements that must be met for exemptions, they might continue to 
submit unsuccessful exemption requests, but this would increasingly be 
a well-informed choice based on an accurate estimation of the 
probability of being granted an exemption and the excess cost of 
preparing an unsuccessful request compared with the cost savings 
attributable to an exemption. Moreover, it is possible that some of the 
information compiled for an exemption request would be reused as part 
of a demonstration of substantial equivalence, thus reducing the effort 
expended in preparing both types of submissions.

G. Conclusion

    In summary, the substantial equivalence exemption requirements laid 
out in this final rule offer an additional channel for legally 
introducing new tobacco products that result from minor modifications 
of tobacco products that can be sold under the FD&C Act. Successfully 
introducing a product through this channel is expected to reduce costs. 
If manufacturers do not want to risk having to submit substantial 
equivalence reports in addition to having submitted unsuccessful 
exemption requests, they may choose to maintain the status quo and not 
pursue substantial equivalence exemptions.

H. Regulatory Flexibility Act

    The Tobacco Control Act requires that tobacco product manufacturers 
obtain either a marketing authorization order under section 910(c) or 
an order under section 910(a)(2) finding the new tobacco product to be 
substantially equivalent to an appropriate predicate tobacco product 
before introducing a new product into interstate commerce. Although 
this requirement is costly, the option of requesting an exemption as 
set forth in this final rule provides an alternative pathway that 
potentially reduces costs. Manufacturers of new tobacco products may 
choose not to use this alternative pathway to market their products. 
Therefore, this final rule imposes no incremental burden from which to 
provide relief and will not have a significant impact on a substantial 
number of small entities.

VIII. Paperwork Reduction Act of 1995

    This final rule contains information collection requirements that 
are subject to review by OMB under the PRA (44 U.S.C. 3501-3520). The 
title, description, and respondent description of the information 
collection provisions are shown in the paragraphs that follow with an 
estimate of the annual reporting and recordkeeping burden. Included in 
the estimate is the time for reviewing instructions, searching existing 
data sources, gathering and maintaining the data needed, and completing 
and reviewing each collection of information.
    Title: Exemptions from Substantial Equivalence Requirements for 
Tobacco Products, Final Rule.
    Description: In this final rule, a pathway would be established by 
FDA for manufacturers to request exemptions from the substantial 
equivalence requirements of the FD&C Act. As it acquires more 
information about the additives in tobacco products from which to 
establish categories of exemptions, FDA may issue additional 
regulations or guidance on this subject. This rule would implement 
section 905(j)(3) of the FD&C Act, under which FDA may exempt tobacco 
products that are modified by adding or deleting a tobacco additive, or 
increasing or decreasing the quantity of an existing tobacco additive, 
if FDA determines that: (1) The modification would be a minor 
modification of a tobacco product that can be sold under the FD&C Act, 
(2) a report is not necessary to ensure that permitting the tobacco 
product to be marketed would be appropriate for protection of the 
public health, and (3) an exemption is otherwise appropriate.
    The rule also explains that an exemption request may be made only 
by the manufacturer of a legally marketed tobacco product for a minor 
modification to that manufacturer's product and the request (and 
supporting information) must be submitted in an electronic format that 
FDA can process, review, and archive. In addition, the request and all 
supporting information must be legible and in (or translated into) the 
English language.
    Under the rule, an exemption request must be submitted with 
supporting documentation and contain the manufacturer's address and 
contact information; identification of the tobacco product(s); a 
detailed explanation of the purpose for the modification; a detailed 
description of the modification; a detailed explanation of why the 
modification is a minor modification of a tobacco product that can be 
sold under the FD&C Act; a detailed explanation of why a report under 
section 905(j)(1)(A)(i) intended to demonstrate substantial equivalence 
is not necessary to ensure that permitting the tobacco product to be 
marketed would be appropriate for the protection of the public health; 
a certification summarizing the supporting evidence and providing the 
rationale for why the

[[Page 38973]]

modification does not increase the tobacco product's appeal to or use 
by minors, toxicity, addictiveness, or abuse liability; other 
information justifying an exemption; and an environmental assessment 
under part 25 prepared in accordance with Sec.  25.40.
    As described previously, the request must contain a certification 
by a responsible official summarizing the supporting evidence and 
providing the rationale for the official's determination that the 
modification will not increase the product's toxicity, addictiveness, 
or appeal to/use by minors; and include other information justifying an 
exemption. This information will enable FDA to determine whether the 
exemption request would be appropriate for the protection of the public 
health. This final rule also includes a procedural mechanism for 
rescinding an exemption where necessary to protect the public health. 
In general, FDA would rescind an exemption only after providing the 
manufacturer notice of the proposed rescission and an opportunity for 
an informal hearing under part 16 (21 CFR part 16). However, FDA may 
rescind an exemption prior to notice and opportunity for a hearing 
under part 16 if the continuance of the exemption presents a serious 
risk to public health. In that case, FDA would provide the manufacturer 
an opportunity for a hearing as soon as possible after the rescission.
    FDA will review the information submitted in support of the request 
and determine whether to grant or deny the request based on whether the 
criteria specified in the statute are satisfied. If FDA determines that 
the information submitted is insufficient to enable it to determine 
whether an exemption is appropriate, FDA may request additional 
information from the manufacturer. If the manufacturer fails to respond 
within the timeframe requested, FDA will consider the exemption request 
withdrawn.
    Description of Respondents: Manufacturers of tobacco products who 
are requesting an exemption from the substantial equivalence 
requirements of the FD&C Act, as amended by the Tobacco Control Act.
    Comments: FDA received several comments related to the PRA in 
response to its proposed rule (76 FR 737). Several comments noted that 
the hours per response were the same for both an exemption request and 
the submission of a 905(j) substantial equivalence report, which 
indicated that the exemption pathway would not be less burdensome than 
the substantial equivalence report. Some comments stated that the 
estimated hours suggested a very burdensome process, and other comments 
suggested that the estimated hours were too low given the information 
required by Sec.  1107.1.
    The estimated hours per response in the NPRM were based on Agency 
experience and approved information collections for other types of 
submissions to the FDA, although those also vary greatly depending on 
the statutory requirements and there was no exact parallel for this 
process. The estimated hours for the exemption request also reflected 
considerations that initial exemption requests may take longer to 
prepare, until knowledge and experience with the pathway develops. We 
believed that 360 hours per exemption request would be at the high end 
of the estimated hours per response, but did not want to underestimate 
the hours per response particularly at the outset of the process before 
experience with requesting exemptions develops. The comments to the 
NPRM provided FDA with a much better sense of the range of 
modifications that are made to tobacco products and after reviewing the 
information, we believe we overestimated the hours that would be needed 
to prepare an exemption request. Our revised estimates reflect the fact 
that the preparation and submission of an exemption request differs 
significantly from preparation of a substantial equivalence report 
under section 905(j)(1)(A)(i). For example, the preparation of an 
exemption request does not require a comparison to a predicate or 
inclusion of information on multiple characteristics, but rather 
requires more limited information for the product that is the subject 
of the exemption request and on the modification of the additive.
    Additionally, several comments to the proposed rule stated that the 
number of exemption requests may be much higher than the 50 indicated 
in the proposed rule with some comments suggesting as high as hundreds 
or thousands depending on the scope of modifications that might use the 
pathway. After considering potential use of this process as indicated 
by the comments, we are increasing that number of requests to 500 on a 
yearly basis.
    One comment also suggested that the proposed rule was not compliant 
with the PRA because there was no practical utility for the information 
collected and there is no plan for the efficient and effective use of 
the information to be collected. We disagree with these comments 
because, as several comments to the proposal noted, the regulation 
follows the statutory language, including the findings that FDA must 
make when determining whether it may make an exemption determination. 
The information that the rule requires is information that FDA needs in 
order to make the required findings, for example, information as to 
whether the modification is minor. Without the information required by 
the rule, FDA will not have the information necessary to determine 
whether an exemption is appropriate.

                                   Table 1--Estimated Annual Reporting Burden
----------------------------------------------------------------------------------------------------------------
                                                     Number of
   21 CFR section or FD&C act        Number of     response  per   Total annual   Average burden    Total hours
             section                respondents     respondent       responses     per response
----------------------------------------------------------------------------------------------------------------
1107.1(b).......................             500               1             500              12           6,000
1107.1(c).......................             150               1             150               3             450
25.40...........................             500               1             500              12           6,000
905(j)(1)(A)(ii)................             750               1             750               3           2,250
                                 -------------------------------------------------------------------------------
    Total.......................  ..............  ..............  ..............  ..............          14,700
----------------------------------------------------------------------------------------------------------------

    Table 1 describes the annual reporting burden as a result of the 
provisions set forth in this final rule. Based on comments and 
information on the NPRM, FDA estimates that it will receive 500 
exemption requests annually and that it will take a manufacturer 12 
hours to prepare an exemption request. FDA estimates that

[[Page 38974]]

it would need to request additional data for 150 of these requests in 
part due to the fact that it is a new process, and that it will take 3 
hours to prepare a response to a request for additional data. FDA 
anticipates using the rescission authority to respond to one issue of 
concern related to an exemption determination each year (the burden 
hours for Sec.  1107.1(d) are included under part 16 hearing 
regulations and are not included in the burden estimates in Table 1 of 
this document).
    FDA is also including an estimation of the burden associated with 
preparing the report required by section 905(j)(1)(A)(ii) of the FD&C 
Act. FDA estimates that it will take 3 hours to prepare the report 
required by section 905(j)(1)(A)(ii), which requires a manufacturer to 
submit a report at least 90 days prior to making an introduction or 
delivery into interstate commerce for commercial distribution of a 
tobacco product, with the basis for the manufacturer's determination 
that the tobacco product is modified within the meaning of the 
exemption provision (section 905(j)(3)), the modifications are to a 
product that is commercially marketed and in compliance with the FD&C 
Act, the modifications are covered by exemptions granted under section 
905(j)(3), and action taken to comply with any applicable requirements 
of section 907. FDA is also including an estimation of the burden 
associated with preparing an environmental assessment under part 25 
prepared in accordance with the requirements of Sec.  25.40, as 
referenced in Sec.  1107.1(b)(9). FDA estimates that it will take 12 
hours to prepare the environmental assessment.
    The information collection provisions of this final rule have been 
submitted to OMB for review. Prior to the effective date of this final 
rule, FDA will publish a notice in the Federal Register announcing 
OMB's decision to approve, modify, or disapprove the information 
collection provisions in this final rule. An Agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid OMB control number.

IX. Federalism

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

X. References

    The following references have been placed on display in the 
Division of Dockets Management (HFA-305), Food and Drug Administration, 
5630 Fishers Lane, rm. 1061, Rockville, MD 20852, and may be seen by 
interested persons between 9 a.m. and 4 p.m., Monday through Friday. 
(FDA has verified the Web site addresses, but we are not responsible 
for any subsequent changes to the Web sites after this document 
publishes in the Federal Register).

1. U.S. Census Bureau, 2007 Economic Census, ``Sector 31: EC0731I1: 
Manufacturing: Industry Series: Detailed Statistics by Industry for 
the United States: 2007,'' release date: October 30, 2009, access 
date: August 30, 2010, (http://factfinder.census.gov/servlet/
IBQTable?_bm=y&-ds_name=EC0731I1&-
NAICS2007=312210312221312229&-ib--type=NAICS2007&-
geo--id=&---industry=312221&---lang=en&-fds--name=EC0700A1).
2. U.S. Bureau of Labor Statistics, ``Occupational Employment 
Statistics: May 2009 National Industry-Specific Occupational 
Employment and Wage Estimates NAICS 312200--Tobacco Manufacturing,'' 
May 14, 2010, http://data.bls.gov/cgi-bin/print.pl/oes/current/
naics4_312200.htm.

List of Subjects

21 CFR Part 16

    Administrative practice and procedure.

21 CFR Part 1107

    Tobacco products, Substantial equivalence, Exemptions.

    Therefore, under the Federal Food, Drug, and Cosmetic Act and under 
authority delegated to the Commissioner of Food and Drugs, 21 CFR parts 
16 and 1107 are amended to read as follows:

PART 16--REGULATORY HEARING BEFORE THE FOOD AND DRUG ADMINISTRATION

0
1. The authority citation for 21 CFR part 16 continues to read as 
follows:

    Authority: 15 U.S.C. 1451-1461; 21 U.S.C. 141-149, 321-394, 
467f, 679, 821, 1034; 28 U.S.C. 2112; 42 U.S.C. 201-262, 263b, 364.

Sec.  16.1  [Amended]

0
2. Section 16.1 is amended in paragraph (b)(2) by adding in numerical 
sequence ``Sec.  1107.1(d), relating to rescission of an exemption from 
the requirement of demonstrating substantial equivalence for a tobacco 
product.''

0
3. Add part 1107 to subchapter K to read as follows:

PART 1107--ESTABLISHMENT REGISTRATION, PRODUCT LISTING, AND 
SUBSTANTIAL EQUIVALENCE REPORTS

Subpart A--Exemptions
Sec.
1107.1 Exemptions.
Subpart B [Reserved]

    Authority: 21 U.S.C. 387e(j) and 387j.

Subpart A--Exemptions

Sec.  1107.1  Exemptions.

    (a) General requirements. Under section 905(j)(3) of the Federal 
Food, Drug, and Cosmetic Act (21 U.S.C. 387e(j)(3)), FDA may exempt 
from the requirements relating to the demonstration that a tobacco 
product is substantially equivalent within the meaning of section 910 
of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 387j), tobacco 
products that are modified by adding or deleting a tobacco additive, or 
increasing or decreasing the quantity of an existing tobacco additive, 
if FDA determines that:
    (1) Such modification would be a minor modification of a tobacco 
product that can be sold under the Federal Food, Drug, and Cosmetic Act 
(a legally marketed tobacco product);
    (2) A report under section 905(j)(1) intended to demonstrate 
substantial equivalence is not necessary to ensure that permitting the 
tobacco product to be marketed would be appropriate for protection of 
the public health; and
    (3) An exemption is otherwise appropriate.
    (b) Request for an exemption under section 905(j)(3) of the Federal 
Food, Drug, and Cosmetic Act. A request for an exemption from the 
requirement of demonstrating substantial equivalence may be made only 
by the manufacturer of a legally marketed tobacco product for a minor 
modification to that tobacco product. To request an exemption, the 
manufacturer must submit the request and all information supporting the 
request in an electronic format that FDA can process, review, and 
archive. If the manufacturer is unable to submit an exemption request 
in an electronic format, the manufacturer may submit a written request 
to the Center for Tobacco Products explaining in detail why the 
manufacturer cannot submit

[[Page 38975]]

the request in an electronic format and requesting an alternative 
format. Such request must include an explanation of why an alternative 
format is necessary. All submissions, including requests to submit the 
information in an alternative format, requests for exemptions, and all 
supporting information must be legible and in the English language. An 
exemption request must contain:
    (1) The manufacturer's address and contact information;
    (2) Identification of the tobacco product(s);
    (3) A detailed explanation of the purpose of the modification;
    (4) A detailed description of the modification, including a 
statement as to whether the modification involves adding or deleting a 
tobacco additive, or increasing or decreasing the quantity of an 
existing tobacco additive;
    (5) A detailed explanation of why the modification is a minor 
modification of a tobacco product that can be sold under the Federal 
Food, Drug, and Cosmetic Act;
    (6) A detailed explanation of why a report under section 905(j)(1) 
of the Federal Food, Drug, and Cosmetic Act intended to demonstrate 
substantial equivalence is not necessary to ensure that permitting the 
tobacco product to be marketed would be appropriate for protection of 
the public health;
    (7) A certification (i.e., a signed statement by a responsible 
official of the manufacturer) summarizing the supporting evidence and 
providing the rationale for the official's determination that the 
modification does not increase the tobacco product's appeal to or use 
by minors, toxicity, addictiveness, or abuse liability;
    (8) Other information justifying an exemption; and
    (9) An environmental assessment under part 25 of this chapter 
prepared in accordance with the requirements of Sec.  25.40 of this 
chapter.
    (c) Exemption determination. FDA will review the information 
submitted and determine whether to grant or deny an exemption request 
based on whether the criteria in section 905(j)(3) of the Federal Food, 
Drug, and Cosmetic Act are met. FDA may request additional information 
if necessary to make a determination. FDA will consider the exemption 
request withdrawn if the information is not provided within the 
requested timeframe.
    (d) Rescission of an exemption. FDA may rescind an exemption if it 
finds that the exemption is not appropriate for the protection of 
public health. In general, FDA will rescind an exemption only after 
notice and opportunity for a hearing under part 16 of this chapter is 
provided. However, FDA may rescind an exemption prior to notice and 
opportunity for a hearing under part 16 of this chapter if the 
continuance of the exemption presents a serious risk to public health. 
In that case, FDA will provide the manufacturer an opportunity for a 
hearing as soon as possible after the rescission.

Subpart B--[Reserved]

    Dated: June 29, 2011.
Leslie Kux,
Acting Assistant Commissioner for Policy.
[FR Doc. 2011-16766 Filed 7-1-11; 8:45 am]
BILLING CODE 4160-01-P