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REGULATIONS

Chemical Weapons Convention Regulations
 
FINAL REGULATORY FLEXIBILITY ANALYSIS


November 29, 1999


 

1.0 INTRODUCTION

1.1 Final Regulatory Flexibility Analysis Requirements

The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612, requires an agency to prepare a Final Regulatory Flexibility Analysis (FRFA) whenever the agency promulgates a final rule under 5 U.S.C. 553. RFA, 604.

Each FRFA must contain:

  • "(1) a succinct statement of the need for, and objectives of, the rule;
  • (2) a summary of the significant issues raised by the public comments in response to the initial regulatory flexibility analysis, a summary of the assessment of the agency of such issues, and a statement of any changes made in the proposed rule as a result of such comments;
  • (3) a description of and an estimate of the number of small entities to which the rule will apply or an explanation of why no such estimate is available;
  • (4) a description of the projected reporting, recordkeeping and other compliance requirements of the rule, including an estimate of the classes of small entities which will be subject to the requirement and the type of professional skills necessary for preparation of the report or record; and
  • (5) a description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternatives adopted in the final rule and why each one of the other significant alternatives to the rule considered by the agency which affect the impact on small entities was rejected." RFA, 604(a).

As a separate and distinct requirement, each FRFA must also "...make copies of the FRFA available to members of the public and shall publish in the Federal Register such analysis or a summary thereof." RFA, 604(b).

1.2 Reason for Present Document

This FRFA documents valuable substantive public comments and suggestions for improving the proposed CWCR as well as recommendations for better communications of industry's obligations. BXA carefully considered all of these comments and have incorporated them, where appropriate, in the present document. This analysis provides transparency and allows industry to better understand the factual, policy and legal basis of their obligations, embodied in the interim final rule.

This FRFA first sets forth the statement of the need for, and objectives of, the CWCR, required by the RFA. It proceeds to: (1) summarize the significant issues raised by the public comments in response to the initial regulatory flexibility analysis; (2) summarize BXA's assessment of such issues; and (3) state those changes made in the CWCR as a result of such comments. The FRFA then describes the estimate of the number of small entities to which the CWCR will apply and how and why this estimate was obtained. In addition, the FRFA describes the projected reporting, recordkeeping and other compliance requirements of the CWCR, including an estimate of the classes of small entities that will be subject to the requirement, and the type of professional skills necessary for preparation of the report or record. Finally, the FRFA describes steps taken by the agency to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final CWCR and why each one of the other significant alternatives to the CWCR considered by the agency which affect the impact on small entities was rejected. As will become apparent, the alternative that places the least burden upon the U.S. chemical industry and yet complies with Convention requirements was chosen wherever possible.

Pursuant to 604(b) of the RFA, a summary of this FRFA is included in the preamble to the interim rule.

1.3 The Need for, and Objectives of, the CWCR

1.3.1 The Need for the CWCR

The CWCR is necessary to bring the United States in compliance with its obligations as a member of the international treaty, the "Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction," (also known as the Chemical Weapons Convention, Convention , treaty, or CWC). The CWC is an international arms control treaty with significant nonproliferation aspects. In addition to affecting governmental and military actions, the CWC affects industry, requiring private chemical companies to comply with certain reporting and inspection obligations.

The United States signed the CWC in Paris, France, on January 13, 1993 and ratified it on April 24, 1997. The United States deposited its instrument of ratification with the United Nations on April 25, 1997, and the CWC entered into force on April 29, 1997. As of November 1, 1999, the CWC has been signed by 167 countries and ratified by more than 125. Under the CWC, the United States has both military and non-military obligations.

These industrial obligations include: (1) reporting by entities within the territory of the United States, of their production, processing, consumption, import and export of certain chemicals and related activities; (2) imposing a number of trade controls; and (3) permitting the inspections of certain U.S. plants and facilities by international inspection teams from the Organization for the Prohibition of Chemical Weapons (OPCW) located in The Hague, The Netherlands. The OPCW is the international organization charged with ensuring the international implementation of the Convention. Therefore, on October 21, 1998, the United States enacted the Chemical Weapons Convention Implementation Act of 1998, Pub. L. 105-277, Division I (also known as CWCIA or "the Act").

The Act implements the CWC within the United States and for United States persons. In addition to providing for declarations, trade controls, and international OPCW inspections, the Act also establishes a "United States National Authority" (USNA) to serve as the liaison between the United States and the OPCW, and prohibits persons within the United States, as well as all United States nationals abroad, from engaging in activities prohibited by the Convention.

On June 25, 1999, President Clinton signed Executive Order No. 13128 (E.O.) assigning functions for implementing the CWC and the Act on a national interagency basis. This E.O. directs the Department of Commerce to publish regulations implementing the Act and the CWC with respect to United States facilities. Within the Department of Commerce, the Bureau of Export Administration (BXA) has been assigned this task of promulgating the CWCR.

The CWC contains three lists -- or "Schedules" -- of chemicals, as well as a broad class of "unscheduled discrete organic chemicals (UDOCs)" including those containing phosphorus, sulfur and fluorine (PSFs). The Convention covers activities associated with each of these three Schedules and the UDOCs. These activities include, depending on the specific chemical, production, processing, consumption, storage, and domestic and international transfers. The Convention requires that the United States report certain activities occurring within the United States and permit inspections of certain facilities, plants and plant sites by the OPCW.

Accordingly, BXA is promulgating these regulations, the CWCR, which will regulate only the declaration (reporting) and inspection requirements of individuals, corporations, universities, and certain governmental entities. The CWCR address restrictions on international trade in Scheduled chemicals only insofar as they affect the declaration (reporting) of these chemicals and certain import-related activities. Exports of Scheduled chemicals are addressed in separate regulations.

1.3.2 The Objectives of the CWCR

The CWC requires each State Party, "... in accordance with its constitutional processes, [to] adopt the necessary measures to implement its obligations under this Convention." (CWC, Art. VII, paragraph 1). The objectives of the CWCR are twofold: (1) to implement the obligations incurred by the United States as a State Party to the Convention; and (2) to embody the policy objectives of BXA in CWC implementation, that is, to confirm compliance by U.S. industry while minimizing burdens on industry.

2.0 SIGNIFICANT ISSUES RAISED BY PUBLIC COMMENTS; ASSESSMENT OF ISSUES; REVISIONS TO INTERIM RULE

2.1 Significant Issues raised by Public Comments

BXA received some 400 comments to the proposed CWCR from 18 respondents. None of these comments addressed the IRFA or BXA's estimate of the number of entities that will be subject to the declaration, reporting, notification and inspection requirements of the CWCR. The volume and the wide-ranging nature of the comments to the CWCR reflected the deep interest with which industry received and reviewed the proposed rule.

In both the structure and organization of the Convention and the CWCR, each chemical regime has its own set of mandates and regulatory requirements -- that is, definitions, declarations, inspections, etc. For the purpose of a thorough and coherent discussion, the issues raised in the public comments, and the revisions and clarifications incorporated in the interim rule, will be discussed in that part of the CWCR specific to the issue. For example, Schedule 1 declarations will be covered in Part 712 and its subsections.

2.2 Assessment of Issues and Changes to the Interim Rule

As the CWCR is implemented, BXA is striving for a user-friendly, internally consistent program, grounded in the Act and in a complex treaty so as to minimize opportunity for ambiguity, over- or under-reporting, and unintended non-compliance. BXA carefully considered the public comments, balancing them between the need to respect and comply with all the treaty obligations yet not create undue burdens on industry, small business in particular. In addition, there is also the objective of creating a level playing field for U.S. industry with respect to the their counterparts in the other States Parties.

Based on the comments received, BXA incorporated many changes to the CWCR. To discuss these changes systematically and in the order they appear in the CWCR, they are organized in sequential numerical order, from 710 to 721.

2.2.1 PART 710--GENERAL INFORMATION AND OVERVIEW OF THE CHEMICAL WEAPONS CONVENTION REGULATIONS (CWCR)

Definitions. A definition of "toxic chemical" is added in the interim rule. This is the definition found in the CWCIA, and consistent with that in the Convention.

Other definitions and terms were reworded and edited in order to provide greater clarity, or aligned with other portions or the CWCR, Declaration and Report Forms Handbooks, and the Export Administration Regulations. Several examples are shown here:

Storage: added clarification by adding a time period of greater than 24 hours

Production: added clarification because the original definition (from the CWC Art.II, paragraph 12(a) is for the purposes of CWC Art.VI, ("chemical weapons").

Consumption: added clarification because, for practical purposes, most chemical reactions do not go to 100% completion. Accounting for the majority of the material as consumed and the remainder as either waste or as recycled starting material is a reasonable approach. Since re-cycled materials do not count against a company's Schedule 2 production threshold and only partially count against its consumption threshold, (OPCW C-I/DEC.42), it is in a company's interest to account for unreacted material as recycled material wherever possible.

Trading company: added clarification to differentiate between: (1) a company that only engages in exporting and/or importing of chemicals above declaration thresholds and does not produce, process or consume chemicals; and (2) a company that produces, processes, or consumes chemicals below declaration threshold but that also exports and/or imports chemicals above thresholds.

Forms: added clarification to distinguish between "declaration form" or "report form".

"Undeclared facility or plant site" was revised to align with the definition of "declared facility or plant site."

Purposes of the CWCR: rewritten for clarification.

Use of the term "report." Respondents also requested clarification of the term "report" in the proposed rule. This issue is also directly related to the forms. The Act uses "reports" to describe all types of requirements under the CWC, including declarations as well as reports on export and import. For reports required by the Act, the CWCR uses the following terms: (1) declarations; (2) reports on export and import activities; (3) notifications; (4) end-use certificates; (5) reports on inspection-related costs; and (6) post-inspection reports. BXA submits to the USNA individual declarations from each declared facility. These declarations contain company-specific information, including information on production, processing, consumption, export and import of specific chemicals. BXA also compiles information from different companies for the national aggregate declaration on exports and imports which is based upon data from declarations of declared facilities as well as data from reports submitted by undeclared facilities and trading companies. The national aggregate declaration does not include any company-specific information, rather it only contains aggregate data on each chemical.

In the interest of convenience, the forms allow Schedule 1 and Schedule 3 declared facilities to have the option to include their export and import information with their declaration on past activities or to submit it separately as a report. However, Schedule 1 and Schedule 3 export and import information is only included in the national aggregate declaration and the company specific information is not submitted to the USNA or the OPCW. For Schedule 2 declared facilities, however, the export and import information is submitted to the USNA as part of the annual declaration on past activities and is also included in the national aggregate declaration. BXA has distinguished between each of these requirements both in both the CWCR and in the Declaration and Report Forms Handbook.

Scope of the CWCR. One respondent requested a clarification of the scope of chemicals subject to CWCR, and recommended that the CWCR should identify all chemicals subject to the rule by Chemical Abstract Service Registry Number (CAS no.). Although it would be desirable to provide CAS nos. for all chemicals subject to the rule, this is not possible. The Schedules contain names of individual chemicals as well as "families" or "baskets" of chemicals, which may contain from a few individual chemicals to thousands. UDOCs is in fact a large basket of chemicals. In addition, new chemicals are being developed and/or assigned CAS numbers daily. Thus any list created by BXA would be neither exhaustive nor current.

Supplement No.1 to Part 712 (Schedule 1), Supplement No.1 to Part 713 (Schedule 2), and Supplement No. 3 to Part 713 (Schedule 3) provide sufficient information for a qualified chemist (Bachelor of Science degree or higher) to determine whether or not a chemical is subject to the CWCR. In addition, BXA will provide to anyone who requests it, a binding determination on the classification of chemicals and the obligations they may incur. (see Part 711.4).

One respondent sought guidance on whether the term U.S. facilities that are "contractor-operated" include facilities owned by the U.S. Government, but leased to private companies. The CWCR declaration, reporting, notification, and inspection requirements and import restrictions apply to all persons and facilities in the United States, except for facilities of the Departments of Defense and Energy and other U.S. Government agencies that notify the United States National Authority (USNA) of their decision and justification to be excluded from the CWCR. U.S. Government facilities are those owned by or leased to the United States government, including facilities that are contractor-operated. As used in this context, "contractor-operated" facilities does not include facilities that are owned by the U.S. Government, but leased to private companies.

2.2.1.1 STATES PARTIES TO THE CWC - STATUS OF TAIWAN

A respondent asked for a resolution on the status of Taiwan, which is not a State Party to the Convention. In the declaration and report forms, BXA has renamed the "Country Codes" list "Destination Codes," and has created a code for Taiwan for use in declaring or reporting transfers of Schedule 2 and 3 chemicals to Taiwan.

2.2.2 PART 711--GENERAL INFORMATION REGARDING DECLARATION REQUIREMENTS

Many of the comments on part 711 were related to the compliance requirement for declarations and reports. Most of these will be addressed directly in the Declaration and Report Forms Handbooks. The discussion below covers the key issues of general interest.

Who submits declarations, notifications and reports. BXA has revised the wording of the "person" who may submit declarations, notifications and reports in the interim rule. BXA believes the certification authority should be limited to a representative of the owner, operator or senior management of the facility or trading company who has accountability for the information contained in the documents. The "point of contact person" for specific questions regarding information can be any site representative.

Assistance in determining obligations and classifications. A few respondents asked BXA to allow industry to electronically request assistance in determining their obligations under the CWCR, including chemical determinations. In response, this section was completely rewritten for the interim rule. In addition, BXA is providing two e-mail addresses:

  • 1. cwcqa@cwc.gov - this address provides for general questions relating to the CWCR. BXA will respond in kind to most of these e-mail requests.
  • 2. cwcqa@cwc.gov - this address provides for requests for chemical determinations. BXA will acknowledge receipt of requests via an e-mail response and will follow with a separate response in writing.

BXA will assume no responsibility for disclosure of confidential business information as a result of transmission over the internet. Internet correspondence is at the risk of the applicant. One respondent requested a statement in the regulations that BXA is bound by verbal advice as well as advice it issues in writing. BXA will only be legally bound by advice or guidance it gives in writing, and will respond to requests for advice in writing when requested to do so.

Declarations and reports for activities occurring before the effective date of the rule. Four respondents addressed the proposed rule's requirement that facilities prepare Schedule 2 chemical declarations for activities dating back to 1994. One respondent noted a Supreme Court ruling that legislative rules, such as the CWCR, may not have retroactive effect unless explicitly provided for by statute. The preamble of the interim rule states that BXA has the authority under the Act to require the preparation and submission of a declaration or report for activities that occurred before the regulatory requirement becomes effective and, that such a requirement is not "retroactive" because it does not alter the past legal status of a past action. A new section is added to part 711 of the interim rule stating that if records and information necessary to prepare declarations for years prior to the effective date of the rule are not available because 1) the necessary information was not collected at the time of the activity; 2) if collected as the time of the activity, the information has been discarded following normal business practices; and 3) due to changes in ownership or control of a facility, the current custodian of the information may no longer be affiliated with a facility subject to the CWCR, then failure to prepare and submit the declaration is not a violation under the rule.

2.2.3 PART 712---ACTIVITIES INVOLVING SCHEDULE 1 CHEMICALS

Several respondents were unclear about their obligations with respect to Schedule 1 chemicals. The interim rule includes revisions to clearly state declaration requirements and to allow for a new rounding rule to exclude declaration of chemical mixtures containing up to 0.5% aggregate of Schedule 1 chemicals. Please also refer to the Declaration/Report forms and the Paperwork Reduction Act Supporting Statement for the CWC Declaration Forms, which also reflect these changes.

Declaration Requirements. In response to comments, the interim rule clarifies that the Schedule 1 initial declaration requires submission of a current technical description of a facility that produced in excess of 100 grams aggregate in any one of the calendar years 1997, 1998, or 1999. No production data is to be submitted in an initial declaration. The actual Schedule 1 production data is to be submitted in an annual declaration on past activities for each year during which the production threshold was exceeded.

Annual Declaration on Past Activities. The interim rule also clarifies that when a facility is subject to declaration requirements because it produced in excess of 100 grams aggregate of Schedule 1 chemicals in that year, then it must also declare consumption, storage and domestic transfers of any Schedule 1 chemicals at the facility even if it did not produce that chemical. However, a separate declaration is not required for those facilities that did not produce Schedule 1 chemicals in excess of 100 grams aggregate, but only consumed, stored, or domestically transferred the chemicals regardless of the amount involved.

Approval of declared Schedule 1 production facilities. One respondent requested BXA to state the grounds for disapproval of a Schedule 1 facility. The Convention requires States Parties to approve all Schedule 1 facilities. However, the Act does not authorize the U.S. Government to require a facility to stop or limit its production of Schedule 1 chemicals. Therefore, BXA cannot disapprove a Schedule 1 facility. This clarification is included in the preamble to the interim rule.

Establishment of a new Schedule 1 production facility. One respondent requested that BXA state in the interim rule that it will make a reasonable effort to complete facility agreement negotiations with the OPCW on the establishment of a new Schedule 1 facility within 200 days, stating that, without this provision, any new Schedule 1 production by a new facility could be delayed indefinitely. As noted above, the Act does not give BXA the authority to implement the Convention's restrictions on Schedule 1 production at a new facility where a facility agreement has not been concluded. The interim rule provides that new Schedule 1 facilities must notify BXA 200 days prior to commencing production of Schedule 1 chemicals above 100 grams aggregate per year. BXA will work with the USNA to conclude a facility agreement for new Schedule 1 facilities with the OPCW prior to the commencement of production of Schedule 1 chemicals above the declaration threshold.

Counting the amount of Schedule 1 chemicals in a mixture. The interim rule includes a clarification that only the actual weight of a Schedule 1 chemical contained in a mixture must be counted for declaration purposes, and not the weight of the total mixture.

Schedule 1 reaction intermediates. The interim rule includes a new section to clarify that Schedule 1 intermediates that exist or might exist during the course of synthesis to produce non-scheduled chemicals, and that cannot be isolated using available technology, do not need to be declared provided the reaction mixture is allowed to react to completion, thereby consuming the real or hypothetical Schedule 1 intermediates.

Schedule 1 rounding rule. Several respondents requested clarification of the declaration requirements for trace amounts of Schedule 1 chemicals contained in complex product mixtures and waste streams at very low concentrations. The interim rule contains a "rounding down to zero" rule for Schedule 1 chemicals produced as unavoidable by-products or impurities if they do not constitute more than 0.5% of the chemical mixture. This rule will ensure that facilities that are totally unrelated to those involved in the intentional production of Schedule 1 chemicals will not be subject to Schedule 1 declaration requirements and inspections.

2.2.4 PART 713--ACTIVITIES INVOLVING SCHEDULE 2 CHEMICALS

Activities involving Schedule 2 chemicals have the most treaty-mandated reporting obligations, and so this part of the CWCR received the most comments. The two predominant issues dealt with mixtures and declaration requirements.

Mixtures. The two-tiered system of declaring mixtures in the proposed rule (10% for production, consumption, imports and exports; 30% for processing) complicated the declaration process. The mixtures concentration rule is not specified in the Convention, and thus far has been left to States Parties' national discretion. The OPCW recently published the results of a survey of States Parties' implementation policies (exclusive of the United States) showing that the most common Schedule 2 mixture exemption was 30% applied to all activities (EC-XVI/DG.6). Consistent with the rule adopted by many other States Parties, the interim rule contains a uniform 30% mixtures exemption provision. BXA anticipates that this revision will decrease the number of facilities with declaration requirements.

Initial declaration requirements. The interim rule clarifies that the initial declaration for Schedule 2 chemicals, which is to declare activities during calendar years 1994, 1995 and 1996, must be submitted for each of the three years, but for any year during which a declared activity was below the threshold, "zero" quantity should be declared.

Additionally planned activities. The section on "additionally planned activities" was revised in the interim rule to incorporate an OPCW decision on activities to be declared. The revision also applies to Schedule 3 chemicals (part 714). This revision is within the scope of the proposed rule, but will require an estimated 20 additional declarations to be filed each year. The interim rule requests that concerned parties provide comments they might have regarding this estimate and the overall burden of requirements mandated under the OPCW decision.

Declarations of additionally planned activities by plant sites that have submitted anticipated declarations are required for:

  • (1) An additional plant not declared which plans to produce, process, or consume a Schedule 2 chemical (or produce a Schedule 3 chemical) above the applicable declaration threshold;
  • (2) An additional Schedule 2 chemical which will be produced, processed, or consumed at a declared plant above the applicable declaration threshold or an additional Schedule 3 chemical which will be produced at a declared plant above the declaration threshold;
  • (3) An additional planned activity (production, processing, or consumption) above the applicable threshold for a declared chemical;
  • (4) A planned increase in the production, processing, or consumption of a Schedule 2 chemical by a declared plant or a planned increased in the production of a Schedule 3 chemical by a declared plant to an amount which exceeds the applicable inspection threshold;
  • (5) An planned increase in the production of a Schedule 3 chemical by declared plants at a plant site to an amount above the upper limit of the previously declared range;
  • (6) A change in the declared anticipated starting or ending date of a production, processing, or consumption by more than 3 months;
  • (7) A planned increase in the production, processing, or consumption of a Schedule 2 chemical by a declared plant by 20 percent or more above that declared.

With respect to the timing for the declaration on additionally planned activities, one commenter noted that the proposed rule stated that additionally planned activities cannot begin until a certain number of days after the notice is "delivered to" BXA. Since the declarant will have no knowledge of the time of receipt of notice, BXA agrees with the commenter that it is more sensible to make the timing for submission of a declaration on additionally planned activities the "sent to" (i.e., postmarked ) date, rather than the "delivered to" date. This is reflected in the interim final rule.

2.2.5 PART 714--ACTIVITIES INVOLVING SCHEDULE 3 CHEMICALS

The comments on this section were mostly concerned with declarations, determining the total declarable amount of chemicals (i.e., rounding rules), and additionally planned activities.

Quantities of exports and imports that must be declared or reported. The interim rule clarifies that the initial report on exports and imports by an undeclared plant site or trading company is to cover calendar year 1996 (the initial report) and that annual reports should be made for calendar years 1997, 1998 and 1999. The report is required for exports or imports of a Schedule 3 chemical in excess of 30 metric tons. For reporting Schedule 3 exports and imports, a respondent noted that there was a conflict between reporting imports or exports per country for all countries where imports and exports exceeded 0.3 metric tons (1% of 30 metric ton limit) while rounding to the nearest 10 metric tons. Accordingly, the interim rule is revised to correct this conflict, by providing that quantities should be rounded to 0.X metric tons.

Additionally planned activities. Refer to the section under Part 714, Schedule 2 activities, above.

2.2.6 PART 715--ACTIVITIES INVOLVING UNSCHEDULED DISCRETE ORGANIC CHEMICALS

Structure of part 715. Several respondents commented that the structure of part 715 in the proposed rule was confusing. Therefore, the interim rule restructures part 715 to make it parallel with the Schedule 1, 2 and 3 parts.

Declaration exemptions for UDOCs. Several respondents requested a mixtures rule for UDOCs as well as an exemption for UDOCs contained in foods. Neither the Convention nor the CWCIA provides for a mixtures rule or for a foods exemption for UDOCs. BXA did accept the request for a foods exemption, and the interim rule includes a provision to exempt from declaration requirements UDOCs contained in foods. Providing this exemption for UDOCs present in foods will greatly reduce the burden faced by companies not actually engaged in producing chemicals. This exemption for food products is also aligned with those non-scheduled chemicals and chemical mixtures produced through biological and bio-mediated processes exemption. BXA did not accept the request for a mixtures exemption for UDOCs at this time.

The interim rule contains a clarification of the exemption for UDOCs produced by the refining of crude oil, including sulfur-containing crude oil.

Amended declaration. Comments requesting clarification of amended declarations resulted in revision of this section in the interim rule to reflect that the requirement to correct certain inaccuracies in a previously submitted decaration applies only if the "change of quantity" in UDOC production falls in a different range; and addition of a new chemical must be declared only it if is a PSF chemical produced in quantities above 30 metric tons per year, in a plant not previously declared as a PSF plant.

2.2.7 PART 716---INITIAL AND ROUTINE INSPECTIONS OF DECLARED FACILITIES

This part has been extensively revised in the interim rule to provide a clearer description of the inspection process and to set forth the scope of consent to an inspection. The principal comments to this part dealt with notification, timing of inspections, and warrant procedures. These are discussed below.

Consent. With respect to notification of a pending inspection, the interim rule clarifies that BXA will ask the facility to consent to an inspection within 4 hours of receiving BXA's "Host Team" notification. If consent is not given, BXA will seek a search warrant.

Timing of inspections. With respect to the timing of inspections and its conduct during normal business hours, BXA believes that conducting inspections only during normal business hours could be an unnecessary financial burden on U.S. companies. The Convention requires that verification activities be carried out under strict time frames. If the U.S. Government were to limit an inspection to ordinary working hours, a 96-hour inspection (for Schedule 2 routine inspection) could last up to 12 days given an 8-hour workday. The financial consequences of such an inspection would be much higher than if the inspection were allowed to continue after normal working hours. OPCW inspectors are obligated to discharge their functions in the least possible inconvenience and disturbance to the facility, and to avoid hampering or delaying the operation of a facility and avoid affecting its safety. Depending on the particular situation, BXA will take all of these factors into consideration when determining whether an inspection should commence, continue, be extended or conclude during other hours. BXA will consult with the inspected facility on any extension of the inspection prior to making an agreement with the OPCW Inspection Team.

Pre-inspection briefing and preliminary finding of facts. The interim rule also clarifies requirements for the inspected facility to provide a pre-inspection briefing and explains the presentation of the preliminary findings of fact by the OPCW Inspection Team. A new section contains the requirement for facilities to provide a pre-inspection briefing and lists topics to be briefed, and includes the Convention's time limit of three hours. The interim rule also clarifies that the time required for a pre-inspection briefing and debriefing on the preliminary factual findings is in addition to the period of inspection, which is established by the CWC for Schedule 2, Schedule 3, and UDOC plant sites.

Scope and conduct of inspections. The interim rule details the scope of consent -- that is, explains that a facility is consenting to provide the OPCW Inspection Team access to whatever is necessary to the accomplishment of the inspection.

Notification, duration and frequency of inspections. The interim rule adds a table to clarify the notification process and pre-inspection activities leading up to the inspection.

Facility Agreements. There were comments requesting that the facility be consulted and be authorized to approve any facility agreement prior to conclusion by the U.S. Government and the OPCW. The interim rule provides that BXA will consult with facilities to the maximum extent possible during negotiations with the OPCW. However, the United States cannot withhold conclusion of a facility agreement with the OPCW pending facility authorization, because the Convention does not provide for facility approval of the facility agreement. BXA will inform the affected facility of the status of negotiations at the OPCW, permit facilities to observe negotiations with the Technical Secretariat to the maximum extent practicable, and prior to conclusion of a facility agreement with the Executive Council, provide facilities with an opportunity to comment. During final negotiations with the OPCW, BXA will give consideration to the facility's comments. Finally, BXA will consult with facility representatives prior to interpreting the completed facility agreement. If a disagreement over the provisions of a facility agreement occurs during an inspection between the OPCW Inspection Team and the Host Team that cannot be resolved on-site, the issue will be included in the preliminary factual finding report. After consulting with the U.S. industry advisory group established by the Act, the U.S. National Authority and BXA will meet with the OPCW to resolve the issue. BXA will keep the facility informed of discussions with the OPCW.

Comments on the Schedule 2 Model Facility Agreement (MFA) included clarification of responsibilities including the disposal of equipment contaminated during an inspection and sampling and analysis. The MFA was drafted to have the most general applicability; attachments to individual facility agreements will provide site-specific provisions. BXA will discuss issues related to disposal of contaminated items and hazardous waste with facilities as necessary, and facility agreements will be drafted accordingly.

BXA also received a request to develop and include a Schedule 3 MFA in the CWCR. BXA is assessing the needs and requirements for such a document. A draft Schedule 3 MFA has been developed by the OPCW Technical Secretariat, but States Parties have not completed it. To date, no State Party that has undergone a Schedule 3 inspection has requested a facility agreement.

2.2.8 PART 717---CLARIFICATION OF POSSIBLE NON-COMPLIANCE WITH THE CONVENTION; CHALLENGE INSPECTION PROCEDURES

Article IX of the Convention provides a procedure for clarifying and resolving ambiguities without the need for challenge inspections. A respondent questioned whether the Department of Commerce has the authority to require facilities subject to the CWCR to provide information in response to a clarification request from another State Party. The preamble to the interim rule states that both the Act and the E.O. grant the Department adequate authority to require such information. The interim rule establishes a time limit -- 5 days -- for response to clarification requests from the Department. One respondent questioned whether BXA should be required to obtain a search warrant before requesting such information. The interim rule explains, in the preamble, that a warrant is neither necessary nor appropriate, because no physical inspection of a facility is involved and the information requested falls within the scope of the CWCR. Willful failure or refusal to provide information in response to a request by the Department under this part would constitute a violation of the CWCR.

Finally, one respondent recommended that part 717 establish procedures for resolving differences, including meetings with the OPCW, to avoid the need for challenge inspections. BXA does not believe it is necessary or appropriate for the CWCR to set forth procedures that the U.S. Government will follow in communicating with other States Parties or the OPCW.

2.2.9 PART 718---CONFIDENTIAL BUSINESS INFORMATION (CBI)

A number of comments were related to the issue of proprietary information, and its protection. In the Act and the CWCR, proprietary information is referred to as Confidential Business Information (CBI). In general, CBI issues fall into four broad categories: (1) the location and consolidation of CBI provisions in the CWCR; (2) the amount of information BXA should collect; (3) protection of information made available to the OPCW; and (4) protection of CBI within the United States in both Freedom of Information Act (FOIA) and non-FOIA contexts.

Pursuant to requests, BXA consolidated all the CBI provisions in the CWCR and reorganized them into part 718 in the interim rule. This consolidation should avoid ambiguity in wording, makes the CWCR more user-friendly, and clarifies what information is required as well as the protections it is accorded, at the OPCW, and in the United States. The new part 718 in the interim rule provides the Act's definition of CBI, explains when a facility submitting CBI must identify it as such to ensure proper marking and handling by the U.S. Government, and explains under what circumstances the U.S. Government must disclose CBI, either to the OPCW, to Congress, to the public pursuant to a Freedom of Information Act request, or to a law enforcement agency.

An additional concern related to CBI is the necessity for disclosure when in the "national interest." BXA was asked to define the term "national interest" narrowly, or to provide factors that the U.S. Government would consider in determining under the national interest disclosure provision. BXA cannot provide a definitive list of factors, since these would depend on specific circumstances, could change over time, and would need the concurrence of other agencies.

2.2.10 PARTS 719 AND 720 - ENFORCEMENT AND DENIAL OF EXPORT PRIVILEGES

Several respondents requested clarification of the statements of violations and penalties and administrative proceedings contained in part 719. The provisions of part 719 in the proposed rule were difficult to follow because they reflected the fact that BXA had to draw on two different statutory authorities - the Chemical Weapons Implementation Act, the International Emergency Economic Powers Act - with different violations and penalties to implement as fully as possible the U.S. obligations under the Convention. In addition, due to the provisions of the CWC Implementation Act, BXA has responsibility for only part of the administrative proceeding process; the remaining part is implemented in a separate rule issued by the Department of State. The interim rule clarifies the violations, penalties and administrative procedures as much as possible given the complicated statutory framework.

Part 720 of the interim rule clarifies certain points regarding the denial of export privileges of a person convicted of certain crimes.

2.2.11 PART 721 - INSPECTION OF RECORDS; RECORDKEEPING

One respondent requested that the 5-year record retention period be changed to 3 years. The interim rule maintains the 5-year requirement to correspond with the state of limitations applicable to enforcement actions (18 U.S.C. 2462).

Part 721 is restructured in the interim rule to clarify that all records relevant to compliance with the requirements of the CWCR must be made available to authorized officers of the U.S. Government upon request, and that certain records must be accessible at a facility site if the facility is subject to routine inspections. In response to a public comment, the interim rule clarifies that duplicate records are acceptable, under certain conditions.

3.0 DESCRIPTION OF AND ESTIMATE OF THE NUMBER OF SMALL ENTITIES AFFECTED BY THE CWCR OR EXPLANATION OF WHY AN ESTIMATE IS UNAVAILABLE

In the Initial Regulatory Flexibility Analysis, BXA gave the description and method of estimating the number of small entities to which the CWCR will apply. It was stated there that until the final CWCR is implemented, there would be no opportunity to arrive at a more precise number. Moreover that number may be subject to change from year to year. That reasoning still holds. Accordingly the description and method of estimation will be restated in the FRFA.

The Small Business Act defines a small business as "one which is independently owned and operated and which is not dominant in its field of operation." (15 USC 632). Generic definitions of a "small business" can be either in terms of total number of employees (no more than 500) or in terms of annual receipts ($5 million). However, the Small Business Administration also publishes the "Small Business Size Regulations" in 13 CFR 121, a list of small business size standards, according to four-digit Standard Industrial Classification (SIC) codes. The Small Business Size Regulations define the size of a small business concern in terms of number of employees or annual receipts. Thus a small business, within the chemical industry, can cover a range of sizes or annual receipts.

The following Table 1 lists small business size standards by their four-digit SIC codes for the category of Chemicals and Allied Products. In Table 1, the middle column describes the industry sub-category term. The column on the left is its SIC code. The column on the right is the "small" size definition in terms of the number of employees limited for the industry sub-category. The term "N.E.C." that follows some of the industry sub-category descriptions stands for "nonclassifiable establishments" and describes those businesses that cannot be classified into a specific industry sub-category. As is readily apparent, a small business, within the chemical industry, can cover a range of sizes or annual receipts.

 
Table 1. Chemical and Allied Products
 
2812 Alkalies and Chlorine 1,000
2813 Industrial Gases 1,000
2816 Inorganic Pigments 1,000
2819 Industrial Inorganic Chemicals, N.E.C. 1,000
2821 Plastics Materials, Synthetic Resins, and Nonvulcanizable Elastomers 750
2822 Synthetic Rubber 1,000
2823 Cellulosic Manmade Fibers 1,000
2824 Manmade Organic Fibers, Except Cellulosic 1,000
2833 Medicinal Chemicals and Botanical Products 750
2834 Pharmaceutical 750
2835 In vitro and In Vivo Diagnostic Substances 500
2836 Biological Products, Except Diagnostic Substances 500
2841 Soap and Other Detergents, Except Specialty Cleaners 750
2842 Specialty Cleaning, Polishing, and Sanitation Preparations 500
2843 Surface Active Agents, Finishing Agents, Sulfonated Oils, and Assistants 500
2844 Perfumes, Cosmetics, and Other Toilet Preparations 500
2851 Paints, Varnishes, Lacquers, Enamels, and Allied Products 500
2861 Gum and Wood Chemicals 500
2865 Cyclic Organic Crudes and Intermediates, and Organic Dyes and Pigments 750
2869 Industrial Organic Chemicals, N.E.C. 1,000
2873 Nitrogenous Fertilizers 1,000
2874 Phosphatic Fertilizers 500
2875 Fertilizers, Mixing Only 500
2879 Pesticides and Agricultural Chemicals 500
2891 Adhesives and Sealants 500
2892 Explosives 750
2893 Printing Ink 500
2895 Carbon Black 500
2899 Chemicals and Chemical Preparations, N.E.C. 500

3.1 Unavailability of Estimate of the Number of Small Entities Affected

Early outreach efforts to identify and inform companies (large and small) that might be affected by the reporting and inspection requirements of the CWCR were deliberately inclusive to ensure that the greatest number of companies were contacted, informed of possible obligations under the Convention, and asked to provide information voluntarily that might clarify the extent of their future obligations under the CWC. Through a series of screenings based on voluntary responses to the industry surveys and publicly available compilations of industry data that have permitted more precise positive identification of companies that may have obligations under the CWC, the initial number of potentially affected companies was gradually narrowed down. BXA was able to arrive at an estimate of some 2000 firms that will be affected by the CWCR. Of these, more than 1800 may produce UDOCs in excess of the CWC thresholds. Approximately 140 U.S. companies will be required to submit declarations for activities involving Scheduled chemicals.

BXA did not receive public comments on the IRFA. BXA still does not know which SIC code categories will include companies who will be subject to the CWCR reporting, declaration, or inspection requirements, and therefore, BXA does not have an estimate of the number of small companies that will be affected by the interim rule. Although BXA anticipates some 2000 firms will be affected by the CWCR, and many of them may have no more than the 500 employees (thus fitting them into the SBA generic definition of "small business"), BXA believes that the majority of them will actually be substantial businesses because they will be required to report on their production only if their annual aggregate production exceeds the Convention thresholds. In preparing this FRFA as a public record of its analysis, BXA continues to seek to confirm its estimates and assumptions with regard to small business concerns. BXA will continue to welcome comments from small firms regarding the impact of the CWCR upon their businesses.

4.0 REPORTING, RECORDKEEPING AND OTHER COMPLIANCE REQUIREMENTS; ESTIMATE OF THE CLASSES OF SMALL ENTITIES SUBJECT TO THE REQUIREMENT; NEED FOR PROFESSIONAL SKILLS FOR PREPARATION OF REPORTS OR RECORDS

4.1 Reporting, Recordkeeping and Other Compliance Requirements

The projected reporting and recordkeeping requirements for compliance with the CWCR should be comparable to and not be any more onerous than that required for any other regulatory program, (e.g., EPA, OSHA), and should be in keeping with standard good business practices.

Specifically, the Convention necessitates development of a working relationship between the U.S. Government and private industry that is unprecedented in terms of the degree of industry-government cooperation. BXA will be the principal liaison between the U.S. Government and the chemical industry. BXA will be responsible for receiving industry declarations and submitting them to the United States National Authority (USNA). This national organization will coordinate and facilitate administrative and logistical matters related to CWC national implementation. The USNA will compile official U.S. declarations from inputs received from the Departments of Commerce and Defense, as well as other agencies and then submit them to the OPCW.

BXA officials will review the information collected from the data declarations for completeness and accuracy. The data will then be compiled into a report for transmittal to the USNA and subsequent presentation to the OPCW. The collected data will also be used by BXA officials to: (1) keep track of all commercial chemical activities; (2) monitor the aggregate amount of Schedule 1 chemicals in the United States; and (3) prepare such additional reports as the USNA may reasonably require.

The Office of Chemical and Biological Controls and Treaty Compliance (CBTC) of BXA has developed a user-friendly software product that will allow U.S. companies to fill out the declarations forms with their own computers and respond by mailing BXA a floppy disk. This software is called the Data Entry Software for Industry (DESI) and was developed by CBTC's contractor, Technology Concepts and Design Inc., (TCDI). DESI allows industry to complete all CWCR declarations, including Schedules 1, 2, 3, and unscheduled discrete organic chemicals on personal computers and save the data on a floppy disk. Respondents should then print a copy of the completed and signed certification form (an original signature is required to make the submission legally binding) and mail the signed certification form and floppy disk to BXA. This software will also be available for downloading over the Internet. BXA will not accept declaration submissions over the Internet due to risk of loss of industry confidential business information (CBI).

The declarations/reports themselves have been designed with scanning and optical character recognition (OCR) in mind. BXA has incorporated a forms-scanning subsystem into its information management system (IMS). The complete IMS and scanning subsystem were designed to reduce the reporting burden by automatically replicating information from one form field onto the multiple form fields that may be required by the OPCW. This will reduce the burden on industry by reducing duplication of data collection.

The information BXA will request from the U.S. industry under the provisions of the CWC has not been obtained previously. The declaration of this required information is described in the following paragraphs.

In the declaration/reporting of data, depending on the chemical, the requirements differ. In all instances however, the declarant must identify himself in terms of his name, address, geographical address and location, give a point of contact for questions about the information submitted, and indicate the type of declaration - initial, annual-past, annual-anticipated, or amended; or report. For Schedules 1, 2 and 3 chemicals, the declarant must also identify the chemical he is reporting in terms of its name, chemical structure, and its CAS number.

Reporting and recordkeeping are essential to the integrity of CWCR implementation. After the OPCW has reviewed the information, it will begin inspections of certain declared facilities to verify the declarations. During these inspections, documentation should be accessible to support the declarations.

4.2 Estimate of the Classes of Small Entities Subject to the Requirement

The total number of entities subject to the CWCR is currently the very rough estimate of some 2000 companies. As discussed in the Final Regulatory Flexibility Analysis for the interim rule, BXA does not know how many of these entities will be categorized as "small." In this section, we will attempt to describe some of these entities as they are categorized in the Convention and the CWCR.

For Schedule 1 chemicals, the entity subject to the requirements of the CWCR is one who produces more than the threshold 100 grams per year for research, medical or pharmaceutical purposes, or one who engages in international or domestic transfers of the chemicals in any amount. Such entity must indicate whether it is a producer or a trading company. If the facility is a producer, it must then indicate the types and amounts of precursors used in production, and to what end purpose the chemicals were consumed. If the entity is a trading company, it must provide information on its international trading activities, such as the source or destination country, and the identity and quantity of chemical shipped.

For Schedule 2 chemicals, the entity subject to the requirements of the CWCR is one who engages in production, processing, consumption, import and export above specified thresholds. It must indicate whether it is a producer, processor, consumer, or a trading company and the purpose of its activities. Depending on the chemical, the threshold levels vary. Initial and annual declarations are required for all plant sites that comprise one or more plant(s) which produced, processed or consumed during any of the previous three calendar years or is anticipated to produce or consume in the next calendar year a Schedule 2 chemical above the applicable threshold.

If the entity is engaged in domestic and international transfers of Schedule 2 chemicals, it must describe the sale or transfer within the jurisdiction of the United States for domestic sale or transfers, and it must also describe the direct exports and imports, including such information as the source or destination country and the identity and quantity of the chemical(s) shipped.

For Schedule 3 chemicals, the entity subject to the requirements of the CWCR is one who engages in more than the threshold production of 30 metric tons of a Schedule 3 chemical. The reporting is less specific than for the Schedule 1 and 2 chemicals, and the approximate amount of production is expressed in ranges: 30 to 200 metric tons, 200 to 1,000 metric tons, 1,000 to 10,000 metric tons, 10,000 to 100,000 metric tons, and above 100,000 metric tons. However, the entity must also indicate the purpose(s) of this production.

For unscheduled discrete organic chemicals (UDOCs), the entity subject to the requirements of the CWCR is one who engages in production by synthesis of more than 200 metric tons of UDOCs, or more than 30 metric tons of a UDOC containing the elements phosphorus, sulfur, or fluorine (PSFs). The reporting is even more general than for Schedule 3 chemicals. There is no need to identify the chemicals, just the production expressed in ranges: under 1,000 metric tons, 1,000 to 10,000 metric tons, and above 10,000 metric tons for non-PSF UDOC plant sites. For UDOC-PSF plant sites, the reporting is expressed in ranges: under 200 metric tons, 200 to 1,000 metric tons, 1,000 to 10,000 metric tons and above 10,000 metric tons.

4.3 Type of Professional Skills Necessary for Preparation of the Report or Record

Based on the foregoing paragraphs, it is apparent that the type of professional skills necessary for preparation of the report or record is either a trained chemist or chemical engineer, one who can speak knowledgeably about the information in the declaration/ report and who knows how and where the records are available for ready access for inspection is requested. These types of professional skills are normally to be found at the site so no extra expense should be needed to engage special skills for preparation of the report or record.

5.0 STEPS TAKEN BY THE AGENCY TO MINIMIZE THE SIGNIFICANT ECONOMIC IMPACT ON SMALL ENTITIES CONSISTENT WITH THE STATED OBJECTIVES OF APPLICABLE STATUTES INCLUDING A STATEMENT OF THE FACTUAL, POLICY AND LEGAL REASONS FOR SELECTING THE ALTERNATIVE ADOPTED IN THE CWCR AND WHY EACH OF THE OTHER SIGNIFICANT ALTERNATIVES WAS REJECTED

BXA has, beginning as early as the treaty negotiation phase and predating treaty ratification, has sought to frame its CWC implementation responsibilities within the broad policy objectives of confirming U.S. compliance, while minimizing burdens on U.S. industry.

During treaty negotiations, representatives from various nations considered alternative options towards achieving similar objectives. Many provisions proposed by both the United States Government and industry sources eventually found their way into the final version of the Convention. The selection of these measures guaranteed a much lower burden and much higher level of protection for U.S. industry than might otherwise have been approved. Thus, the many specific guidelines for later rulemaking were laid down early.

Implementation of certain declaration requirements under the Convention for which the OPCW has not provided official binding interpretation are left to the national discretion of individual States Parties. The interim rule requires the minimum industry reporting necessary for compliance with the Convention. The following paragraphs discuss this approach in terms of the classes of chemicals as organized in the Convention, discussing first the classes of entities subject to the requirements of the CWCR, including small companies or entities, then the alternatives adopted in the CWCR and why each of the other significant alternatives to the CWCR considered was rejected.

5.1 Unscheduled Discrete Organic Chemicals (UDOCs)

The largest class of entities potentially subject to the requirements of the CWCR is the class engaged in production by synthesis of unscheduled discrete organic chemicals (UDOCs). It is important to note that the requirements only apply to producers of these chemicals and do not affect consumers, processors, exporters, or importers. The interim rule includes declaration exemptions for UDOCs based upon U.S. national discretion. These exemptions include: UDOCs produced by synthesis that are ingredients or by-products in foods designed for consumption by humans and/or animals; and products from refineries of crude oil, including sulfur-containing crude oil.

As noted earlier, some 1800 U.S. companies may produce UDOCs in excess of the CWC thresholds. There is a possibility that declared UDOC producers may be subject to inspections to verify the accuracy of their data declarations on or after April 29, 2000. The size of the group of companies or entities excluded by the UDOC exemptions, among which are the plastics industry, the wine and beer industries, the petroleum refinery industry, and the human/animal foods industry is unknown, but is believed to be substantial. This group is termed subclass-1. Thus, the universe of potential declarant companies is diminished by subclass-1.

A UDOC exemption codified in the CWCIA is for those coincidental byproducts of a UDOC manufacturing or production process that are not isolated or captured for use or sale during the process, and are routed to, or escape from the waste stream of a stack, incinerator, or wastewater treatment system or any other waste stream. The size of this group, which can include, for example, the pulp and paper industry, is unknown. This group is termed subclass-2. The universe of potential declarant companies is further diminished by subclass-2.

5.2 Scheduled Chemicals and Interpretation Scenarios

In the following paragraphs, BXA explores several scenarios which pose alternative options for industry declaration and reporting requirements based on the CWC declaration thresholds. In each case, BXA interpreted the treaty to select the option that quantitatively and qualitatively minimized a company's declaration and reporting burdens, thereby minimizing its opportunity for inspection and maximizing the protection of its confidential business information.

For the sake of clarity, in the scenarios, the Schedule 2A.(2) chemical, PFIB: 1,1,3,3,3-Pentafluoro-2-(trifluoromethyl)-1-propene (CAS Reg. No.382-21-8) will be used. While the examples are specific, the principles contained therein are applicable to all other Schedule 2 and Schedule 3 chemicals, and should serve to demonstrate BXA's approach towards the development of the proposed CWCR and its policy of minimizing burden while maximizing protection.

Several activities trigger the Convention's requirement for a Schedule 2 chemical declaration. These are contained in the CWC Verification Annex (CWC/VA), Part VII, which describes the regime for Schedule 2 chemicals and facilities related to such chemicals. Two main declaration requirements are set forth below.

  • CWC Verification Annex, Part VII, paragraph 1:
  • "The initial and annual declarations to be provided by each State Party pursuant to Article VI, paragraphs 7 and 8*, shall include aggregate national data for the previous calendar year on the quantities produced, processed, consumed, imported and exported of each Schedule 2 chemical, as well as a quantitative specification of import and export for each country involved."
  • * (Article VI paragraphs 7 and 8 of the Convention refer to the time frame for submitting declarations).
  • CWC Verification Annex, Part VII, paragraph 3:
  • "Initial and annual declarations are required for all plant sites that comprise one or more plant(s) which produced, processed or consumed during any of the previous three calendar years or is anticipated to produce, process or consume in the next calendar year more than:
  • (a) 100 kg of any other chemical listed in Schedule 2, part A [i.e. PFIB];
  • Scenario 1. The National Aggregate will only include totals of declared facilities.
  • In order to provide the national aggregate, the United States will not require that all facilities that produce, process, consume, import or export Scheduled chemicals report on their activities. Rather, the United States will compile the aggregate from data submitted by facilities whose activities exceeded specified declaration threshold quantities. In other words, the requirements of both paragraphs 1 and 3 of Part VII will be satisfied with data submitted pursuant to paragraph 3.
  • Scenario 2. What triggers a declaration under CWC/VA, Part VII, paragraph 3 - step 1?
  • Plant site X has three plants, A, B, and C, all engaged in PFIB activities. However, during the previous 3 years (i.e., the 3-year look back), none of the plants, A, B, or C, individually produced, processed, or consumed PFIB in excess of 100 kilograms. In the previous calendar year: plant A produced 90 kg, processed 50 kg, and consumed 50 kg; plant B produced 30 kg, processed 30 kg, and consumed 30 kg; plant C produced 10 kg, processed 10 kg, and consumed 10kg. Does plant site X have an annual declaration requirement?
  • No. Arguably plant site X is declarable under the "aggregate chemical theory." In this scenario, plant site X has an aggregate PFIB production activity of (90 + 30 + 10) kg, a sum exceeding the 100 kg threshold for PFIB. If this line of reasoning is followed, then all plants contributing to the aggregate production must be declared. However, BXA has deemed that for declaration purposes, at least one plant on a plant site must individually exceed the declaration threshold for an activity. Following BXA's line of reasoning, none of the plants, A, B, or C, is declarable because no one plant, A, B, or C, individually exceeded the threshold for a single chemical and activity. Accordingly, plant site X is not required to make a declaration. The size of the group of companies or entities excluded by this interpretation is unknown. This group is termed subclass-3.
  • Scenario 3. What triggers a declaration under CWC/VA, Part VII, paragraph 3 - step 2?
  • Plant site Y has 3 plants, D, E, and F, on it, all engaged in PFIB activities. During the previous calendar year: plant D produced 50 kg, processed 50 kg, and consumed 50 kg; plant E produced 30 kg, processed 30 kg, and consumed 30 kg; plant F produced 10 kg, processed 10 kg, and consumed 10 kg. Does plant site Y have an annual declaration requirement?
  • No. Under the "aggregate activity theory", plant D produced, processed, and consumed a total of 150 kg of PFIB, exceeding the 100 kg threshold level. Since the treaty language reads produced, processed or consumed," BXA has deemed that the applicable threshold should apply to each activity separately. Accordingly, plant D does not have to be declared as each activity is below the threshold level of 100 kg. Because neither plant E nor F has a declaration requirement, either, plant site Y would not have a declaration requirement. In this scenario, the applicable threshold applies to each individual chemical in each separate activity. Therefore those plant sites engaged in activities with a specific Schedule 2 chemical would be excluded from a declaration requirement if the individual activity at each plant on the plant site is below the applicable threshold. The size of the group of companies or entities excluded by this interpretation is unknown. This group is termed subclass-4.
  • Scenario 4. What triggers a declaration under CWC/VA, Part VII, paragraph 3 - step 3?
  • Plant site Z has three plants, G, H, and J, all engaged in PFIB activities. In a 3-year lookback, the threshold was exceeded only in the previous year. During the previous calendar year: plant G produced 110 kg, processed 50 kg, and consumed 50 kg; plant H produced 30 kg, processed 30 kg, and consumed 30 kg; plant J produced 10 kg, processed 10 kg, and consumed 10 kg. Does plant site Z have an annual declaration requirement?
  • Yes. Plant site Z has a declaration requirement. In this scenario, plant G has individually produced more than 100 kg. Therefore plant site Z must declare the production activity in its plant G. Note that there is an alternative point: Does the fact that plant G is over the declaration threshold mean that all production at plant site Z needs to be counted? The answer is "No." BXA has deemed that the actual amount at the plant must be reported if it exceeds the threshold for a specific activity. In short, plant site Z must only report the total production activity of 110 kg at plant G. Plant site Z is not required to report plant G's processing and consumption activities. Plant site Z need not report the activities at plants H and J because individually, their activities did not exceed the declaration threshold.

The above examples demonstrate BXA's systematic approach to narrowing the declaration requirement of Schedule 2 chemicals.

As mentioned, the principles contained in the above scenarios, except for the three-year look-back, can be applied to the declaration requirements for Schedule 3 chemicals. These requirements have a similar structure to those for Schedule 2 chemicals, and have also been interpreted to exempt from declaring those companies whose involvement with Schedule 3 chemicals is below specified thresholds. The number of companies or entities excluded by this interpretation is unknown. This group will be called subclass-5.

The requirement for declarations of Schedule 1 chemicals is less flexible to interpretation for the reason that they are the most toxic and therefore subject to the strictest control.

The scope of the CWC declaration requirement is even narrowed further in the United States as the CWCIA or "the Act" exempts certain Schedule 2 and Schedule 3 chemical mixtures. The interim rule provides for an exemption for mixtures containing less than 30% of a Schedule 2 chemical for all Schedule 2 activities. The Act mandates an 80% exemption for mixtures containing Schedule 3 chemicals and this remains unchanged. These chemical mixtures of toxic chemicals, precursors, by-products, and/or impurities are sufficiently dilute to make separation of their components impractical and uneconomic. In addition, the interim rule includes a new "rounding down to zero" rule for unavoidable Schedule 1 by-products or impurities below 0.5%. As these mixtures present little threat of diversion to chemical weapons production, they are excluded from the declaration and reporting requirements under the CWCR. The number of companies excluded by these mixture thresholds is unknown. This group is termed subclass-6.

Relying on inputs from the Department of State, BXA has estimated that the first-year total burden hours placed on those members of private industry expected to have declaration or reporting obligations is about 11,656 hours. If one assumes that the employee gathering relevant information and completing the forms is compensated at about $27/hour, the total reporting cost burden amounts to $377,654 (allowing for a 20% overhead cost). Based on mock inspections, BXA estimated the inspection cost to each inspected site at $54,172. Assuming 40 inspections in the United States annually, the total inspection cost burden amounts to $2,166,880. The interim rule implements an OPCW Conference of States Parties' decision to require "additionally planned activities" declarations for several types of changes in planned production, processing, or consumption of Schedule 2 chemicals or in planned production of Schedule 3 chemicals, but adopts the minimum requirements consistent with that decision. BXA's best estimate is that it will receive no more than 20 additional declarations per year due to this change. These additional declarations will be offset by reductions in declaration requirements included in the interim rule, including the uniform 30% mixtures exemption for Schedule 2 chemicals and the additional UDOCs exemptions. Therefore, BXA has not changed its burden hours estimates or cost estimates.

In addition, businesses and other entities, particularly small ones, potentially could suffer indirect, non-quantifiable, costs due to their involvement with inspections when they could be engaging in profitable activities. BXA will make every effort to work with facility officials to minimize these costs. Inspections will be managed to limit costs (both direct and indirect) borne by private facilities and to protect their proprietary and confidential business information.

5.3 Significant Alternatives

The interim rule has been extensively revised and reorganized to render it more user-friendly and to afford greater protections to regulated companies. The provisions on CBI have been consolidated for clarity, consistency and conciseness in order to communicate this very important feature of the CWCR.

BXA has also incorporated many comments that will result in time-savings and thus cost-savings. For example, the CWCR provide two e-mail addresses to give assistance to the public. It has established the "postmark" date, rather than the date received by BXA, as the deadline of submission of declarations and reports. It has simplified the recordkeeping requirements. Other cost-savings related to each of the regimes - Schedules 1, 2, 3, and UDOCs - were discussed above.

In addition to the above-mentioned lessening of burden on industry, the interim rule includes several key exemptions. There is now a 0.5% "rounding down to zero" rule for Schedule 1 declaration/reporting. There is a uniform level of 30% for Schedule 2 declarations. There is an added exemption for UDOCs in food products for human and animal consumption and for UDOCs produced by the refining of crude oil, including sulfur-containing crude oil.

5.4 Other Measures

In addition to minimizing the number of companies subject to the CWCR, BXA also undertook other tangible measures that lessen the burden on industry.

In the area of declarations, these other measures include:

  • User-friendly declaration forms with helpful instructions
  • Software for electronic reporting
  • Secure information management system
  • E-mail access and telephone hotline for industry assistance with chemical classifications and declarations
  • Limiting the information required in declarations to the minimum necessary for compliance
  • Extending the deadline for submission of annual declarations and reports to February 28th, which is the "postmarked" date

In the area of inspections, these other measures include:

  • No reimbursement for advance team activities
  • Permitting facilities to participate in facility agreement negotiations

And, with input from industry, the United States was effective in negotiating into the final Convention, the provisions for routine inspections that protect industry by, inter alia:

  • No reimbursement for advance team activities
  • Limiting the number of inspections a facility can receive in a year
  • Providing advance notification of Inspection Team arrival
  • Limiting the duration of inspections
  • Restricting the scope of inspections to the minimum necessary to verify CWC compliance

5.5 Analysis of the Impacts of the CWCR

The CWCR minimizes the impact of treaty compliance by minimizing the number of companies that will be subject to declaration and by minimizing the number of submissions they must make and the paperwork required. The universe of companies that could be subject to treaty obligations is diminished through a series of exemptions and exclusions. This is shown in the formula:

  • Companies subject to the CWCR = (Universe of potential declarant companies) - (Subclasses 1 to 6)

Of the some 2000 companies estimated to have declaration or report obligations, about 1800 or 90 percent will only be required to submit a short, simple UDOC declaration, and only if a company's aggregate production exceeds 200 metric tons for most UDOCs or 30 metric tons for UDOCs containing PSFs. Thus, approximately 90 percent of all reporting companies will be required to give the minimal information required under the CWC, and check a few boxes or enter a few numbers to indicate, in broad ranges, the quantity of UDOCs produced and the number of plants producing them. There will be no requirement to identify specific chemicals, only the quantity ranges. While the financial savings to industry brought by the Schedule 1, 2, and 3, and UDOC exemptions and exclusions contained in the CWCR are qualitatively and quantitatively obvious, they are difficult to quantify because the exact size of each group of entities subject to the requirements of the CWCR (i.e., Schedule 1, 2, or 3, or UDOC) is unknown and may vary from year to year. Suffice it to say that with fewer companies reporting, there is less proprietary information submitted to the OPCW and therefore the policy objectives of minimizing burdens and maximizing confidential business information are attained.

In its "Assessment of the Costs and Benefits of BXA Regulation: Chemical Weapons Convention Regulations and Declaration and Report Forms as Required by Public Law 105-277, Division I," BXA estimated that the annual cost to industry for compliance with the proposed CWCR would total approximately $2.5 million, and would decrease each year as companies become familiar with the regulatory requirements, as well as take advantage of electronic reporting software and other capabilities. This is not a significant financial burden on industry, as the average cost to each of the 2000 companies would amount to approximately $1000.

Finally, BXA notes that certain States Parties interpret the "aggregate national data" broadly and require their industries to report every detail related to their chemical activities. In contrast, BXA has systematically used exemptions as well as an exclusion principle to narrow the universe of companies subject to declaration requirements, so that the burden on industry is consistently minimized. Furthermore, BXA believes it has, in its best judgement, interpreted the treaty reasonably and acted in the best interest of the U.S. chemical industry. The Convention, and the CWCR implementing certain of its provisions in the United States, will provide for added national security with respect to the worldwide use of chemicals, while minimizing unwarranted burdens on our industry or risk to U.S. confidential business information.

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