Executive Secretary
Marine Safety Council (G-LRA/3406)
U.S. Coast Guard
2100 Second Street
SW Washington, DC 20593-0001
Dear Executive Secretary:
This letter is in response to the U.S. Coast Guard's rulemaking to modify existing standards for electrical engineering requirements for merchant vessels.1 The Office of Advocacy of the U.S. Small Business Administration was established by Congress under Public Law No. 94-305 to advocate the views of small business before Federal agencies and Congress.
Advocacy is also required by §612 of the Regulatory Flexibility Act (RFA)2 to monitor agency compliance with the RFA. These comments will be directed towards the Coast Guard's compliance with RFA and the use of consensus standards. Regulatory Flexibility Act Certification Pursuant to §605 of the Regulatory Flexibility Act, an agency head or delegate may certify that a proposed rule will not have a significant economic impact on a substantial number of small entities.
The RFA requires that a certification be accompanied by a statement explaining the factual basis for the certification. The statement must be sufficiently explicit to ensure that the small business sector of the regulated industry can determine whether an agency's rule will in fact not have a significant economic impact on a substantial number of small entities.
In the preamble of this interim rule, the Coast Guard has certified that this action will not have a significant economic impact on a substantial number of small entities. First, the certification should be corrected to use the legal definition of small business, as defined by the RFA.3 Specifically, small business is defined by the Small Business Administration under 13 CFR Part 1214 and is the predominant definition unless an agency has a different definition of "small" incorporated into their authorizing statutes.
If an agency wishes to use an alternative definition for the purposes of the regulatory flexibility analysis and certification, it must consult with the Office of Advocacy and publish the alternative definition for public comment. Second, the certification should provide an explicit estimate of the cost of this regulation for the average small entity and its impact on the average annual revenues and/or payroll in order to demonstrate that the impact is not significant. The type and number of small entities affected by the regulation also should be provided in the certification. There is an implication in the regulatory analysis that there will be both costs and benefits. The agency is not relieved of its obligation to determine the significance of the economic impact on small entities even if it is beneficial. (The cost savings may be long coming and may not necessarily relieve a small business that faces the up front costs of compliance.)
It is difficult for the Office of Advocacy or a small business to evaluate an agency's certification and pronouncement that the cost is not "significant" or the number is not "substantial" if specific figures are not provided in the certification language. Standards When adopting consensus standards for regulations, agencies should consider the impact on small entities. A Federal agency should determine if the standard is widely accepted by the regulated entities, including small entities. The preamble indicates that this is the case for electrical engineering requirements. We believe the use of consensus standards can be effective as long as agencies have thoroughly examined the implications. Many times small entities cannot afford to participate in private standard development, and as a result, the impact of proposed standards on small entities are given cursory consideration. If the cost or technology of a standard is not suited for small entities, it will not be used. For this reason, the burden lays with Federal agencies to determine the practical application and impact of a consensus standard on small entities. In assessing the burdens and benefits of compliance, agencies should consider among other things the cost of obtaining consensus standards from all of the development organizations by the regulated entities. In the case of this rulemaking, there is a large number of these standards and organizations. The purpose of this letter is to alert the U.S. Coast Guard to specific requirements under the Regulatory Flexibility Act that should be addressed in this rulemaking. In addition, the Coast Guard in future rulemakings should use the legal definition of "small business" and provide more explicit information on the economic impact as it pertains to small entities. If you have any questions, please contact me or Anita Drummond of my staff at (202) 205-6532.
Sincerely,
Jere W. Glover
Chief Counsel for Advocacy
1 Fed. Reg., Vol. 61, No. 108, pp.28260-28293 (June 4, 1996)
2 5 U.S.C. 601-612
3 5 U.S.C. 601(3)
4 The small business size standards for SIC 44, Water Transportation, are as follows: SIC 4412-4489, less than 500 employees; SIC 4491, less than $18.5 million in annual revenue; SIC 4492-4499, less than $5 million in annual revenue (except Offshore Marine Water Transportation Services, less than $20.5 million in annual revenue)