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Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Rules and Regulations absent a legal requirementto document supply chain risk management analysis in the event a transaction is investigated, along with related due diligence to consider the asyet uncertain possibilities for government intervention. In the RIA, the Department estimated costs associated with developing and implementing a plan to conduct due diligence on potentially covered transactions, including estimating the number of small entities that could be affected by the rule and the economic impact on those small entities.
Statement of the Objectives of, and Legal Basis for, the Final Rule A description of this final rule, why it is being implemented, the legal basis, and the purpose of this final rule are contained in the SUMMARY and SUPPLEMENTARY INFORMATION sections of this preamble, as well as in the preamble to the Notice of Proposed Rulemaking issued on November 27, 2019 84 FR 65316, and are not repeated here.

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A Description and, Where Feasible, Estimate of the Number of Small Entities to Which the Final Rule Applies Small Business Administration SBA
size standards for businesses are based on annual receipts and average employment. For the purpose of this analysis we define a small business as one employing fewer than 500 persons.
This definition allows us to use 2017
Census data on firm employment by NAICS industry to estimate the number of affected small entities.
In the RIA, the Department identified 4,533,000 firms that imported significant amounts of goods and services potentially subject to review under the Rule. This formed our upper bound estimate for the total number of affected entities. By replicating this methodology with firm employment data, the Department finds that 4,516,000 of these firms, about 99.6
percent, have less than 500 employees.
Assuming the lower bound estimate of 268,000 affected entities is also made up of 99.6 percent small businesses, the Department estimates that between 266,995 and 4,516,000 small businesses will be potentially affected by this rule.
Federal Rules That May Duplicate, Overlap or Conflict With the Final Rule The Department did not identify any Federal rule that duplicates, overlaps, or conflicts with this final rule.

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Description and Estimate of Economic Effects on Entities, by Entity Size and Industry In the Costs section of the RIA, the Department estimates that costs to all affected entities will range between approximately $235 million and $20.2
billion, or about $2,800 to $6,300 per entity. The Department estimated the costs to small entities using the same methodology. All small entity calculations and assumptions can be found in Tables 10 through 14. These tables are analogous to Tables 5 through 9 in the RIA. While most of the assumptions below are identical to those found in the previous estimates, there are 3 important adjustments to assumptions in the small entity cost estimates:
1. Entities potentially impacted by the rule reduced by 0.4 percent to account for our finding that 99.6 percent of all affected entities have less than 500
employees.
2. Small entities are less likely to have the resources to develop and implement a compliance plan. This analysis thus reduces estimates of the share of small firms likely to engage in these activities accordingly.
3. Small entities engage in fewer transactions than large entities. This analysis reduces the estimates of the number of transactions subject to the rule per small firm accordingly.
As a result of these adjustments, the Department estimates that costs to affected small entities will range between approximately $109 million and $10.9 billion, or about $1,800 and $3,900 per small entity.
Potential Economic Impact of the Rule on Small Entities Small businesses, as opposed to larger firms, may not have the same ability to deal with the burdens, both direct and indirect, associated with the rule. Faced with the various costs associated with compliance, firms will have to absorb those costs and/or pass them along to their consumers in the form of higher prices. Either action will reduce the profits of firms. Due to their lack of market power, and their lower profit margins, small firms may find it difficult to pursue either or both of those responses while remaining viable.
A similar situation will hold with respect to the indirect impacts of the rule. Small firms downstream of impacted industries are likely to face increases in the prices of ICT products they use as inputs and either absorb the increase in cost and/or raise their prices.
Given this situation, it is possible that the rule will have a more substantial
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adverse impact on small firms relative to larger firms.
However, the changes made from the proposed rule benefit small businesses by limiting the scope of transactions subject to the rule. Small entities have fewer suppliers and engage in fewer transactions than large entities. As a result, by identifying specific foreign adversaries and providing guidance on which entities may be subject to the rule as well as additional criteria on what constitutes an ICTS Transaction, small entities will more readily be able to determine whether their transactions are subject to review under the ruleand may in some cases, find that none of their transaction are likely to be within the scope of the rule. Additionally, by specifically requiring the Secretary to publish the results of final determinations in the Federal Register, small businesses will be able to assess whether their transactions are substantially similar to those that have been prohibited. Finally, the rule reduces the potential burdens on small entities by emphasizing that 1 the Secretary will choose the least burdensome restriction that still allows for protection of the national security when deciding whether to prohibit or mitigate an ICTS Transaction, and 2
the Secretary shall issue a final determination within 180 of commencing an initial review.
A Description of, and an Explanation of the Basis for, Assumptions Used SBA size standards for businesses are based on annual receipts and average employment. For the purpose of this analysis, the Department defines a small business as one employing fewer than 500 persons. This definition allows the Department to use 2017 Census data on firm employment by NAICS industry to estimate the number of affected small entities. The Department does not have access to sufficiently detailed data on firm employment and receipts to make use of the full set of SBA size standard thresholds.
The Department notes, however, that 84% of SBA employee thresholds are above 500, and 91% of SBA receipt thresholds are above $6 million. Census data show that average receipts for firms employing less than 500 employees are $2.2 million. Thus, using our threshold of 500 employees we estimate that 99.6% of affected entities are small businesses which is likely a slight underestimate.

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