Proposed Executive Order Entitled "Federal Regulation"

Proposed Executive Order Entitled “Federal Regulation”
[The follow ing m em orandum , prepared by the Office o f Legal Counsel pursuant to its
responsibility under Executive O rder N o. 11,030 for approving all executive orders and
presidential proclam ations for form and legality, analyzes the provisions o f a proposed
executive order im posing certain procedural and substantive requirem ents on executive
agencies in connection w ith their rulem aking functions. It concludes that the o rd e r’s
provisions for presidential oversight o f the adm inistrative process are generally within
the President’s constitutional authority, and that they do not displace functions vested
by law in particular agencies. It also concludes that the o rd e r’s requirem ent that
agencies reconsider final rules w hich have not yet becom e effective m ay in certain
circum stances trigger the notice and com m ent provisions o f the A dm inistrative P roce­
dure Act.]
February 13, 1981
M EM ORANDUM
The attached proposed executive order was prepared by the Office
of Management and Budget (OMB) in consultation with this Office, and
has been forwarded for the consideration o f this Department as to form
and legality by the Office of Management and Budget with the
approval of its Director. The proposed order is designed to reduce
regulatory burdens, to provide for presidential oversight of the adminis­
trative process, and to ensure well reasoned regulations. The order sets
forth a number of requirements that Executive Branch agencies must
adhere to in exercising their statutory rulemaking authority. We con­
clude that the order is acceptable as to form and legality.*
The order has the following major provisions. Agencies must take
action only if the potential benefits outweigh the social costs; attempt to
maximize social benefits; choose the least costly alternative in selecting
among regulatory objectives; and set priorities with the aim of maximiz­
ing net benefits. All of these requirements must be followed “to the
extent permitted by law.” The order would require agencies to prepare
for each “major rule” a Regulatory Impact Analysis (RIA) setting forth
a description of the potential costs and benefits of the proposed rule, a
determination of its potential net benefits, and a description o f alterna­
tive approaches that might substantially achieve regulatory goals at a
lower cost. Agencies would be required to determine that any proposed
• N o t e : Executive O rder N o 12,291, entitled “ Federal Regulation,” was signed b y the President on
February 17, 1981, 3 C.F.R. 127 (1982 ed.). Ed.
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regulation is within statutory authority and that the factual conclusions
upon which the rule is based are substantially supported by the record
viewed as a whole. The Director o f the Office of Management and
Budget and the Presidential Task Force on Regulatory Relief would be
given authority, inter alia, to designate proposed or existing rules as
m ajor rules, to prepare uniform standards for measuring costs and
benefits, to consult with the agencies concerning preparation of RIAs,
to state approval or disapproval of RIA s and rules on the administra­
tive record, to require agencies to respond to these views (and to defer
rulemaking while so consulting), and to establish schedules for review
and possible revision of existing major rules. The order would require
agencies to defer rules that are pending on the date of its issuance,
including rules that have been issued as final rules but are not yet
legally effective, and to reconsider them under the order. By its terms,
the order would create no substantive or procedural rights enforceable
by a party against the United States o r its representatives, although the
R IA would become part of the administrative record for judicial
review o f final rules.
I. Legal Authority: In General
The President’s authority to issue the proposed executive order de­
rives from his constitutional power to “take Care that the Laws be
faithfully executed.” U.S. Const., Art. II, § 3. It is well established that
this provision authorizes the President, as head of the Executive
Branch, to “supervise and guide” executive officers in “their construc­
tion of the statutes under which they act in order to secure that unitary
and uniform execution o f the laws w hich Article II of the Constitution
evidently contemplated in vesting general executive power in the Presi­
dent alone.” Myers v. United States, 272 U.S. 52, 135 (1926).1
The supervisory authority recognized in Myers is based on the dis­
tinctive constitutional role of the President. The “take care” clause
charges the President w ith the function of coordinating the execution
of many statutes simultaneously: “Unlike an administrative commission
confined to the enforcement of the statute under which it was cre­
ated . . . the President is a constitutional officer charged with taking
care that a ‘mass of legislation’ be executed,” Youngstown Sheet & Tube
Co. v. Sawyer, 343 U.S. 579, 702 (1952) (Vinson, C.J., dissenting).
M oreover, because the President is the only elected official who has a
national constituency, he is uniquely situated to design and execute a
uniform method for undertaking regulatory initiatives that responds to
*In Buckley v Valeo, 424 U.S. 1, 140-41 (1976), the Supreme Court held that any “significant
governm ental duty exercised pursuant to a public law ” must be performed by an “Officer of the
United States,'1 appointed by the President or the Head of a Department pursuant to Article II, § 2,
clause 2. W e believe that this holding recognizes the importance of preserving the President’s
supervisory powers over those exercising statutory duties, subject o f course to the power of Congress
to confine presidential supervision by appropriate legislation. See also n.7, infra.
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the will of the public as a whole.2 In fulfillment of the President’s
constitutional responsibility, the proposed order promotes a coordinated
system o f regulation, ensuring a measure o f uniformity in the interpreta­
tion and execution of a number o f diverse statutes. If no such guidance
were permitted, confusion and inconsistency could result as agencies
interpreted open-ended statutes in differing ways.
Nevertheless, it is clear that the President’s exercise of supervisory
powers must conform to legislation enacted by Congress.3 In issuing
directives to govern the Executive Branch, the President may not, as a
general proposition, require or permit agencies to transgress boundaries
set by Congress. Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579(1952). It is with these basic precepts in mind that the proposed order
must be approached.
We believe that an inquiry into congressional intent in enacting
statutes delegating rulemaking authority will usually support the legal­
ity of presidential supervision of rulemaking by executive agencies.
When Congress delegates legislative power to executive agencies, it is
aware that those agencies perform their functions subject to presidential
supervision on matters of both substance and procedure. This is not to
say that Congress never intends in a specific case to restrict presidential
supervision o f an executive agency; but it should not be presumed to
have done so whenever it delegates rulemaking power directly to a
subordinate executive official rather than the President. Indeed, after
Myers it is unclear to what extent Congress may insulate executive
agencies from presidential supervision. Congress is also aware of the
comparative insulation given to the independent regulatory agencies,
and it has delegated rulemaking authority to such agencies when it has
sought to minimize presidential interference. By contrast, the heads of
non-independent agencies hold their positions at the pleasure of the
President, who may remove them from office for any reason. It would
be anomalous to attribute to Congress an intention to immunize from
presidential supervision those who are, by force of Article II, subject to
removal when their performance in exercising their statutory duties
displeases the President.
O f course, the fact that the President has both constitutional and
implied statutory authority to supervise decisionmaking by executive
agencies does not delimit the extent of permissible supervision. It does
suggest, however, that supervision is more readily justified when it does
not purport wholly to displace, but only to guide and limit, discretion
which Congress has allocated to a particular subordinate official. A
wholesale displacement might be held inconsistent with the statute
vesting authority in the relevant official. See Myers v. United States, 272
%See Bruff, Presidential Power and Administrative Rulemaking, 88 Yale L.J. 451, 461-62 (1979).
* In certain circumstances, statutes could invade or intrude impermissibly upon the President’s
"inherent” powers, but that issue does not arise here.
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U.S. at 135: “O f course there may be duties so peculiarly and specifi­
cally committed to the discretion of a particular officer as to raise a
question w hether the President may overrule or revise the officer’s
interpretation of his statutory duty in a particular instance.” This sug­
gestion is based on the view that Congress may constitutionally con­
clude that some statutory responsibilities should be carried out by
particular officers without the President’s revision, because such offi­
cers head agencies having the technical expertise, and institutional com­
petence that Congress intended the ultimate decisionmaker to possess.4
Under this analysis, of course, lesser incursions on administrative discre­
tion are easier to support than greater ones. This Office has often taken
the position that the President may consult w ith those having statutory
decisionmaking responsibilities, and may require them to consider statu­
torily relevant matters that he deems appropriate, as long as the Presi­
dent does not divest the officer o f ultimate statutory authority.5 Of
course, the President has the authority to inform an appointee that he
will be discharged if he fails to base his decisions on policies the
President seeks to implement.6
T he order would impose requirements that are both procedural and
substantive in nature. Procedurally, it would direct agencies to prepare
an R IA assessing the costs and benefits of m ajor rules. We discern no
plausible legal objection to this requirement, which like most proce­
dural requisites is at m ost an indirect constraint on the exercise of
statutory discretion. At least as a general rule, the President’s authority
o f “supervision] in his administrative control,” Myers v. United States,
272 U.S. at 135, permits him to require the agencies to follow proce­
dures that are designed both to promote “unitary and uniform execu­
tion o f the laws” and to aid the President in carrying out his constitu­
tional duty to propose legislation. See U.S. Const., Art. II, § 3. We
believe that a requirement that the agencies perform a cost-benefit
analysis meets these criteria. Further, the President’s constitutional right
to consult with officials in the Executive Branch permits him to require
them to inform him of the costs and benefits o f proposed action.7 In our
view, a requirement that rulemaking authorities prepare an RIA is the
least that Myers must mean with respect to the President’s authority to
“supervise and guide” executive officials.
4 Cf. H. Friendly, T he Federal Administrative Agencies: T he Need for Better Definition of Stand-
ards 10-11 (1962) (discussing concept of ‘‘agency expertise” as reason for delegation of power to
particular agencies). T he Myers C ourt reaffirmed, however, that even such officers may be dismissed
at the pleasure o f the President. 272 U.S. at 135.
* See generally, 1 Op. O.L.C. 75 (1977) {Proposals Regarding an Independent Attorney General)', 1 Op.
O.L.C. 228 (1977) (Role o f the Solicitor General).
•See note 4, supra.
7See U.S. Const., Art. II, § 2 (President may “require the Opinion, in writing, of the principal
Officer in each of the executive Departments, upon any Subject relating to the Duties of their
respective Offices”).
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Substantively, the order would require agencies to exercise their dis­
cretion, within statutory limits, in accordance with the principles of
cost-benefit analysis. More complex legal questions are raised by this
requirement. Some statutes may prohibit agencies from basing a regula­
tory decision on an assessment of the costs and benefits of the proposed
action. See, e.g., EPA v. National Crushed Stone A ss’n, ‘449 U.S. 64(1980). The order, however, expressly recognizes this possibility by
requiring agency adherence to principles of cost-benefit analysis only
“to the extent permitted by law.” The issue is thus whether, when cost-
benefit analysis is a statutorily authorized basis for decision, the Presi­
dent may require executive agencies to be guided by principles of cost-
benefit analysis even when an agency, acting without presidential guid­
ance, might choose not to do so. We believe that such a requirement is
permissible. First, there can be little doubt that, when a statute does not
expressly or implicitly preclude it, an agency may take into account the
costs and benefits of proposed action. Such a calculus would simply
represent a logical method of assessing whether regulatory action au­
thorized by statute would be desirable and, if so, what form that action
should take. In our view, federal courts reviewing such actions would
be unlikely to conclude that an assessment of costs and benefits was an
impermissible basis for regulatory decisions.
Second, the requirement would not exceed the President’s powers of
“supervision.” It leaves a considerable amount of decisionmaking dis­
cretion to the agency. Under the proposed order, the agency head, and
not the President, would be required to calculate potential costs and
benefits and to determine whether the benefits justify the costs. The
agency would thus retain considerable latitude in determining whether
regulatory action is justified and what form such action should take.
The limited requirements of the proposed order should not be regarded
as inconsistent with a legislative decision to place the basic authority to
implement a statute in a particular agency. Any other conclusion would
create a possible collision with constitutional principles, recognized in
Myers, with respect to the President’s authority as head of the Execu­
tive Branch.
We believe that the President would not exceed any limitations on
his authority by authorizing the Task Force and the OMB Director to
supervise agency rulemaking as the order would provide. The order
does not empower the Director or the Task Force to displace the
relevant agencies in discharging their statutory functions or in assessing
and weighing the costs and benefits of proposed actions.8 The function
8 The Paperwork Reduction Act of 1980, Pub. L. No. 96-511, 94 Stat. 2812, provides some implied
statutory support for the Order by giving OMB a direct role tn coordinating agency regulations that
impose paperwork burdens on the public. With respect to non-independent agencies the Act gives the
D irector authority to disapprove “ unreasonable” agency collection of information requests. 44 U.S.C.
§ 350444 U.S.C. § 3518(e); S. Rep No. 930, 96th Cong., 2d Sess. 56
(1980)
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o f the Task Force and the D irector of the Office of Management and
Budget would be supervisory in nature. It would include such tasks as
the supplementation of factual data, the development and implementa­
tion o f uniform systems o f methodology, the identification of incorrect
statements o f fact, and the placement in the administrative record of a
statement disapproving agency conclusions that do not appear to con­
form to the principles expressed in the President’s order. Procedurally,
the D irector and the Task Force would be authorized to require an
agency to defer rulemaking while it responded to their views concern­
ing proposed agency action. This pow er of consultation would not,
how ever, include authority to reject an agency’s ultimate judgment,
delegated to it by law, that potential benefits outweigh costs, that
priorities under the statute compel a particular course o f action, or that
adequate information is available to justify regulation. As to these
matters, the role o f the D irector and the Task Force is advisory and
consultative. T he limited power o f supervision embodied in the pro­
posed order is, therefore, consistent with the President’s recognized
powers to supervise the Executive Branch without displacing functions
placed by law in particular agencies.
II. Suspension off Proposed and Final Regulations
The order requires executive agencies (1) to suspend the effective
date o f rules that have been issued as final rules, but have not become
legally effective; and (2) to reconsider rules that are proposed but have
not yet been made final. A fter suspension o f final rules, agencies must
reconsider all such rules in accordance with the order. These require­
ments are imposed only “to the extent permitted by law” and are thus
inapplicable when a judicial o r statutory deadline requires prompt
action. M oreover, agencies must, in complying with these directives,
adhere to the requirements o f the Administrative Procedure Act
(APA ), 5 U.S.C. §§ 551-706, and all other laws.
F or rules that have not yet been made final, the APA imposes no
special procedural requirements. Agencies need not follow the notice
and comment procedures of 5 U.S.C. § 553, for nothing in that provi­
sion requires an agency to allow a period for comment on a decision to
delay final adoption o f a proposed rule. The agency’s decision may,
how ever, be subject to judicial review, and the agency may have to
furnish a reasoned explanation for that decision. See A SG Indus, v.
Consumer Prod. Safety C om m ’n, 593 F.2d 1323, 1335 (D.C. Cir. 1979);
Action fo r Children's Television v. FCC, 564 F.2d 458, 478-79 (D.C. Cir.
1977). The explanation here—that the agency needs time to prepare an
R IA required by executive order—is, we believe, sufficient.
T he second category of regulations covered by the executive order
raises somewhat different legal issues. Under 5 U.S.C. § 553(b), notice
and comment procedures must be followed for “rule making” unless
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“the agency for good cause finds (and incorporates the finding and a
brief statement of reasons therefor in the rules issued) that notice and
public procedure thereon are impracticable, unnecessary, or contrary to
the public interest.” 5 U.S.C. § 553(b)(3)(B). Under 5 U.S.C. §551(5),
the term “rule making” is defined as “agency process for formulating,
amending, or repealing a rule.” The initial question, then, is whether an
agency’s decision to “suspend” a final but not effective rule is “rule
making” which triggers the procedural safeguards of § 553.
In a recent memorandum, this Office concluded that a 60-day suspen­
sion of the effective date of a final rule should not, in general, be
regarded as rulemaking within the meaning of the A PA .9 We based our
conclusion on “the clear congressional intent to give agencies discretion
to extend the effective date provision beyond 30 days” and the absence
of statutory language or history suggesting “that a delay in effective
date is the sort of agency action that Congress intended to include
within the procedural requirements of § 553(b).” Nevertheless, we be­
lieve that a short-term suspension of the effectiveness of a final rule is
not the equivalent of an indefinite suspension coupled with a process
designed to review the basis for the rule, with a view to establishing a
new rule. Although the former seems fairly characterized as a mere
extension of an effective date under § 553(d), the latter should probably
be characterized as “agency process for formulating, amending, or
repealing a rule” for purposes pf § 553(b).
The difference between these two measures for purposes of § 553
becomes clear upon examination of the sequence of events that is
expected to take place under each of them. Under the President’s
Memorandum o f January 29, 1981, 46 Fed. Reg. 11227 (1981), “Post­
ponement of Pending Regulations,” agencies are to defer the effective
dates of final rules for 60 days in order to review them. The completion
of that review will point to either of two dispositions. The rule might
be allowed to take effect as published in final form, or it might be
withdrawn for some proposed change. The first disposition would re­
quire no new procedures. The second disposition would surely contem­
plate an amendment or repeal of the earlier rule subject to § 553’s
public procedures, but the earlier deferral of the rule’s effective date
would remain just th at.10
9 Memorandum Opinion of January 28, 1981, for Honorable David Stockman, Director, Office of
Management and Budget, from Larry L. Simms, Acting Assistant Attorney General, Office of Legal
Counsel. [Note: T he January 28, 1981, memorandum opinion (Presidential Memorandum Delaying
Proposed and Pending Regulations) appears in this volume at p. 55, supra. Ed.]
10 Admittedly, one o f the purposes of the 30-day effective date provision is to allow agencies to
correct errors or oversights in final regulations. See Final Report o f the Attorney General's Committee on
Administrative Procedure, Administrative Procedure in Government Agencies, S Doc. No. 8, 77th C o n g ,
1st Sess., 114-15 (1941); Sannon v. United States, 460 F Supp. 458, 467 (S D Fla. 1978) This purpose,
however, does not suggest that agencies may make corrections, let alone withdraw rules, during the
period between a rule’s publication and its effective date without offering public procedures or
showing good cause for dispensing with them. Proposed corrections—or even repeals—would of
course be amendments for purposes of § 553(b)
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U nder the proposed order, the situation is analogous to the second
possible disposition under the President’s Memorandum. The order, by
requiring careful cost-benefit analysis o f rules through the RIA process,
would contemplate notices of proposed rulemaking on the preliminary
R IA and a reexamination o f the rule at the appropriate time. The issue
to be decided at the time the rule is suspended indefinitely for the
order’s process to take place is whether the rule, which has already
been promulgated in final form, should be allowed to have interim
effect while it is under review by the agency. We believe that this
decision is one of “formulating, amending, o r repealing a rule” that
requires either notice and comment procedures or good cause for dis­
pensing with them under § 553(b). Admittedly, the difference between a
short deferral o f the effectiveness of a rule and an indefinite suspension
for reexamination is in part one of degree. But there is also a difference
in kind: once a decision to begin the process of amending a rule is
made, there is no longer a plausible argument that a rule that was to
take effect is merely to be delayed for a brief period.
N otice and comment procedures on the issue of the interim effective­
ness of a rule that is due to undergo reexamination under the order
should take the following form. The agency should defer the rule’s
effective date for a period sufficient to allow a short time for notice and
comment, an opportunity for the agency to consider the comments and
decide the issue o f interim effectiveness, and an interval before the rule
takes effect sufficient to meet the purposes of § 553(d).
In deciding on the interim effectiveness o f final rules subject to the
order’s procedures, the final question is whether and under what cir­
cumstances agencies will have good cause to dispense with notice and
comment procedures. Public procedures on interim effectiveness might
be “unnecessary, impracticable, or contrary to the public interest,”
where the question whether there should be any rule at all was fully
ventilated in the rule’s comment process, or where it is clear that
interim effect could impose substantial but short-term compliance costs.
O n the other hand, notice and comment might be needed where the
rule’s proponents had advanced substantial arguments for its early effec­
tiveness, and where compliance costs are not likely to be wasted.
Such arguments must, o f course, be assessed on a case-by-case basis.
If the available record indicates that the costs of the rule at issue are
not substantial and that the failure to allow the rule to become effective
may itself be controversial, the likelihood that a court will require
notice and public comment increases. The procedural requirements of
the A P A will, therefore, vary with the size and immediacy o f the
burdens imposed by the rule and the need for public comment on a
decision to withdraw a final but not effective rule.
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III. Regulatory Review by Agency Heads
Section 4 of the proposed order would require agency heads to make
express determinations that regulations they issue are authorized by law
and are supported by the materials in the rulemaking record. These
requirements are meant to assure agency compliance with existing legal
principles that rules must be authorized by law, and that they should be
adequately supported by a factual basis. Accordingly, we find no legal
difficulty with them. In particular, they do not purport to change
generally applicable statutory standards for judicial review o f agency
action, see 5 U.S.C. § 706, and could not have such an effect. They also
do not purport to alter any specially applicable standards, such as those
concerning the evidentiary standard that must be met to uphold a given
rule, appearing in statutes governing a particular agency.
On the other hand, the section would add the significantly new
procedural requirements that agency heads expressly determine that the
legal and factual requisites for a rule have been met. The first require­
ment reflects the principle, central to administrative law, that agency
action must be guided by the “supremacy o f law.” St. Joseph Stock
Yards Co. v. United States, 298 U.S. 38, 84 (1936) (Brandeis, J.). This
principle protects against excess of power and abusive exercise of
power by administrators. See Final Report o f the Attorney General's
Committee on Administrative Procedure, Administrative Procedure in Gov­
ernment Agencies, S. Doc. No. 8, 77th Cong., 1st Sess. 76 (1941). The
requirement that agency heads determine that a rule has “substantial
support” in the materials before the agency means that a rule’s neces­
sary factual basis must be found to exist. This second requirement
should not be confused with a “substantial evidence” standard of judi­
cial review, which could be imposed only by statute. It embodies
Recommendation 74-4 (subpart 3) of the Administrative Conference of
the United States, 1 CFR § 305.74.4, which urges that for a rule to be
considered rational, it should be adequately grounded in a factual basis.
This requirement is consistent with the approach of courts that have
carefully reviewed agency action under the “arbitrary” and “capri­
cious” standard of the Administrative Procedure Act, 5 U.S.C. § 706(2)(A). See, e.g., Ethyl Corp. v. EPA, 541 F.2d 1 (D.C. Cir.) (en banc),
cert, denied, 426 U.S. 941 (1976).
IV. Judicial Review
The order states that it is not intended to create any rights or benefits
enforceable by a party to litigation against the United States, its agen­
cies, or any other person. At the same time, it provides that determina­
tions of costs and benefits, and the RIA itself, are meant to form part of
the agency record for purposes of judicial review. The effect of this
provision is to preclude direct judicial review of an agency’s compli­
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ance with the order. The provision makes clear the President’s intention
not to create private rights, an intention that should be controlling here.
See Independent Meat Packers Ass’n v. Butz, 526 F.2d 228 (8th Cir.
1975), cert, denied, 424 U.S. 966 (1976) (no judicial enforcement of
executive order requiring consideration of inflationary impact of regula­
tions, in part because such order had not been issued pursuant to
delegation from Congress); Legal A id Soc'y o f Alameda County v. Bren­
nan, 608 F.2d 1319 (9th Cir. 1979) (judicial review available of compli­
ance with an executive order that had been ratified by Congress). Even
w ithout the provision, compliance with the order would probably be
immunized from review because the order has not been promulgated
pursuant to a specific grant of authority from Congress to the President
and thus lacks the “force and effect of law” concerning private parties.
See Independent Meat Packers A ss’n v. Butz, 526 F.2d 228; National
Renderers A ss’n v. EPA, 541 F.2d 1281, 1291-92 (8th Cir. 1976); Hiatt
Grain & Feed, Inc. v. Bergland, 446 F. Supp. 457, 501-02 (D. Kan.
1978). The bar on judicial review o f agency compliance with the order
does not, of course, prohibit a court from hearing a constitutional or
statutory attack on the legality of the order itself or of agency action
taken pursuant to its requirements.
Because the regulatory impact analysis that will be required by the
order will become part o f the agency record for judicial review, courts
may consider the RIA in determining whether an agency’s action under
review is consistent with the governing statutes. This, of course, is true
of all matters appearing in the rulemaking record.
V. Conclusion
The proposed executive order is acceptable as to form and legality.
L arry L. S im m s
Acting Assistant Attorney General
Office o f Legal Counsel
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