Regulation of Fuels and Fuel Additives: Individual Foreign Refinery Baseline Requirements for Reformulated Gasoline

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[AMS-FRL-4879-7]

RIN 2060-AF13

Regulation of Fuels and Fuel Additives: Individual Foreign

Refinery Baseline Requirements for Reformulated Gasoline

AGENCY: Environmental Protection Agency.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The EPA is proposing to amend the reformulated gasoline

regulations to define criteria and procedures by which foreign refiners

establish individual refinery baselines that reflect the properties and

volume of the gasoline that was produced at a foreign refinery in 1990

and imported for use within the United States. EPA is seeking comments

on a wide range of matters in this proposal, including the air quality

effects of the proposed approach. Where the requisite showing is made

through a petition process, importers of reformulated gasoline produced

at the foreign refinery would be allowed to use the individual foreign

refinery baseline values to demonstrate compliance with the

reformulated gasoline standards with regard to gasoline produced at

that foreign refinery and imported into the United States only during

the period 1995 through 1997 and only up to a volume of gasoline each

year that equals the foreign refinery's 1990 import volume, and subject

to certain limitations and conditions that are proposed as well. This

amendment would allow imported reformulated gasoline to be evaluated

relative to individual refinery baselines in a manner that is similar

to that applicable to reformulated gasoline produced at domestic

refineries. Individual foreign refinery baselines could be used only

with reformulated gasoline under this proposal, and such baselines

could not be used with conventional gasoline.

EPA specifically states that it seeks comments on the proposed

approach for foreign refinery baselines and on any underlying

assumptions, as well as any other options for regulating imported

reformulated gasoline that would be fair to all regulated parties and

would achieve the environmental benefits intended for reformulated

gasoline by the Clean Air Act.

DATES: The comment period will close on June 23, 1994. EPA will hold a

public hearing on this proposal on May 23, 1994, beginning at 10 a.m.

ADDRESSES: Send comments to Public Docket A-94-25 at the address below.

It is also requested that a duplicate copy of comments be sent to the

person listed in the FOR FURTHER INFORMATION CONTACT section of this

document. Materials relevant to this NPRM are contained in Public

Dockets A-91-02 and A-92-12 located at Room M-1500, Waterside Mall

(ground floor), U.S. Environmental Protection Agency, 401 M Street SW.,

Washington, DC 20460. The docket may be inspected from 8 a.m. until 12

noon and from 1:30 p.m. until 3 p.m. Monday through Friday. A

reasonable fee may be charged by EPA for copying docket materials.

The meeting will be held at the Hyatt Regency Hotel, 2799 Jefferson

Davis Highway, Arlington, Virginia 22202.

FOR FURTHER INFORMATION CONTACT: George Lawrence, Field Operations and

Support Division, U.S. EPA (6406J), 401 M Street, SW., Washington, DC

20460, Telephone: (202) 233-9307.

SUPPLEMENTARY INFORMATION: To Request Copies of This Document Contact:

Helen Sablack, Field Operations and Support Division, U.S. EPA (6406J),

401 M Street, SW., Washington, DC 20460, Telephone: (202) 233-9402.

Copies of this proposed rule are available on the OAQPS Technology

Transfer Network Bulletin Board System (TTNBBS). The TTNBBS can be

accessed with a dial-in phone line and a high-speed modem (PH# 919-541-

5742). The parity of your modem should be set to none, the data bits to

8, and the stop bits to 1. Either a 1200, 2400, 9600, or 14400 baud

modem should be used. When first signing on, the user will be required

to answer some basic informational questions for registration purposes.

After completing the registration process, proceed through the

following series of menus:

(T) GATEWAY TO TTN TECHNICAL AREAS (Bulletin Boards)

(M) OMS

(K) Rulemaking and Reporting

(3) Fuels

(9) Reformulated gasoline

A list of ZIP files will be shown, all of which are related to the

reformulated gasoline rulemaking process. The individual foreign

refinery baseline proposed rule is identified by the title:

``FORBASE.ZIP.'' To download this file, type the instructions below and

transfer according to the appropriate software on your computer:

ownload, rotocol, xamine, ew, ist, or elp

Selection or to exit: D FORBASE.ZIP

You will be given a list of transfer protocols from which you must

choose one that matches with the terminal software on your own

computer. Then go into your own software and tell it to receive the

file using the same protocol. Programs and instructions for de-

archiving compressed files can be found via ystems Utilities from

the top menu, under rchivers/de-archivers.

Background

On December 15, 1993 the EPA Administrator issued the final

regulations implementing the reformulated gasoline and anti-dumping

programs (the Final Rule), as prescribed by section 211(k) of the Clean

Air Act (the Act). See 59 FR 7716 (February 16, 1994).

Under the final rule, compliance by refiners and importers with

certain reformulated gasoline and anti-dumping standards is measured

against baselines that are intended to reflect 1990 gasoline quality.

Domestic refiners are required to establish individual refinery

baselines of the quality and quantity of the gasoline that was produced

by the refiner in 1990. Domestic refinery baselines must be calculated

using, in hierarchical order based on the availability of data, 1990

gasoline test data (Method 1), 1990 blendstock test data (Method 2), or

post-1990 blendstock and/or gasoline test data (Method 3).

Under the rule, domestic importers of foreign-refined gasoline are

treated differently. They are required to establish baselines of the

quality and quantity of 1990 gasoline that they import using 1990

gasoline test data (Method 1) if available. If Method 1 data are not

available, importers are assigned a baseline approximating average

gasoline quality in the United States in 1990--the statutory

baseline.1 EPA anticipates that most importers, like most domestic

refiners, lack the actual 1990 testing data necessary to establish a

baseline using Method 1. As a result, EPA expects most importers will

be assigned the statutory baseline, with the consequence that most

gasoline produced at foreign refineries will be evaluated using the

statutory baseline. The baseline-setting scheme is specified in 40 CFR

80.91 through 80.93 and is discussed in the Preamble to the final rule

at 59 FR 7791 (February 16, 1994).

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\1\The ``statutory'' baseline is calculated pursuant to section

211(k)(10)(B) of the Act which defines the statutory baseline for

summertime gasoline and instructs the Administrator to establish the

properties of the statutory baseline for wintertime gasoline based

on average 1990 qualities of wintertime gasoline. EPA's Final Rule

specifies the properties of the statutory baseline for wintertime

gasoline in Sec. 80.45(b)(2), and annual statutory baseline gasoline

properties in Sec. 80.91(c)(5).

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Before January 1, 1998, refiners and importers have the option of

certifying reformulated gasoline using either the ``simple'' model or

``early use of the complex model.'' Under either of these reformulated

gasoline certification approaches, compliance with certain standards is

determined in relation to the baseline established for each refinery or

importer. Under the simple model, the annual average levels for sulfur,

T-90, and olefins are limited to each refinery's or importer's baseline

levels for these parameters.2 Under early use of the complex model

(in contrast to mandatory use of the complex model beginning in 1998)

refinery- or importer-specific standards for VOC, toxics, and NOX

emissions performance are set in part using refiner or importer

baseline levels for sulfur, T-90, and olefins.3

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\2\The reformulated gasoline ``simple'' model requirements

include standards for oxygen, benzene, RVP, and toxics emissions

which are unrelated to refinery or importer baselines, in addition

to standards for sulfur, T-90, and olefins which are in relation to

refinery or importer baselines. See Secs. 80.41 (a) and (b).

\3\Under early use of the ``complex'' model, a refiner or

importer calculates refinery- or importer-specific standards for

VOC, toxics, and NOX emissions performance by using the complex

model to evaluate a gasoline with ``simple'' model values for

benzene, RVP, oxygen, and aromatics, and the refiner's or importer's

individual baseline values for sulfur, T-90, and olefins. See

Sec. 80.41(j).

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Beginning on January 1, 1998, only the complex model may be used to

certify reformulated gasoline, and the basis for all compliance with

the reformulated gasoline complex model standards is determined in

relation to 1990 statutory baseline gasoline. See Secs. 80.41(i)(2)-

(i)(3). As a result, beginning in 1998 refiner or importer baselines

are no longer relevant to determining compliance with reformulated

gasoline standards.

Compliance with the standards for conventional gasoline (the

``anti-dumping'' standards) is measured against refinery or importer

baselines beginning in January 1995 and thereafter. See Sec. 80.101. As

a result of the baseline-setting requirements of the final rule

discussed above, domestic refiners would determine compliance with the

anti-dumping standards in relation to refinery-specific baselines,

while most or all importers of gasoline produced at foreign refineries

would determine compliance in relation to the statutory baseline.

In developing the final rule, EPA evaluated comments regarding the

proposed approach for establishing baselines for imported gasoline,

including comments submitted on behalf of Petroleos de Venezuela, S.A.

(PDVSA), the Venezuelan national oil company, in response to the April

16, 1992 reformulated gasoline proposal, at 57 FR 13416. In their

comments, PDVSA said that the proposal for imported gasoline baselines

is unfair in that it treats domestic and foreign refiners differently.

PDVSA also stated in its comments that this difference in treatment of

domestic and foreign refiners conflicted with the requirements of the

General Agreement on Tariffs and Trade (GATT). EPA officials held a

series of meetings on the foreign refiner baseline issue during the

Fall of 1992 and during 1993. These included meetings with PDVSA

officials, regarding whether PDVSA has the data necessary to establish

a baseline of the quality of its gasoline that was used in the United

States in 1990, and whether EPA could formulate an adequate enforcement

scheme for a program that included individual foreign refinery

baselines. EPA also met with domestic refiners on this issue, to hear

their concerns, and with representatives of other agencies, primarily

officials from the Office of the U.S. Trade Representative and the

State Department, to better understand the GATT requirements. EPA's

February 26, 1993 reformulated gasoline proposal also invited comment

on these issues. See 58 FR 11758.

As a result of these comments and meetings, EPA considered

provisions allowing foreign refiners to establish individual refinery

baselines in a manner similar to that required for domestic refiners.

See discussion in the Preamble to the final rule at 59 FR 7785-7788

(February 16, 1994). EPA was not prepared to adopt such provisions by

the court ordered deadline for the final rule of December 15, 1993, but

it stated at that time that it would continue to consider this issue

and continue discussions with PDVSA. Since issuance of the final rule,

EPA has continued to consider this question, including the relationship

of the GATT and the reformulated gasoline rule, and is seeking comments

on its proposal in this notice to allow foreign refiners to establish

individual refinery baselines under limited circumstances. While EPA

does not necessarily agree with PDVSA position on GATT requirements,

EPA desires to remove the uncertainty in this regard and we believe the

proposal does that in a manner fully protective of human health and the

environment.

II. The Proposed Limited Use of Individual Foreign Refinery Baselines

Under today's proposal, importers would be allowed limited use of a

baseline established for an individual foreign refinery to demonstrate

compliance with the reformulated gasoline standards for gasoline

produced at that foreign refinery and imported for use in the United

States. The use of individual foreign refinery baselines would be

conditioned and limited in the following ways:

EPA would have to specifically approve the baseline for

the foreign refinery. In order to obtain a baseline, the foreign

refiner would have to submit a petition to EPA, which would include the

same types of gasoline and blendstock testing data and refinery

modelling analyses that domestic refiners must submit. In addition, a

foreign refiner would have to support its baseline petition with a

report prepared by an independent baseline auditor, and like for

domestic refiners EPA would have to approve the auditor. One key aspect

of a foreign refiner's baseline petition is that it would have to

conclusively establish the quality and volume of gasoline that was used

in the United States in 1990, and not just the refinery's overall

gasoline quality in 1990.

Individual foreign refinery baselines could be used by

importers only to demonstrate compliance with reformulated gasoline

standards and only prior to January 1, 1998. They could not be used to

demonstrate compliance with anti-dumping standards.

The total volume of imported reformulated gasoline that

could be subject to the individual baseline for any foreign refinery

would be limited each year to the volume of that refinery's gasoline

used in the United States in 1990.

The importer would be required to establish that any

imported gasoline that would be subject to an individual foreign

refinery baseline actually came from that refinery, through gasoline

inspections and attest engagements conducted by independent inspectors

and auditors at the foreign refinery.

EPA inspectors would have to receive full access to the

foreign refinery to conduct announced and unannounced inspections and

audits related to the individual foreign refinery's baseline or any

gasoline produced at the foreign refinery.

These conditions and limits are discussed more fully below.

Under the final rule, individual baselines are used to certify

reformulated gasoline and demonstrate compliance with the reformulated

gasoline standards only during 1995 through 1997. Beginning January 1,

1998 all reformulated gasoline compliance must be certified using the

statutory baseline. See Secs. 80.41(h)-(j). This constraint also would

apply to importers of reformulated gasoline who under today's proposal

had previously used individual foreign refinery baselines.

Importers would be able to use an individual foreign refinery

baseline for reformulated gasoline for 1995 through 1997 only if all of

these conditions and limits are fully met. If any condition is not met

with regard to a specific foreign refinery, then importers would not be

allowed to use the foreign refinery's individual baseline. If any such

conditions are not met subsequent to the time the importer uses the

individual foreign refinery baseline, then the importer would be

required to recalculate its compliance using the statutory baseline,

even if the failure to meet the conditions occurs during a subsequent

averaging period. This potentially could expose the importer to

substantial penalties if subsequent use of the statutory baseline

causes the importer to be in non-compliance with the reformulated

gasoline requirements.4

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\4\Under section 211(d) of the Clean Air Act, violators of the

reformulated gasoline requirements and standards are subject to a

maximum penalty of $25,000 per violation per day, plus economic

benefit. Violations of multi-day (averaging) standards constitute a

separate day of violation for each day in the averaging period.

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EPA is proposing that importers who use a foreign refinery's

individual baseline would use that baseline, and the volume of the

foreign refinery's reformulated gasoline involved, to calculate a new

importer baseline for use during that year. The total of the

reformulated gasoline imported by the importer during the relevant

averaging period would then be evaluated against this new importer

baseline to determine compliance by the importer with the reformulated

gasoline standards. This proposed method for using foreign refinery

baselines is illustrated by the following example.

A hypothetical importer has been assigned the statutory baseline.

During 1996 he imports reformulated gasoline totalling 900,000 barrels

of gasoline produced at hypothetical foreign refinery A, and 800,000

barrels of gasoline produced at hypothetical foreign refinery B.

Foreign refiner A has an individual refinery baseline, and the sulfur

baseline level is 400 ppm, and a baseline volume of 1,000,000

barrels.5 Foreign refiner B does not have an individual refinery

baseline, and the importer would use the statutory baseline, which for

sulfur is 338 ppm, for the refinery B volume. The average sulfur

content of the imported gasoline that was produced at foreign refinery

A was 375 ppm, and the average sulfur content of the imported gasoline

that was produced at foreign refinery B was 360 ppm.

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\5\Because the 1990 baseline volume assigned to Refinery A is

greater than 900,000 barrels, the importer may use Refinery A's

individual baseline for all 900,000 barrels imported from that

refinery.

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The hypothetical importer would calculate a new sulfur baseline of

370.80 ppm as follows:

TP03MY94.000

The hypothetical importer then would compute the average sulfur

content of all gasoline imported during the year, of 365.00 ppm, as

follows:

TP03MY94.001

Because the 365.00 ppm overall average sulfur content of the gasoline

imported is less than the 370.80 ppm calculated baseline for the

importer, the importer meets the sulfur standard applicable to the

importer. Note that the imported gasoline produced at foreign refinery

A would not be required to separately meet the 400 ppm sulfur baseline

applicable to refinery A, and the imported gasoline produced at foreign

refinery B would not be required to separately meet the 338 ppm sulfur

baseline applicable to refinery B.

A. Establishing Individual Foreign Refinery Baselines

In order to establish an individual baseline for a foreign refinery

under this proposal, a petition would have to be submitted to EPA in a

manner analogous to the baseline submissions required for domestic

refiners. The petition would have to contain the Method 1, Method 2,

and/or Method 3 data, collected and evaluated in the same manner as is

required of domestic refiners under Sec. 80.91. The baseline data would

have to be submitted in the same manner as is required of domestic

refiners under Sec. 80.93, except that EPA is proposing to modify the

requirements in Sec. 80.93 related to the dates by which baseline

submissions are due.

Under Sec. 80.93 domestic refiners are required to submit data

collected before December 15, 1993 by June 1, 1994, or by September 1,

1994 if data is collected subsequent to December 15, 1993. As a result

of the timing of this proposal, these dates are not reasonable for

baseline petitions for foreign refiners. EPA is therefore proposing

that any petition for an individual foreign refinery baseline would be

required to be submitted to the Administrator within six months

following the date the individual foreign refinery baseline final

regulation is signed. This approach is analogous to the lead time

afforded domestic refiners in the final rule for baseline submissions.

Another departure from the baseline submission requirements of

Sec. 80.93 is that baseline data for foreign refineries would have to

be submitted in such a manner that EPA could determine the quality and

quantity of the gasoline produced at the foreign refinery during 1990

that was used in the United States. Baseline submissions by domestic

refiners are not required to focus on the 1990 U.S. market share of

refinery production, because it is assumed that all gasoline produced

at a domestic refinery is used in the United States, unless the refiner

shows certain gasoline was exported. This proposal that foreign

refinery baseline petitions would be required to establish U.S. market

gasoline quality and quantity is critical, because the quality of a

foreign refinery's U.S. market gasoline in many cases would be

different from the quality of the refinery's overall gasoline quality.

Under the proposal, if EPA is unable to determine both the quality and

quantity of the gasoline that was produced by any foreign refinery in

1990 and used in the United States, the individual foreign refinery

baseline petition would be denied.

The accuracy and completeness of the data and conclusions contained

in the individual foreign refinery baseline petition would have to be

verified by an independent EPA-approved auditor, in the same manner as

is required of domestic refiners under Sec. 80.92. Thus, the auditor

would have to be approved by EPA according to the criteria, specified

in Sec. 80.92, which include approval of the auditor's independence and

technical ability.

EPA is proposing that a petition for an individual foreign refinery

baseline must be submitted by the foreign refiner. EPA believes the

foreign refiner is the most appropriate person to submit such a

petition, because it is the foreign refiner who will possess most or

all of the information that would support such a petition.

EPA also is proposing that the petition must contain a declaration

by the owner or president of the foreign refiner business that the

information submitted in the petition is accurate and complete. EPA is

further proposing that the foreign refiner owner or president would be

required to affirmatively declare that EPA auditors and inspectors will

be given full and immediate access to all refinery premises, for

purposes of compliance with the EPA inspection requirements EPA has

proposed in Sec. 80.84(f). The declarations by the foreign refiner

owner or president would be mandatory conditions for EPA approval of

any foreign refinery baseline petition. EPA is proposing this

declaration requirement in order to ensure that in each case of a

foreign refiner seeking an individual baseline, refiner officials at

the highest levels of the business are aware of the refiner commitments

that are necessary for use of a foreign refinery's baseline.

B. Establishing the Refinery-of-Origin

EPA is proposing regulatory requirements that would, for any batch

of imported gasoline claimed to be subject to an individual foreign

refinery baseline, establish the identity of the foreign refinery at

which the gasoline was produced. The proposed requirements would

include the testing of samples of the gasoline in question collected

subsequent to loading into the ship at the port serving the foreign

refinery, but before the ship leaves that port. These test results from

the foreign refinery loading point would then be compared with test

results of samples of the gasoline in question collected when the ship

arrives at the United States port of entry. Sampling and testing of

gasoline at the U.S. port of entry is required by the final rule, at

Secs. 80.65(e)-(f).

The proposed regulations include criteria for evaluating whether

the test results of the gasoline samples from the foreign refinery

loading port match the test results of the gasoline samples from the

U.S. port of entry. The test results would have to agree, for each

parameter included in the evaluation of reformulated gasoline, within

the limits used for comparing domestic refiner and independent

laboratory test results, which are specified in Sec. 80.65(f).

The volume of gasoline contained in each shipment of imported

gasoline claimed to be subject to an individual foreign refinery

baseline also would have to be confirmed. The inspection at the foreign

refinery loading port would have to establish the volume loaded onto

the ship, which would be compared to the volume determination at the

U.S. port of entry. EPA is proposing that these two volume

determinations, corrected for temperature and density, would have to

agree within one percent. EPA believes this level of correlation is

appropriate, because it is well within the level of correlation

normally expected in commercial transactions. EPA understands that

protests normally are initiated if ship volume determinations in

commercial dealings differ by 0.5%. Nevertheless, EPA requests comment

as to the appropriate level of correlation which should be required,

and as to any other approach to confirming volumes that would be

preferable to that proposed.

In the event any single parameter, or the volumes involved, would

not agree in the manner proposed, the individual foreign refinery

baseline could not be used by the importer for the specific batch of

imported gasoline for which there is parameter value or volume

disagreement.

EPA believes that in most cases the gasoline contained in each

compartment of a ship would constitute a separate batch, because the

gasoline would not be homogeneous across more than one compartment, and

would therefore not meet the batch definition of Sec. 80.2(gg). In

consequence, EPA believes that in most cases the sampling, testing, and

volume determinations would have to be performed separately for each of

a ship's compartments. In addition, it is EPA's understanding that the

current practice for inspecting the gasoline transported by ship is to

separately sample each compartment, even when the same grade of

gasoline is being transported in more than one compartment of a ship.

EPA also is proposing that the independent laboratory would be

required to determine the refinery of origin, and thereby establish

whether the gasoline loaded onto the ship was in fact produced at that

refinery. The laboratory also would determine whether the foreign

refinery's gasoline has been combined with gasoline produced at any

other refinery. Only gasoline that is produced at the foreign refinery

or origin would be eligible for use with the foreign refinery's

baseline, yet it is possible that gasoline loaded onto a ship at a port

serving a foreign refinery could have been produced at a different

refinery. For example, two refineries could be linked to a port by a

common pipeline, or gasoline could be produced at a foreign refinery

and then transferred by ship to storage tanks located at a second

foreign refinery.

The proposed requirements related to determining the refinery of

origin would confirm that gasoline loaded into a ship at the port

serving a foreign refinery was in fact produced at the foreign refinery

and therefore that the foreign refinery's individual baseline would be

applicable. This confirmation of the source refinery by the independent

inspector normally would require the review of documents that reflect

all transfers and storage of the gasoline in question from the point of

production at the source refinery to the point of ship loading. The

inspector thus would be required to establish the refinery of origin

and that there was no fungible mixing of the gasoline in question with

any gasoline produced at any other refinery prior to loading onto the

ship.

An additional proposed requirement that relates to establishing the

refinery-of-origin for imported gasoline is the proposal for attest

engagements at the foreign refinery. This attest requirement would

supplement the requirements regarding an independent laboratory

determination of the source refinery of gasoline. The focus of the

attest engagement, however, would be on the refinery operations while

the independent laboratory's primary focus would be on the

transportation and storage of gasoline from the refinery to the point

of ship loading.

Under the proposed procedures, the attester would be required to

confirm the overall production for the refinery in question, and to

confirm that the portion claimed to have been transferred to ships for

shipment to the United States was a part of that overall production.

The attester also would be required to confirm the transfer of gasoline

from the refinery to the ships, and to identify the ships into which

the gasoline was transferred. EPA requests comment on whether these

proposed attest procedures are appropriate and adequate.

EPA is proposing that the sampling, testing, and volume

determinations at the foreign refinery loading port would have to be

performed by an independent laboratory that is U.S.-based. The proposed

criteria for independence are the same criteria that apply for the

independent sampling and testing requirement for domestic refiners and

importers, and that are specified at Sec. 80.65(f)(2)(ii). Similarly,

EPA is proposing that the attest requirements would have to be

fulfilled by certified public accountants (CPA's) that are United

States citizens, or members of a firm that is a U.S. corporation.

The proposed requirements that the independent laboratories and

CPA's be U.S.-based is intended to result in laboratories and CPA's

over which EPA may easily exercise jurisdiction. EPA's ability to

inspect, obtain judicial enforcement, or submit information requests

under section 114 of the Clean Air Act is significantly more effective

in the case of a person that is a United States citizen or a United

States corporation. These enforcement approaches may not be easily

available against non-U.S. corporations or citizens. EPA seeks comment

on the proposed requirement that independent laboratories and CPA's be

U.S. corporations or citizens.

C. The Volume Limitation on Use of Individual Foreign Refinery

Baselines

EPA is proposing that the total volume of imported reformulated

gasoline that could be subject to the individual baseline for any

foreign refinery would be limited each year to the volume of that

refinery's gasoline that was used in the United States in 1990. It has

been argued that this proposed volume constraint would limit any

potential adverse environmental effects of gasoline imported under

individual foreign refinery baselines in comparison to the final rule,

as is discussed more fully below.

The proposed volume constraint would apply separately to each

foreign refinery having an individual baseline, and would apply across

all of the importers who import gasoline produced at each foreign

refinery. Thus, for example, if the gasoline produced at a particular

foreign refinery having an individual baseline is imported by ten

importers during a specific year, the volume constraint applicable to

that foreign refinery would apply to the ten importers collectively.

Any of the hypothetical refinery's gasoline that is imported that year

beyond the proposed volume constraint would be subject to the baseline

otherwise applicable to the importer (normally the statutory baseline),

and the individual foreign refinery's baseline would not apply to this

excess volume.

EPA is proposing that the date gasoline is imported would be the

criterion for determining which gasoline would qualify for use of an

individual foreign refinery baseline. In the event importers claim use

of an individual foreign refinery's baseline for a volume in excess of

the proposed volume constraint, the gasoline that is first imported

that equals the volume constraint would receive use of the individual

baseline. Thus, the proposed volume constraint would apply based on the

date the gasoline is imported into the United States, and not based on

the date the gasoline is produced. Beginning on January 1 of each year

the volume constraint accounting would begin anew.

EPA is not proposing any regulatory mechanisms that would provide

importers a running accounting of the volume of a particular foreign

refinery's gasoline that has been imported subject to an individual

refinery baseline. Moreover, EPA would not know the total volume of

imported gasoline claimed to be subject to any particular foreign

refinery's baseline until quarterly or annual reports are submitted to

EPA. EPA expects that importers would make private arrangements with

their foreign refiner business partners to track the volume of each

foreign refinery's gasoline that is imported under each individual

foreign refinery's baseline. In this way EPA believes that importers

would be able to know whether any particular batch of imported gasoline

would be within the volume constraint that would apply to the foreign

refinery that produced the gasoline.

The proposed consequences for the importer that would result from

claiming use of an individual foreign refinery's baseline beyond the

proposed volume constraint are discussed below.

EPA is proposing that any reformulated gasoline that is imported

during 1994 and for which an individual foreign refinery baseline is

used would be combined with such gasoline imported during 1995 for

purposes of the proposed volume constraint. This proposal for combining

compliance calculations for gasoline imported during 1994 and 1995 is

analogous to the requirement in the final rule that reformulated

gasoline produced or imported in 1994 must be combined with

reformulated gasoline produced or imported in 1995 for determining

compliance with average standards. See Sec. 80.67(i).

EPA is further proposing to expand the 1990 baseline volume to

allow for imports during 1994, but this expanded baseline volume would

apply only for gasoline imported during 1994-1995. The mechanism

proposed for this volume expansion is to multiply the foreign

refinery's 1990 baseline volume times 1.17, which would result in an

additional volume equal to two months of the 1990 baseline volume. EPA

believes this approach for expanding the 1990 baseline volume to cover

imports during 1994 is appropriate, because it would allow imports

subject to an individual baseline to begin in November 1994 and to

continue at the same rate as would be allowed for 1995.

EPA requests comment on this proposal for combining gasoline

imports in 1994 and 1995 for purposes of applying the proposed volume

constraint on use of an individual foreign refinery's baseline, and on

the proposed mechanism for calculating an expanded 1990 individual

foreign refinery baseline volume for use during 1994 and 1995.

D. The Requirement To Allow EPA Inspections and Audits

EPA is proposing that, as a condition of use by an importer of an

individual foreign refinery's baseline, EPA inspectors and auditors

would have to be given full access to conduct inspections and audits

related to the foreign refinery's baseline and to the gasoline produced

at the foreign refinery. The proposed access for inspections and audits

would be at the foreign refinery, at any place gasoline produced at the

foreign refinery for the U.S. market is located, and at any location

where documents are kept that relate to the foreign refinery's baseline

or to gasoline produced at the foreign refinery for the U.S. market.

EPA is proposing that the access would have to be granted in response

to inspections or audits that either are announced or unannounced.

EPA is proposing the inspection and audit access requirement in

order to allow EPA inspectors and auditors to confirm the baseline

submissions that would relate to any foreign refinery. In addition, EPA

inspections and audits would confirm the information related to

refinery-of-origin that is reported to EPA. The proposed access

requirements related to foreign refineries would provide EPA with

access analogous to that exercised over domestic refiners to conduct

inspections and audits. EPA historically has conducted inspections and

audits of domestic refineries in order to ensure compliance with

gasoline quality rules, including the lead phasedown requirements at

Sec. 80.20, and the gasoline volatility requirements at Secs. 80.27-28.

EPA intends to follow this enforcement approach with the reformulated

gasoline program. EPA believes it is important that it have comparable

access to foreign refinery operations under the proposed approach for

foreign refinery baseline in order to meet its enforcement

responsibilities.

The scope of the proposed access requirement is intended to allow

EPA to inspect or audit wherever documents are located that would

relate to an individual foreign refinery's baseline, or to the

production or shipping of gasoline that would be subject to such a

baseline. In addition, the access proposal would ensure EPA access to

collect samples of any gasoline that would be subject to an individual

foreign refinery baseline.

EPA is proposing that the access requirement would terminate on

January 1, 2003. This proposed termination date is five years following

January 1, 1998, the last date individual foreign refinery baselines

could be used. Five years is the statutory limitation that applies to

potential liability for violations of the reformulated gasoline

requirements. EPA also is proposing that its inspection and audit

access would be limited to gasoline produced before 1998 and to

documents that relate to such gasoline. This proposed limitation on the

access requirement also corresponds to the January 1, 1998 date

individual foreign refinery baselines would become unavailable.

EPA would conduct these inspections or audits at facilities

controlled by the foreign refiner. As a result, EPA inspectors and

auditors would have to be given access to conduct inspections or audits

by the foreign refiner and by the country in which the foreign

refiner's facilities are located. Any failure to grant access,

therefore, would be the result of an action or decision by the foreign

refiner or the foreign country. Nevertheless, the consequences of any

failure to give EPA full and immediate access would fall on the U.S.

importers of that foreign refiner's gasoline. In consequence, EPA

believes any importer who would claim use of an individual foreign

refinery's baseline would be expected to protect itself against this

possibility through whatever means it would feel prudent, such as

assurances from the foreign refiner that the access requirement would

be met, or contractual indemnification provisions that would apply in

the event the access requirement is not met.

The proposed consequences for the importer that would result from

any failure to meet the access requirements are discussed below.

E. Failure To Meet Requirements

EPA is proposing that a foreign refinery's individual baseline

could not be used by any importer if EPA were to determine that

information submitted to EPA to establish the foreign refinery's

individual baseline is inaccurate, or if EPA were denied access to the

foreign refinery to conduct an inspection or audit. EPA also is

proposing that a foreign refinery's individual baseline could not be

used by the importer of a specific batch of gasoline in the event any

of the foreign refinery baseline requirements would not be met with

respect to that batch of gasoline.

Thus, for example, if EPA would determine that a foreign refinery's

individual baseline submittal is in error, an individual baseline for

that refinery could not be used by any importer during any year, unless

the Administrator determines a shorter period is appropriate.

Similarly, if EPA were to attempt to conduct an inspection or audit of

a foreign refinery and were to be denied full and immediate access, the

individual baseline for that refinery could not be used by any importer

during any year, unless the Administrator determines a shorter period

is appropriate. In this situation, any importer who had previously

submitted reports to EPA for any averaging period that included use of

the foreign refinery's individual baseline would be required to

recompute its compliance calculations, ab initio, using the baseline

that would apply to the importer in the absence of the foreign

refinery's individual baseline--normally the statutory baseline. This

recalculation by the importer would be required even if the

recalculation would result in violations by the importer of the

reformulated gasoline standards. It would be no defense for the

importer to argue it used the foreign refinery's individual baseline in

a good faith belief the baseline information was accurate, or that the

foreign refiner would allow EPA to conduct inspections and audits.

A similar result would occur if EPA were to discover that a

particular batch of imported gasoline, claimed by the importer to be

subject to a foreign refinery's individual baseline, in fact is not

entitled to use of that baseline. This could occur, for example, if

through the CPA attest engagement or through an EPA audit it were

discovered that the gasoline comprising the batch was not produced at

the foreign refinery claimed by the importer. Another example of

gasoline that would not be entitled to use of a foreign refinery's

baseline would be a batch of gasoline that is imported subsequent to

the date when the total volume of imported gasoline for which use of

the foreign refinery's baseline is claimed equals the baseline volume

for that foreign refinery. In these cases the importer who improperly

claimed use of the foreign refinery's individual baseline, but not

other importers of gasoline produced by that foreign refinery, would be

required to recompute its compliance calculations, ab initio, as

described above.

EPA is proposing that these consequences would be imposed on the

importers, because there are clear barriers to effective enforcement

directly against foreign refiners. This would occur even in a case

where EPA could prove that gasoline was improperly imported using a

foreign refinery's individual baseline, and where the improper use was

the fault of the foreign refiner, for example by submitting false

baseline information or by refusing to allow EPA inspections or audits.

In such a case EPA could not bring effective enforcement against the

foreign refiner. As a result, in order to preserve the integrity of the

reformulated gasoline program, EPA proposes that importers would be

ultimately responsible for the proper establishment and use of

individual foreign refinery baselines.

EPA believes that importers would be able to decide whether and

when to claim use of a foreign refinery's individual baseline. This

approach is predicated on the assumption that importers would be

expected to use great care in making this decision, and would do so

only if the importer has complete confidence the foreign refinery

baseline information was properly submitted to EPA and the foreign

refiner intends to fully and properly comply with all requirements

related to use of individual foreign refinery baselines, including

requirements that apply years into the future. EPA also would expect

importers to require the foreign refiner to carry out a gasoline volume

tracking scheme that would enable importers to know with certainty that

any batch of imported gasoline for which use of the foreign refinery's

individual baseline would be claimed is within the foreign refinery's

baseline volume.

III. Justification for Proposed Amendment to Final Rule

When EPA issued the final rule on December 15, 1993 the Agency was

not fully satisfied that the baseline-setting scheme applicable to

importers, and thereby applicable to foreign refiners, was the optimum

solution. In preparing the final rule, EPA focused on three major

issues regarding the use of individual baselines for foreign refiners

in the reformulated and conventional gasoline programs. EPA's

overriding consideration, and the basis for EPA's focus on these

issues, was the ultimate environmental consequences of the baseline-

setting scheme. The three issues are: (1) The technical problems with

using baseline-setting Methods 2 and 3 to accurately predict the

qualities of gasoline imported in 1990 from a foreign refiner; (2) the

ability of the agency to adequately verify and enforce the use of

foreign refiner individual baselines, including problems identifying

the refinery of origin of imported gasoline and enforcing performance

standards against a foreign refiner; and (3) any risk that would result

from providing refiners or importers with options in establishing

baselines.

The final regulations for reformulated and conventional gasoline,

promulgated on December 15, 1993 pursuant to a court ordered deadline,

attempt to resolve these issues. These issues, however, are complex and

have potentially broad consequences. EPA therefore announced that it

would continue to consider individual baselines for foreign refiners

after promulgation of the Final Rules in mid-December 1993. This

consideration has resulted in today's proposal, with EPA inviting

comments on the proposed resolution described above.

The first issue involved whether and when it would be appropriate

to allow refiners or importers an option in establishing individual

baselines. In general, EPA's Final Rule takes the approach that options

should not be allowed. Given a choice, a refiner or importer would tend

to choose the option requiring the least expense overall, which would

also presumably be the least protective of the environment. Avoiding

options should therefore tend to avoid skewing the program in a way

that would reduce air quality benefits. EPA described this gaming

concern in the preamble to the Final Rule, at 59 FR 7785 (February 16,

1994).

Under EPA's Final Rule, domestic refiners are basically provided no

choice regarding individual baselines--they must develop an individual

baseline, using one or more of three different methods or modelling

approaches. Since gasoline produced by domestic refiners made up an

overwhelming majority of the gasoline sold in the U.S. in 1990, the

average of all domestic refiner baselines should closely approximate

the average 1990 quality of gasoline sold in 1990. Importers are

treated like domestic refiners in that they are not provided an option

on how to develop an individual baseline. A major difference, however,

is that importers may use only the first of the three modeling methods.

If the data are not available for this method, the importer defaults to

the statutory baseline. In general, EPA expects all or almost all

importers to default to the statutory baseline.

For foreign refiners, EPA considered whether it should also require

that all foreign refiners establish individual baselines before they

could import either conventional or simple model reformulated gasoline

into the U.S. However, as discussed later, EPA had considerable doubt

about the ability of baseline-setting Methods 2 and 3 to accurately

predict the quality of that portion of a foreign refiner's production

sent to the U.S. in 1990. EPA believed many foreign refiners would

therefore not be able to use these models, and mandating use of an

individual baseline might therefore lead to a ban on importation of

gasoline from those foreign refiners not able to develop such

baselines.6 In addition, EPA had serious questions whether it

could adequately verify the accuracy of individual baselines for

foreign refiners under such a scenario. The current Final Rule resolves

these concerns by not allowing foreign refiners to establish individual

baselines, and regulating the introduction of gasoline into the U.S.

through the importer. Importers must establish an individual baseline

in the manner described above.

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\6\EPA considered the option of banning foreign supplies of

gasoline that were not produced under a verifiably accurate

individual baseline. This option appeared to redress the issue of

the loss of a ``netting out'' effect due to the presumed loss of

``cleaner'' than statutory baseline foreign gasoline. However, EPA

believes that many foreign refiners do not possess adequate data to

establish an individual baseline. It has been agreed that the

consequence of banning foreign supplies of gasoline, both to the

nation's energy security and to competitive pricing, would be

unfair.

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The air quality impact of allowing foreign refiners a choice in

what baseline to use, such as would result from the petition process

proposed today, depends in large part on which foreign refiners

ultimately would have the ability, and would choose, to produce

reformulated gasoline for importation into the U.S., and on the

individual baselines of those foreign refiners who would make this

choice. If a significant number of foreign refiners sent gasoline to

the U.S. in 1990 that was cleaner than the statutory baseline, those

refiners would not be expected to choose to establish an individual

baseline but would instead default to the statutory baseline. Refiners

who sent gasoline to the U.S. in 1990 that was dirtier than the

statutory baseline might well decide to petition for an individual

baseline, assuming they could satisfy all of the conditions for

establishing an individual baseline. In such a case, this might result

in certain foreign refiners being allowed to degrade the emissions

performance of their gasoline down from its actual 1990 quality to the

statutory baseline. Under this approach other foreign refiners might be

allowed to establish accurate and verifiable individual baselines that

are dirtier than the statutory baseline, and thereby continue to

produce at this quality.

In comparison, the current regulatory provisions provide foreign

refiners with no choice. As described above, foreign refiners whose

1990 gasoline was cleaner than the statutory baseline may degrade the

quality of their gasoline down to the statutory baseline, while foreign

refiners whose 1990 gasoline was dirtier than the statutory baseline

are required to reformulate to meet the stricter statutory baseline.

It is important to note that EPA does not have any clear evidence

as to the actual average quality of gasoline imported into the U.S. in

1990. EPA does not know, for example, whether a significant amount of

such gasoline was cleaner than the statutory baseline. While it would

be reasonable to assume that at least some imported gasoline was

cleaner and some was dirtier than the statutory baseline, EPA is not in

a position to quantify this in any reliable manner. As such, it is not

clear whether or how much providing foreign refiners with an option in

establishing an individual baseline would actually skew the air quality

impacts of these programs in a negative direction. As mentioned above,

a second major issue EPA has considered involves the technical limits

of Methods 1, 2 or 3 in predicting the qualities of that portion of a

foreign refiner's 1990 gasoline production that was sent to the

U.S.7 Foreign refiners likely did not send the majority of their

gasoline to the United States in 1990. Foreign refiners may not have

exported the majority of their gasoline to the United States in 1990.

Domestic refiners, on the other hand, are assumed to have distributed

(and to continue to distribute) the majority of their gasoline within

the U.S. In the absence of actual 1990 data, domestic refiners may

calculate individual baselines using models developed by EPA that

depend, in part, on the fact that the majority of the modelled gasoline

is distributed in the U.S. However, foreign refiners typically did not

distribute the majority of their 1990 gasoline within the U.S.,

rendering the models inappropriate for those refiners.8

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\7\These technical limits have important implications for the

first issue discussed above. For example, if EPA required that

foreign refiners establish individual baselines, without providing

any choice on defaulting to the statutory baseline, then many

foreign refiners might not be able to develop such baselines and EPA

would confront a situation involving whether or not it should ban

the importation of gasoline from such foreign refiners.

\8\EPA believes it is possible that in certain limited

situations a foreign refiner may be able to establish a baseline of

U.S.-market gasoline quality and quantity. For example, a foreign

refiner potentially could establish that in 1990 its refinery

produced only a limited number of gasoline blending components, and

therefore could be capable of producing only a predictable and

limited number of gasoline types from these blending components. In

such a case, it is possible that a baseline could be established

based on the ``cleanest'' of the gasoline types, without actually

showing that this was the gasoline supplied to the U.S. market.

Under this approach, the foreign refiner's baseline would be the

most rigorous baseline possible given the refinery configuration.

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The third major issue of concern involves whether EPA can

accurately verify individual baselines of foreign refiners and

effectively enforce standards for foreign produced gasoline based on

such individual baselines. EPA was concerned that it would not be able

to effectively exercise authority to inspect foreign facilities and

require the production of records or samples, or to require accurate

auditing of the compliance of foreign operations. This includes, for

example, EPA's ability to ensure the accuracy of an individual foreign

refiner baseline, EPA's ability to clearly identify the refinery of

origin for gasoline imported into the U.S. (the ``tracking'' issue),

and EPA's ability to easily access foreign records, samples, and

facilities for inspections and other compliance measures.

With respect to tracking refinery of origin, EPA believes it must

be able to establish with certainty which baseline attaches to each

specific batch of gasoline imported into the U.S. The distribution of

foreign produced gasoline is significantly distinct from domestic

distribution patterns. As described in the preamble to the final rule,

see 59 FR 7785 (February 16, 1994), the association of a refinery-

specific baseline with the gasoline produced at a domestic refinery is

relatively uncomplicated, because compliance is determined at the

refinery level before fungible mixing in the gasoline distribution

system. The source refinery for gasoline is clear before the gasoline

leaves the refinery. In the case of all imported gasoline, on the other

hand, the gasoline will be transported from the refinery to the U.S.

port of entry prior to the point at which the imported gasoline would

have to be associated with a foreign refinery-specific baseline. This

stage of transportation from the foreign refinery to the U.S. port of

entry could be by fungible means for any imported gasoline, with the

consequence that fungible mixing could obscure the identity of the

source refinery for any batch of imported gasoline. For a discussion of

these and other enforcement and compliance related issues, see the

preamble to the final rule at 59 FR 7787 (February 16, 1994).

Finally, it is important to place the role of individual baselines

in their proper context for the reformulated and conventional gasoline

programs. For conventional gasoline, the individual baseline of a

refiner or importer establishes the applicable emissions standard for

the conventional gasoline they produce or import. On average, a

refiner's or importer's conventional gasoline has to meet an emissions

performance standard measured by the performance of their individual

baseline. If the refiner or importer is assigned the statutory baseline

instead of an individual baseline, then performance is measured against

the statutory baseline. This performance standard applies on an annual

basis starting with 1995. The statutory basis for these requirements

are found in section 211(k)(8) of the Act.

The individual baseline plays a much more limited rule in the

reformulated gasoline program. For the first three years of that

program, three specific fuel qualities are capped at the level of a

refiner's or importer's individual baseline.\9\ Starting January 1,

1998, a refiner or importer's individual baseline has no relevance in

the reformulated gasoline program. This short term requirement is part

of the standards adopted by EPA and commonly called the simple model.

The refiner and importer specific caps on the three parameters were

based on EPA's understanding of the directional impacts of these

parameters on emissions, the lack of adequate data to fully model the

emissions impacts of these three gasoline parameters when EPA proposed

the simple model, and the lead time needed before requiring use of a

subsequent, more complex emissions performance model adopted by EPA in

the final rule. Further discussion of this may be found in the preamble

to the final rule at 59 FR 7720 (February 16, 1994).

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\9\The three parameters are sulfur, olefins, and T-90 or E300.

See Sec. 80.41(h)(2).

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The final rule's requirements for individual baselines resolves

these various concerns in a straightforward manner. EPA is seeking

comment on whether this proposal addresses all of the above concern, in

a manner that achieves the environmental goals intended for

reformulated gasoline while at the same time addressing the equity

concerns that previously have been raised, by placing clear limits and

conditions on the use of individual baselines for foreign refiners.

These limits and conditions would be designed to address the issues

described above--concerns about skewing of air quality benefits in a

negative direction by providing options in establishing individual

baselines, concerns about the technical limits of the refinery modeling

used to establish baselines, and finally concerns over the Agency's

ability to adequately verify individual baselines for foreign refiners

and adequately ensure compliance by imported gasoline with standards

based on individual baselines.

A. Accuracy of Individual Foreign Refiner Baselines

As described in detail above, this proposed amendment provides that

parties that desire to establish an individual baseline for a foreign

refinery would submit a petition to EPA's Assistant Administrator for

Air and Radiation to establish a reliable and verifiable individual

baseline. The petitioner would also submit data adequate to establish

the volume of gasoline exported to the United States during 1990.

The Assistant Administrator would only approve petitions when the

individual baseline had been established with sufficient certainty, to

the satisfaction of the Assistant Administrator. The Assistant

Administrator's decision whether to approve a petition would depend, in

part, on the certainty with which the foreign refiner's 1990 fuel

properties and volume data could be verified by a U.S.-based

independent baseline auditor and by EPA, as discussed above. In

requiring that a petitioner bear the burden of demonstrating to the

Assistant Administrator that the individual baseline and the data

submitted in support of an individual baseline is accurate and

verifiable, and in requiring that a U.S.-based attestor corroborate

that demonstration, the amendment provides for appropriate certainty in

establishing accurate individual baselines.

EPA requests comment as to whether the proposal would result in

appropriate certainty as to any foreign refinery baseline that would be

established.

B. Certainty as to Refinery-of-Origin

In the preamble to the final rule, EPA expressed concern about

effectively determining the refinery-of-origin for specific batches of

imported gasoline so as to determine the appropriate baseline to be

applied to the product. However, EPA is proposing and seeking comment

on procedures that are designed to ensure that importers effectively

track gasoline from the point of gasoline production to the port-of-

entry into the U.S.

Strict tracking and segregation of reformulated gasoline that is

produced by foreign refiners and that would be subject to an individual

baseline is necessary to assure compliance with this program. Only by

matching a discrete volume of gasoline with an individual baseline

would an importer be able to accurately calculate its compliance with

this proposed amendment to the reformulated gasoline program. Further,

such tracking and segregation is necessary for EPA to ensure that use

of an individual baseline remains within the foreign refiner's volume

cap.

Today's proposed amendment of the final rule seeks to provide for

certainty with respect to establishing the refinery-of-origin of

imported gasoline through the use of independent sampling and testing

that would be required upon loading on-board ship at the refinery-of-

origin and upon receipt by an importer at a U.S. port-of-entry. The

sampling and testing at both ends of the shipment would help to assure

that the volume and parameters of the product subject to the individual

baseline are identical. Additionally, the independent laboratory would

verify the foreign refinery-of-origin before the shipment leaves the

foreign port.

The amendment proposes that batch specific information pertaining

to the parameters and volume of the batch would be collected by an

independent laboratory upon loading of the product and a report filed

with EPA. This information would be available for comparison with batch

specific information required to be collected by importers upon receipt

of product.

Further, the tracking system would help to ensure that EPA could

determine that the imported reformulated gasoline produced subject to

an individual baseline was not commingled with gasoline produced under

another baseline en route from its source to the U.S. port-of-entry.

Today's proposal also would require that an importer exercising the

option to use a foreign refinery's individual baseline must demonstrate

that an annual attestation engagement is conducted of the foreign

refinery for each year of individual baseline use. The engagement would

be undertaken by a U.S.-based CPA or firm. This requirement would be

equivalent with attest engagement requirements applicable to domestic

refiners and importers under the Final Rule. The engagement would

verify that the gasoline loaded on-board ship was produced by the

refinery for which individual baseline use is claimed.

The practical effect of today's proposal would be to condition the

use of individual foreign refinery baselines upon strict tracking of

reformulated gasoline. An importer's use of a foreign refinery's

individual baseline would depend upon the importer's ability to

establish with certainty that the reformulated gasoline for which the

individual baseline is claimed was, in fact, produced at the foreign

refinery for which the individual baseline is applicable.

EPA requests comment regarding whether there would be appropriate

certainty as to the refinery of origin of any imported gasoline that

would use an individual foreign refinery's baseline under this

proposal.

C. The Limited Potential for Adverse Air Quality Effects From Gaming

It has been argued that the proposed constraints on the use of

individual baselines by importers would limit the potential for gaming

associated with establishing baselines for imported gasoline, and in

consequence the potential for adverse air quality effects from such

gaming.

If all foreign refiners sending gasoline to the U.S. established

accurate and verifiable baselines, and concerns about tracking refinery

of origin and other compliance concerns were resolved, then it has been

agreed, those baselines and the gasoline produced under them clearly

and easily would lead to the air quality benefits expected from

conventional and reformulated gasoline. This might be considered the

``ideal'', or best possible result. As described earlier, however,

there is considerable doubt about whether accurate, verifiable, and

enforceable baselines can be expected for all foreign refiners.

The Final Rule addresses these problems in effect by requiring all

foreign refiners to produce gasoline using the statutory baseline--

those cleaner than the statutory baseline are allowed to degrade down

to that baseline, while those dirtier than the statutory baselines are

required to clean up to that baseline. While the Final Rule would not

allow the average quality of foreign produced gasoline to degrade below

the statutory baseline, it might in fact require that foreign gasoline

be cleaner on average than would be required if all refiners did

establish individual baselines.10

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\1\0This would occur if the average quality of all gasoline

imports in 1990 was dirtier than the statutory baseline.

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One concern regarding the approach used in the Final Rule is that

it treats all foreign refiners as a class (by assigning the statutory

baseline to all imported gasoline), yet the factors that led to

grouping foreign refiners as a class may not apply equally to all

foreign refiners. The result of the class approach to resolving the

foreign refiner baseline issue could be considered unfair to any

particular foreign refiner who would be able to accurately establish

refinery baselines, and who would be able to establish with certainty

the refinery of origin for gasoline imported into the United States. On

the other hand, and as has been discussed above, allowing each foreign

refiner to choose whether to establish individual refinery baselines

creates the potential for gaming with consequent adverse environmental

effects. The challenge for EPA, then, is to create a regulatory

mechanism for imported gasoline baselines that is as fair as possible

to each foreign refiner, but that also achieves the environmental goals

intended for reformulated gasoline.

The proposed revisions would allow certain foreign refiners the

option to petition for the right to establish individual baselines

under carefully controlled circumstances. As discussed above, this

proposed scheme has a potential for adverse air quality effects, in

comparison to the current Final Rule, because some importers would have

an option as to which baseline would apply to imported reformulated

gasoline. Presumably, foreign refiners and their U.S. importer business

partners would elect to seek to establish individual foreign refinery

baselines only if the foreign refinery produced gasoline in 1990 that

was ``dirtier'' than the statutory baseline alternative to an

individual foreign refinery baseline. In the case of foreign refineries

that produced gasoline in 1990 that was ``cleaner'' than the statutory

baseline, on the other hand, the foreign refiners and their U.S.

importer business partners presumably would use the less stringent and

less costly statutory baseline option. EPA's ``gaming'' concern would

result from these likely decisions by ``dirtier'' and ``cleaner''

foreign refiners. The potential adverse air quality consequence would

result from the volume of imported gasoline during 1995 through 1997

that would use a ``dirtier''-than-statutory baseline, and the loss to

the U.S. gasoline pool during 1995 through 1997 of gasoline produced to

meet a ``cleaner''-than-statutory baselines. There may or may not be an

adverse air quality impact in relation to the ``ideal'' scenario

described above, depending on whether the average quality of gasoline

imported from foreign refiners in 1990 was different from the statutory

baseline and how much reformulated gasoline is imported in 1995 through

1997.

EPA has been unable to identify any foreign refiners other than

PDVSA who intend to produce any reformulated gasoline,11 though

there nevertheless could be some because there is no requirement that

refiners must announce their intentions at this time. The absence of

identified foreign reformulated gasoline refiners (other than PDVSA)

does present the possibility that there will be few, if any, foreign

reformulated gasoline refiners who would have a ``cleaner''-than

statutory baseline (but who would opt for the statutory baseline). If

true, this would resolve EPA's gaming concern.

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\1\1EPA does expect some imports of reformulated gasoline under

the Final Rule's provision that applies to a foreign refinery that

is owned by the U.S. importer and where at least 75% of the

refinery's 1990 production was imported into the U.S. These

refineries are relevant to this discussion.

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Moreover, even to the extent there are foreign refiners who would

qualify for ``cleaner''-than-statutory baselines EPA believes there is

a possibility that their gasoline would nevertheless be cleaner than

the statutory baseline, which would limit the likelihood for adverse

air quality effects. This possibility was presented to EPA by a foreign

refiner who argued that such ``clean'' refiners may in fact be

technologically incapable of relaxing production parameters so as to

realize a benefit from the statutory baseline. To the extent this may

be true, such ``clean'' refiners might reduce any adverse air quality

impact associated with providing an option to establish individual

baselines.

The principal reason limiting the potential for adverse air quality

effects from gaming under today's proposal is, however, that use of

``dirtier''-than-statutory individual baselines would be restricted. It

has been argued that this would in turn limit any adverse air quality

effects, in relation to the current final rule.12 At the same

time, any reformulated gasoline imported under an individual baseline

would be required to meet the same standards that apply to any other

refiner, foreign or domestic, with the same baseline. For the three

parameters of interest under the simple model for reformulated

gasoline, sulfur, olefins, and T-90, reformulated gasoline produced by

a foreign or domestic refiner with an individual baseline would have to

meet an annual average limit set at 100% of the individual baseline

level for those parameters. This effectively requires that the gasoline

stay as clean as it was in 1990, for those three specific parameters.

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\1\2It is important to note that the potential for adverse air

quality effects discussed in this preamble is in relation to

gasoline that would be imported under the approach contained in the

Final Rule, i.e., to imported gasoline that meets the statutory

baseline. That comparison may not be fair. Another comparison that

may be more appropriate would be with imported gasoline that is

produced to each foreign refinery's individual baseline, like is

done for domestic refiners. When imported gasoline is compared based

on individual foreign refinery baselines, there may be no potential

for adverse air quality effects from today's proposal.

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EPA has considered the level of emissions that would result from

gasoline imported under the approach contained in the final rule,

versus gasoline imported under the approach described in today's

proposal. While no baselines have been established yet for any refiner

or importer, PDVSA has submitted to the reformulated gasoline docket a

record that describes the baseline it would be able to establish if

given the opportunity. The baseline it describes is dirtier than the

statutory baseline for some parameters, and cleaner for other

parameters. In the case of sulfur and olefins, PDVSA's stated baseline

levels would be significantly higher than the statutory baseline:

PDVSA's claimed sulfur level is 644 parts per million (ppm), and the

statutory baseline level is 339 ppm; PDVSA's claimed olefin level is 22

vol% and the statutory baseline level is 9.2 vol%. The environmental

implication is that NOX emissions are higher with larger sulfur

and olefin levels.

Taking into account the volume of PDVSA's gasoline that is used in

the Northeast U.S.--its primary market, EPA's preliminary analysis

shows that PDVSA's 1995 gasoline would increase overall NOX

emissions there by only 0.08% during the high ozone season,13 in

comparison to the case where PDVSA would produce gasoline to meet the

statutory baseline for sulfur and olefins.

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\1\3The high ozone season is the appropriate period for

evaluating NOX emissions, because NOX is of primary

concern as an ozone precursor.

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

Also, PDVSA's 1995 gasoline quality will be approximately equal to

the quality of statutory gasoline in terms of VOC emissions, and will

be much cleaner in terms of toxics emissions.14

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

\1\4EPA has placed in the docket an analysis of the

environmental impacts of the use of gasoline having properties equal

to those described by PDVSA.

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

The proposed program elements that would help to limit the impact

of ``dirtier''-than-statutory baselines are the limited volume of a

foreign refinery's reformulated gasoline that could use the individual

baseline, the limited time period during which the individual baseline

could be used, the fact that the individual baseline could be used only

for reformulated gasoline, and EPA's belief that the individual

baseline option would not be attractive to most foreign refiners.

1. The Volume Limitation on Use of Individual Refinery Baselines

An importer's use of a foreign refinery's individual baseline is

proposed to be limited to volumes of reformulated gasoline equivalent

to the foreign refinery's 1990 volume of gasoline imports to the U.S.

This volume constraint is described above.

The volume cap limiting use of an individual baseline for

reformulated gasoline production (until January 1, 1998) to a foreign

refiner's 1990 import volumes ensures that the use of an individual

baseline is constrained by historical import volumes. Volumes imported

above the 1990 constraint would be subject to the importer's statutory

baseline. Foreign-produced reformulated gasoline subject to an

individual baseline, within the 1990 volume cap limitation, would be

measured for compliance against gasoline produced in 1990, and

therefore would be at least as clean as the foreign refiner's 1990

gasoline. However, any reformulated gasoline produced by a foreign

refiner above the 1990 volume would be evaluated relative to the

statutory baseline and therefore would be at least as clean as

reformulated gasoline produced using the statutory baseline.

2. The Time Limitation on the Use of Individual Foreign Refinery

Baselines

A further constraint on potential adverse air quality effects is

the time limit on an importer's use of a foreign refiner's individual

baseline. It would be limited to the period commencing when

reformulated gasoline is first imported into the U.S. and continues

through December 31, 1997. After 1997, individual baselines have no

further relevance to the requirements for reformulated gasoline, and

all importers and domestic refiners are required by the Final Rule to

measure compliance with the reformulated gasoline standards against the

statutory baseline. Therefore, the effect of this regulation would be

limited to this three year period only.

3. The Number of Foreign Refiners Who Would Seek to Use Individual

Foreign Refinery Baselines Would be Limited

This proposal is predicated on the assumption that the costs

inherent in producing reformulated gasoline and meeting the

requirements of the reformulated gasoline program, including those

costs necessary to establish an individual baseline, will deter most

foreign refiners from selecting the individual baseline option, thereby

further limiting any potential adverse air quality impact. These costs

include extensive refinery modifications; costs associated with

petitioning EPA for an individual baseline and providing adequate

information to establish with certainty that the baseline determination

is accurate; a baseline audit; and the record keeping and product

tracking associated with complying with the proposed annual compliance

audits.

EPA believes that few refiners have made the requisite capital

investments necessary to produce reformulated gasoline. Therefore, it

currently appears that the number of foreign refiners who would take

advantage of this proposed amendment would be limited.

In addition, the limited time period during which individual

foreign refinery baselines could be used may limit the number of

foreign refiners that would take advantage of this option, because the

costs associated with exercising this option described above, could

only be recouped within the 1995 through 1997 time frame.

4. Conventional Gasoline Not Affected by This Proposed Amendment

EPA's concern for gaming in the case of conventional gasoline is

substantially greater than its concern with respect to reformulated

gasoline. First, there is likely to be significantly more conventional

gasoline imported into the U.S. than reformulated gasoline. Second, the

Final Rule provides that individual baseline will be the basis for

conventional gasoline compliance into the foreseeable future while an

individual baseline for reformulated gasoline is applicable only until

December 31, 1997. Accordingly, due to these volumetric and long term

distinctions between reformulated gasolines and conventional gasolines,

the potential for adverse air quality impact is significantly larger if

individual foreign refinery baselines could be used with conventional

gasoline, as compared with the potential if individual foreign refinery

baselines could be used with reformulated gasoline.

The Final Rule requires that domestic refiners apply their

individual baselines to conventional gasoline production. EPA

anticipates that nationwide use of individual baselines will result in

gasoline quality that approximately equals the statutory baseline.

However, EPA believes that an option to use individual baselines by

foreign refiners in the production of conventional gasoline would

result in significant skewing, in a negative direction, of the average

quality of imported gasoline based on the gaming scenario described

above.

A skewing in a negative direction of the average of baselines with

respect to foreign conventional gasoline, is of significant concern

because EPA anticipates that most foreign sources of gasoline will

provide conventional gasoline to the U.S. This assumption is based on

EPA's belief that few foreign producers of gasoline have invested in

the capital equipment necessary for complying with the reformulated

gasoline program. Further, the increased costs of capitalization

realized by a refiner entering the reformulated gasoline market would

be exacerbated by the continuing costs of overseas shipping under the

segregated fuels requirement proposed in this amendment. Accordingly,

there appears to be few economic incentives for foreign refiners to

reallocate production from conventional to reformulated gasolines.

Thus, EPA is not proposing to change the approach contained in the

Final Rule pertaining to baselines for imported conventional gasoline,

and EPA expects all or almost all importers to default to the statutory

baseline.

EPA requests comment as to the magnitude of any potential adverse

air quality consequences that would result from gaming under today's

proposal.

D. EPA's Compliance Oversight Authority

The preamble to the Final Rule expresses EPA's concern that it

would lack adequate compliance monitoring and enforcement techniques to

ensure that foreign refineries comply fully with the reformulated

gasoline program. This concern arose out of the perceived need to bring

any enforcement actions against importers that would rely on baseline

audits and inspections of foreign refiners, and that these foreign

refiners may not be subject to the full panoply of enforcement

mechanisms available with domestic corporations.

Today's proposed amendment, however, provides for compliance

monitoring and enforcement pertaining to foreign-produced reformulated

gasoline to focus on domestic importers. Such foreign-produced

reformulated gasoline would be subject to the full array of monitoring

and enforcement devices available to EPA. It has been argued that

importers' potential liability, including but not limited to exposure

to potential relegation to compliance with the statutory baseline, will

be adequate to ensure that importers would import gasoline using an

individual foreign refinery's baseline only where the importer has

sufficient confidence the requirements of this program would be met,

including the compliance monitoring provisions that require the

cooperation of the foreign refiner and the government of the country in

which the foreign refiner is located. These compliance monitoring and

enforcement provisions appears to be equivalent to EPA's compliance

monitoring and enforcement authority over domestic refiners.

The proposal provides that, as a condition for the use of a foreign

refinery's individual baseline, EPA would be guaranteed full and

immediate access to conduct compliance oversight inspections, collect

gasoline samples and perform compliance audits at the foreign refinery.

EPA's compliance audits supplement the baseline certification and

annual audits specified elsewhere in this proposal. EPA's compliance

oversight authority is proposed to last until January 1, 2003,

consistent with the statute of limitations governing violations of the

reformulated gasoline program and associated statutes governing the

submission of information to the U.S. government.

In addition, foreign refiners electing to petition to use an

individual baseline would be required to engage a domestic CPA to

conduct a baseline certification audit and annual attest engagements.

EPA anticipates that and is seeking comment on whether the professional

standards governing the conduct of such audits, as well as the

amenability of a U.S. CPA to EPA compliance monitoring and enforcement,

is adequate assurance that EPA can effectively monitor foreign refiners

for program compliance.

E. EPA Seeks Comment on Today's Proposal, or Any Alternative Approaches

Today's proposal is an attempt to resolve the issue of baselines

for foreign refiners in a more appropriate manner, with the intent of

achieving several important, but different, goals. One goal is that the

environmental benefits intended for reformulated gasoline by the Clean

Air Act be realized. The other goal is that all regulated parties who

are similarly situated be treated alike, with the differences in

treatment between domestic and foreign refiners limited to those

measures necessary to appropriately accommodate differences in their

situations and protect human health and environmental values. EPA

recognizes that there may be other methods for regulating imported

reformulated gasoline that resolve these two goals in ways that are

preferable to the approaches contained both in the Final Rule and in

today's proposal. EPA requests comment as to any alternative approaches

to regulating imported reformulated gasoline that achieves the

environmental benefits required by the Clean Air Act for reformulated

gasoline, and that treats domestic and foreign refiners in a manner

consistent with the provisions of the GATT.

IV. Public Participation

EPA invites comment on all aspects of today's notice. EPA has

specifically requested comments on a number of areas throughout the

previous discussion. A list of these and other areas for comment are

the following:

Any alternative approaches to regulating imported

reformulated gasoline that achieve the environmental benefits required

by the Clean Air Act for reformulated gasoline, and that treat domestic

and foreign refiners in a manner consistent with the provisions of the

GATT.

The accuracy of any foreign refinery baseline that would

be established under the proposal.

The identification of the refinery of origin of any

imported gasoline that would use an individual foreign refinery's

baseline under today's proposal.

Whether today's proposal would result in the environmental

benefits that are intended by the reformulated gasoline provisions of

the Clean Air Act.

The issue of when foreign refinery baseline petitions

would be due.

The appropriate approach for correlating the volume

determination at the foreign refinery and at the U.S. port of entry.

The adequacy of the proposed attest procedures.

The proposed requirement that independent laboratories and

CPA's be U.S. corporations or citizens.

The proposal for combining gasoline imports in 1994 and

1995 for purposes of applying the proposed volume constraint on use of

an individual foreign refinery's baseline.

The proposed mechanism for calculating an expanded 1990

individual foreign refinery baseline volume for use during 1994 and

1995.

V. Administrative Designation and Regulatory Analysis

A. Executive Order 12866

Under Executive Order 12866, (58 FR 51735 (October 4, 1993)) the

Agency must determine whether the regulatory action is ``significant''

and therefore subject to OMB review and the requirements of the

Executive Order. The Order defines ``significant regulatory action'' as

one that is likely to result in a rule that may:

(1) Have an annual effect on the economy of $100 million or more or

adversely affect in a material way the economy, a sector of the

economy, productivity, competition, jobs, the environment, public

health or safety, or State, local, or tribal governments or

communities;

(2) Create a serious inconsistency or otherwise interfere with an

action taken or planned by another agency;

(3) Materially alter the budgetary impact of entitlement, grants,

user fees, or loan programs or the rights and obligations of recipients

thereof; or

(4) Raise novel legal or policy issues arising out of legal

mandates, the President's priorities, or the principles set forth in

the Executive Order.

Pursuant to the terms of Executive Order 12866, it has been

determined that this rule is a ``significant regulatory action''

because of the potential impacts on portions of the domestic refining

and gasoline importing industry. As such, this action was submitted to

OMB for review. Changes made in response to OMB suggestions or

recommendations will be documented in the public record.

B. Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA),

5 U.S.C. 605(b), the Administrator certifies that this rule will not

have a significant economic impact on a substantial number of small

entities.

The issue of baselines for imported reformulated gasoline is

discussed generally in section VII-C of the Regulatory Impact Analysis

that was prepared to support the Final Rule for reformulated gasoline.

A copy of this document may be found in the reformulated gasoline

docket, number A-92-12, at the location identified in the ADDRESSES

section of this document.

The RFA of 1980 requires federal agencies to examine the effects of

proposed regulations and to identify significant adverse impacts on a

substantial number of small entities. Because the RFA does not provide

concrete definitions of ``small entity,'' ``significant impact,'' or

``substantial number,'' EPA has established guidelines setting the

standards to be used in evaluating impacts on small businesses.15

For purposes of the proposed individual foreign refinery requirements

for reformulated gasoline, a small entity is any business which is

independently owned and operated and not dominant in its field as

defined by SBA regulations under section 3 of the Small Business Act.

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

\1\5U.S. Environmental Protection Agency, Memorandum to

Assistant Administrators, ``Compliance with the Regulatory

Flexibility Act,'' EPA Office of Policy, Planning, and Evaluation,

1984. In addition, U.S. Environmental Protection Agency, Memorandum

to Assistant Administrators, ``Agency's Revised Guidelines for

Implementing the Regulatory Flexibility Act,'' Office of Policy,

Planning, and Evaluation, 1992.

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

The Agency believes that the individual foreign refinery baseline

requirements being proposed today are unlikely to have a significant

economic impact on a substantial number of small entities. The

businesses affected will be either a relatively small number of major

domestic oil companies who would compete with imported gasoline that is

produced at foreign refineries for which individual baselines are

established, or importers who would import gasoline that is produced by

foreign refineries for which individual baselines are established. EPA

expects the number of foreign refineries for which individual baselines

will be established will be small, with the result that the number of

affected domestic refiners and importers also will be small.

However, EPA invites comment on the question of significant impacts

on small entities. EPA also requests all relevant data which justify

any conclusions submitted.

C. The Paperwork Reduction Act

The information collection requirements in this proposal have been

submitted for approval to the Office of Management and Budget (OMB)

under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. An

Information Collection Request document has been prepared by EPA (ICR

No. 1591.04) and a copy may be obtained from Sandy Farmer, Information

Policy Branch, EPA, 401 M St., SW. (Mail Code 2136), Washington, DC

20460 or by calling (202) 260-2740.

This collection of information has an estimated recordkeeping and

reporting burden averaging 4.1 hours per respondent. This estimate

includes time for reviewing instructions, searching existing data

sources, gathering and maintaining the data needed, and completing and

reviewing the collection of information.

Send comments regarding the burden estimate or any other aspect of

this collection of information, including suggestions for reducing this

burden to Chief, Information Policy Branch, EPA, 401 M St., SW. (Mail

Code 2136), Washington, DC 20460, and to the Office of Information

Regulatory Affairs, Office of Management and Budget, Washington, DC

20503, marked ``Attention: Desk Officer for EPA.'' The final rule will

respond to any OMB or public comments on the information collection

requirements contained in this proposal.

VI. Statutory Authority

The statutory authority for the rules proposed today is granted to

EPA by sections 114, 211 (c) and (k), and 301 of the Clean Air Act, as

amended, 42 U.S.C. 7414, 7545 (c) and (k), and 7601.

List of Subjects in 40 CFR Part 80

Environmental protection, Air pollution control, Fuel additives,

Gasoline, Motor vehicle pollution, Penalties, Reporting and

recordkeeping requirements.

Dated: April 21, 1994.

Carol M. Browner,

Administrator.

For the reasons set forth in the preamble, part 80 of title 40 of

the Code of Federal Regulations are proposed to be amended as follows:

PART 80--REGULATIONS OF FUELS AND FUEL ADDITIVES

1. The authority citation for part 80 continues to read as follows:

Authority: Sections 114, 211 and 301(a) of the Clean Air Act as

amended, 42 U.S.C. 7414, 7545 and 7601(a).

2. Section 80.84 is proposed to be added to subpart D to read as

follows:

Sec. 80.84 Individual baselines for foreign refineries.

(a) Definitions. For purposes of this section, ``foreign refinery''

shall mean a specific refinery located outside the United States, the

Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa,

and the Commonwealth of the Northern Mariana Islands.

(b) Conditions for use of individual foreign refinery baselines.

For purposes of compliance with the reformulated gasoline standards of

Sec. 80.41, any importer may use a baseline established for a foreign

refinery as the importer's individual baseline, but only for gasoline

produced at that foreign refinery and provided that:

(1) The Administrator has approved separate 1990 baseline

properties and volume for the foreign refinery, as specified under

paragraph (c) of this section;

(2) The importer is able to establish that the imported gasoline

was produced at the foreign refinery, as specified under paragraph (d)

of this section;

(3) An attest engagement is conducted of the foreign refinery

operation for the calendar year during which the separate foreign

refinery baseline is claimed by the importer, as specified under

paragraph (e) of this section; and

(4) Authorized representatives of the Administrator are given full

and immediate access and are allowed to conduct inspections, review

records and other documents, collect gasoline samples, and perform

audits relating to the foreign refinery, as specified under paragraph

(f) of this section.

(c) Establishing individual foreign refinery baselines. (1) Any

foreign refiner may seek a separate baseline for a foreign refinery by

submitting a petition to the Assistant Administrator of EPA's Office of

Air and Radiation, such petition to include the Method 1-, 2-, and/or

3-type data as specified in Sec. 80.91 for the foreign refinery,

submitted as specified in Sec. 80.93, and verified as specified in

Sec. 80.92 except that the baseline auditor shall be an individual who

is a United States citizen.

(2) The Assistant Administrator of EPA's Office of Air and

Radiation may grant such petition if the properties and volume of the

gasoline produced at the foreign refinery and imported for use in the

United States in 1990 are established to the satisfaction of the

Assistant Administrator.

(3) Any petition under this paragraph (c) of this section shall:

(i) Contain a declaration, signed by the owner or president of the

foreign refiner business, that contains the following language:

The information contained in this individual baseline petition

is complete and accurate.

I agree that any EPA inspector or auditor will be given

immediate and complete access to the premises of [the name of

foreign refinery for which an individual baseline is requested], to

any other location where gasoline produced at [the name of the

foreign refinery] for use in the United States during the period

December 1994 through December 1997 is stored or transported, and to

any other location where documents are kept which relate to this

baseline petition or to the quality and/or quantity of the gasoline

produced at the foreign refinery for use in the United States during

the period December 1, 1994 through December 31, 1997, regardless of

whether these inspections are announced in advance or are

unannounced;

and

(ii) Be submitted by [insert date 6 months after publication of the

Final Rule].

(d) Establishing refinery-of-origin. In order to establish the

refinery-of-origin with regard to any batch of imported gasoline:

(1) The gasoline to which the individual foreign refinery baseline

would apply may not be combined with gasoline produced at any other

refinery prior to arrival at the United States port-of-entry;

(2)(i) A United States-based independent laboratory shall:

(A) Collect a representative sample of the batch subsequent to

loading on the ship that will transport the gasoline to the United

States, and prior to departure of that ship from the port serving the

refinery-of-origin;

(B) Analyze such sample for each property specified in

Sec. 80.65(e)(1) using the methodologies specified in Sec. 80.46;

(C) Independently determine the volume of the batch;

(D) Independently determine the refinery at which the subject

gasoline was produced, and that the subject gasoline was not combined

with gasoline produced at any other refinery before loading on the

ship.

(E) Obtain the EPA-assigned registration number of the refinery at

which the batch was produced;

(F) Determine the name and country of registration of the ship used

to transport the batch to the United States port-of-entry; and

(G) Determine the date the ship departs from the port serving the

refinery-of-origin.

(ii) A laboratory shall be considered independent only if it meets

the criteria specified in Sec. 80.65(f)(2)(iii).

(iii) In order to be considered United States-based, the laboratory

must be a United States corporation engaged in the business of gasoline

sampling and testing, or an individual who is a United States citizen

who is engaged in the business of gasoline sampling and testing in the

United States.

(iv) The independent laboratory shall submit to the Administrator a

report containing the information required under paragraph (d)(2)(i) of

this section, within thirty days following the date of the independent

laboratory's inspection. This report shall include a description of the

method used to determine the identity of the refinery at which the

subject gasoline was produced, that the subject gasoline was not mixed

with gasoline produced at any other refinery, and a description of the

gasoline's movement and storage between production at the source

refinery and ship loading.

(v) The refinery-of-origin sampling and testing required under

paragraph (d)(2) of this section is in addition to the sampling and

testing required at the port-of-entry under Secs. 80.65 (e) and (f).

(3) The importer shall meet the sampling and testing requirement,

under Sec. 80.65(f)(1)(i), whereby an independent laboratory samples

and tests each batch of imported gasoline.

(4)(i) The results of testing of the batch sample collected at the

refinery-of-origin under paragraph (d)(2) of this section, when

compared to the results of testing of the batch sample collected at the

United States port-of-entry under Sec. 80.65(f)(1)(i), must for each

parameter be within the range specified for the parameter under

Sec. 80.65(e)(2)(i);

(ii) The volume determination for the batch at the refinery-of-

origin under paragraph (d)(2) of this section, when compared to the

volume determination for the batch at the United States port-of-entry

under Sec. 80.65(f), must be within 1% where such volume

determinations are corrected for temperature and density;

(iii) The ship identified under paragraph (d)(2) of this section

must be the same ship that is used to transport the gasoline on arrival

at the United States port-of-entry; and

(iv) The refinery-of-origin, volume, shipment date, and ship name

under paragraph (d)(2) of this section must be confirmed by the attest

engagement under paragraph (f) of this section.

(e) Attest requirements. (1) The attest engagement required under

paragraph (b)(3) of this section shall be conducted by a United States-

based CPA in accordance with the procedures specified in Secs. 80.126

and 80.127.

(2) The CPA shall: (i) Obtain a gasoline inventory reconciliation

analysis for the current year from the refinery which includes

reformulated gasoline, RBOB, conventional gasoline, and other non-

finished gasoline petroleum products, whether imported into the United

States or not;

(ii) Test the mathematical accuracy of the calculations contained

in the analysis; and

(iii) Agree the beginning and ending inventories to the refinery's

perpetual inventory records.

(3) The CPA shall: (i) Obtain a separate listing of all tenders

during the current year of reformulated gasoline produced at the

refinery for use in the United States, such listing to include the date

the tender was transported from the refinery, the method of

transportation of the tender from the refinery to the point of ship

loading, the identification of any storage of the gasoline prior to the

point of ship loading, and the name and country of registration of the

ship used for transporting the gasoline from the refinery to the United

States;

(ii) Test the mathematical accuracy of the calculations contained

in the listings;

(iii) Agree the listing's tender volumes to the gasoline inventory

reconciliation in paragraph (e)(2) of this section; and

(iv) Confirm that the gasoline comprising the tender was not mixed

with gasoline produced at any other refinery between its production and

ship loading.

(4)(i) The CPA shall prepare a report on the attest engagement

summarizing the procedures performed and the findings in accordance

with the Sec. 80.125(b), and shall include in the report, for each

tender of reformulated gasoline, the volume, date shipped, and ship

name and country of registration.

(ii) The CPA report for each calendar year shall be submitted to

EPA not later than May 31 of the following year.

(5) In order to be considered a United States-based CPA, a CPA firm

must be a United States corporation, or an individual CPA must be a

United States citizen who is a licensed CPA in the United States.

(f) EPA inspections. The inspections, reviews, collections, and

audits under paragraph (b)(4) of this section may be conducted:

(1)(i) At the foreign refinery;

(ii) At any other location where gasoline produced at the foreign

refinery for use in the United States is stored or transported; and

(iii) At any other location where documents are kept which relate

to the quality and/or quantity of the gasoline produced at the foreign

refinery for use in the United States;

(2) Either announced in advance, or unannounced;

(3) At any time prior to January 1, 2003; and

(4) With relation to any gasoline produced:

(i) During 1990 and any other year for which data are submitted to

EPA in support of an individual baseline; and

(ii) For use in the United States during the period December 1994

through December 1997.

(g) Failure to meet requirements. If any requirement specified in

paragraphs (b) through (f) of this section is not fully met for any

calendar year, or if the Administrator determines that the information

submitted to EPA under paragraphs (b) through (f) of this section is

inaccurate in whole or in part, then compliance with the requirements

of Secs. 80.41 (h) and (i) by an importer shall be measured, ab initio

and for each and every calendar year or for such other period of time

as the Administrator may determine, from the baseline that otherwise

would apply to the importer in the absence of the operation of this

section.

(h) Volume constraints. (1) During any calendar year the total

volume of gasoline imported by one or more importers to which a foreign

refinery's baseline applies shall not be greater than the refinery's

1990 baseline volume.

(2) Where the volume of gasoline for which the foreign refinery's

baseline is claimed by one or more importers during any calendar year

exceeds the refinery's 1990 baseline volume, the refinery's baseline

applies only to the first volume of that refinery's gasoline that is

imported into the United States that equals the 1990 baseline volume.

(3) In the event any importer uses a foreign refinery baseline in

violation of the volume constraint specified in paragraphs (h) (1)

through (2) of this section the importer shall, ab initio, calculate

compliance using the baseline values that properly apply under

paragraphs (h) (1) through (2) of this section.

(4) In the event any gasoline is imported before January 1, 1995

for which a separate foreign refinery baseline is claimed:

(i) Such gasoline shall be combined with gasoline imported during

1995 for which the separate foreign refinery baseline is claimed for

purposes of the volume constraint specified in paragraphs (h) (1)

through (2) of this section; and

(ii) An adjusted 1990 baseline volume for the foreign refinery

shall be calculated, for use during the combined 1994 and 1995 period

only, by multiplying the 1990 baseline volume for the foreign refinery

times 1.17.

[FR Doc. 94-10434 Filed 5-2-94; 8:45 am]

BILLING CODE 6560-50-P