Sale and Disposal of National Forest System Timber; Administration of Timber Export and Substitution Restrictions

SUMMARY: This final rule implements the Forest Resources Conservation

and Shortage Relief Act of 1990 (Act). It defines certain terms

necessary to facilitate uniform compliance; prohibits transfer of

unprocessed private timber for export by a person who possesses or

acquires unprocessed Federal timber; prohibits export of such

unprocessed private timber by a third or successive parties; prescribes

procedures for reporting the acquisition and disposition of Federal and

private timber, including transfers; prescribes procedures for

identifying unprocessed Federal and private timber requiring domestic

processing; establishes procedures for assessing civil and criminal

penalties and applying administrative remedies for violations of the

Act, its implementing regulations, and contracts issued under the Act;

and authorizes Regional Foresters' entry into cooperative agreements

with other agencies.

This comprehensive rule incorporates, with some changes, the

provisions of the interim rule published November 20, 1990 (55 FR

48572) which established sourcing area procedures; continued surplus

species determinations; and continued the existing reporting procedures

applicable to timber sale contracts awarded prior to August 20, 1990.

This comprehensive rule also incorporates the final rule of limited

scope, published December 19, 1991 (56 FR 65834), which: Continued the

existing reporting procedures applicable to timber sale contracts

awarded prior to August 20, 1990; amended the interim rule for sourcing

area disapproval and review procedures; and established application

procedures for persons applying for a share of the limited amount of

unprocessed timber originating from National Forest System lands in the

State of Washington that are exempted from the prohibition against

indirect substitution. This comprehensive rule also establishes the

specific quotas for indirect substitution in Washington State. This

comprehensive rule fully implements the Act, except for the

determination of surplus species, pursuant to 16 U.S.C. 620a(b). The

intended effect of this rule making is to conserve public timber

resources and help relieve domestic timber supply shortages by

implementing the provisions of the Forest Resources Conservation and

Shortage Relief Act of 1990.

Given the scope of this final, comprehensive rule making, the

Department is seeking public comment on any ``fine tuning'' of the

regulations that may be necessary for more efficient implementation.

This request for public comment in no way affects the finality of this

rulemaking.

DATES: This rule is effective September 8, 1995. Comments must be

received in writing by October 10, 1995.

ADDRESSES: Send written comments to Jack Ward Thomas, Chief (2400),

Forest Service, USDA, P0 Box 96090, Washington, DC 20090-6090.

The public may inspect comments received on this final rule in the

Office of the Director, Timber Management Staff, Forest Service, USDA,

201 14th Street SW., Washington, DC 20250, between the hours of 8:30

a.m. and 4:30 p.m. Parties wishing to view comments are encouraged to

call ahead ((202) 205-0893) to facilitate entry into the building.

FOR FURTHER INFORMATION CONTACT: Rex Baumback, Timber Management Staff,

Forest Service, USDA, P.O. Box 96090, Washington, DC 20090-6090, (202)

205-0855.

SUPPLEMENTARY INFORMATION:

Statutory and Regulatory Background

The Forest Resources Conservation and Shortage Relief Act of August

20, 1990 (16 U.S.C. 620, et seq.), hereafter referred to as the Act,

prohibits the export of unprocessed timber originating from Federal

lands west of the 100th meridian in the contiguous 48 States and

restricts direct and indirect substitution of unprocessed Federal

timber for timber exported from private lands. Prior to the passage of

the 1990 Act, the prohibitions against exporting unprocessed timber

harvested from Federal lands had been renewed annually by the

Appropriations Act for Interior and Related Agencies, under which

Forest Service programs are funded. The Act replaces this annual

renewal requirement for contracts awarded on or after the date of

enactment of the Act. The specific limitations established in the new

Act are described under the applicable regulatory sections.

To meet certain statutory deadlines, the Forest Service published a

notice of statutory restrictions in the Federal Register on September

17, 1990, (55 FR 36123) followed by publication of several rules, a

summary of which follows:

1. An interim rule was published November 20, 1990, (55 FR 48572)

to comply with statutory requirements which took effect before this

final rule could be issued. The interim rule contained definitions

necessary to facilitate uniform compliance, procedures for certifying

exemption of a person from the prohibitions against substitution if

that person had exported unprocessed private timber in the previous 24

months, and sourcing area application procedures. It also continued the

status of existing surplus species until the Secretary could receive

public comments and make new surplus species determinations, and

continued reporting procedures in effect for contracts awarded prior to

enactment of the Act.

2. A proposed comprehensive rule was published January 29, 1991,

(56 FR 3354) to fully implement the Act. This proposed rule included

procedures for monitoring compliance with the Act and enforcing the

prohibition against indirect substitution. Also included were

procedures for reporting the acquisition and disposition of unprocessed

timber, for documenting transfers, for identifying and marking Federal

and private timber required to be domestically processed, procedures

for assessing civil and criminal penalties and applying administrative

remedies for violations of the Act; revised regulations for debarment

and contract suspension, definitions necessary to assure uniform

compliance with the Act, provisions for cooperating with other

agencies, and procedures for determining surplus species.

3. A proposed rule of limited scope was published January 29, 1991,

(56 FR 3375) to implement certain provisions required to take effect

before this final comprehensive rule could be adopted. The proposed

rule contained regulations for continuing the reporting requirement in

timber sale contracts awarded prior to August 20, 1990, establishing

sourcing area disapproval and review procedures, and establishing

application procedures for indirect substitution prohibition exceptions

for persons who acquired unprocessed timber from National Forest System

lands in the State of Washington. The final rule of limited scope was

issued December 19, 1991 (56 FR 65834).

4. A final rule delegating the Secretary of Agriculture's authority

to make the

[[Page 46891]]

final decision on sourcing area applications received by December 20,

1990 to the Department's Office of Administrative Law Judges (OALJ) was

published April 5, 1991 (56 FR 14009);

5. A final rule was published on May 14, 1991 (56 FR 22105),

amending the Department's rules of practice governing formal

adjudicatory proceedings instituted by the Secretary under various

statutes to include log export and substitution disputes arising from

the Act.

6. A final rule was published on April 2, 1992 (57 FR 11261), which

delegates the Secretary's authority to adjudicate sourcing area

applications received after December 20, 1990 to the Department's

Office of Administrative Law Judges and the Judicial Officer.

7. A final rule was published on February 24, 1994 (59 FR 8823),

which establishes the procedures for adjudicating and reviewing

sourcing areas.

This final rule, in combination with the final rule published

December 19, 1991, (56 FR 65834) completes the implementation process,

except for the determination of surplus species pursuant to 489(b) of

the Act (16 U.S.C. 630a(b)).

Contents of comprehensive rule. This final rule contains the

following:

1. Requirements of bidders concerning exports;

2. Suspension and debarment of timber purchasers;

3. Definitions necessary to fully implement the Act;

4. Prohibition against export of unprocessed Federal timber;

5. Prohibitions against the transfer of unprocessed private timber

for export by a person who also holds or acquires unprocessed Federal

timber, and prohibitions against export of unprocessed private timber

that requires domestic processing;

6. Sourcing area application procedures;

7. Incorporation of sourcing area disapproval and review

procedures;

8. Incorporation of procedures for a non-manufacturer to apply for

a waiver of the prohibition against substitution in the preceding 24

months if the person certified by November 20, 1990 that he/she would

cease exporting by February 20, 1991;

9. Procedures for reporting the acquisition and disposition of

Federal timber and procedures for documenting transfers of unprocessed

Federal and private timber requiring domestic processing;

10. Procedures for identifying unprocessed timber requiring

domestic processing;

11. Civil and criminal penalties for violations of the Act or

regulations issued under the Act, and procedures for assessment of

civil and criminal penalties for violations of the Act or regulations

issued under the Act;

12. Administrative remedies for violations of the Act or its

implementing regulations, or contracts issued under the Act;

13. Authority for Regional Foresters to enter into cooperative

agreements with other agencies;

14. Continuation of surplus species determinations pending a

separate rule making; and

15. Incorporation of the rule regarding the indirect substitution

exception in Washington State.

Summary of Comments and Responses

The Forest Service requested comments on the interim rule published

November 20, 1990. The comment period for the interim rule closed

December 20, 1990. Subsequently, as previously noted, the Forest

Service published a proposed comprehensive rule to implement the

remaining provisions of Forest Resources Conservation and Shortage

Relief Act of 1990 (16 U.S.C. 620, et seq.) in the Federal Register on

January 29, 1991 (56 FR 3354). The comment period on the proposed rule

closed March 15, 1991. The comments received on the interim rule have

been considered along with those received on the proposed rule.

Comments were received from 89 respondents who made numerous

comments relating to 17 separate subjects. All relevant comments have

been given full consideration in adoption of this final rule. Comments

were received from 66 timber sale purchasers; 12 timber industry

associations; three timber trade associations; two environmental

organizations; two law firms; one private citizen; one forestry and

marketing consultant; one port district; and one Federal agency, the

U.S. Department of the Interior, Bureau of Land Management. With the

exception of Bureau of Land Management, all respondents were from the

western United States or from associations and entities representing

western interests.

General Comments

Most respondents expressed general support for the Act and agreed

that aggressive enforcement of the export restrictions on unprocessed

Federal timber was necessary. However, most respondents also strongly

opposed, as being excessively costly and unnecessarily burdensome, the

proposed procedures for reporting and record keeping and for

identifying and marking unprocessed Federal and private timber. Many of

these respondents offered constructive suggestions to reduce these

costs and burdens. In addition, approximately half of the comments

received from all respondents requested or suggested clarifications of

proposed procedures and definitions of terms used in various sections

of the proposed rule.

The proposed rule also requested nominations of surplus species,

and specifically requested comments on the current determinations that

Alaska Yellow Cedar and Port Orford Cedar are surplus to domestic

manufacturing needs. Several respondents expressed opposition to

continuing the determination that these species are surplus. Two

respondents requested that Pacific Yew be considered surplus, and one

requested that Western/Rocky Mountain Juniper be considered surplus. A

separate proposed rule making will address surplus species.

Other respondents expressed strong opposition to the exporting of

unprocessed timber from any source--Federal, other public and private

lands--and to all forms of substitution of Federal and other public

timber for exported private timber.

Comments by Section of the Proposed Rule

The following is a section-by-section summary of comments and the

Department's responses to these in the final rule.

Amendment of Title 36, Part 223, Subpart B

This subpart provides the policies and procedures for planning,

preparing, appraising, advertising, bidding, awarding and administering

timber sale contracts. No comments were received specifically

addressing these topics, however upon review of comments addressing the

reporting requirements in the proposed rule, it became apparent that

the requirements of prospective bidders for reporting prior export

activities in the existing rule at Sec. 223.87 were made obsolete by

the passage of the new Act and the publication of this final rule.

These reporting requirements have been removed in this final rule. This

rule substitutes new reporting requirements that are consistent with

the Act for contracts issued on or after August 20, 1990.

Section 223.87 Requirements of Bidders Concerning Exports

Section 223.87 in the existing rule required bidders to submit with

their

[[Page 46892]]

bid for National Forest timber, as a condition of bid acceptance, a

certification and report listing the disposition of all National Forest

timber harvested in the previous calendar year; the amount of timber

harvested by the bidder from private lands within the bidder's

tributary area that was exported or sold for export during the previous

calendar year; the locations of manufacturing facilities where the

unprocessed timber was expected to be delivered; and the bases of

historic purchase and export quotas. Further, Sec. 223.87 required the

bidder to notify the Forest Service of changes in destination of

unprocessed timber after award of the contract. This report and

certification were done on Forest Service form number FS-2400-43 (OMB

No. 0596-0021) to be submitted with the completed bid form. If the FS-

2400-43 form was not included with the bid or was not properly

completed and signed, the bid could be declared nonresponsive.

Section 223.87 of this final rule would eliminate this

certification and reporting requirement and the use of form FS-2400-43.

Section 223.87 requires, for a bid to be considered responsive, a

certification that (1) the bidder is eligible to acquire unprocessed

timber originating from National Forest System lands west of the 100th

meridian in the contiguous 48 States, in accordance with the Forest

Resources Conservation and Shortage Relief Act of 1990 (16 U.S.C. 620,

et seq.) and its implementing regulations, and (2) the bidder is in

compliance with the provisions of the Forest Resources Conservation and

Shortage Relief Act of 1990 and its implementing regulations. The

reporting requirements in the current bid form are required in the

transfer documents and annual report provisions in this rule, so there

is no need to collect the information in the bid form. The

certification statement is presently part of Forest Service bid form

No. FS-2400-14 (1/94). The Office of Management and Budget approved the

use of a bid form containing the certification statement regarding

compliance through February 28, 1997, and assigned it Control Number

0596-0066. The current bid form was recently revised to add the

sentence about eligibility to purchase National Forest System timber

consistent with the Act and the regulations. If the bidder is an

exporter of unprocessed timber originating west of the 100th meridian

in the contiguous 48 States, eligibility includes having an exemption

from the prohibition against substitution that would allow the

acquisition of unprocessed Federal timber, pursuant to the Forest

Resource Conservation and Shortage Relief Act of 1990 and its

implementing regulations.

Amendment of Title 36, Part 223, Subpart C

This subpart provides policies and procedures governing suspension

and debarment of purchasers of National Forest System timber. It

provides for listing of debarred and suspended purchasers and sets

forth the causes and procedures for debarment and suspension and for

determining the scope, duration, and treatment to be accorded to

purchasers listed as debarred or suspended. No comments were received

on proposed Secs. 223.130, 223.131, 223.133, 223.135, 223.137, and

223.139. Except for minor changes to the text to improve technical and

editorial clarity, the Department adopts these sections as proposed.

Section 223.136 Debarment

Section 223.136(b) of the current regulations establishes the

effect of a proposed debarment on purchasers of Forest Service timber

sale contracts. The current regulations state that, upon issuance of a

notice of proposed debarment and until the final debarment decision is

rendered, the person proposed for debarment shall not be allowed to bid

on or receive new contracts or be granted contract term extensions.

The proposed rule specified that, upon issuance of a notice of

proposed debarment, persons violating the Act or any contract or

regulation issued under the Act, would not be allowed to enter into any

contract to purchase unprocessed timber originating from Federal lands

and would not be allowed to take delivery of unprocessed Federal timber

from another party who purchased such timber until the debarment

proceedings were completed.

Comment. Five respondents stated that it would be unfair if

debarment were implemented without prior hearings or opportunity to

comment. These respondents were concerned that the affected parties

would not have the opportunity to respond to the causes upon which the

proposed debarment action was based. Several respondents suggested that

such a deprivation would be a violation of the due process clause of

the Constitution.

Response. This proposed addition, which prohibits a person proposed

for debarment from acquiring timber originating from Federal lands

would not alter the procedures for debarment set forth in Sec. 223.138,

which establishes the process that Debarment Officers and affected

individuals must follow when debarment is being considered. Thus,

affected parties would continue to have the opportunity to present

information and arguments in opposition to, or in mitigation of the

proposed debarment prior to the final debarment determination.

The standard of evidence for debarment (Sec. 223.138(b)(6)) is a

preponderance of the evidence. This standard is deemed met where the

cause for debarment is conviction or civil judgment. Where the evidence

is sufficient to issue a notice of proposed debarment, good cause

exists to protect Government and public interests by not initiating or

extending further business dealings with that purchaser.

Further, the process prescribed in the rules provides the due

process required by the Constitution. This process is consistent with

Government-wide policies and procedures and has been upheld upon

judicial review. A trial-type hearing is not required prior to a final

debarment decision, unless a dispute of a material fact is raised.

Further, the effects of a proposed debarment are limited by the

prescribed time for issuance of a final debarment decision.

Accordingly, the Department is adopting the revision to Sec. 223.136 as

proposed.

Comment. Several respondents suggested that any limitation of

rights on a purchaser's existing contracts be deferred until completion

of debarment proceedings.

Response. The effect of a proposed debarment is that a purchaser is

precluded from consideration of bids on future timber sale contracts,

award of future contracts, approval of third party agreements, or

extensions of existing contracts, except pursuant to the terms of a

contract term adjustment. A purchaser proposed for debarment pursuant

to Sec. 223.137(g) is precluded from entering into any contract to

purchase unprocessed timber from Federal lands and is also precluded

from taking delivery of Federal timber purchased by another person.

The rules do not limit a purchaser's rights on any existing

contracts, except with respect to contract extensions. The Forest

Service is not obligated to grant contract extensions. There may be

situations when refusal to extend the duration of an existing timber

sale contract is necessary to protect the Government's interest. If

such protective action is not needed, the rule provides that the Chief

of the Forest Service or authorized representative may determine that

there is a compelling reason to extend an existing contract's term.

Therefore, the final rule retains

[[Page 46893]]

the provision relating to extending the duration of an existing timber

sale contract.

Comment. One respondent suggested that purchasers are subject to

substantial penalties once a notice of debarment is issued. This

respondent asserted that presumptions of guilt or wrongdoing are made

prior to an adjudication of a person's rights and that such a system

constitutes de facto debarment, is punitive and is impermissible.

Response. The Department realizes that debarment is a serious

action. Debarment is, however, a separate administrative action that is

not to be confused with criminal, civil or other administrative

proceedings that may have punitive effects. Debarment is taken only to

protect the Government's and the public's interests and, as a matter of

law, is not taken with the intent to punish. Debarment actions are

taken only as a means of ensuring that the Government only does

business with responsible persons.

The effects of a proposed debarment, by virtue of the process that

has been put into place, are not punitive. Once causes for debarment

have been established sufficient to issue a notice of proposed

debarment, the Government is justified in not conducting further

business dealings with a person proposed for debarment, except on

existing contracts. The Department also is authorized under the Act to

preclude any person who violates the Act, or any regulation or contract

issued under the Act from taking delivery of Federal timber purchased

by another party.

The due process required by the Constitution is contained in the

debarment procedures and is sufficient to avoid penalizing persons

proposed for debarment. The procedures contained in the rule provide

firm deadlines for the debarring official's final debarment

determination. The procedures also allow an opportunity to respond to

the proposed debarment, an opportunity for a fact-finding hearing when

a dispute over a material fact is raised, and the procedures allow for

reconsideration of the debarring official's final debarment

determination, as well as appeal to the U.S. Department of Agriculture

Board of Contract Appeals (36 CFR 223.138). The effect of a proposed

debarment is not punitive. Therefore, except for minor changes to the

text to improve technical and editorial clarity, the Department adopts

this section as proposed.

Comment. One respondent suggested that the effect of a proposed

debarment is the same as debarment and therefore, a purchaser is

automatically debarred based on the notice of proposed debarment.

Response. As stated previously, a notice of proposed debarment has

the effect of excluding persons from further business dealings pending

a final debarment decision. Again, where evidence is sufficient to

issue a notice of proposed debarment, good cause exists to protect the

Government and public interests by not initiating or extending further

business dealings during the period of proposed debarment.

Further, the rules allow persons to submit, either in person or in

writing, or through a representative, information and argument in

opposition to the proposed debarment. Such persons also may submit

evidence of mitigating factors and arguments concerning the imposition,

scope, duration or effects of a proposed debarment or debarment. Based

on such information, the debarring official may determine that causes

for debarment do not exist, that only certain persons or divisions of

an organization or company should be debarred, or that a period of less

than the maximum allowed may be appropriate. If the information and

arguments in opposition, or the mitigating factors are not persuasive,

the period of debarment may be effective retroactively from the date of

the notice of proposed debarment, that is, a person would not

necessarily be proposed for debarment for a period of time and then

have an additional three (3) to five (5) year debarment period added on

to the time that has already passed during the period of the proposed

debarment; any period of debarment may encompass the period of proposed

debarment.

Comment. One respondent asserted that some companies or

organizations may have separate divisions in various locations and that

debarment may not be appropriate for all divisions of a company or its

affiliates.

Response. There may be some situations where debarment of all

organizational elements of a company or its affiliates would be

inappropriate. The rules provide that persons may provide evidence of

mitigating factors demonstrating that certain organizational elements

or affiliates should not be debarred. However, unless specifically

limited, debarment applies to all divisions or organizational elements

of a purchaser and any affiliate who is specifically named, given

written notice and an opportunity to respond. The rule allows an

affiliate to challenge the basis for its debarment, not just its status

as an affiliate. See Sec. 223.138(b)(1).

Comment. One individual suggested the Forest Service should help

parties understand the intent and explain unclear aspects of the rule

and stated that the Bureau of Land Management has always been willing

to help parties to understand the rules and advise whether a proposed

sale complies with its rules.

Response. The Department agrees that the Forest Service should help

parties understand the Act and implementing rules; however, the Forest

Service cannot give legal advice to timber purchasers. For legal

interpretation of the Act or implementing regulations as they pertain

to private business proposals, purchasers are advised to seek private

counsel.

Amendment of Title 36, Part 223, Subpart D

Subpart D of part 223 governs timber export and substitution

restrictions applicable to Federal timber purchases made before the

Act. Enactment of the statute and adoption of interim regulations

necessitated the addition of a new Sec. 223.159 to existing subpart D

in the interim rule to make clear that the provisions of subpart D

remained in effect for contracts awarded before August 20, 1990.

Section 223.159 of this final rule clarifies that Sec. 223.162 remains

in effect for all contracts awarded on or after August 20, 1990 until

September 8, 1995. Section 223.159 of this final rule clarifies that

certain rules in subpart F of part 223, which implemented the timber

export and substitution restrictions of the Act in the interim rule,

apply immediately to all contracts awarded on or after August 20, 1990.

Minor technical and editorial changes to Sec. 223.159 have been made to

improve clarity. This final rule removes Sec. 223.161, Limitations on

timber harvested in Alaska, and Sec. 223.163, Determination that

unprocessed timber is surplus to domestic needs. The subjects covered

in these sections are now covered in Secs. 223.200 and 223.201 in

subpart F.

Several respondents advised that the rule needs to clarify

definitions and prohibitions in subpart D. However, since the terms are

relevant to the new comprehensive rule, rather than those in effect at

the time the new Act passed, the definitions identified by the public

through submitted comments are addressed in Sec. 223.186.

Amendment of Title 36, Part 223, Subpart F

The rules in Subpart F implement provisions of the Forest Resources

Conservation and Shortage Relief Act of 1990 (16 U.S.C. 620, et seq.)

that became effective upon enactment or as otherwise specified in the

Act, and

[[Page 46894]]

incorporate and supplement the interim rules of this Subpart that were

published in the Federal Register on November 20, 1990 (55 FR 48572).

Except as otherwise provided in the Act, this Subpart will govern

timber export and substitution restrictions applicable to Federal

timber sale contract awarded on or after August 20, 1990.

Section 223.185 Scope and Applicability

Comment. One individual commented that the regulations do not

adequately explain the differences between the old and new regulations.

Another respondent was unclear as to which contracts the substitution

provisions in this regulation apply.

Response. Section 497 of the Act (16 U.S.C. 620h) provides that

nothing in this Act, or regulations issued under this Act, abrogates or

affects any timber sale contract entered into before August 20, 1990.

Section 494 of the Act (16 U.S.C. 620 note) states that the

provisions of the Act take effect on the date of enactment, except as

otherwise provided. Section 490(a)(2)(A) of the Act (16 U.S.C. 620b)

specifically provides that the substitution rules in effect before

issuance of regulations to carry out the provisions of Sec. 490(a) will

continue to govern all contracts entered into between the purchaser and

the Secretary of Agriculture before issuance of final rules. The prior

rule concerned direct substitution only (36 CFR 223.162). Therefore,

contracts awarded after enactment, but before the issuance of final

rules continue to be governed by the rules concerning substitution in

existence prior to enactment at Sec. 223.162. As these contracts are

completed, this regulation will no longer be effective, and will be

removed or revised at that time. Contracts awarded on or after

September 8, 1995 are governed in full by subpart F.

Section 490(b)(1) of the Act (16 U.S.C. 620b) states that, as of

September 10, 1990, a person is prohibited from purchasing federal

timber indirectly if that person would be prohibited from purchasing

Federal timber directly. Contracts entered into before the date of

publication of this final rule are governed by the substitution

restrictions in effect before enactment of the Act. Federal timber

purchased pursuant to a contract entered into before September 8, 1995

may be purchased indirectly only if the timber could be purchased

directly under the prior rule.

Section 490(b)(2)(D) of the Act (16 U.S.C. 620b) delayed

application of the indirect substitution restrictions in the State of

Washington until rules were issued to ``carry out'' the exemption from

indirect substitution in Washington State. Therefore, the indirect

substitution restrictions for National Forest System timber from

Washington State are effective for contracts entered into between the

purchaser and the Secretary of Agriculture as of publication of the

rule of limited scope (56 FR 3375, December 19, 1991). This rule

establishes the shares of exempted timber for specific persons.

The interim rule was the final rule for the provisions contained in

that rule: Sourcing area applications, disapproval and review

procedures, procedures for a non-manufacturer, certification

procedures, continue surplus species determinations, and definitions

applicable to the provisions of the interim rule (55 FR 48572, November

20, 1990). The interim rule has now been incorporated into this final

rule, with changes as noted.

A final rule of limited scope was published on December 19, 1991

(56 FR 65834). This rule continued the reporting requirements

applicable to contracts awarded before enactment, amended the rules for

sourcing area disapproval and review procedures found in the interim

rule and established procedures for persons applying for a share of the

limited amount of unprocessed timber originally from National Forest

System lands in Washington State that is exempt from the prohibition

against indirect substitution. This rule has been incorporated into

this final rule. Contracts entered into after enactment are governed by

the provisions of the interim rule and the final rule of limited scope

on the effective dates of those rules.

The Department has added a sentence regarding the application of

subpart F to unprocessed private timber to clarify that unprocessed

private timber that requires domestic processing is subject to subpart

F. Further, the Department has added a sentence to clarify that the

reporting requirements for transfers of unprocessed Federal timber

applies on September 8, 1995, regardless of the contract award date.

This ensures that enforcement of the Act can begin immediately. Since

the transfer documents are not part of the substitution regulation,

this requirement is not limited by the Act's provision that the prior

substitution regulation applies to contracts entered into before

issuance of this final rule. In addition, the Department has made minor

technical and editorial changes to this section to improve clarity and

describe the status of contracts awarded between enactment of this Act

and promulgation of final rules to maintain consistency throughout the

rule.

Section 223.186 Definitions

The complexity of the Act requires definitions in order to explain

and understand critical terms. Section 493 of the Act (16 U.S.C. 620e)

defines several terms that require refinement. The following terms were

defined in the interim rule, and were repeated with minor technical

changes as needed, in the proposed rule for continuity, public

understanding and comment: Acquire, Act, Cants or Flitches, Export,

Federal lands, Fiscal year, Non-manufacturer, Person, Private lands,

Purchase, Substitution, and Unprocessed timber. In addition, under the

proposed rule definitions of the following additional terms were

proposed: Area of operations, Disregard, Each violation, Finished

products, Gross value, Hammer brand, Highway yellow paint, Logs,

Processed, Same geographic and economic area, Should have known,

Transfer, Willful disregard, and Willfully.

Nineteen responses were received concerning definitions. Ten

responses addressed the definition of Person, focusing on the

subcontractor. Other definitions addressed were: Disregard, Each

violation, Export, Finished products, Gross value, Processed, Same

geographic and economic area, Transfer, Unprocessed timber and

Willful. Several respondents requested definitions for ``manufacturing

facility'' and ``sourcing area.''

Person

Comment. Comments regarding the definition of ``person'' called for

a more limited definition of ``subcontractor,'' exclusion of

independent contractors as subcontractors, and inclusion of

subcontractors as only those persons controlled by the purchaser, or

who meet the criteria of affiliates.

Response. The Act defines ``person'' as ``any individual,

partnership, corporation, association, or other legal entity and

includes any subsidiary, subcontractor, or parent company, and business

affiliates * * *'' 16 U.S.C. 620e(3) (emphasis added). If

subcontractors were only to be considered in the context of

affiliation, there would be no reason to include subcontractors in the

definition of person.

The definition of subcontractor is ``One who has entered into a

contract, express or implied, for the performance of an act with the

person who has already contracted for its performance.''

[[Page 46895]]

Black's Law Dictionary

The extent to which a contractor and a subcontractor would be

considered one ``person'' will depend on the specific facts of the

arrangement between the contractor and subcontractor. The subcontractor

obtains his status through his relationship with the contractor. If the

subcontractor is acting independently, for instance, in violation of a

provision in the Act or regulations, the subcontractor might be

prosecuted as an ``individual'' or other corporate entity, not as a

subcontractor.

Comment. One respondent expressed concern that a federal timber

purchaser subcontracting with a contract logger who exports or who

contracts to log timber that will be exported might be in violation of

the Act under the definition of person. The same respondent was

concerned that the contract logger who logs both federal logs and

private logs eligible for export might be in violation of the Act under

the definition of person.

Response. The response above outlines the purchaser's status. The

status of the contract logger depends on the definition of ``acquire''.

That is, if the contract logger is acquiring federal timber and exports

private timber, then the contract logger would be in violation of the

prohibition against substitution, assuming no exemption from the

prohibition applied. The Act states that ``acquire'' means, ``to come

into possession of, whether directly or indirectly, through a sale,

trade, exchange, or other transaction, * * *'' 16 U.S.C. 620e(1). While

the definition of acquire includes ``possession'', the definition seems

to encompass only possession through different types of transactions

that lead to control. The contract logger's ability to log federal

timber and log exportable timber or export timber will depend on the

specific circumstances by which each transaction is conducted.

After the end of the comment period for this rule, the Department

received numerous letters regarding the definition of possession as

used in the definition of acquire, and its effect on various business

relationships, mainly service contracts. The Department may not

consider these comments in this rule under the Administrative Procedure

Act, 5 U.S.C. 553. However, the Department recognizes the need to

clarify this issue, especially in light of the apparent change in the

way business is conducted. Therefore, the Department is committed to

issuing a proposed rule that will attempt to flesh out the definition

of possession, and will ask for comment on a sensible way to implement

the intent of the Act to prohibit substitution while balancing

enforcement of the Act with reasonable restrictions on business. The

Department has deleted the last sentence regarding the standards in the

Small Business Administration regulation at 13 CFR 121.401 that may

serve as guidelines to determining affiliation for purposes of this

Act. This deletion clarifies that the Small Business Administration

regulation serves as a guideline only and does not govern these rules.

Each Violation

Comment. Several respondents expressed concern that the term ``each

violation'' is too inclusive to meet the intent of the Act, and that,

as defined in the rule, the violation counts would be compounded or

multiplied. For example, each missing log brand and paint mark would be

a separate violation in addition to the violation caused by the export

of the log itself. These respondents suggested that multiple violations

be treated as a single event.

Response. The Department believes that the rule's use of the term

``each violation'' is consistent with the intent of Congress, and that

to reduce it would weaken the intent of the Act. Congress considered

each violation of the Act serious and prescribed a penalty deemed

appropriate to the infraction. Nothing in the Act suggests that ``each

violation'' means a series of acts, or anything other than the plain

meaning of the term. Further, section 492(c) of the Act (16 U.S.C.

620d(c)) provides the Secretary with discretion in assessing civil

penalties. Therefore, this suggestion is not adopted.

Comment. One respondent commented in regard to ``each violation,''

that human errors and mistakes are inevitable, and that, at times,

safety conditions make complete compliance with the branding and

painting requirement very difficult. This respondent felt that some

reasonable standard must be used when enforcing this requirement.

Response. The Department agrees that occasional ``human errors''

are understandable. However, purchasers are expected to emphasize the

importance of complying with the Act to their employees and

subcontractors and to ensure that compliance is attained.

Comment. One individual said the rule should indicate that the

Secretary would use discretion and judgment in determining penalties

for specific violations of the Act.

Response. Congress gave the Secretary authority in section 492(c)

of the Act (16 U.S.C. 620d(c)) to impose penalties for specific

violations. These penalties include ceilings but do not mandate

specific amounts. Therefore discretion will be used in the imposition

of the penalties.

Having considered the various comments received, the Department

adopts the definitions of ``each violation'' as presented in the

proposed rule.

Export

Comment. One respondent stated that the definition of when export

occurs provides a possible loophole in the prohibition against

substitution.

Response. The Department agrees that the definition of when export

occurs could provide a loophole to the substitution restrictions.

Accordingly, the Department has revised the portion of the definition

that relates to the date that an export agreement is entered into.

The definition in the proposed rule states that ``(E) export occurs

on the date that a person enters into an agreement to sell, trade,

exchange, or otherwise convey such timber to a person for delivery to

foreign country. If that date cannot be established, export occurs * *

* ''. This definition could permit a person to enter into long-term

export agreements just before the issuance of this rule, or 24 months

before acquiring Federal timber, and still be exporting, or causing to

be exported, private timber while acquiring Federal timber. This

activity could occur because the date of the export agreement preceded

the effective date of this rule or the 24-month restriction against

exporting prior to acquiring Federal timber. This kind of activity

would constitute substitution.

To close this potential substitution loophole, the Department has

revised the definition of when export occurs by dropping the phrase

``If this date cannot be established'' and simply listing three

independent conditions which for the purposes of the Act, would

establish when export occurs as follows: ``Export occurs: (1) On the

date that a person enters into an agreement to sell, trade, exchange or

otherwise convey such timber to a person for delivery to a foreign

country; (2) when unprocessed timber is placed in an export facility in

preparation (sorting, bundling, container loading etc.) for shipment

outside the United States; or (3) when unprocessed timber is placed on

board an ocean-going vessel, rail car, or other conveyance destined for

a foreign country.''

[[Page 46896]]

Comment. Another respondent commented that the date on which export

occurred must be established with certainty.

Response. The Department intends to ascertain as closely as

possible when export occurs by thoroughly investigating all suspected

or alleged export violations. The Department believes the definition of

export, as revised in this final rule, meets the administrative and

enforcement responsibilities required by the Act.

Comments. Several respondents stated that the definition of

``export'' fails to clarify which contracts fall within its definition.

Response. The purpose of a definition is to clarify and provide a

consistent meaning of a term wherever it is used in the regulation. See

Sec. 223.185, Scope and Applicability, regarding which contracts are

governed by this rule.

Comment. One respondent stated that the definition of export in the

proposed rule needs clarification because by ``transporting * * *

through another party'', a person cannot prevent the other party from

exporting the timber.

Response. If a person notifies the recipient of the timber of the

need for domestic processing, pursuant to the rule's requirements at 36

CFR 223.193 and 223.194, the person would not be entering into an

agreement to export, nor would the person be responsible for export

that is conducted by a subsequent party.

Finished Products, Processed and Unprocessed Timber

Comment. Several respondents commented that the definitions of

``finished products'' and ``unprocessed timber'' are ambiguous. As an

example, they point to Sec. 223.187, where certain products which are

not in finished product form are excluded from the definition of

unprocessed timber.

Response. The Department believes that the term ``finished

products'' is clear. The term is used in reference to ``finished

products'' made of western red cedar that are exempt from the

prohibition against indirect substitution (16 U.S.C. 620b(b)(1)). The

term ``finished products'' in the Act suggests more than simply

products processed to specific standards, since these products could be

remanufactured; the term suggests that the products must be intended

for end product use.

The Department agrees that clarification regarding ``unprocessed

timber'' is necessary to prevent products produced within the sale area

that could be either finished products or unprocessed timber, such as

poles, posts, piling, pulpwood bolts, pulp logs and cull logs, from

being removed from the sale area or transferred without reporting or

identification, and later exported as unprocessed timber. While the Act

lists some of the products that may fall into this category in section

493(7)(B) (16 U.S.C. 620e(7)(B)), other products, such as house logs

that are part of a structure kit may be indistinguishable from

unprocessed timber. Accordingly, the definition of ``unprocessed

timber'' has been expanded in the final rule to add ``* * * For the

purposes of reporting and identifying under Secs. 223.193, 223.194 and

223.195, unprocessed timber also means timber products listed in

Sec. 223.187 of these regulations, and other timber products, including

house logs, that are indistinguishable from other unprocessed timber.''

The Department also added a statement to the definition that

``unprocessed timber does not include products intended for

remanufacture that meet the criteria listed in Sec. 223.187(a) (2) or

(3).'' This clarifies that the Act defines certain products as not

unprocessed, or processed, that are intended for remanufacture.

The Department has also concluded that the definition of the term

``processed'' should be revised to remove the reference to ``not

unprocessed'' because this terminology is not used in the rule.

Further, Sec. 223.187(b) of these regulations must be included in the

reference to Sec. 223.187, since paragraph (b) states what is not

unprocessed western red cedar. Therefore, the definition has been

revised to read as follows: ``Processed means timber processed into

products listed in Sec. 223.187 of these regulations.''

Comment. In commenting on these definitions, two respondents

expressed uncertainty as to whether each piece in an entire order must

satisfy the lumber grade requirements specified in the Act for

determining whether timber is processed to standards and specifications

suitable for end product use.

Response. Congress specified in section 493(7)(B) (16 U.S.C.

620e(7)(B) that products meeting the current standards of the American

Lumber Standards Grades or Pacific Lumber Inspection Bureau's Export R

or N list clear grades are not ``unprocessed.'' The standards that the

two bureaus use are defined in the Export R List Grading and Dressing

Rules book, published by the Pacific Lumber Inspection Bureau (1971)

and adopted by the West Coast Lumberman's Association and the British

Columbia Lumber Manufacturers Association, which reads, ``* * * a

variation not to exceed 10 percent, more or less, of the quantity

ordered shall be allowed in filling cargoes and/or parcel lots.'' (p.

4) Thus, there is no requirement that each piece in the entire order

satisfy the grade requirements. However, in any given lot, at least 90

percent of the pieces must meet these grade requirements.

Gross Value

Comment. One respondent stated that gross value should not include

the cost of ocean freight or insurance when sales are made on a ``C&F''

or ``CIF'' basis. The respondent stated that including these costs

could cause customers to obtain these services abroad.

Response. The Act uses the term, ``gross value'' in the civil

penalties section, where the Secretary may assess a $500,000 penalty or

``three times the gross value of the unprocessed timber involved'' for

a violation of the prohibition against exporting Federal timber. The

proposed rule defined gross value as the total amount that the person

received from the export purchaser for the unprocessed Federal timber

involved in the violation, before production, delivery, agent fees,

overhead, and other costs are removed. The marketplace decides the

total amount received and the Department does not intend to look behind

this figure at the specifics of the business agreement. The Department

has clarified in this rule that the gross value is the value of the

timber when it is transferred. Other than this change, no change in the

rule has been made in response to this comment.

Manufacturing Facility

Comment. Several respondents suggested that a definition be

included in the final rule defining the meaning of ``manufacturing

facility.'' One respondent stated that the term ``non-manufacturer''

needs clarification, because of the ambiguity of the term

``manufacturing facility.'' This respondent suggested that non-

manufacturer be defined as it is in the SBA program. Another respondent

objected to the inability of non-manufacturers to obtain sourcing

areas. It was also suggested that ``manufacturing facility'' be limited

to a permanently located operation designed and used to convert logs

into primary wood products, including lumber and veneer products, and

that it should not include secondary wood processing plants, chip, or

fiber operations.

Response. The Department agrees that the term ``manufacturing

facility'' needs to be defined, and that a manufacturing facility

should be defined in terms of its permanent location. The Act implies a

[[Page 46897]]

permanent location for manufacturing facilities, in section 490(c)(3)

(16 U.S.C. 620b(c)(3)); the Act requires the sourcing area to be the

area sourced by the applicant's ``timber manufacturing facilities.''

The Act's intent to define a sourcing area by a permanent manufacturing

facility is the reason that non-manufacturers may not apply for

sourcing areas.

However, the Department disagrees that the definition should

exclude producers of chips or fiber products. Sourcing areas are where

the applicant desires to ``process'' timber (16 U.S.C. 620b(c)(3)). In

16 U.S.C. 620e(7)(B)(ix), the Act defines timber not included as

unprocessed, that is, processed timber, to include pulp or logs

processed for conversion into chips. Since this type of facility is

specifically included as a processing facility, it is also included in

the definition of ``manufacturing facility.''

Therefore, the Department has added the following to Sec. 223.186:

``Manufacturing facility means a permanently located processing plant,

used to convert unprocessed timber into products.'' The Department

believes this addresses the ambiguity in the term ``non-manufacturer''

without adopting SBA rules.

Same Geographic and Economic Area

Comment. One respondent stated that there is no reference to ``same

geographic and economic area'' with regard to sourcing areas, as the

proposed definition seems to indicate.

Response. While there is no specific reference to ``same geographic

and economic area'' in the sourcing area provision of the Act, this

concept is used in determining sourcing areas; the term reflects the

Act's requirement that sourcing areas be ``geographically and

economically separate'' from areas where a person harvests private

timber for exporting. An area that is geographically and economically

separate from an exporting area cannot also be the same geographic and

economic area from which a person exports. No change is needed in the

rule.

Comment. Several respondents called for a revised definition of

``same geographic and economic area.'' The respondents felt that the

definition is too broad and suggested narrowing the definition to meet

the Act's intent regarding substitution. Another respondent stated that

the Act has a provision that prohibits the purchase of unprocessed

federal timber and the export of unprocessed private timber within the

past 24 months (16 U.S.C. 620b(a)(1)(B)). The respondent said this

provision addresses the concern in the proposed rule that if

substitution generally were defined pursuant to the sourcing area

concept of geographically and economically separate areas, persons

would be granted de facto sourcing areas. This commenter also said that

the two different definitions of ``same economic and geographic area''

hinge on a definition of ``private lands'' as west of the 100th

meridian in the contiguous 48 states, and that the Act does not so

limit the definition of private lands.

Response. The Department agrees with the last commenter that the

Act provides a prohibition that addresses the concern about de facto

sourcing areas, and that, accordingly, as the other respondents

suggested, there is no need to have the second, broader definition of

``same economic and geographic area.'' The Act states, in the section

concerning direct substitution, that, ``except as provided in

subsection (c) of this section (sourcing area approval process),'' a

person may not purchase unprocessed federal timber originating from

west of the 100th meridian in the contiguous 48 States if, ``(A) such

unprocessed timber is to be used in substitution for exported

unprocessed timber originating from private lands; or (B) such person

has, during the preceding 24-month period, exported unprocessed timber

originating from private lands.'' 16 U.S.C. 620b(a)(1) (emphasis

added).

The prohibition in subsection (A) is further defined in the Act.

Section 620(e)(8) states that, ``[t]he acquisition of unprocessed

timber from Federal lands west of the 100th meridian in the contiguous

48 States to be used in `substitution' for exported unprocessed timber

originating from private lands means acquiring unprocessed timber from

such Federal lands and engaging in exporting, or selling for export,

unprocessed timber originating from private lands within the same

geographic and economic area.'' (emphasis added) The underlined portion

of the definition is virtually identical to the prohibition in section

620b(1)(A). The prohibition in subsection (B) is much broader, and, by

its own terms, prohibits the purchase of federal timber and the export

of private timber in the past 24 months, without reference to the same

geographic and economic area.

The Act provides that an approved sourcing area is an exemption

from the prohibitions in subsection (a) of 16 U.S.C. 620b, in addition

to those prohibitions as they relate to indirect substitution in

subsection (b). The section concerning sourcing areas states that,

``[t]he prohibitions contained in subsections (a) and (b) of this

section shall not apply with respect to the acquisition of unprocessed

timber originating from Federal lands within a sourcing area west of

the 100th meridian in the contiguous 48 states approved by the

Secretary * * *'' 16 U.S.C. 620b (emphasis added). In terms of the

prohibition in section 620b(a)(1)(A), an approved sourcing area is the

only structure provided by the Act to show that purchasing unprocessed

federal timber and exporting unprocessed private timber is not

occurring within the same economic and geographic area. (For example, a

person who had not exported within the past 24 months, but began

exporting after purchase of the unprocessed federal timber, would need

a sourcing area within which to purchase the federal timber in order to

demonstrate that the export and federal purchase areas were

geographically and economically separate.) In terms of the prohibition

in section 620b(a)(1)(B), a sourcing area is required if a person who

had exported within the past 24 months in the west wanted to purchase

unprocessed federal timber. Because of the specific statutory provision

prohibiting the purchase of unprocessed federal timber and the export

of private timber without limitation to the ``same geographic and

economic area,'' the Department agrees that there is no need for the

second, broader definition of that term, and has deleted that

definition from the rule.

The Department does not agree that the term ``private lands''

should not be limited to west of the 100th meridian in the contiguous

48 states. While the Act does not specifically define ``private lands''

as being west of the 100th meridian in the contiguous 48 States, the

Act must be implemented in a manner that gives meaning to all of the

provisions of the Act. The Act concerns transactions west of the 100th

meridian in the contiguous 48 States. To interpret private lands

without such a limitation would mean that export in the previous 24

months from anywhere in the United States (and possibly even export

from private lands in a foreign country) would disqualify a person from

purchasing unprocessed federal timber, pursuant to 16 U.S.C.

620b(a)(1)(B). There is nothing in the Act to suggest such a broad

prohibition. No change in the rule is necessary in response to this

comment.

Sourcing Area

Comment. Several respondents suggested that a definition of

``sourcing area'' be included in the rules.

[[Page 46898]]

Response. The Department concurs that a definition of ``sourcing

area'' is desirable. The definition includes the requirement that the

sourcing area be economically and geographically separate from any

geographic area from which the persons harvests private timber for

export, pursuant to the requirement in the Act. 16 U.S.C. 620b(c)(3).

Further, the interim rule required sourcing area applicants to include

in the map of the sourcing area boundary both Federal and private lands

that source the mill that was the subject of the initial applications.

The Department has adopted this requirement in the definition of

sourcing area. The Act requires the Secretary to consider the ``timber

purchasing patterns, on private and Federal lands'' in the

determination of the sourcing area boundary (16 U.S.C. 620b(c)(3)). If

private lands were not included in the sourcing area boundary, the

Secretary could not establish that the sourcing area is geographically

and economically separate from the area where the sourcing area holder

or applicant harvests private timber for export as required by the Act.

Otherwise, private lands sourcing the mill could be the same lands from

which the sourcing area holder or applicant harvests timber for export.

The definition of sourcing area is as follows: ``Sourcing area means

the geographic area approved by the Secretary which includes a person's

timber manufacturing facility and the private and Federal lands from

which the person acquires or intends to acquire unprocessed timber to

supply such facility; a sourcing area must be geographically and

economically separate from any geographic area from which that person

harvests for export any unprocessed timber originating from private

lands.''

Substitution

The proposed rule included the definition of substitution found in

section 493(8) of the Act (16 U.S.C. 620e(8)). However, analysis of the

comments and preparation of the final rule, specifically, the comments

on the definition of ``same geographic and economic area'' discussed in

the preamble, revealed that this definition applies only to one of the

substitution prohibitions in the Act. Under the section entitled,

``Limitations on the substitution of unprocessed Federal timber for

unprocessed timber exported from private lands (a) Direct

substitution'' the Act lists two prohibitions. The section states that,

except as provided in subsection (c), the sourcing area approval

process, no person may purchase directly from the United States

unprocessed timber originating from federal lands west of the 100th

meridian in the contiguous 48 States if, ``(A) such unprocessed timber

is to be used in substitution for exported unprocessed timber

originating from private lands; or (B) such person has, during the

preceding 24-month period, exported unprocessed timber originating from

private lands.''

16 U.S.C. 620e(8) further defines the prohibition in

Sec. 620b(1)(A). The definition does not state, ``Substitution means *

* *,'' but rather, uses a phrase virtually identical to the prohibition

in section 620b(1)(A), and states what that phrase means: ``The

acquisition of unprocessed timber from Federal lands west of the 100th

meridian in the contiguous 48 States to be used in `substitution' for

exported unprocessed timber originating from private lands means

acquiring unprocessed timber from such Federal lands and engaging in

exporting, or selling for export, unprocessed timber originating from

private lands within the same geographic and economic area.'' (Emphasis

added)

A need to modify the definition of substitution to fully reflect

all of the substitution prohibitions in 16 U.S.C. 620b was recognized.

Therefore, the definition of substitution has been modified as follows.

First, the definition of substitution has been modified to include

both prohibitions found in section 620b(a), as further defined in

section 620e(8). That is, a person violates the prohibition against

substitution if such person acquires, directly or indirectly,

unprocessed timber from Federal lands west of the 100th meridian in the

contiguous 48 States and engages in exporting or selling for export,

unprocessed timber originating from private lands within the same

geographic and economic area, pursuant to section 620b(a)(1) (A), as

further clarified in section 620e(8), or such person has, during the

preceding 24-month period, exported unprocessed timber originating from

private lands, pursuant to section 620b(a)(1)(B).

Second, the definition of substitution has been modified to close a

loophole, in order to heed the Act's intent regarding the substitution

prohibitions. The proposed rule's list of prohibitions did not limit

when the purchase of unprocessed Federal timber could occur if there is

subsequent exporting, unlike the 24-month limit on exporting that

precedes the purchase of unprocessed Federal timber. The prohibitions

did not prevent unprocessed Federal timber purchased before the export

of unprocessed private timber from being substituted for the

unprocessed private timber. To comply with the Act's prohibitions, a

person will be committing a violation if the person engages in export,

or selling for export, unprocessed timber originating from private

lands during any calendar year within the same geographic and economic

area that a person has unprocessed Federal timber in the person's

possession or under contract. Calendar year has been adopted as the

appropriate time period because it provides a consistent time period

and is familiar to many purchasers who have operated under the prior

substitution regulations.

Third, for clarity, the definition of substitution has been

modified to include one of the prohibitions against substitution

included in the proposed rule in Sec. 233.189. Substitution occurs when

a person purchases unprocessed Federal timber and sells unprocessed

private timber that requires domestic processing to a third party if

the third party or successive parties export the private timber. The

third party or successive parties may not export such timber. The

prohibition has been modified to clarify that the private timber that

may be subject to a substitution violation is that timber that requires

domestic processing. In this way, the private timber that may be

subject to a substitution violation is identified.

In summary, the modified definition of substitution is as follows:

``Substitution'' occurs when: (1) A person acquires, directly or

indirectly, unprocessed timber from Federal lands west of the 100th

meridian in the contiguous 48 States and engages in exporting or

selling for export, unprocessed timber originating from private lands

within the same geographic and economic area; or (2) a person acquires,

directly or indirectly, unprocessed timber from Federal lands west of

the 100th meridian in the contiguous 48 States and, during the

preceding 24-month period, exported unprocessed timber originating from

private lands; or (3) a person exports or sells for export, unprocessed

timber originating from private lands within the same geographic and

economic area in the same calendar year that the person has unprocessed

timber originating from Federal lands in the person's possession or

under contract; or (4) a person purchases, directly or indirectly,

unprocessed timber originating from Federal lands if such person sells

or otherwise transfers unprocessed timber that originates from private

lands west of the 100th meridian

[[Page 46899]]

in the contiguous 48 States and that requires domestic processing, to a

third party if that third party or successive parties export that

unprocessed private timber. A third party or successive parties who

acquire such unprocessed timber that originates from private lands west

of the 100th meridian in the contiguous 48 States and that requires

domestic processing may not export such timber.

Transfer

Comment. One respondent was unsure whether ``transfer'' was limited

to transfer of ownership.

Response. The definition of ``transfer'' means to pass title ``or

otherwise convey''; it is not limited to the transfer of ownership. No

change in the definition is necessary.

Willfully, Willful Disregard, and Disregard

Comment. Several respondents criticized the definitions of willful

and willfully disregard for not including the requirement that the

person intended to violate the Act or its implementing regulations. One

respondent stated that, while the rule defines the terms as requiring

the general intent of intentionally violating an act that is

prohibited, the Act requires that these terms include the specific

intent of violating the Act.

Response. The Department does not agree with these comments.

Defining ``willfully'' or ``willful disregard'' as a specific intent to

violate a statute or regulations is a standard used in criminal law.

The definition of ``willfully'' or ``willful disregard'' in the context

of civil penalties is a less stringent standard. See, e.g., Brock v.

Morello Brothers Construction, Inc., 809 F.2d 161, 164 (1st Cir. 1987).

However, the Department is modifying the definitions of ``willfully''

and ``willful disregard'' to follow more closely the Supreme Court's

decision in McLaughlin v. Richland Shoe Co., 486 U.S. 128 (1988). In

that case, the statute of limitations for a willful violation of the

Fair Labor Standards Act (FLSA) extended the statute of limitations

from two to three years. The Court stated that a party had committed a

willful violation if the party knew or showed reckless disregard for

the matter of whether its conduct was prohibited by the statute.

McLaughlin, 486 U.S. at 133, citing Transworld Airlines, Inc. v.

Thurston, et al., 469 U.S. 111 (1984). The party need not know that the

conduct is unlawful, but must at least show indifference to the rules.

Brock, 809 F.2d at 164, citing Thurston. The Supreme Court in

McLaughlin favored this stricter standard over a less stringent

standard followed in some of the case law, given the distinction in the

FLSA between the statute of limitations for ``ordinary'' violations and

that for willful violations. McLaughlin, 486 U.S. at 132.

Likewise, in the Act, there is an appreciable difference in the

amount of penalty that may be assessed for a willful violation, or a

violation committed with willful disregard ($500,000), and violations

committed either in disregard or by a person who ``should have known''

($75,000 and $50,000, respectively). Therefore, the Department has

changed the definition of willfully and willful disregard to mean

committing an action that a person knew or showed reckless disregard

for the matter of whether the person's conduct was a violation of the

Act (or its implementing regulations, in the case of ``willfully'').

Comment. One respondent stated that the definition of disregard is

too broad, and should also include specific intent.

Response. The rule's definition of disregard is taken from Black's

Law Dictionary, 5th Ed.: ``to ignore, overlook, or fail to observe''

any provision of the Act. Intent is not a prerequisite to committing a

violation ``in disregard'' of the Act or its implementing regulations.

Such a definition would render the definition of willfully and willful

disregard meaningless. No change has been made in the rules in response

to this comment.

The standards of ``disregard'' and ``should have known'' are

similar to the degrees of negligence. That is, they differ in the

``degree of inattention'' with which the actor commits an act.

``Disregard'', is more than ``simple inadvertence.'' The Department

believes that the civil penalties may be understood more clearly if

they are presented together. Therefore, the Department has placed all

of the standards for civil penalties under the heading, ``Civil

penalties.''

In addition to the aforementioned changes, the Department has made

minor technical and editorial changes to other definitions within this

section to improve clarity; these changes have no substantive effect.

Section 223.187 Determination of Unprocessed Timber

The definition of unprocessed timber in the Act refers to minimum

standards and grades of lumber. In order to determine that these

standards have been met, the Department proposed in Sec. 223.187 that

the shipper of record possess a legible copy of a lumber inspection

certificate issued by a lumber inspection/grading organization

generally recognized by the industry as setting a selling standard.

This certificate would be in the shipper's possession for each shipment

and be available for inspection upon request of the Forest Service.

Comment. Several persons objected to the requirement that products

be ``manufactured for a specific order,'' stating that commonly ordered

products generally are produced without specific orders and stored in

inventory. This practice ensures that production need not be curtailed

during slow periods and that companies can respond quickly to

subsequent orders for products.

Response. The Department concurs with these respondents that

Sec. 223.187(a)(1)(ii) needed revision for clarity. It is important for

enforcement of the Act, not that products in a shipment have been

manufactured for a specific order, but that the products are only

intended to be used in the form shipped, and not to be remanufactured

into other products in the foreign country. Therefore, in response to

this comment, Sec. 223.187(a)(1)(ii) in the final rule has been revised

to require that the shipper of record have available for Forest Service

inspection a certificate certifying to the intended use of the shipment

or order. Likewise, a certification requirement has been added for

pulpwood bolts, pursuant to Sec. 223.187(a)(8), to insure that the

intent of processing the bolts into pulp is met. These certifications

are not required if the timber obtained may be exported (for instance,

because the timber originates from private lands from which the timber

may be exported) without regard to intended use of the shipment or

order. This has been clarified in Sec. 223.187(a)(1).

For ease of administration, the specific certification language has

been provided in Sec. 223.187(b) (2) and (3). The person signing the

certificate certifies the shipping order number, the date of that order

and the intent that the material will be used as shipped or processed

into pulp and will not be manufactured into other products. The

certifier also certifies that the certification is made with full

knowledge of the Act and its implementing regulations. Further, the

certifier certifies that exporting unprocessed timber originating from

Federal lands or exporting unprocessed timber from private lands that

is required to be processed domestically is a violation of the Act and

its implementing regulations, and that signing the certificate without

abiding by its contents is a violation of the False Statements Act.

Regarding a

[[Page 46900]]

corporation, only a person authorized in writing by the Chief Executive

Officer to sign certificates pursuant to 36 CFR 223.187(a)(1)(ii) may

sign such certificates. The Forest Service must receive the original,

written authorization from the Chief Executive Officer, pursuant to 36

CFR 223.187(b)(5), before a person is authorized to sign the

certificates.

Comment. Three respondents suggested that instead of requiring that

the shipper of record have in its possession a certificate issued by a

lumber inspection/grading bureau, the provisions of the Act related to

processed products could be met simply by either requiring the shipper

of record to have the certificate available for inspection, or

declaring that the products in a particular shipment were inspected,

graded, and found to meet the requirements of processed products under

the Act, or requiring the shipper of record to certify that ``The

material in this shipment is conveyed pursuant to the attached order

and is not intended for remanufacture.''

Response. The Department is requiring that the shipper of record

have the certificate issued by the lumber inspection/grading bureau in

his/her possession, available for inspection, i.e., readily available,

not that the shipper of record necessarily have the certificate on his/

her person. Regarding the declaration and the certificate, the

Department agrees that these are necessary to ensure that the shipper

of record understands that the shipment is not intended for

remanufacture. The proposed rule required such a certificate in

Sec. 223.187(a)(1)(ii). In order to clarify this requirement, the final

rule has amended this section to include the specific certification

language that should be used. This certification does not substitute

for the lumber inspection certificate. This certificate assures the

Department, by the persons responsible for lumber inspection and

grading, that the lumber meets the grading requirements of the Act at

16 U.S.C. 620e(7)(B).

Comment. One person stated that requiring separate (lumber grade)

inspections of each shipment would deter processed product exports,

contrary to the intention of Congress. The respondent also stated that

products scheduled for one shipment that are delayed or diverted to

another should not require a second certificate.

Response. The Department disagrees with this comment. Certified

lumber inspection certificates are a common component of shipment

documentation and, therefore, pose no deterrence to lumber exports. The

Department accepts the certificate for compliance and enforcement

purposes in lieu of breaking apart bundles of lumber prepared for

export and individually grading each lumber piece, which certainly

would deter exports.

Further, a lumber inspection certificate is required for each

shipment or order, regardless of how the material in the shipment came

to that shipment. This requirement is necessary for effective

inspection of various shipments.

Comment. Several respondents stated that Sec. 223.187 should make

clear that restrictions and documentation apply only to material to be

exported, not to products sold for domestic consumption, regardless of

the degree of manufacture.

Response. The Department agrees with this comment. The Act does not

place restrictions on products intended to be sold or manufactured

domestically. The Department believes that the rule clearly states that

the requirements in Sec. 223.187 apply to material to be exported.

Therefore no revisions are necessary in response to this comment. It

should be noted, however, that the definition of unprocessed timber

includes the items listed in Sec. 223.187 that are indistinguishable

from unprocessed timber for purposes of the record keeping and marking

requirements in Secs. 223.193-.195.

Comment. Several respondents expressed concern that lumber that

does not meet the clear grade standard will cause them significant

practical problems, particularly for products up to 12 inches thick

which were manufactured as exportable clear grades but, upon

inspection, failed to meet the standard. These respondents felt the

rule would force them to remanufacture such lumber into exportable

products up to 8\3/4\ inches thick, or into other products.

Response. Congress included in the Act language permitting the

export of clear grade timbers (cants or flitches) up to 12 inches thick

and cants of a lesser grade up to 8\3/4\ inches thick intended for

remanufacture. Export R List Grading and Dressing Rules permit up to 10

percent of the pieces in a given lot to be outside the specified lumber

grade for the lot. Therefore a lot of clear grade 12 inch cants may

contain individual cants that do not meet this grade and still qualify

for export, provided the lesser grade cants do not make up more than 10

percent of the total lot. If a given lot of 12 inch cants is outside

this accepted grading tolerance level, the exporter will have to remove

the below grade cants from the lot and re-saw them to not more than

8\3/4\ inches in thickness before exporting or be in violation of the

Act. Accordingly, no change in the rule as proposed is necessary.

Comment. Several respondents stated that the final regulations

should allow export of clear lumber meeting the referenced grades in

thicknesses up to and including 12 inches nominal. These respondents

stated that a nominal 12 inches would permit cants cut from fresh cut

green trees to be sawn slightly thicker than a true 12 inches to allow

for shrinkage back to 12 inches as the wood dries.

Response. The Department declines to adopt this comment. The Act

states specifically the maximum thickness of a cant meeting clear grade

specification permitted to be exported without further processing is 12

inches (16 U.S.C. 620e(7)(ii)).

Comment. One respondent commented that a producer should be

permitted to seek export customers who can use mismanufactured products

as is, without further manufacture.

Response. Section 493(7)(B) of the Act (16 U.S.C. 620e(7)(B))

states explicitly the lumber grades and maximum timber sizes that may

be exported for further manufacturing outside the United States. In

accordance with the Act, products needing further processing before use

must meet these grades and size restrictions before being exported. No

change in the final rule is made in response to this comment.

Comment. Two respondents stated that the rule also should expressly

permit the chipping of any Federal log or portion of a Federal log at

domestic operations and that any log which is used solely for domestic

chipping be considered a pulp or cull log even if it meets technical

specifications for some other grade. Another respondent suggested that

a load of logs consisting mainly of chip logs with some higher-grade

logs mixed in should be classified as chip logs, even if all or some of

the higher-grade logs are processed into some other product. This would

prevent waste and encourage the most efficient use of these Federal

logs.

Response. The rule does not preclude the chipping of any log

obtained from Federal lands. However, the Act at 16 U.S.C.

620e(7)(B)(ix), exempts only pulp and cull logs from the meaning of the

term ``unprocessed timber,'' with regard to logs that are processed at

domestic pulp mills, domestic chip plants or other domestic operations

for the purpose of conversion of the log into chips. Congress did not

state that any log converted into chips is exempted from the

restrictions on unprocessed

[[Page 46901]]

timber. Rather, Congress specifically excepted pulp and cull logs if

they are processed into chips.

To assure that pulp and cull logs that may be indistinguishable

from unprocessed timber are not subsequently exported, they must be

identified, pursuant to the revised definition of unprocessed timber in

36 CFR 223.186 of this rule.

Determination of Unprocessed Western Red Cedar

Since publishing the proposed rule, the Bureau of Export

Administration, Department of Commerce, published a proposed rule on

June 3, 1991 (56 FR 25054), and a final rule on January 6, 1993 (58 FR

487), amending the Export Administration Regulation at 15 CFR 777.7,

governing the export of unprocessed western red cedar. The Department

of Commerce's final rule revises the definition of processed western

red cedar to exclude any individual piece of western red cedar having a

cross section that exceeds 2,000 square centimeters (310 square

inches), regardless of grade. This change makes the United States'

western red cedar export restrictions consistent with those of the

Providence of British Columbia, Canada. Section 223.187(c) of this rule

has been revised to conform with the change in the Department of

Commerce's rule governing export of western red cedar.

Comment. One respondent mentioned the proposed rule published by

the U.S. Department of Commerce and urged that the U.S. and Canadian

Governments develop a standard definition for all species of

unprocessed timber.

Response. Section 491(d)(5) of the Act (16 U.S.C. 620c(d)(5)),

which imposes restrictions on exports of unprocessed timber originating

from State or other public lands, states ``nothing in this section

shall be construed to supersede the provisions of section 7(i) of the

Export Administration Act of 1979 (50 U.S.C. App. 2406(i)).'' In order

to provide a consistent definition of western red cedar for Federal as

well as State and other public lands, and to provide for consistent

exporting procedures, Sec. 223.187 of the proposed rule included the

definition of western red cedar taken from the timber export

regulations established by the Secretary of Commerce at 15 CFR 777.7,

which implement section 7(i) of the Export Administration Act, as

amended. Discussions on standard definitions of unprocessed timber for

species other than western red cedar have not been undertaken as of

this date. However, the Act specifically defines unprocessed timber in

section 493(7)(A) and (B), and is sufficient for the purposes of this

rule making.

In order to monitor any indirect substitution violations, the

Department has added a certificate to a new paragraph (d) similar to

the certificate for Sec. 223.187(b) with regard to the intent of the

shipper of record. The certificate requires the shipper of record to

identify whether the product is intended for end product use, and to

acknowledge that only processed western red cedar that is intended for

end product use is exempt from the prohibition against indirect

substitution. Western red cedar products that are ``processed'' may be

exported, but they are not excluded from the prohibition against

indirect substitution unless they are intended for end product use.

Without this certificate, the Department has no way of enforcing the

exemption from indirect substitution allowed for ``finished products''

of western red cedar, because the Department could not determine by

inspection whether a product is intended for end product use. The

certificate reads as follows: ``I certify that the products in the

shipment identified by my shipping order number ________, dated

________, are manufactured in accordance with the attached order from

______ (buyer) ______ of ______ (address) ______, numbered ________ and

dated ________, are / are not intended for end product use. I

understand that only western red cedar products that are finished

products are exempt from the prohibition against indirect substitution

in the Forest Resources Conservation and Shortgage Relief Act of 1990

(16 U.S.C. 620b(b)(1)) and its implementing regulations. I make this

certification with full knowledge and understanding of the export and

substitution restrictions of the Forest Resources Conservation and

Shortage Relief Act of 1990 (16 U.S.C. 620, et seq.) (Act) and its

implementing regulations. I fully acknowledge and understand that to

require western red cedar under the indirect substitution exemption in

section 490(b)(1) of the Act (16 U.S.C. 620b(b)(1)) for purposes other

than domestic processing into finished products will be a violation of

this Act, its implementing regulations, and the False Statements Act

(18 U.S.C. 1001), and may subject me to the penalties and remedies for

such violation.'' The signatory process and Chief Executive Officer

authorization of the signatory is the same as for the certificate in

Sec. 223.187(b).

Otherwise, the Department has made several changes to the text as

proposed for technical and editorial clarity, but such changes have no

substantive effect.

Section 223.188 Prohibitions Against Exporting Federal Timber

This section of the proposed rule was identical to that in the

interim rule. Section 489 of the Act (16 U.S.C. 620a) continues the

prohibition against the export of timber from Federal lands west of the

100th meridian in the contiguous 48 States that has been renewed

annually through the Appropriations Act for Interior and Related

Agencies.

Comment. Only one comment was received on this section. The

respondent stated that ``Our company opposes export of logs regardless

of origin.''

Response. The Act does not prohibit exporting of logs from private

lands as long as logs from Federal lands are not substituted for those

exported private logs in the domestic market. The Department has no

authority to restrict private log exporting allowed by the Act;

therefore, this section of the final rule is unchanged.

Section 223.189 Prohibitions Against Substitution

This section of the proposed rule also was almost identical to that

in the interim rule; the proposed rule added a paragraph (a)(3) to

Sec. 223.189. This section was repeated in the proposed rule to provide

readers with a comprehensive review of the Act's implementing

regulations and to provide for public comment on the interim rule.

Several changes have been made to clarify this section.

Section 490 of the Act (16 U.S.C. 620b) limits direct and indirect

substitution of unprocessed Federal timber for unprocessed timber

exported from private lands. Section 490(a) of the Act (16 U.S.C. 620b)

entitled ``Direct Substitution'') states that no person may purchase

directly from any Department or agency of the United States unprocessed

timber originating from Federal lands west of the 100th meridian in the

contiguous 48 States if:

(A) Such unprocessed timber is to be used in substitution for

exported unprocessed timber originating from private lands; or

(B) Such person has exported unprocessed timber originating from

private lands during the preceding 24-month period.

Proposed Sec. 223.189(a)(3) stated that no person may acquire

unprocessed timber from Federal lands if the person transfers

unprocessed timber originating from private lands west of the 100th

meridian in the contiguous 48 States to a third person, and that third

party or successive parties export that unprocessed private timber. The

third

[[Page 46902]]

party or successive parties who acquire such unprocessed timber

originating from private lands west of the 100th meridian in the

contiguous 48 states may not export such timber.

Proposed paragraph (a)(3) would reduce the potential for violations

of the substitution prohibition. The potential is particularly high in

multiple transfers of unprocessed timber originating from private lands

in which any of the parties acquire or wish to acquire Federal timber.

The paragraph would protect the person who acquires unprocessed Federal

timber and transfers unprocessed private timber from a possible

substitution violation by making it unlawful for the person acquiring

the private timber to export it.

The Act exempts from these prohibitions persons with historic

export quotas. The 24-month restriction is waived by a certification

process described in Sec. 490 of the Act, and Sec. 223.189 (c) and (d)

of the proposed rule.

Nineteen public comments were received on this section.

Comment. Several respondents said that the certification language

should indicate that the individual signing the certification on behalf

of a corporation is doing so in his or her capacity as an officer or

agent of that corporation, not in a personal capacity.

Several respondents also commented that a corporation's Chief

Executive Officer should not necessarily be required to sign the

certification, since the Chief Executive Officer may have limited

knowledge of the firm's acquisition and disposition of unprocessed

timber. These respondents suggested that a designated officer or agent

of the corporation be permitted to sign the certification on behalf of

the corporation.

Response. The certification language holds the corporate officer

signing the certification liable in a corporate capacity, not a

personal capacity. The certificate must be signed by someone with

authority to bind the corporation. The Department prefers to have the

signature of the official with clear authority to bind the corporation,

the Chief Executive Officer: it would be difficult for the Department

to determine if officers, other than the Chief Executive Officer, could

bind the corporation. This requirement is similar to the requirement in

36 CFR 223.171(b)(6)(1992), issued pursuant to the Federal Timber

Contract Payment Modification Act (16 U.S.C. 618), with which

participating timber purchasers complied. In that regulation, the Chief

Executive Officer is required to sign a statement for a corporation

certifying the accuracy of information submitted. The Chief Executive

Officer need not have personal knowledge of the information which he or

she is certifying, but must ascertain that the information is true,

complete, and accurate to the best of his or her knowledge and belief.

Comment. One respondent wrote that certifications should not be

binding if a person or corporation later decides to stop buying Federal

timber.

Response. The Department declines to adopt this proposal. As

discussed earlier, the final rule adopts and amended the definition of

``substitution'', which states that substitution occurs when a person

exports during any calendar year in which the person has Federal timber

in the person's possession or under contract within the same geographic

and economic area.

Comment. One respondent objected to implementation of the interim

rule before the public had a chance to comment on it.

Response. The Department would have preferred prior notice and

comment; however, for the reasons set forth in the preamble to the

interim rule, immediate implementation was necessary. Comment on the

interim rule was provided for in the proposed rule. These comments have

been analyzed in this rule.

Comment. Three respondents asked that provisions for requesting

waivers of 24-month prohibition against purchasing Federal timber

following export of private timber indicate when and under what

circumstances waivers will be granted.

Response. The waiver of the 24-month prohibition was available only

to applicants applying by December 20, 1990. Acceptance or rejection of

waivers depended upon the Administrative Law Judge's ruling on sourcing

area applications. That ruling has occurred, and applicants have been

notified of those decisions. In addition, the Forest Service has sent

letters advising each applicant of the status of its sourcing area

application and request for waiver. Therefore, no change in the rule is

necessary. Persons whose waivers were disapproved are not bound by the

request for the waiver (36 CFR 223.189(g)(2)).

Comment. One person commented that the rule should clarify that

persons signing the waiver of the 24-month prohibition, which requires

export to cease for three years, may not export within the sourcing

area for as long as the sourcing area is approved.

Response. The Department agrees with this comment. Therefore, in

response to this comment, the Department has added a sentence to

proposed paragraph (f), now paragraph (5) of Sec. 223.189(f), stating

that persons signing the waiver, like all sourcing area holders, may

not export unprocessed private timber originating from within the

sourcing area.

Comment. Several respondents asked for clarification regarding

whether a person who may not purchase unprocessed Federal timber may

purchase unprocessed private timber from a person who may purchase

unprocessed Federal timber.

Response. A person who may purchase unprocessed Federal timber may

purchase unprocessed private timber from someone who may purchase

unprocessed Federal timber, provided that the person purchasing the

unprocessed private timber does not export the private timber if the

timber must be domestically processed (e.g., if the private timber

originates from within a sourcing area).

Proposed paragraph (a)(3) has been rewritten to clarify that a

person may not purchase unprocessed Federal timber in the west if the

person transfers unprocessed private timber from the west that requires

domestic processing, to a third party, if that party or successive

parties exports the unprocessed private timber. The last sentence

concerning the prohibition against third or successive parties

exporting such timber has also been modified to state that the

restriction applies to private timber that requires domestic

processing. The restrictions in paragraph (a)(3) are meant only to

apply to timber requiring domestic processing, to follow the intent of

the Act, which provides certain exemptions allowing for the purchase of

unprocessed Federal timber and the export of unprocessed private

timber.

Comment. Several respondents expressed concern that they could lose

their right to buy Federal timber and be in violation of the

substitution prohibitions, if a party to whom they sell unprocessed

Federal timber exports private timber.

Response. Section 492(a)(2) of the Act (16 U.S.C. 620d(a)(2))

states that a person who transfers unprocessed Federal timber will

provide to the person acquiring such timber a written notice regarding

the Federal origin of the timber, and receive from such party written

acknowledgment of the notice and an agreement to comply with the

requirements of the Act. 36 CFR 223.193(b) implements section 492(a)(2)

of the Act (16 U.S.C. 620d(a)(2)), and provides procedures to follow

when timber from Federal lands is transferred

[[Page 46903]]

to another person. To implement this provision, the Department has

developed forms intended to relieve the seller of liability if

subsequent buyers violate the export or substitution restrictions of

the Act. A seller or buyer who cannot produce the appropriate document

upon request could be found in violation of the Act. Accordingly, no

change in the rule is necessary to respond to the concern.

Comment. One respondent expressed concern that the rule makes the

Federal purchaser who sells private timber responsible for the acts of

subsequent purchasers of private timber. One respondent suggested that

persons with sourcing areas who sell private timber originating from

the sourcing area be required to notify the buyer that such timber must

be domestically processed.

Response. In order to protect Federal purchasers from the actions

of subsequent private purchasers, the proposed rule included an

acknowledgment of the prohibition, and an agreement to notify

subsequent holders of the timber and marking requirements for

unprocessed private timber. These requirements have not been changed in

the final rule. 36 CFR 233.194. The Department has clarified

Sec. 223.189(a)(3) to state that a person may not purchase unprocessed

Federal timber if the person exports or sells for export unprocessed

private timber that requires domestic processing.

Comment. In connection with private timber monitoring, one

respondent asked whether the prohibition against a Federal purchaser's

selling private timber for export applies when the Federal purchaser

sells ``cutting rights'' to the private timber. This respondent also

asked if the prohibition applies when the Federal purchaser sells

private land and timber.

Response. Since ``cutting rights'' are basically a timber sale,

private timber acquired in this manner would be subject to the

prohibition against substitution. If land with timber on it is sold,

the purchaser would be evaluated separately from the seller, unless the

purchaser and the seller are the same ``person'' under the definitions

in the Act and in these regulations (for instance, if they are

affiliated). However, if the land is sold, and the seller reacquires

the cut over land within 24 months of the original sale, that person

would be subject to the prohibition against substitution. Current

definitions in the statute and the rules govern this situation. No

change to the rule is necessary in response to this comment. It should

be noted that the sale of land encompassing part or all of a sourcing

area, and/or the sale of the sourcing area facility, being a change in

circumstances, will trigger a review of the sourcing area.

Comment. Several respondents suggested that the rules exempt

surplus species from substitution prohibitions.

Response. The Department agrees with this comment. While the Act

specifically exempts surplus species from the prohibition against

export of unprocessed Federal timber, it does not exempt surplus

species from the prohibition against substitution. However, the intent

of the prohibition against substitution supports the exemption of

surplus species from the prohibition against substitution. The

Conference Report states that, ``[t]he general reason for limiting

substitution is to restrict companies from purchasing Federal timber

for their mills and then exporting private timber from the same general

area.'' (Conf. Rpt. at 252.) Presumably, the private timber that is

exported would be processed in the mill if Federal timber could not be

purchased for that purpose. A species may be declared surplus to

domestic needs if there is no domestic market for the species. If there

is no domestic market, there would be no manufacturing of that species

in domestic mills. The purchase of the surplus species would not

facilitate the purchaser's exporting of private timber by providing

Federal timber for the purchaser's mill. Therefore, there is no reason

to subject surplus species to the prohibition against substitution.

Accordingly, a new paragraph (a)(4) of Sec. 223.189 has been added to

the final rule to exempt surplus species from the prohibition against

substitution, and states: ``The prohibitions in paragraphs (a)(1)-(3)

shall not apply to specific quantities of grades and species of

unprocessed timber which the Secretary of Agriculture has determined to

be surplus to domestic manufacturing needs.''

Paragraph (a)(1) of the proposed rule (now paragraph (a)(1)(A)) has

been modified to reflect the modified definition of substitution.

Paragraph (a)(2) has been added to the prohibitions against

substitution to parallel when substitution occurs, pursuant to the

definition in Sec. 223.186. Paragraph (a)(2) concerns the prohibition

against exporting unprocessed private timber and purchasing unprocessed

Federal timber in the same geographic and economic area in the same

calendar year. Explanations of these modifications may be found in the

preamble discussion of the definition of substitution.

Paragraph (3) has been added to Sec. 223.189(e) to clarify that a

portion of National Forest System timber from Washington State is

exempt from the prohibition against indirect substitution, pursuant to

Sec. 223.203. Section 223.189(f) has been revised by adding paragraph

(4) to reflect the revised definition of substitution. The revised

definition of substitution includes the export of unprocessed private

timber during any calendar year that a person has unprocessed Federal

timber in possession or under contract.

Having considered the comments addressing Sec. 223.189, the

Department is adopting this section as proposed with the changes to the

provisions as discussed.

Section 223.190 Sourcing Area Application Procedures

Subsection 490(c) of the Act (16 U.S.C. 620b) requires the

Secretary of Agriculture to prescribe procedures for applying for

approval of a sourcing area. At a minimum, the procedures shall require

the applicant to state the location of private lands from which, in the

previous year, the applicant has harvested or otherwise acquired

unprocessed timber which was exported from the United States; and the

location of each timber manufacturing facility owned or operated by the

applicant within the proposed sourcing area boundaries from which the

applicant proposes to process timber originating from Federal lands.

The Act also requires that the Secretary provide the opportunity

for a hearing on the application and that approval or disapproval be on

the record.

Any sourcing area approval must be based on a determination by the

Secretary that the area includes the manufacturing facilities at which

the applicant expects to process the Federal timber, and that the area

is geographically and economically separate from any area from which

that person harvests for export any unprocessed timber originating from

private lands.

The Secretary also shall consider equally the timber purchasing

patterns of the applicant on private and Federal lands with those of

other persons in the same local vicinity and the relative similarity of

such purchasing patterns. The interim rule defined manufacturing

facilities in the ``same local vicinity'' as those facilities located

within 30 miles of the community where the applicant's facility is

located. However, the term ``same local vicinity'' may include more

distant communities if manufacturing facilities in those communities

depend on the same source of timber and have similar purchasing

patterns. Thus, the

[[Page 46904]]

relative similarity of purchasing patterns would be determined by

examining the location and similarity of unprocessed timber being

acquired for the affected facilities.

Nine respondents commented on this section of the rule.

Comment. Several respondents indicated that the final rule should

specify who may apply for a new sourcing area or request modification

of an existing sourcing area, and what time constraints might apply.

Response. The Department agrees with the suggestions to state who

may apply for a sourcing area. A person who is not an exporter, or is

not affiliated with a person who exports, may not apply for a sourcing

area. The Act states that the Secretary may approve a sourcing area if

the area where the applicant desires to purchase Federal timber is

economically and geographically separate from the area from which that

person ``harvests for export'' unprocessed private timber (16 U.S.C.

620b(c)(3)). The language is clearly geared towards current exporters.

Further, a person who does not export does not need a sourcing area.

In contrast, person need only ``desire'' to process Federal timber

in order to apply for a sourcing area (16 U.S.C. 620b(c)(3)). In fact,

a person could not both be processing Federal timber outside of an

approved sourcing area and exporting unprocessed private timber without

violating the prohibition against substitution. The ``desire'' to

process Federal timber may include the intent to acquire or become

affiliated with a mill that processes Federal timber. In the case of an

affiliation, the Department must have written confirmation that the

sourcing area applicant intends to acquire or affiliate with a mill

that processes Federal timber as soon as the sourcing area is approved.

This will prevent persons from obtaining a sourcing area when one is

not needed; in other words, when both processing Federal timber and

exporting private timber are not occurring. In order to clarify that

the ``desire'' to process Federal timber may include the intent to

acquire or become affiliated with a mill that processes Federal timber,

and that written proof of this intent is required when applying for a

sourcing area, the Department has expanded paragraph (a) for

Sec. 223.190 of the rule as follows: ``Subject to the restrictions

described in Sec. 223.189 of this subpart and, except as provided in

paragraph (b) of this section, a person who owns or operates a

manufacturing facility and who exports unprocessed timber originating

from private lands may apply for a sourcing area in accordance with the

procedures of this section. However, an owner/operator of a

manufacturing facility who exports unprocessed timber originating from

private lands may not possess or acquire unprocessed timber originating

from Federal lands unless the acquisition is within an approved

sourcing area. A person who intends to acquire or become affiliated

with a manufacturing facility that processes Federal timber and who is

an exporter may apply for a sourcing area. Written proof of the intent

to acquire or affiliate must be included in the sourcing area

application, signed by the applicant and the person or, in the case of

a corporation, the Chief Executive Officer, whose company the applicant

intends to acquire or affiliate with. This certification must be on

letterhead and must be notarized. A sourcing area application that the

Secretary determines would be approved will be granted tentative

approval pending final notification by the applicant of acquisition of

or affiliation with the manufacturing facility. The tentative approval

of the sourcing area will lapse unless the acquisition or affiliation

occurs within 30 days of the tentative approval of the sourcing area. A

sourcing area is not valid until final approval of the sourcing area.

The direct substitution prohibition did not apply to a person who

applied for a sourcing area on or before December 20, 1990. A request

for modification of an existing sourcing area shall trigger a review

pursuant to the procedures and restrictions in Sec. 223.191(e).''

Comment. One respondent suggested that marking a private timber

source on a map was adequate. Another respondent stated that the exact

location of timber sales for exported timber need not be identified.

Response. The Act requires that sourcing area applicants provide

the Secretary with the ``location of private lands from which such

person has harvested or otherwise acquired'' exported timber (16 U.S.C.

620b(c)(A)). While the Act does not require the identity of individual

timber sales, it does require the identity of the lands where timber

sales were purchased. No change in the rule is necessary.

Comment. Several respondents thought that sourcing area applicants

should be required to show where private and federal timber had been

acquired in the previous 24 months in order to provide information on

``timber purchasing patterns on private and federal lands of the

applicant.'' The Act requires consideration of this factor in the

determination of an economically and geographically separate sourcing

area. One respondent thought that sourcing area applicants should be

required to document that no private timber had been exported from

within the area that is the subject of the application, since the Act

provides for the sourcing area exemption if a person has not exported

unprocessed private timber from within the sourcing area in the

previous 24 months.

Response. The Department has records of timber sale purchases on

Forest Service lands, so the applicant need not provide this

information. An application encompassing lands administered by other

federal agencies would be reviewed by those agencies. As far as

information regarding private timber purchases, 16 U.S.C. 620b(c)(2)(A)

of the Act and Sec. 223.190(c)(1)(iii) of the interim rule (and this

final rule) require that applicants provide information on the location

of private timber purchases in the previous 12 months. The Forest

Service can verify these purchases and the purchases of others in the

area through Forest Service records and, in the case of private timber

purchases, through state harvesting permits, severance or yield tax

records, industrial safety records and by other means. The Department

believes that this information is sufficient to determine whether a

sourcing area is economically and geographically separate from an

applicant's exporting area.

However, the Department agrees that the Act requires that persons

with sourcing areas may not have exported unprocessed private timber

originating from private lands within the previous 24 months. To

clarify implementation of this requirement, the Department has amended

the requirement in paragraph (iii) of Sec. 223.190(c)(1) to read as

follows: ``The location of private lands within and outside the desired

sourcing area where the person has, within the 24 months immediately

preceding the date of the application, acquired unprocessed timber

originating from private land which was exported * * *.'' The Act

requires sourcing area applicants to provide ``at a minimum * * *

information regarding the location of private lands within the previous

year'' from which the person has harvested or otherwise acquired

unprocessed timber for export (16 U.S.C. 620b(c)(2)(A)). Given the

Act's requirement that no export has occurred within the sourcing area

in the previous 24 months, requiring information regarding private

timber purchases for the previous 24 months comports with

[[Page 46905]]

the Act's requirements. The Act's requirement of a year's worth of

information addresses the application process. Rather than obtaining

additional information from the applicant during the adjudication

process to determine whether exporting has occurred during the previous

24 months within the proposed sourcing area, the Department believes it

is more efficient to obtain all of the information at once. This

information is required for sourcing area applications submitted on or

after September 8, 1995. Further, the Department has added a sentence

to the certification that accompanies the sourcing area application in

Sec. 223.190(c)(4). The sentence reads as follows: ``I certify that I

have not exported unprocessed timber originating from private lands

within the boundaries of the sourcing area that is the subject of this

application in the previous 24 months.''

Comment. One respondent suggested that a map of haul roads used for

timber sourcing the manufacturing facility be included in the

application, and that the rule clarify that the application be public

information.

Response. The interim rule already required a map of the intended

sourcing area (36 CFR 223.190(c)(1)). The Department believes that this

is sufficient, along with the records of timber sale purchases, to meet

the Act's requirements without requiring that haul roads be identified.

The interim rule states that applications are not confidential

information (36 CFR 223.190(d)). The rule acknowledges that some

information may be deemed confidential under the Freedom of Information

Act. Therefore, the rule allows applicants to mark such information for

consideration of confidentiality. This information should not hinder

other parties in their review of sourcing area applications.

Comment. One respondent stated that overlapping sourcing areas of

different applicants caused concern regarding complexity of

administration.

Response. Each sourcing area application is adjudicated on its own

merits. As long as each sourcing area application meets the criteria in

the Act and the regulations, it will be approved. It is likely that

different applicants will have valid sourcing areas that overlap.

Overlapping sourcing areas will increase the complexity of

administration and will require strict accountability and tracking. No

change in the rule is necessary.

Comment. One respondent thought that the substantive standard for

evaluation of a sourcing area should be clearly stated.

Response. The Department believes that the standard for evaluation

was stated clearly in 36 CFR 223.190(h)(5) (now 36 CFR 223.190(i)) and

no change is necessary.

Comment. One respondent stated that the definition of ``same local

vicinity'' is too broad and does not accurately reflect the intent of

Congress. Another respondent said that the final rule should specify

that the applicants need only identify those competitors located within

30 miles known by the applicant to have similar sourcing patterns and

products. Several respondents said that the term ``same general

vicinity,'' found at 36 CFR 223.190(c)(2), should be defined. Another

respondent stated that the only reason ``same local vicinity'' seems to

encompass mills beyond 30 miles in the regulations is for notice and

commenting purposes; if the Department wants input from a broader

spectrum, it should change the notice requirements, but persons beyond

the ``same local vicinity'' should not be weighted equally with those

in the same local vicinity.

Response. The Act at 16 U.S.C. 620b(c)(3) requires that the

Secretary consider the timber purchasing patterns of the applicant as

well as other persons ``in the same local vicinity.'' In implementing

this requirement, the interim rule used the guidance in the Conference

Report and stated that ``same local vicinity'' is normally the

manufacturing facilities located within 30 miles of the community where

the applicant's manufacturing facility is located. However, this

definition alone is inadequate to cover the Act's requirement to

consider timber purchasing patterns, so the interim rule stated that

the ``same local vicinity'' may include more distant communities if

those communities are dependent on the same source of timber and have

similar purchasing patterns. Applicants are required to provide this

information, to the best of their knowledge, since they would be the

primary source of this information.

``Same general vicinity'' was a typographical error, which has been

corrected to read, ``same local vicinity.'' The notice requirement is

meant to notify those persons whose purchasing patterns would be

relevant to the sourcing area application. No change in the rule is

necessary.

Comment. One respondent suggested that only the predominant

activities of other mills should be considered in determining the

``relative similarity of purchasing patterns'' in 36 CFR

223.190(h)(5)(iii) (now 36 CFR 223.190(i)(3)). The respondent stated

that one-time purchase of federal timber should not be compared to a

dozen purchases by a competitor.

Response. Pursuant to the Act, the Department considers only

purchasing patterns. An anomalous sale would not be considered a

pattern. No change is necessary in the rule in response to this

comment.

Further review of the sourcing area procedure has indicated that

the similarity of products being produced by the applicant and other

manufacturing facilities in the same local facility, as specified under

paragraph (iii) of Sec. 223.190(h)(5) of the interim rule and proposed

rule (now paragraph (3) of Sec. 223.190(i)), is not significant in

determining the ``relative similarity of purchasing patterns.'' The

major factor needed to determine the similarity of purchasing patterns

is whether the timber that competing purchasers bid on and bought was

similar. This criterion was already included in paragraph (h)(5)(iii)

(now paragraph (i)(3)).

Accordingly, paragraph (i)(3) of Sec. 223.190 in the rule has been

revised to eliminate consideration of the similarity of products being

produced by competing facilities in the same local vicinity as a factor

to determine the similarity of purchasing patterns.

Comment. Several respondents stated that sourcing areas should be

approved as requested if there is no ``credible opposition'' to the

application.

Response. The Act establishes specific criteria by which the

Secretary may approve an application. The Secretary may approve an

application ``only if'' the Secretary determines that the requested

sourcing area is economically and geographically separate from the area

from which the applicant harvests private timber for export (16 U.S.C.

620b(c)(3)). Thus, regardless of the extent of opposition to an

application, the Secretary must make an independent determination using

the standards established by the Act.

Comment. Several respondents stated that applicants should be

allowed to provide supplemental information after submission of the

application if other parties raise issues or questions about the

application.

Response. The Act requires the sourcing area determinations to be

made ``on the record and after an opportunity for a hearing'' (16

U.S.C. 620b(c)(3)). This process, pursuant to the Administrative

Procedure Act (5 U.S.C. 554), requires the Department to give parties

an opportunity for submission and consideration of facts, arguments and

offers of settlement when time and

[[Page 46906]]

the public interest allow. Applicants must submit the information

required by the Act and implementing regulations in order for the

application to be processed, regardless of additional information that

may be supplied pursuant to the formal adjudication.

Comment. One respondent suggested that this section should state

that a sourcing area applicant need not submit a sourcing area

application to the Bureau of Indian Affairs, even if the Bureau's lands

are part of the proposed sourcing area.

Response. In defining ``Federal lands,'' Section 493 of the Act (16

U.S.C. 620e) specifically excludes Indian and Native Corporation lands.

This exclusion is repeated in Sec. 223.186 of this rule. The Department

feels these exclusions are adequate and declines to repeat these

exclusions in this section of the rule.

Comment. Another respondent suggested that this section be revised

to limit the persons entitled to request a hearing to the applicant and

other applicants for the same competing sourcing area.

Response. The Department disagrees. Section 490(c)(3) of the Act

directs the Secretary to approve or disapprove an application, ``on the

record and after an opportunity for a hearing.'' Use of this specific

language places the Act under the provisions of the Administrative

Procedures Act, which requires public involvement in the decision-

making process.

Comment. One respondent stated that section 556(d) of the

Administrative Procedure Act (5 U.S.C. 551, et seq.), the statute

governing the administrative process by which sourcing area

determinations are made, does not require a full, evidentiary hearing,

but allows for a hearing based in part or in full on written

submissions.

Response. Section 556(d) of the Administrative Procedure Act states

that, ``(i)n rule making or determining claims for money or benefits or

applications for initial licenses an agency may, when a party will not

be prejudiced thereby, adopt procedures for the submission of all or

part of the evidence in written form'' Sourcing area applications are

not claims, for either money or benefits. Sourcing area applications

may be viewed like a ``license,'' in which case, submission of the

evidence could be in written form. However, the agency has sole

discretion to adopt procedures for a hearing based solely on written

evidence, and only when a party will not be prejudiced. Based on the

initial round of sourcing area applications, in which the ability to

cross examine witnesses and to bring all parties together was

significant in making fair, informative determinations, the Department

declines to adopt this suggestion.

Comment. One respondent suggested that final regulations should

state explicitly that firms with domestic mills in approved sourcing

areas may use non-Federal unprocessed timber from outside an approved

sourcing area to supplement their log supply.

Response. The Act provides for the specific exemption from the

prohibition against substitution in the form of sourcing areas.

Sourcing areas have specific requirements. Among these requirements is

that sourcing areas include all of the private and Federal lands that

source the manufacturing facility (36 CFR 223.186). To haul unprocessed

private timber originating outside of the sourcing area into the

sourcing area violates the approved sourcing area boundary. The area

from which the sourcing area holder harvests for export has exported

unprocessed timber is no longer geographically and economically

separate from the area from which the person sources the manufacturing

facility (16 U.S.C. 620b(c)(3)). Once the sourcing area holder is no

longer abiding by the sourcing area boundaries, the sourcing area

holder may no longer depend on the valid exemption from substitution

that a sourcing area provides. The sourcing area holder would then be

in violation of the sourcing area boundary, as well as the prohibition

against substitution by having purchased unprocessed Federal timber

west of the 100th meridian in the contiguous 48 States within 24 months

of having exported unprocessed private timber from the west. In order

to clarify this issue, the Department has added paragraph (k) to

Sec. 223.190 that states as follows: ``Transporting or causing to be

transported unprocessed private timber from outside of a sourcing area

into a sourcing area by the holder of the sourcing area is prohibited

as a violation of the sourcing area boundary. Such violation will cause

a review of the sourcing area, and could subject the sourcing area

holder to the penalties and remedies for violations of the Forest

Resources Conservation and Shortage Relief Act of 1990, 16 U.S.C. 620,

et seq., and its implementing regulations.''

Comment. One respondent stated that the regulations should clarify

when a sourcing area is ``in effect.''

Response. An approved sourcing area is in effect until the holder

of the sourcing area relinquishes it, or the sourcing area is

disapproved upon review of the sourcing area. A sentence clarifying

this has been added to new paragraph (m) of Sec. 223.190.

Comment. Several respondents stated that a person with an approved

sourcing area should be allowed to relinquish the sourcing area and

then export timber from private lands in that area at any time.

Response. The Department disagrees with this comment. While a

person with an approved sourcing area may relinquish the sourcing area

at any time, the person may not begin exporting from that area

immediately. A person may not export unprocessed private timber as long

as that person has unprocessed Federal timber in the person's

possession or under contract in the same fiscal year, pursuant to the

definition of substitution in Sec. 223.186. To clarify this issue with

regard to sourcing areas, the Department is amending Sec. 223.190 by

adding paragraph (1). Paragraph (1) states that sourcing areas may be

relinquished at any time provided the following certification waiver is

signed:

``I am relinquishing the approved sourcing area, described in the

Secretary's determination in FSAA ________ on ______, 19____. I

understand that I may not export unprocessed timber originating from

private lands west of the 100th meridian in the contiguous 48 States

during a fiscal year in which I have unprocessed timber originating

from Federal lands west of the 100th meridian in the contiguous 48

States in my possession or under contract, pursuant to the prohibitions

against substitution in the Forest Resources Conservation and Shortage

Relief Act of 1990 (16 U.S.C. 620, et seq.) (``Act'') and its

implementing regulations. I also understand that I may not purchase

unprocessed timber originating from Federal lands west of the 100th

meridian in the contiguous 48 States within 24 months of having

exported unprocessed timber originating from private lands west of the

100th meridian in the contiguous 48 States, pursuant to the prohibition

against substitution in the Act and its implementing regulations. I

make this certification with full knowledge and understanding of the

Act and its implementing regulations and do fully understand that

exporting unprocessed timber originating from private lands west of the

100th meridian in the contiguous 48 States during a fiscal year in

which I have unprocessed timber originating from Federal lands west of

the 100th meridian in the contiguous 48 States in possession or under

contract, or purchasing unprocessed timber originating from Federal

lands west of

[[Page 46907]]

the 100th meridian in the contiguous 48 States within 24 months of

having exported unprocessed timber originating from private lands west

of the 100th meridian in the contiguous 48 States is a violation of the

substitution provisions of the Act, its implementing regulations, and

the False Statements Act (18 U.S.C. 1001), and may subject me to the

penalties and remedies provided for such violation.''

The certificate must be signed by the person making such

certification or, in the case of a corporation, by its Chief Executive

Officer; must be on company letterhead; and must be notarized.

Comment. One respondent had several comments about the

certification that accompanies the sourcing area application, found at

36 CFR 223.190(c)(4). First, the respondent recommended striking the

phrase ``concerning my timber purchasing and export patterns'' from

both the first and second sentences. The respondent stated that

applicants should certify to the truth of the entire application, not

just the purchasing and export activities, and that the certification

could be misunderstood to require applicants to submit information not

otherwise required. The respondent further stated that the

certification incorrectly cites section 492 in order to prohibit the

export of unprocessed private timber. The respondent contends that

nothing in the Act prohibits the export of private unprocessed timber.

Response. The Department disagrees that the certification language

``concerning my timber purchasing and export patterns'' should be

deleted. Complete and accurate information regarding an applicant's

timber purchasing and export patterns is crucial to the determination

of whether an applicant's intended Federal timber purchasers are

economically and geographically separate from the applicant's exporting

area. Regarding the reference to section 492, the Department agrees

that this citation could benefit from some clarification. Therefore,

the Department is changing the reference to section 492 to a general

reference to the entire Act, to ensure that applicants review the

entire Act for potential violations. The new citation will be 16 U.S.C.

620, et seq. The Department is also deleting the reference to the

requirement to cease purchasing unprocessed Federal timber within the

proposed sourcing area if the sourcing area is disapproved, since only

initial applicants could have been purchasing unprocessed Federal

timber before the sourcing area's approval. The Department has also

added the phrases ``and its implementing regulations'' to the sentence

about the prohibition against exporting unprocessed private timber from

within an approved sourcing area. While these changes may clarify the

certification language, the Department believes that the original

certification published in the interim rule was sufficiently clear.

Applicants signing the initial certification are bound by that

certification.

Comment. One respondent stated that in order for the Secretary to

``consider equally'' competitors' practices, the Forest Service should

have information from the competitors that is as complete and reliable

as the applicant's information. Several respondents said that persons

submitting information should have to certify that information provided

is complete and accurate. The respondent also said that the complete

sourcing information of all competitors from the same local vicinity

should be examined, not just a contesting competitor.

Response. The Department agrees that complete and accurate

information regarding competitors is necessary to determine whether a

sourcing area should be approved. The Department makes its own

independent assessment of competitors in the same local vicinity based

on information submitted, including the Forest Service's records. The

Department does not believe that competitors need to provide certain

information; the information received is weighted based on its

completeness and accuracy, as judged against other submissions. The

Department does agree, however, that parties to a sourcing area

determination should certify to the truth of what they are providing.

Therefore, the Department is amending 36 CFR 223.190 by adding a new

paragraph (j) that states that a person submitting a written comment

certify at the end of the comment, but before the signature that the

information provided is true and accurate, to the best of the person's

knowledge, and that failure to provide true and accurate information

could be a violation of the False Statements Act (18 U.S.C. 1001).

Comment. One respondent stated that the agency should show which

boundaries the Department would approve, and permit the applicant to

revise its application to match those boundaries. Another respondent

said that sourcing area applications should not simply be denied, but

that applicants should be able to modify the proposed sourcing area.

Response. The Act does not require the Department to provide the

boundaries that the agency would accept except for applications

received by December 20, 1990 (16 U.S.C. 620(c)(4); 36 CFR 223.191).

However, the procedures provided for recommended settlements and

adjustments during the initial application process, and will provide

the same opportunities for subsequent applications.

Comment. One respondent said the rule should state that a person

may apply for a sourcing area at any time, but will receive certain

advantages if the person applied by December 20, 1990.

Response. The Department believes this was clarified in the final

rule of limited scope, published on December 19, 1991 (56 FR 65834).

The sections of that rule that have information about sourcing areas

may be found at 36 CFR 223.191, and have been repeated in this rule

making for clarity.

The rule making that established the procedures for sourcing area

applications and reviews of sourcing areas made technical amendments to

this section to conform it to the procedures. Additional technical

amendments were made in this rule making to conform it to the

procedures. Otherwise, except as noted earlier, this section is adopted

as proposed.

Section 223.191 Sourcing Area Disapproval and Review Procedures

Section 223.191 was included in the interim rule, published

November 20, 1990 (55 FR 48572), and was revised by the final rule

published in the Federal Register on December 19, 1991 (56 FR 65834).

The rule making that established the procedures for sourcing area

applications and reviews of sourcing areas made technical amendments to

this section to conform it to the procedures. No changes were proposed

or are being made to this section by this rule making. Section 223.191

is included in this final rule for continuity and to avoid confusion as

to its status.

Section 223.192 Procedures for a Non-Manufacturer

Section 223.192 gives non-manufacturers the opportunity to make the

same business decisions as manufacturers; that is, whether to export

unprocessed private timber or buy Federal timber. However, because the

non-manufacturer does not have a manufacturing facility, the non-

manufacturer cannot establish a sourcing area.

Five responses were received from the public on this section of the

rule.

Comment: All five respondents commented that they could find

nothing in the Act preventing non-manufacturers from having sourcing

[[Page 46908]]

areas, or required that timber be processed by the original purchaser.

The parties said that the final rule should allow non-manufacturers to

apply for sourcing areas from within which such a person could buy

Federal timber, but not export timber from private lands.

Several of these respondents stated further that controls on

indirect substitution prevent abuses, and that there is no reason to

limit competition for Federal timber further by preventing non-

manufacturers from bidding in areas that are economically and

geographically separate from any areas from which they and their

affiliates may export private timber.

Response. The Department disagrees with these comments. The

exemption that allows a person to purchase Federal timber while

exporting private timber is the sourcing area exemption. The Act

clearly directs the sourcing area exception to the prohibition against

substitution toward persons with manufacturing facilities. Subsection

490(c)(3) of the Act (16 U.S.C. 620(c)(3)) states that the Secretary

may approve the application, ``only if * * * the area that is the

subject of the application, in which the timber manufacturing

facilities at which the applicant desires to process timber originating

from Federal lands are located'' is geographically and economically

separate from lands from which the applicant exports. Further,

subsection 490(c)(2) of the Act (16 U.S.C. 620b(c)(2)) requires

information from the applicant regarding the location of each timber

manufacturing facility ``owned and operated'' by the applicant. This

scheme clearly indicates that Congress intended the Act to limit the

sourcing area exception to persons who both export private timber and

manufacture timber domestically. Therefore, the Department declines to

adopt these comments in the final rule.

Some minor, no-substantive changes have been made to the text of

this section as proposed for technical and editorial clarity.

Section 223.193 Procedures for Reporting Acquisition and Disposition

of Federal Timber

Annual report. Section 492(a)(1) of the Act provides that each

person who, either directly or indirectly, acquires unprocessed timber

originating from Federal lands west of the 100th meridian in the

contiguous 48 States shall report the receipt and disposition of such

timber to the Secretary concerned, in such form as the Secretary may,

by rule, prescribe; and that such person may not be held responsible

for the reporting of the disposition of any such timber held by

subsequent persons. In addition, the Conference Report on this section

states that the conferees intend the Secretary of Agriculture to have a

complete account of transactions relating to the acquisition and

disposition of unprocessed timber originating from Federal lands (Conf.

Rpt. p. 259).

The rule (Sec. 223.193(a)) as proposed would have required that an

annual report on the acquisition and disposition of Federal timber be

submitted to the Forest Service. Any person acquiring and/or disposing

of such timber would be required to submit an annual report.

As proposed, such report would provide, by fiscal year, an

accounting of the unprocessed Federal timber acquired, processed,

stored, or transferred to another person. The report would require

statements regarding the volume of timber acquired, processed, stored

and/or transferred to another person, and the origin of such timber. In

addition, the report would require the date of acquisition or disposal,

from whom acquired, the timber sale name, the contract number, log

brands, bar coded tag number and other markings for timber acquired or

disposed. The rule as proposed would require submission of the first

report December 1, 1991, and subsequent reports on December 1 of each

year thereafter.

Twenty-seven respondents commented on this section. The comments

essentially focused on three topic areas: The need for the annual

report; the difficulty in obtaining the unprocessed Federal timber

inventory information requested; and the burden that the information

requirement would place on individual companies.

Comment. Comments received questioning the need for the annual

report were as follows:

Annual reporting requirements are not necessary and they

are unduly burdensome.

An annual report may be appropriate for holders of the

State of Washington indirect substitution quotas, but should be limited

to the facts necessary to show that the quota has not been exceeded.

The Act does not require retention of these and other

records for three years.

The annual report is redundant; the Department already has

this information through the tracking system and/or at the end of each

sale.

Response. Section 492 of the Act (16 U.S.C. 620d(a)) states that

each person who acquires unprocessed Federal timber, directly or

indirectly, shall report to the Secretary the receipt and disposition

of such timber. The Secretary will prescribe in the rule the form of

the report, which would include frequency. Section 492 of the Act also

requires the Secretaries of Agriculture and the Interior to report to

Congress on the disposition of unprocessed Federal timber in the west

and the practice of indirect substitution, based on the information

gathered in subsection (a) (16 U.S.C. 620(b)). Form(s) and reporting

frequency as shown in the final rule are those considered to be the

minimum necessary to meet the Act's requirements of reporting and

monitoring. Retention of these records for three years is important for

monitoring purposes, as logs are often in commerce for several years.

The annual report is not redundant. The annual report informs the

Department as to what volume has been processed and what volume has

been exported; the transfer documents inform the Department as to the

commercial path of timber. Taken together, these documents allow the

Department to track timber from the first purchase through processing

or exporting. Further, information gathered at the end of each sale

does not account for annual processing of Federal timber by third

parties, which the annual report will do.

Comments. Several respondents commented that the information for

the annual report required by pre-enactment rules at Sec. 223.48 is

sufficient to meet the accounting requirements of the Act, and strongly

objected to the volume inventory reporting requirement in the proposed

rule. Specific comments included the following:

Logs generally are sorted by species, size, or grade, and

are placed into corresponding storage decks. These decks contain logs

from all origins. Tracking such logs by origin would be very costly and

impractical.

To comply with the rule, a purchaser may be forced to buy

more land and expand the log yard to accommodate the additional decks

needed to separate logs according to origin as well as species, size,

grade, etc.

There is no way to determine the actual volume of Federal

timber held in inventory without making estimates at the mill.

Inventory tagging of each log is possible, but costly.

Moreover, tags are easily lost in handling, and many purchases do not

have computers and scanners to handle tags.

The rules would require the scaling and labeling of every

log, in addition to branding and marking.

It is proper to maintain requirements for sale-by-sale

disposition

[[Page 46909]]

of Federal timber on an annual basis, but 100 percent accountability of

each individual log cannot be achieved.

Response. The Department agrees with many of these concerns.

Accordingly, the Department has removed the requirements to report

volume in inventory at the beginning and end of the year. Otherwise,

other than as noted, the Department has adopted the form as proposed,

with minimal changes in titles, instructions, and certification

language. The information requirements in paragraphs (a)(1) through

(a)(7) of Sec. 223.193 in the proposed rule have been reduced and

revised in new paragraphs (a)(1) through (a)(5) in this rule as

discussed below.

The Department believes that information regarding individual logs

acquired is not onerous and provides the Department with information to

track logs as required by the Act. Brands other than brands registered

by a State or agency are required to have a pictorial representation on

the form for purposes of identification, since they do not have

registration numbers. Contracts awarded before August 20, 1990, require

purchasers to submit an annual report on form FS-2400-46, Purchaser

Certification of Timber Domestically Processed or Exported (OMB No.

0596-0021, Expires March, 1997). The annual report under Sec. 223.193

of this final rule will be very similar to the present reporting form.

Like the present reporting form, the annual report under Sec. 223.193

will include a requirement to record the volume of unprocessed private

timber exported. This can be found in new paragraph (4) of Sec. 223.193

of this rule.

The major differences between the present form FS-2400-46 and the

new annual reporting form are as follows: (1) The form title is changed

to read ``Certification of Receipt and Disposition of Timber

Originating from National Forest Lands''; and (2) the instructions

state that any person who directly or indirectly acquired or processed

timber originating from National Forest System lands in the previous

calendar year must complete the annual report. The Department has

changed the final rule to require the annual report by calendar year,

rather than fiscal year, because of the purchasers' familiarity with

reporting by calendar year and to provide consistency with prohibitions

in the regulations.

The Department wants to clarify that actual volume must be

reported. In order to monitor and investigate transactions, and to

prosecute violations of the Act, the Department must have the actual

volume recorded. This will enable the Department to validate the

accuracy of the information submitted. Further, the Department will be

able to meet the Act's requirement to submit the report to Congress

based on the information gathered. Further, the Department needs actual

volume recorded in order to monitor the annual quota exempted from the

indirect substitution prohibition in Washington State. Third party

scaling organizations have the ability to provide accounting reports,

and do so as a matter of course, which will reduce the reporting

burden.

Comment. Several persons commented that if annual reports are

required the first one should not be due before the rules have been in

effect for the previous year.

Response. The Department agrees. The first annual report will be

for the first calendar year in which the rules are published with the

first report due March 1 following the first reporting period. Calendar

years prior to the rule's publication will be reported on the current

FS-2400-46 form.

Comment. One respondent said that the person submitting the annual

report should not have to certify that the information is not

confidential.

Response. The Department has revised this requirement. If a person

submitting the annual report would like something to be kept

confidential, the person should so mark the information. The Department

will then evaluate the confidentiality of the information pursuant to

the applicable laws.

A new paragraph, Sec. 223.193(a)(5)(ii), has been added to assure

that the certifier is eligible to acquire unprocessed timber

originating from Federal lands in accordance with the Act. This

certification is needed to help assure that the requirements of the Act

are enforceable.

A new paragraph, Sec. 223.193(a)(5)(iv), has been added to require

the retention of the form and records for three (3) years and to make

them available for inspection to authorized Federal officials on

request. Retention of these records for three years is important for

monitoring purposes and for enforcement of the Act, as logs are often

in commerce for several years.

Transfer of Unprocessed Federal Timber

Section 492(a)(2) of the Act states that each person who transfers

to another person unprocessed timber originating from Federal lands

west of the 100th meridian in the contiguous 48 states shall, before

completing such transfer: (1) Provide to the person receiving the

timber a written notice which identifies the Federal origin of the

timber, (2) receive from that person a written acknowledgment of the

notice and an agreement that person will comply with the Act, and (3)

provide the appropriate Regional Forester, or other official to whom

such authority has been delegated, with copies of all such notices,

acknowledgments, and agreements.

Section 223.193(b) of the proposed rule would require each person

who transfers unprocessed timber originating from National Forest

System lands to provide such other person with the notice,

acknowledgment, and agreement executed on a form provided by the Forest

Service. The proposed Sec. 223.193(b) would also require the transferor

to provide copies of each such executed form to the appropriate

Regional Forester within 10 days of such transfer.

The transferor includes anyone who sells, trades, or otherwise

transfers unprocessed Federal timber. The transferor is not only the

initial holder of a contract to harvest Federal timber, but is also any

person who subsequently acquires the Federal timber, and in turn

transfers it to another person.

Proposed Sec. 223.193(b) would require the transferor to state the

origin, species, volume, from who acquired, timber sale name, contract

number, log brand, bar-coded tag number, and other markings of

unprocessed Federal timber on the form. The proposed form would contain

a statement that the purchaser of Federal timber, whether directly or

indirectly obtained from the Federal government, agrees to maintain

records of all transactions involving unprocessed Federal timber for a

period of three (3) years from the date of the transfer, and will make

all records involving log transactions available to an authorized U.S.

Government official upon request.

The proposed form also would include a certificate stating that the

information supplied is a true, accurate, current, and complete

statement to the best of the transferor's knowledge, and agreeing to

send the form to the appropriate Regional Forester or other

administering office within ten (10) days of the transfer. The

transferor would agree to obtain a fully completed Notice of Origin

form from the transferee, and the transferor would acknowledge that

failure to report completely and accurately the transfer of unprocessed

Federal timber will subject the transferor to the penalties and

remedies in the Act and the penalties in the False Statements Act. The

transferor would also be required to acknowledge that he or she has

read and understands the form. The certification would also require the

transferor to

[[Page 46910]]

acknowledge that the information provided is not confidential.

Comments. Several comments were received on this procedure. Some

respondents were concerned that a seller of Federal logs might be held

liable for the illegal actions of the buyer or subsequent buyers, or

that the seller would be certifying that the buyer will comply with the

Act, including the requirement to retain records.

One person stated that the rule should indicate that a timber

seller is exonerated from further liability if all necessary notices,

certifications, acknowledgments, and record keeping obligations

required under the Act are satisfied.

Response. Section 492(a) of the Act (16 U.S.C. 620d(a)(1)) states

that the transferor of unprocessed Federal logs may not be held

responsible for subsequent persons' reports of the disposition of such

timber. The transaction reporting form to be supplied by the Forest

Service, when properly completed and returned to the Forest Service,

will release the seller from such liability.

By completing the form, the seller does not certify that the buyer

is legally eligible to purchase unprocessed Federal timber pursuant to

the Act. The rules and the form require the buyer of the timber to make

that certification. The form is a way to notify the buyer, who may have

no direct contact with the Federal government, of the rules to which

the purchaser is bound.

However, the Department agrees that a statement clarifying

liability should appear in the rule. Therefore, the Department has

added to the final rule paragraph (4) of Sec. 223.193(b), which states:

``Except as otherwise provided by law, a person who transfers

unprocessed Federal timber to another person and meets all notice,

certification acknowledgment, reporting and record keeping requirements

contained in this section shall be relieved from further liability for

such timber pursuant to the Act.''

Comment. One individual stated that the 10-day period for

distribution of the completed transfer document was unrealistically

short, especially for a company engaged in a large number of such

transactions. Another stated that requiring prompt reporting of such

comprehensive information is a substantial and costly burden,

particularly given the penalties for mis-reporting or making a single

mistake. Still another stated that a phase-in period should be allowed

so that companies can adjust or alter their accounting system to meet

these requirements.

Response. Effective monitoring and enforcement are dependent on

prompt reporting of transfers. All the documents needed to report a

transfer are available at the time a transfer agreement is reached,

therefore there is little reason that more than 10 calendar days are

needed to report that transfer to the Forest Service. The Department

also does not believe a phase-in period for complying with these

requirements is necessary. The proposed rule has given persons ample

time to prepare for compliance with the final rule. Therefore, no

change in the final rule is needed.

Comment. One respondent said that the certification language in

Sec. 223.193(b)(3)(vi) should state, ``an acknowledgment of the

prohibition against acquiring unprocessed federal timber by a person''

who is prohibited by the Act from purchasing unprocessed Federal timber

directly from the United States, rather than from a person.

Response. The Department does not agree with the comment. The rule

already provides that the person acknowledges that he or she may

purchase unprocessed Federal timber in accordance with the Act

(Sec. 223.193(b)(3)(ix)). This separate acknowledgment reminds the

person acquiring the timber that Federal timber that may not be

purchased directly, may not be purchased indirectly either. No change

in the rule is necessary.

Comment. One respondent stated that the transfer form should be

shorter, with an acknowledgment of the requirement for domestic

processing of unprocessed Federal timber, and an acknowledgment that

the transfer of unprocessed Federal timber to persons who are not

qualified to acquire Federal timber constitutes a violation of the Act,

and an acknowledgment from the person acquiring the timber that the

person will domestically process the timber.

Response. The certifications provide that the person receiving the

timber knows that the timber must be domestically processed, and that

the timber is subject to the prohibition against substitution

(Sec. 223.193(b)(3) (vii) and (ix)). The Department agrees, however,

that the person transferring the timber needs to acknowledge that

transfer of the timber to persons not qualified to acquire Federal

timber constitutes a violation of the Act. Persons not qualified to

acquire Federal timber are those who could not acquire that timber

directly from the Federal government, in violation against

substitution, or those who acquire the Federal timber for export.

Completion of the form, including acknowledgment of the buyer's

eligibility to acquire the timber is sufficient to protect the seller

of the timber from an invalid transfer (New paragraph (4) of

Sec. 223.193 relieves a person of liability if all notices, agreements

and acknowledgments in this section are met except as otherwise

provided by law). Accordingly, a sentence has been added to the

certification at Sec. 223.193(b)(2)(ii) that the certifier acknowledges

that the transfer of unprocessed Federal timber to a person who is not

eligible to acquire such timber either because of a substitution

violation, or because the person is acquiring such timber for export is

a violation of the Act.

Comment. One respondent stated that a violation of the terms of the

certification should not be a violation of the Act, but a violation of

the contract.

Response. The terms of the certification include an agreement to

comply with the Act, and follow procedures to ensure that the

government can monitor the transfer of logs, pursuant to 16 U.S.C.

620d(a). Additionally, the Act states that any violation of the Act or

regulations implementing the Act is punishable by fines, the amount of

which is determined by the specific circumstances. Further, transfer of

logs does not always occur within the context of a government contract,

although violation of the Act is grounds for canceling a government

contract (16 U.S.C. 620d(d)(2)). Therefore, no change is made to the

certification language in response to this comment.

Comment. One respondent outlined an alternative to the

certifications, branding and painting developed in the proposed rules.

The respondent stated that the Department should certify all purchasers

who are authorized to buy Federal timber. This would include

manufacturers, non-manufacturers and those who buy Federal timber from

third parties.

Purchasers certified to purchase Federal timber would report all

transactions, including transfer of private timber, to the agency

within 10 days. A transfer agreement would be developed by the agency

including the agency certification numbers for buyer and seller,

estimated volume and a statement that all logs with yellow paint must

be domestically produced.

All Federal logs would be painted on at least one end prior to

leaving the sale area. All logs requiring domestic processing which are

transferred to a third party would be painted on both ends with yellow

paint prior to transfer. All logs transferred to a third party would be

hammer branded with a mill brand prior to transfer. Waivers would be

provided. The respondent states that

[[Page 46911]]

the key to the Act is to show that a person who purchased Federal

timber has not sold private timber for export, and that anyone may

purchase unmarked logs, but purchasers authorized to purchase Federal

timber may not transfer unmarked logs for export. Therefore, there is

no reason to identify the origin as long as logs are marked for

domestic processing.

Response. The Department disagrees with this approach. First, while

the Department can identify purchasers of Federal timber, it has no way

of identifying persons who acquire Federal timber beyond the first

purchaser. Therefore, a national certification of all persons who

acquire Federal timber is not possible. Second, while it is true that a

major component of the Act is that a person acquiring Federal timber

has not transferred private timber for export, simply certifying that a

person may acquire Federal timber is inadequate for enforcement of the

Act. A person with a sourcing area may acquire Federal timber from

within that sourcing area, and may transfer private timber for export

outside of the sourcing area. Simply identifying the person is

inadequate; the Department would need to establish where the timber

originated to determine whether there had been a violation. The ability

to purchase unmarked logs would render meaningless any tracking system.

The Department would have no way of knowing whether a violation of the

Act had occurred, based on either the transferor or the origin of the

logs. Further, a person acquiring such logs also has no assurance that

the transaction is legal. The Department has tried to make the tracking

system as straightforward as possible while enabling the monitoring of

the logs, as required by the Act. No change in the rule has been made

in response to this comment.

Comment. One person stated that the amount of information that must

be promptly reported by the buyer and seller of logs, coupled with the

penalties for each violation of these requirements, make these

requirements a substantial barrier to transferring logs to processors

that can mill them to their highest and best use.

Another respondent commented that requiring that records be

maintained for 3 years will create considerable additional storage

requirements, and that there is no reason to collect the amount of

information required in this section. This person said that only a

signed statement stipulating that the logs must be domestically

processed should be required.

Response. The Act requires the Secretary to draft any regulations

necessary to implement the Act. The Department believes that the names

of the log seller and the buyer, the log identification markings, the

Federal agency contract number, and the volume of Federal logs included

in the transaction is the minimum amount of information needed to

monitor compliance with the Act. The log identification marks and

contract number are necessary to determine origin of the logs and the

original buyer. The volume is necessary to track logs, to determine the

extent of an alleged violation and to help assess civil penalties. The

retention of unprocessed log transfer transaction statements is

necessary for the Department to monitor and assure compliance with log

export and substitution restrictions. Without such records, the

Department could not fulfill its responsibilities to implement and

enforce the Act. Therefore, the Department declines to adopt these

comments.

Comment. One person commented that because many log transfer

agreements are made before actual volume measurements are performed,

the Department must be willing to accept estimated log volumes rather

than actual log volumes on the transfer form.

Response. The Department will accept volume estimates used in the

actual transaction. If the transaction is based on standing tree

(cruise) estimates, that will be the volume used for reporting the

transaction. If the transaction is based on actual log scale volume,

that is the volume to be reported. The phrase ``estimated volume or

actual volume if the transfer is based on log scale volume,'' has been

added to paragraph (b)(1) in response to this comment.

Comment. One person commented that there is no justification for

requiring either the transferrers or the transferees to certify that

the information submitted is not confidential.

Response. The Department has revised this requirement. If a person

signing the transfer form would like to keep something confidential,

the person should mark the information. The Department wi

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