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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A95-21912

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** September 8, 1995
- **Citation:** 60 FR 46890

## Text

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.
Respo

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A95-21912. Public record. Not legal advice.