[Federal Register Volume 60, Number 174 (Friday, September 8, 1995)]
[Rules and Regulations]
[Pages 46890-46934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21912]



      

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Part II





Department of Agriculture





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Forest Service



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36 CFR Part 223



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

  Federal Register / Vol. 60, No. 174 / Friday, September 8, 1995 / 
Rules and Regulations  

[[Page 46890]]


DEPARTMENT OF AGRICULTURE

Forest Service

36 CFR Part 223

RIN 0596-AB22


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

AGENCY: Forest Service, USDA.

ACTION: Final rule with request for comments.

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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 

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the provision relating to extending the duration of an existing timber 
sale contract.
    Comment. One respondent suggested that purchasers are subject to 
substantial penalties once a notice of debarment is issued. This 
respondent asserted that presumptions of guilt or wrongdoing are made 
prior to an adjudication of a person's rights and that such a system 
constitutes de facto debarment, is punitive and is impermissible.
    Response. The Department realizes that debarment is a serious 
action. Debarment is, however, a separate administrative action that is 
not to be confused with criminal, civil or other administrative 
proceedings that may have punitive effects. Debarment is taken only to 
protect the Government's and the public's interests and, as a matter of 
law, is not taken with the intent to punish. Debarment actions are 
taken only as a means of ensuring that the Government only does 
business with responsible persons.
    The effects of a proposed debarment, by virtue of the process that 
has been put into place, are not punitive. Once causes for debarment 
have been established sufficient to issue a notice of proposed 
debarment, the Government is justified in not conducting further 
business dealings with a person proposed for debarment, except on 
existing contracts. The Department also is authorized under the Act to 
preclude any person who violates the Act, or any regulation or contract 
issued under the Act from taking delivery of Federal timber purchased 
by another party.
    The due process required by the Constitution is contained in the 
debarment procedures and is sufficient to avoid penalizing persons 
proposed for debarment. The procedures contained in the rule provide 
firm deadlines for the debarring official's final debarment 
determination. The procedures also allow an opportunity to respond to 
the proposed debarment, an opportunity for a fact-finding hearing when 
a dispute over a material fact is raised, and the procedures allow for 
reconsideration of the debarring official's final debarment 
determination, as well as appeal to the U.S. Department of Agriculture 
Board of Contract Appeals (36 CFR 223.138). The effect of a proposed 
debarment is not punitive. Therefore, except for minor changes to the 
text to improve technical and editorial clarity, the Department adopts 
this section as proposed.
    Comment. One respondent suggested that the effect of a proposed 
debarment is the same as debarment and therefore, a purchaser is 
automatically debarred based on the notice of proposed debarment.
    Response. As stated previously, a notice of proposed debarment has 
the effect of excluding persons from further business dealings pending 
a final debarment decision. Again, where evidence is sufficient to 
issue a notice of proposed debarment, good cause exists to protect the 
Government and public interests by not initiating or extending further 
business dealings during the period of proposed debarment.
    Further, the rules allow persons to submit, either in person or in 
writing, or through a representative, information and argument in 
opposition to the proposed debarment. Such persons also may submit 
evidence of mitigating factors and arguments concerning the imposition, 
scope, duration or effects of a proposed debarment or debarment. Based 
on such information, the debarring official may determine that causes 
for debarment do not exist, that only certain persons or divisions of 
an organization or company should be debarred, or that a period of less 
than the maximum allowed may be appropriate. If the information and 
arguments in opposition, or the mitigating factors are not persuasive, 
the period of debarment may be effective retroactively from the date of 
the notice of proposed debarment, that is, a person would not 
necessarily be proposed for debarment for a period of time and then 
have an additional three (3) to five (5) year debarment period added on 
to the time that has already passed during the period of the proposed 
debarment; any period of debarment may encompass the period of proposed 
debarment.
    Comment. One respondent asserted that some companies or 
organizations may have separate divisions in various locations and that 
debarment may not be appropriate for all divisions of a company or its 
affiliates.
    Response. There may be some situations where debarment of all 
organizational elements of a company or its affiliates would be 
inappropriate. The rules provide that persons may provide evidence of 
mitigating factors demonstrating that certain organizational elements 
or affiliates should not be debarred. However, unless specifically 
limited, debarment applies to all divisions or organizational elements 
of a purchaser and any affiliate who is specifically named, given 
written notice and an opportunity to respond. The rule allows an 
affiliate to challenge the basis for its debarment, not just its status 
as an affiliate. See Sec. 223.138(b)(1).
    Comment. One individual suggested the Forest Service should help 
parties understand the intent and explain unclear aspects of the rule 
and stated that the Bureau of Land Management has always been willing 
to help parties to understand the rules and advise whether a proposed 
sale complies with its rules.
    Response. The Department agrees that the Forest Service should help 
parties understand the Act and implementing rules; however, the Forest 
Service cannot give legal advice to timber purchasers. For legal 
interpretation of the Act or implementing regulations as they pertain 
to private business proposals, purchasers are advised to seek private 
counsel.

Amendment of Title 36, Part 223, Subpart D

    Subpart D of part 223 governs timber export and substitution 
restrictions applicable to Federal timber purchases made before the 
Act. Enactment of the statute and adoption of interim regulations 
necessitated the addition of a new Sec. 223.159 to existing subpart D 
in the interim rule to make clear that the provisions of subpart D 
remained in effect for contracts awarded before August 20, 1990. 
Section 223.159 of this final rule clarifies that Sec. 223.162 remains 
in effect for all contracts awarded on or after August 20, 1990 until 
September 8, 1995. Section 223.159 of this final rule clarifies that 
certain rules in subpart F of part 223, which implemented the timber 
export and substitution restrictions of the Act in the interim rule, 
apply immediately to all contracts awarded on or after August 20, 1990. 
Minor technical and editorial changes to Sec. 223.159 have been made to 
improve clarity. This final rule removes Sec. 223.161, Limitations on 
timber harvested in Alaska, and Sec. 223.163, Determination that 
unprocessed timber is surplus to domestic needs. The subjects covered 
in these sections are now covered in Secs. 223.200 and 223.201 in 
subpart F.
    Several respondents advised that the rule needs to clarify 
definitions and prohibitions in subpart D. However, since the terms are 
relevant to the new comprehensive rule, rather than those in effect at 
the time the new Act passed, the definitions identified by the public 
through submitted comments are addressed in Sec. 223.186.

Amendment of Title 36, Part 223, Subpart F

    The rules in Subpart F implement provisions of the Forest Resources 
Conservation and Shortage Relief Act of 1990 (16 U.S.C. 620, et seq.) 
that became effective upon enactment or as otherwise specified in the 
Act, and 

[[Page 46894]]
incorporate and supplement the interim rules of this Subpart that were 
published in the Federal Register on November 20, 1990 (55 FR 48572). 
Except as otherwise provided in the Act, this Subpart will govern 
timber export and substitution restrictions applicable to Federal 
timber sale contract awarded on or after August 20, 1990.

Section 223.185  Scope and Applicability

    Comment. One individual commented that the regulations do not 
adequately explain the differences between the old and new regulations. 
Another respondent was unclear as to which contracts the substitution 
provisions in this regulation apply.
    Response. Section 497 of the Act (16 U.S.C. 620h) provides that 
nothing in this Act, or regulations issued under this Act, abrogates or 
affects any timber sale contract entered into before August 20, 1990.
    Section 494 of the Act (16 U.S.C. 620 note) states that the 
provisions of the Act take effect on the date of enactment, except as 
otherwise provided. Section 490(a)(2)(A) of the Act (16 U.S.C. 620b) 
specifically provides that the substitution rules in effect before 
issuance of regulations to carry out the provisions of Sec. 490(a) will 
continue to govern all contracts entered into between the purchaser and 
the Secretary of Agriculture before issuance of final rules. The prior 
rule concerned direct substitution only (36 CFR 223.162). Therefore, 
contracts awarded after enactment, but before the issuance of final 
rules continue to be governed by the rules concerning substitution in 
existence prior to enactment at Sec. 223.162. As these contracts are 
completed, this regulation will no longer be effective, and will be 
removed or revised at that time. Contracts awarded on or after 
September 8, 1995 are governed in full by subpart F.
    Section 490(b)(1) of the Act (16 U.S.C. 620b) states that, as of 
September 10, 1990, a person is prohibited from purchasing federal 
timber indirectly if that person would be prohibited from purchasing 
Federal timber directly. Contracts entered into before the date of 
publication of this final rule are governed by the substitution 
restrictions in effect before enactment of the Act. Federal timber 
purchased pursuant to a contract entered into before September 8, 1995 
may be purchased indirectly only if the timber could be purchased 
directly under the prior rule.
    Section 490(b)(2)(D) of the Act (16 U.S.C. 620b) delayed 
application of the indirect substitution restrictions in the State of 
Washington until rules were issued to ``carry out'' the exemption from 
indirect substitution in Washington State. Therefore, the indirect 
substitution restrictions for National Forest System timber from 
Washington State are effective for contracts entered into between the 
purchaser and the Secretary of Agriculture as of publication of the 
rule of limited scope (56 FR 3375, December 19, 1991). This rule 
establishes the shares of exempted timber for specific persons.
    The interim rule was the final rule for the provisions contained in 
that rule: Sourcing area applications, disapproval and review 
procedures, procedures for a non-manufacturer, certification 
procedures, continue surplus species determinations, and definitions 
applicable to the provisions of the interim rule (55 FR 48572, November 
20, 1990). The interim rule has now been incorporated into this final 
rule, with changes as noted.
    A final rule of limited scope was published on December 19, 1991 
(56 FR 65834). This rule continued the reporting requirements 
applicable to contracts awarded before enactment, amended the rules for 
sourcing area disapproval and review procedures found in the interim 
rule and established procedures for persons applying for a share of the 
limited amount of unprocessed timber originally from National Forest 
System lands in Washington State that is exempt from the prohibition 
against indirect substitution. This rule has been incorporated into 
this final rule. Contracts entered into after enactment are governed by 
the provisions of the interim rule and the final rule of limited scope 
on the effective dates of those rules.
    The Department has added a sentence regarding the application of 
subpart F to unprocessed private timber to clarify that unprocessed 
private timber that requires domestic processing is subject to subpart 
F. Further, the Department has added a sentence to clarify that the 
reporting requirements for transfers of unprocessed Federal timber 
applies on September 8, 1995, regardless of the contract award date. 
This ensures that enforcement of the Act can begin immediately. Since 
the transfer documents are not part of the substitution regulation, 
this requirement is not limited by the Act's provision that the prior 
substitution regulation applies to contracts entered into before 
issuance of this final rule. In addition, the Department has made minor 
technical and editorial changes to this section to improve clarity and 
describe the status of contracts awarded between enactment of this Act 
and promulgation of final rules to maintain consistency throughout the 
rule.

Section 223.186  Definitions

    The complexity of the Act requires definitions in order to explain 
and understand critical terms. Section 493 of the Act (16 U.S.C. 620e) 
defines several terms that require refinement. The following terms were 
defined in the interim rule, and were repeated with minor technical 
changes as needed, in the proposed rule for continuity, public 
understanding and comment: Acquire, Act, Cants or Flitches, Export, 
Federal lands, Fiscal year, Non-manufacturer, Person, Private lands, 
Purchase, Substitution, and Unprocessed timber. In addition, under the 
proposed rule definitions of the following additional terms were 
proposed: Area of operations, Disregard, Each violation, Finished 
products, Gross value, Hammer brand, Highway yellow paint, Logs, 
Processed, Same geographic and economic area, Should have known, 
Transfer, Willful disregard, and Willfully.
    Nineteen responses were received concerning definitions. Ten 
responses addressed the definition of Person, focusing on the 
subcontractor. Other definitions addressed were: Disregard, Each 
violation, Export, Finished products, Gross value, Processed, Same 
geographic and economic area, Transfer, Unprocessed timber  and 
Willful. Several respondents requested definitions for ``manufacturing 
facility'' and ``sourcing area.''

Person

    Comment. Comments regarding the definition of ``person'' called for 
a more limited definition of ``subcontractor,'' exclusion of 
independent contractors as subcontractors, and inclusion of 
subcontractors as only those persons controlled by the purchaser, or 
who meet the criteria of affiliates.
    Response. The Act defines ``person'' as ``any individual, 
partnership, corporation, association, or other legal entity and 
includes any subsidiary, subcontractor, or parent company, and business 
affiliates * * *'' 16 U.S.C. 620e(3) (emphasis added). If 
subcontractors were only to be considered in the context of 
affiliation, there would be no reason to include subcontractors in the 
definition of person.
    The definition of subcontractor is ``One who has entered into a 
contract, express or implied, for the performance of an act with the 
person who has already contracted for its performance.''

[[Page 46895]]


Black's Law Dictionary

    The extent to which a contractor and a subcontractor would be 
considered one ``person'' will depend on the specific facts of the 
arrangement between the contractor and subcontractor. The subcontractor 
obtains his status through his relationship with the contractor. If the 
subcontractor is acting independently, for instance, in violation of a 
provision in the Act or regulations, the subcontractor might be 
prosecuted as an ``individual'' or other corporate entity, not as a 
subcontractor.
    Comment. One respondent expressed concern that a federal timber 
purchaser subcontracting with a contract logger who exports or who 
contracts to log timber that will be exported might be in violation of 
the Act under the definition of person. The same respondent was 
concerned that the contract logger who logs both federal logs and 
private logs eligible for export might be in violation of the Act under 
the definition of person.
    Response. The response above outlines the purchaser's status. The 
status of the contract logger depends on the definition of ``acquire''. 
That is, if the contract logger is acquiring federal timber and exports 
private timber, then the contract logger would be in violation of the 
prohibition against substitution, assuming no exemption from the 
prohibition applied. The Act states that ``acquire'' means, ``to come 
into possession of, whether directly or indirectly, through a sale, 
trade, exchange, or other transaction, * * *'' 16 U.S.C. 620e(1). While 
the definition of acquire includes ``possession'', the definition seems 
to encompass only possession through different types of transactions 
that lead to control. The contract logger's ability to log federal 
timber and log exportable timber or export timber will depend on the 
specific circumstances by which each transaction is conducted.
    After the end of the comment period for this rule, the Department 
received numerous letters regarding the definition of possession as 
used in the definition of acquire, and its effect on various business 
relationships, mainly service contracts. The Department may not 
consider these comments in this rule under the Administrative Procedure 
Act, 5 U.S.C. 553. However, the Department recognizes the need to 
clarify this issue, especially in light of the apparent change in the 
way business is conducted. Therefore, the Department is committed to 
issuing a proposed rule that will attempt to flesh out the definition 
of possession, and will ask for comment on a sensible way to implement 
the intent of the Act to prohibit substitution while balancing 
enforcement of the Act with reasonable restrictions on business. The 
Department has deleted the last sentence regarding the standards in the 
Small Business Administration regulation at 13 CFR 121.401 that may 
serve as guidelines to determining affiliation for purposes of this 
Act. This deletion clarifies that the Small Business Administration 
regulation serves as a guideline only and does not govern these rules.

Each Violation

    Comment. Several respondents expressed concern that the term ``each 
violation'' is too inclusive to meet the intent of the Act, and that, 
as defined in the rule, the violation counts would be compounded or 
multiplied. For example, each missing log brand and paint mark would be 
a separate violation in addition to the violation caused by the export 
of the log itself. These respondents suggested that multiple violations 
be treated as a single event.
    Response. The Department believes that the rule's use of the term 
``each violation'' is consistent with the intent of Congress, and that 
to reduce it would weaken the intent of the Act. Congress considered 
each violation of the Act serious and prescribed a penalty deemed 
appropriate to the infraction. Nothing in the Act suggests that ``each 
violation'' means a series of acts, or anything other than the plain 
meaning of the term. Further, section 492(c) of the Act (16 U.S.C. 
620d(c)) provides the Secretary with discretion in assessing civil 
penalties. Therefore, this suggestion is not adopted.
    Comment. One respondent commented in regard to ``each violation,'' 
that human errors and mistakes are inevitable, and that, at times, 
safety conditions make complete compliance with the branding and 
painting requirement very difficult. This respondent felt that some 
reasonable standard must be used when enforcing this requirement.
    Response. The Department agrees that occasional ``human errors'' 
are understandable. However, purchasers are expected to emphasize the 
importance of complying with the Act to their employees and 
subcontractors and to ensure that compliance is attained.
    Comment. One individual said the rule should indicate that the 
Secretary would use discretion and judgment in determining penalties 
for specific violations of the Act.
    Response. Congress gave the Secretary authority in section 492(c) 
of the Act (16 U.S.C. 620d(c)) to impose penalties for specific 
violations. These penalties include ceilings but do not mandate 
specific amounts. Therefore discretion will be used in the imposition 
of the penalties.
    Having considered the various comments received, the Department 
adopts the definitions of ``each violation'' as presented in the 
proposed rule.

Export

    Comment. One respondent stated that the definition of when export 
occurs provides a possible loophole in the prohibition against 
substitution.
    Response. The Department agrees that the definition of when export 
occurs could provide a loophole to the substitution restrictions. 
Accordingly, the Department has revised the portion of the definition 
that relates to the date that an export agreement is entered into.
    The definition in the proposed rule states that ``(E) export occurs 
on the date that a person enters into an agreement to sell, trade, 
exchange, or otherwise convey such timber to a person for delivery to 
foreign country. If that date cannot be established, export occurs * * 
* ''. This definition could permit a person to enter into long-term 
export agreements just before the issuance of this rule, or 24 months 
before acquiring Federal timber, and still be exporting, or causing to 
be exported, private timber while acquiring Federal timber. This 
activity could occur because the date of the export agreement preceded 
the effective date of this rule or the 24-month restriction against 
exporting prior to acquiring Federal timber. This kind of activity 
would constitute substitution.
    To close this potential substitution loophole, the Department has 
revised the definition of when export occurs by dropping the phrase 
``If this date cannot be established'' and simply listing three 
independent conditions which for the purposes of the Act, would 
establish when export occurs as follows: ``Export occurs: (1) On the 
date that a person enters into an agreement to sell, trade, exchange or 
otherwise convey such timber to a person for delivery to a foreign 
country; (2) when unprocessed timber is placed in an export facility in 
preparation (sorting, bundling, container loading etc.) for shipment 
outside the United States; or (3) when unprocessed timber is placed on 
board an ocean-going vessel, rail car, or other conveyance destined for 
a foreign country.''

[[Page 46896]]

    Comment. Another respondent commented that the date on which export 
occurred must be established with certainty.
    Response. The Department intends to ascertain as closely as 
possible when export occurs by thoroughly investigating all suspected 
or alleged export violations. The Department believes the definition of 
export, as revised in this final rule, meets the administrative and 
enforcement responsibilities required by the Act.
    Comments. Several respondents stated that the definition of 
``export'' fails to clarify which contracts fall within its definition.
    Response. The purpose of a definition is to clarify and provide a 
consistent meaning of a term wherever it is used in the regulation. See 
Sec. 223.185, Scope and Applicability, regarding which contracts are 
governed by this rule.
    Comment. One respondent stated that the definition of export in the 
proposed rule needs clarification because by ``transporting * * * 
through another party'', a person cannot prevent the other party from 
exporting the timber.
    Response. If a person notifies the recipient of the timber of the 
need for domestic processing, pursuant to the rule's requirements at 36 
CFR 223.193 and 223.194, the person would not be entering into an 
agreement to export, nor would the person be responsible for export 
that is conducted by a subsequent party.

Finished Products, Processed and Unprocessed Timber

    Comment. Several respondents commented that the definitions of 
``finished products'' and ``unprocessed timber'' are ambiguous. As an 
example, they point to Sec. 223.187, where certain products which are 
not in finished product form are excluded from the definition of 
unprocessed timber.
    Response. The Department believes that the term ``finished 
products'' is clear. The term is used in reference to ``finished 
products'' made of western red cedar that are exempt from the 
prohibition against indirect substitution (16 U.S.C. 620b(b)(1)). The 
term ``finished products'' in the Act suggests more than simply 
products processed to specific standards, since these products could be 
remanufactured; the term suggests that the products must be intended 
for end product use.
    The Department agrees that clarification regarding ``unprocessed 
timber'' is necessary to prevent products produced within the sale area 
that could be either finished products or unprocessed timber, such as 
poles, posts, piling, pulpwood bolts, pulp logs and cull logs, from 
being removed from the sale area or transferred without reporting or 
identification, and later exported as unprocessed timber. While the Act 
lists some of the products that may fall into this category in section 
493(7)(B) (16 U.S.C. 620e(7)(B)), other products, such as house logs 
that are part of a structure kit may be indistinguishable from 
unprocessed timber. Accordingly, the definition of ``unprocessed 
timber'' has been expanded in the final rule to add ``* * * For the 
purposes of reporting and identifying under Secs. 223.193, 223.194 and 
223.195, unprocessed timber also means timber products listed in 
Sec. 223.187 of these regulations, and other timber products, including 
house logs, that are indistinguishable from other unprocessed timber.'' 
The Department also added a statement to the definition that 
``unprocessed timber does not include products intended for 
remanufacture that meet the criteria listed in Sec. 223.187(a) (2) or 
(3).'' This clarifies that the Act defines certain products as not 
unprocessed, or processed, that are intended for remanufacture.
    The Department has also concluded that the definition of the term 
``processed'' should be revised to remove the reference to ``not 
unprocessed'' because this terminology is not used in the rule. 
Further, Sec. 223.187(b) of these regulations must be included in the 
reference to Sec. 223.187, since paragraph (b) states what is not 
unprocessed western red cedar. Therefore, the definition has been 
revised to read as follows: ``Processed means timber processed into 
products listed in Sec. 223.187 of these regulations.''
    Comment. In commenting on these definitions, two respondents 
expressed uncertainty as to whether each piece in an entire order must 
satisfy the lumber grade requirements specified in the Act for 
determining whether timber is processed to standards and specifications 
suitable for end product use.
    Response. Congress specified in section 493(7)(B) (16 U.S.C. 
620e(7)(B) that products meeting the current standards of the American 
Lumber Standards Grades or Pacific Lumber Inspection Bureau's Export R 
or N list clear grades are not ``unprocessed.'' The standards that the 
two bureaus use are defined in the Export R List Grading and Dressing 
Rules book, published by the Pacific Lumber Inspection Bureau (1971) 
and adopted by the West Coast Lumberman's Association and the British 
Columbia Lumber Manufacturers Association, which reads, ``* * * a 
variation not to exceed 10 percent, more or less, of the quantity 
ordered shall be allowed in filling cargoes and/or parcel lots.'' (p. 
4) Thus, there is no requirement that each piece in the entire order 
satisfy the grade requirements. However, in any given lot, at least 90 
percent of the pieces must meet these grade requirements.

Gross Value

    Comment. One respondent stated that gross value should not include 
the cost of ocean freight or insurance when sales are made on a ``C&F'' 
or ``CIF'' basis. The respondent stated that including these costs 
could cause customers to obtain these services abroad.
    Response. The Act uses the term, ``gross value'' in the civil 
penalties section, where the Secretary may assess a $500,000 penalty or 
``three times the gross value of the unprocessed timber involved'' for 
a violation of the prohibition against exporting Federal timber. The 
proposed rule defined gross value as the total amount that the person 
received from the export purchaser for the unprocessed Federal timber 
involved in the violation, before production, delivery, agent fees, 
overhead, and other costs are removed. The marketplace decides the 
total amount received and the Department does not intend to look behind 
this figure at the specifics of the business agreement. The Department 
has clarified in this rule that the gross value is the value of the 
timber when it is transferred. Other than this change, no change in the 
rule has been made in response to this comment.

Manufacturing Facility

    Comment. Several respondents suggested that a definition be 
included in the final rule defining the meaning of ``manufacturing 
facility.'' One respondent stated that the term ``non-manufacturer'' 
needs clarification, because of the ambiguity of the term 
``manufacturing facility.'' This respondent suggested that non-
manufacturer be defined as it is in the SBA program. Another respondent 
objected to the inability of non-manufacturers to obtain sourcing 
areas. It was also suggested that ``manufacturing facility'' be limited 
to a permanently located operation designed and used to convert logs 
into primary wood products, including lumber and veneer products, and 
that it should not include secondary wood processing plants, chip, or 
fiber operations.
    Response. The Department agrees that the term ``manufacturing 
facility'' needs to be defined, and that a manufacturing facility 
should be defined in terms of its permanent location. The Act implies a 


[[Page 46897]]
permanent location for manufacturing facilities, in section 490(c)(3) 
(16 U.S.C. 620b(c)(3)); the Act requires the sourcing area to be the 
area sourced by the applicant's ``timber manufacturing facilities.'' 
The Act's intent to define a sourcing area by a permanent manufacturing 
facility is the reason that non-manufacturers may not apply for 
sourcing areas.
    However, the Department disagrees that the definition should 
exclude producers of chips or fiber products. Sourcing areas are where 
the applicant desires to ``process'' timber (16 U.S.C. 620b(c)(3)). In 
16 U.S.C. 620e(7)(B)(ix), the Act defines timber not included as 
unprocessed, that is, processed timber, to include pulp or logs 
processed for conversion into chips. Since this type of facility is 
specifically included as a processing facility, it is also included in 
the definition of ``manufacturing facility.''
    Therefore, the Department has added the following to Sec. 223.186: 
``Manufacturing facility means a permanently located processing plant, 
used to convert unprocessed timber into products.'' The Department 
believes this addresses the ambiguity in the term ``non-manufacturer'' 
without adopting SBA rules.

Same Geographic and Economic Area

    Comment. One respondent stated that there is no reference to ``same 
geographic and economic area'' with regard to sourcing areas, as the 
proposed definition seems to indicate.
    Response. While there is no specific reference to ``same geographic 
and economic area'' in the sourcing area provision of the Act, this 
concept is used in determining sourcing areas; the term reflects the 
Act's requirement that sourcing areas be ``geographically and 
economically separate'' from areas where a person harvests private 
timber for exporting. An area that is geographically and economically 
separate from an exporting area cannot also be the same geographic and 
economic area from which a person exports. No change is needed in the 
rule.
    Comment. Several respondents called for a revised definition of 
``same geographic and economic area.'' The respondents felt that the 
definition is too broad and suggested narrowing the definition to meet 
the Act's intent regarding substitution. Another respondent stated that 
the Act has a provision that prohibits the purchase of unprocessed 
federal timber and the export of unprocessed private timber within the 
past 24 months (16 U.S.C. 620b(a)(1)(B)). The respondent said this 
provision addresses the concern in the proposed rule that if 
substitution generally were defined pursuant to the sourcing area 
concept of geographically and economically separate areas, persons 
would be granted de facto sourcing areas. This commenter also said that 
the two different definitions of ``same economic and geographic area'' 
hinge on a definition of ``private lands'' as west of the 100th 
meridian in the contiguous 48 states, and that the Act does not so 
limit the definition of private lands.
    Response. The Department agrees with the last commenter that the 
Act provides a prohibition that addresses the concern about de facto 
sourcing areas, and that, accordingly, as the other respondents 
suggested, there is no need to have the second, broader definition of 
``same economic and geographic area.'' The Act states, in the section 
concerning direct substitution, that, ``except as provided in 
subsection (c) of this section (sourcing area approval process),'' a 
person may not purchase unprocessed federal timber originating from 
west of the 100th meridian in the contiguous 48 States if, ``(A) such 
unprocessed timber is to be used in substitution for exported 
unprocessed timber originating from private lands; or (B) such person 
has, during the preceding 24-month period, exported unprocessed timber 
originating from private lands.'' 16 U.S.C. 620b(a)(1) (emphasis 
added).
    The prohibition in subsection (A) is further defined in the Act. 
Section 620(e)(8) states that, ``[t]he acquisition of unprocessed 
timber from Federal lands west of the 100th meridian in the contiguous 
48 States to be used in `substitution' for exported unprocessed timber 
originating from private lands means acquiring unprocessed timber from 
such Federal lands and engaging in exporting, or selling for export, 
unprocessed timber originating from private lands within the same 
geographic and economic area.'' (emphasis added) The underlined portion 
of the definition is virtually identical to the prohibition in section 
620b(1)(A). The prohibition in subsection (B) is much broader, and, by 
its own terms, prohibits the purchase of federal timber and the export 
of private timber in the past 24 months, without reference to the same 
geographic and economic area.
    The Act provides that an approved sourcing area is an exemption 
from the prohibitions in subsection (a) of 16 U.S.C. 620b, in addition 
to those prohibitions as they relate to indirect substitution in 
subsection (b). The section concerning sourcing areas states that, 
``[t]he prohibitions contained in subsections (a) and (b) of this 
section shall not apply with respect to the acquisition of unprocessed 
timber originating from Federal lands within a sourcing area west of 
the 100th meridian in the contiguous 48 states approved by the 
Secretary * * *'' 16 U.S.C. 620b (emphasis added). In terms of the 
prohibition in section 620b(a)(1)(A), an approved sourcing area is the 
only structure provided by the Act to show that purchasing unprocessed 
federal timber and exporting unprocessed private timber is not 
occurring within the same economic and geographic area. (For example, a 
person who had not exported within the past 24 months, but began 
exporting after purchase of the unprocessed federal timber, would need 
a sourcing area within which to purchase the federal timber in order to 
demonstrate that the export and federal purchase areas were 
geographically and economically separate.) In terms of the prohibition 
in section 620b(a)(1)(B), a sourcing area is required if a person who 
had exported within the past 24 months in the west wanted to purchase 
unprocessed federal timber. Because of the specific statutory provision 
prohibiting the purchase of unprocessed federal timber and the export 
of private timber without limitation to the ``same geographic and 
economic area,'' the Department agrees that there is no need for the 
second, broader definition of that term, and has deleted that 
definition from the rule.
    The Department does not agree that the term ``private lands'' 
should not be limited to west of the 100th meridian in the contiguous 
48 states. While the Act does not specifically define ``private lands'' 
as being west of the 100th meridian in the contiguous 48 States, the 
Act must be implemented in a manner that gives meaning to all of the 
provisions of the Act. The Act concerns transactions west of the 100th 
meridian in the contiguous 48 States. To interpret private lands 
without such a limitation would mean that export in the previous 24 
months from anywhere in the United States (and possibly even export 
from private lands in a foreign country) would disqualify a person from 
purchasing unprocessed federal timber, pursuant to 16 U.S.C. 
620b(a)(1)(B). There is nothing in the Act to suggest such a broad 
prohibition. No change in the rule is necessary in response to this 
comment.

Sourcing Area

    Comment. Several respondents suggested that a definition of 
``sourcing area'' be included in the rules.

[[Page 46898]]

    Response. The Department concurs that a definition of ``sourcing 
area'' is desirable. The definition includes the requirement that the 
sourcing area be economically and geographically separate from any 
geographic area from which the persons harvests private timber for 
export, pursuant to the requirement in the Act. 16 U.S.C. 620b(c)(3). 
Further, the interim rule required sourcing area applicants to include 
in the map of the sourcing area boundary both Federal and private lands 
that source the mill that was the subject of the initial applications. 
The Department has adopted this requirement in the definition of 
sourcing area. The Act requires the Secretary to consider the ``timber 
purchasing patterns, on private and Federal lands'' in the 
determination of the sourcing area boundary (16 U.S.C. 620b(c)(3)). If 
private lands were not included in the sourcing area boundary, the 
Secretary could not establish that the sourcing area is geographically 
and economically separate from the area where the sourcing area holder 
or applicant harvests private timber for export as required by the Act. 
Otherwise, private lands sourcing the mill could be the same lands from 
which the sourcing area holder or applicant harvests timber for export. 
The definition of sourcing area is as follows: ``Sourcing area means 
the geographic area approved by the Secretary which includes a person's 
timber manufacturing facility and the private and Federal lands from 
which the person acquires or intends to acquire unprocessed timber to 
supply such facility; a sourcing area must be geographically and 
economically separate from any geographic area from which that person 
harvests for export any unprocessed timber originating from private 
lands.''

Substitution

    The proposed rule included the definition of substitution found in 
section 493(8) of the Act (16 U.S.C. 620e(8)). However, analysis of the 
comments and preparation of the final rule, specifically, the comments 
on the definition of ``same geographic and economic area'' discussed in 
the preamble, revealed that this definition applies only to one of the 
substitution prohibitions in the Act. Under the section entitled, 
``Limitations on the substitution of unprocessed Federal timber for 
unprocessed timber exported from private lands (a) Direct 
substitution'' the Act lists two prohibitions. The section states that, 
except as provided in subsection (c), the sourcing area approval 
process, no person may purchase directly from the United States 
unprocessed timber originating from federal lands west of the 100th 
meridian in the contiguous 48 States if, ``(A) such unprocessed timber 
is to be used in substitution for exported unprocessed timber 
originating from private lands; or (B) such person has, during the 
preceding 24-month period, exported unprocessed timber originating from 
private lands.''
    16 U.S.C. 620e(8) further defines the prohibition in 
Sec. 620b(1)(A). The definition does not state, ``Substitution means * 
* *,'' but rather, uses a phrase virtually identical to the prohibition 
in section 620b(1)(A), and states what that phrase means: ``The 
acquisition of unprocessed timber from Federal lands west of the 100th 
meridian in the contiguous 48 States to be used in `substitution' for 
exported unprocessed timber originating from private lands means 
acquiring unprocessed timber from such Federal lands and engaging in 
exporting, or selling for export, unprocessed timber originating from 
private lands within the same geographic and economic area.'' (Emphasis 
added)
    A need to modify the definition of substitution to fully reflect 
all of the substitution prohibitions in 16 U.S.C. 620b was recognized. 
Therefore, the definition of substitution has been modified as follows.
    First, the definition of substitution has been modified to include 
both prohibitions found in section 620b(a), as further defined in 
section 620e(8). That is, a person violates the prohibition against 
substitution if such person acquires, directly or indirectly, 
unprocessed timber from Federal lands west of the 100th meridian in the 
contiguous 48 States and engages in exporting or selling for export, 
unprocessed timber originating from private lands within the same 
geographic and economic area, pursuant to section 620b(a)(1) (A), as 
further clarified in section 620e(8), or such person has, during the 
preceding 24-month period, exported unprocessed timber originating from 
private lands, pursuant to section 620b(a)(1)(B).
    Second, the definition of substitution has been modified to close a 
loophole, in order to heed the Act's intent regarding the substitution 
prohibitions. The proposed rule's list of prohibitions did not limit 
when the purchase of unprocessed Federal timber could occur if there is 
subsequent exporting, unlike the 24-month limit on exporting that 
precedes the purchase of unprocessed Federal timber. The prohibitions 
did not prevent unprocessed Federal timber purchased before the export 
of unprocessed private timber from being substituted for the 
unprocessed private timber. To comply with the Act's prohibitions, a 
person will be committing a violation if the person engages in export, 
or selling for export, unprocessed timber originating from private 
lands during any calendar year within the same geographic and economic 
area that a person has unprocessed Federal timber in the person's 
possession or under contract. Calendar year has been adopted as the 
appropriate time period because it provides a consistent time period 
and is familiar to many purchasers who have operated under the prior 
substitution regulations.
    Third, for clarity, the definition of substitution has been 
modified to include one of the prohibitions against substitution 
included in the proposed rule in Sec. 233.189. Substitution occurs when 
a person purchases unprocessed Federal timber and sells unprocessed 
private timber that requires domestic processing to a third party if 
the third party or successive parties export the private timber. The 
third party or successive parties may not export such timber. The 
prohibition has been modified to clarify that the private timber that 
may be subject to a substitution violation is that timber that requires 
domestic processing. In this way, the private timber that may be 
subject to a substitution violation is identified.
    In summary, the modified definition of substitution is as follows: 
``Substitution'' occurs when: (1) A person acquires, directly or 
indirectly, unprocessed timber from Federal lands west of the 100th 
meridian in the contiguous 48 States and engages in exporting or 
selling for export, unprocessed timber originating from private lands 
within the same geographic and economic area; or (2) a person acquires, 
directly or indirectly, unprocessed timber from Federal lands west of 
the 100th meridian in the contiguous 48 States and, during the 
preceding 24-month period, exported unprocessed timber originating from 
private lands; or (3) a person exports or sells for export, unprocessed 
timber originating from private lands within the same geographic and 
economic area in the same calendar year that the person has unprocessed 
timber originating from Federal lands in the person's possession or 
under contract; or (4) a person purchases, directly or indirectly, 
unprocessed timber originating from Federal lands if such person sells 
or otherwise transfers unprocessed timber that originates from private 
lands west of the 100th meridian 

[[Page 46899]]
in the contiguous 48 States and that requires domestic processing, to a 
third party if that third party or successive parties export that 
unprocessed private timber. A third party or successive parties who 
acquire such unprocessed timber that originates from private lands west 
of the 100th meridian in the contiguous 48 States and that requires 
domestic processing may not export such timber.

Transfer

    Comment. One respondent was unsure whether ``transfer'' was limited 
to transfer of ownership.
    Response. The definition of ``transfer'' means to pass title ``or 
otherwise convey''; it is not limited to the transfer of ownership. No 
change in the definition is necessary.

Willfully, Willful Disregard, and Disregard

    Comment. Several respondents criticized the definitions of willful 
and willfully disregard for not including the requirement that the 
person intended to violate the Act or its implementing regulations. One 
respondent stated that, while the rule defines the terms as requiring 
the general intent of intentionally violating an act that is 
prohibited, the Act requires that these terms include the specific 
intent of violating the Act.
    Response. The Department does not agree with these comments. 
Defining ``willfully'' or ``willful disregard'' as a specific intent to 
violate a statute or regulations is a standard used in criminal law. 
The definition of ``willfully'' or ``willful disregard'' in the context 
of civil penalties is a less stringent standard. See, e.g., Brock v. 
Morello Brothers Construction, Inc., 809 F.2d 161, 164 (1st Cir. 1987). 
However, the Department is modifying the definitions of ``willfully'' 
and ``willful disregard'' to follow more closely the Supreme Court's 
decision in McLaughlin v. Richland Shoe Co., 486 U.S. 128 (1988). In 
that case, the statute of limitations for a willful violation of the 
Fair Labor Standards Act (FLSA) extended the statute of limitations 
from two to three years. The Court stated that a party had committed a 
willful violation if the party knew or showed reckless disregard for 
the matter of whether its conduct was prohibited by the statute. 
McLaughlin, 486 U.S. at 133, citing Transworld Airlines, Inc. v. 
Thurston, et al., 469 U.S. 111 (1984). The party need not know that the 
conduct is unlawful, but must at least show indifference to the rules. 
Brock, 809 F.2d at 164, citing Thurston. The Supreme Court in 
McLaughlin favored this stricter standard over a less stringent 
standard followed in some of the case law, given the distinction in the 
FLSA between the statute of limitations for ``ordinary'' violations and 
that for willful violations. McLaughlin, 486 U.S. at 132.
    Likewise, in the Act, there is an appreciable difference in the 
amount of penalty that may be assessed for a willful violation, or a 
violation committed with willful disregard ($500,000), and violations 
committed either in disregard or by a person who ``should have known'' 
($75,000 and $50,000, respectively). Therefore, the Department has 
changed the definition of willfully and willful disregard to mean 
committing an action that a person knew or showed reckless disregard 
for the matter of whether the person's conduct was a violation of the 
Act (or its implementing regulations, in the case of ``willfully'').
    Comment. One respondent stated that the definition of disregard is 
too broad, and should also include specific intent.
    Response. The rule's definition of disregard is taken from Black's 
Law Dictionary, 5th Ed.: ``to ignore, overlook, or fail to observe'' 
any provision of the Act. Intent is not a prerequisite to committing a 
violation ``in disregard'' of the Act or its implementing regulations. 
Such a definition would render the definition of willfully and willful 
disregard meaningless. No change has been made in the rules in response 
to this comment.
    The standards of ``disregard'' and ``should have known'' are 
similar to the degrees of negligence. That is, they differ in the 
``degree of inattention'' with which the actor commits an act. 
``Disregard'', is more than ``simple inadvertence.'' The Department 
believes that the civil penalties may be understood more clearly if 
they are presented together. Therefore, the Department has placed all 
of the standards for civil penalties under the heading, ``Civil 
penalties.''
    In addition to the aforementioned changes, the Department has made 
minor technical and editorial changes to other definitions within this 
section to improve clarity; these changes have no substantive effect.

Section 223.187  Determination of Unprocessed Timber

    The definition of unprocessed timber in the Act refers to minimum 
standards and grades of lumber. In order to determine that these 
standards have been met, the Department proposed in Sec. 223.187 that 
the shipper of record possess a legible copy of a lumber inspection 
certificate issued by a lumber inspection/grading organization 
generally recognized by the industry as setting a selling standard. 
This certificate would be in the shipper's possession for each shipment 
and be available for inspection upon request of the Forest Service.
    Comment. Several persons objected to the requirement that products 
be ``manufactured for a specific order,'' stating that commonly ordered 
products generally are produced without specific orders and stored in 
inventory. This practice ensures that production need not be curtailed 
during slow periods and that companies can respond quickly to 
subsequent orders for products.
    Response. The Department concurs with these respondents that 
Sec. 223.187(a)(1)(ii) needed revision for clarity. It is important for 
enforcement of the Act, not that products in a shipment have been 
manufactured for a specific order, but that the products are only 
intended to be used in the form shipped, and not to be remanufactured 
into other products in the foreign country. Therefore, in response to 
this comment, Sec. 223.187(a)(1)(ii) in the final rule has been revised 
to require that the shipper of record have available for Forest Service 
inspection a certificate certifying to the intended use of the shipment 
or order. Likewise, a certification requirement has been added for 
pulpwood bolts, pursuant to Sec. 223.187(a)(8), to insure that the 
intent of processing the bolts into pulp is met. These certifications 
are not required if the timber obtained may be exported (for instance, 
because the timber originates from private lands from which the timber 
may be exported) without regard to intended use of the shipment or 
order. This has been clarified in Sec. 223.187(a)(1).
    For ease of administration, the specific certification language has 
been provided in Sec. 223.187(b) (2) and (3). The person signing the 
certificate certifies the shipping order number, the date of that order 
and the intent that the material will be used as shipped or processed 
into pulp and will not be manufactured into other products. The 
certifier also certifies that the certification is made with full 
knowledge of the Act and its implementing regulations. Further, the 
certifier certifies that exporting unprocessed timber originating from 
Federal lands or exporting unprocessed timber from private lands that 
is required to be processed domestically is a violation of the Act and 
its implementing regulations, and that signing the certificate without 
abiding by its contents is a violation of the False Statements Act. 
Regarding a 

[[Page 46900]]
corporation, only a person authorized in writing by the Chief Executive 
Officer to sign certificates pursuant to 36 CFR 223.187(a)(1)(ii) may 
sign such certificates. The Forest Service must receive the original, 
written authorization from the Chief Executive Officer, pursuant to 36 
CFR 223.187(b)(5), before a person is authorized to sign the 
certificates.
    Comment. Three respondents suggested that instead of requiring that 
the shipper of record have in its possession a certificate issued by a 
lumber inspection/grading bureau, the provisions of the Act related to 
processed products could be met simply by either requiring the shipper 
of record to have the certificate available for inspection, or 
declaring that the products in a particular shipment were inspected, 
graded, and found to meet the requirements of processed products under 
the Act, or requiring the shipper of record to certify that ``The 
material in this shipment is conveyed pursuant to the attached order 
and is not intended for remanufacture.''
    Response. The Department is requiring that the shipper of record 
have the certificate issued by the lumber inspection/grading bureau in 
his/her possession, available for inspection, i.e., readily available, 
not that the shipper of record necessarily have the certificate on his/
her person. Regarding the declaration and the certificate, the 
Department agrees that these are necessary to ensure that the shipper 
of record understands that the shipment is not intended for 
remanufacture. The proposed rule required such a certificate in 
Sec. 223.187(a)(1)(ii). In order to clarify this requirement, the final 
rule has amended this section to include the specific certification 
language that should be used. This certification does not substitute 
for the lumber inspection certificate. This certificate assures the 
Department, by the persons responsible for lumber inspection and 
grading, that the lumber meets the grading requirements of the Act at 
16 U.S.C. 620e(7)(B).
    Comment. One person stated that requiring separate (lumber grade) 
inspections of each shipment would deter processed product exports, 
contrary to the intention of Congress. The respondent also stated that 
products scheduled for one shipment that are delayed or diverted to 
another should not require a second certificate.
    Response. The Department disagrees with this comment. Certified 
lumber inspection certificates are a common component of shipment 
documentation and, therefore, pose no deterrence to lumber exports. The 
Department accepts the certificate for compliance and enforcement 
purposes in lieu of breaking apart bundles of lumber prepared for 
export and individually grading each lumber piece, which certainly 
would deter exports.
    Further, a lumber inspection certificate is required for each 
shipment or order, regardless of how the material in the shipment came 
to that shipment. This requirement is necessary for effective 
inspection of various shipments.
    Comment. Several respondents stated that Sec. 223.187 should make 
clear that restrictions and documentation apply only to material to be 
exported, not to products sold for domestic consumption, regardless of 
the degree of manufacture.
    Response. The Department agrees with this comment. The Act does not 
place restrictions on products intended to be sold or manufactured 
domestically. The Department believes that the rule clearly states that 
the requirements in Sec. 223.187 apply to material to be exported. 
Therefore no revisions are necessary in response to this comment. It 
should be noted, however, that the definition of unprocessed timber 
includes the items listed in Sec. 223.187 that are indistinguishable 
from unprocessed timber for purposes of the record keeping and marking 
requirements in Secs. 223.193-.195.
    Comment. Several respondents expressed concern that lumber that 
does not meet the clear grade standard will cause them significant 
practical problems, particularly for products up to 12 inches thick 
which were manufactured as exportable clear grades but, upon 
inspection, failed to meet the standard. These respondents felt the 
rule would force them to remanufacture such lumber into exportable 
products up to 8\3/4\ inches thick, or into other products.
    Response. Congress included in the Act language permitting the 
export of clear grade timbers (cants or flitches) up to 12 inches thick 
and cants of a lesser grade up to 8\3/4\ inches thick intended for 
remanufacture. Export R List Grading and Dressing Rules permit up to 10 
percent of the pieces in a given lot to be outside the specified lumber 
grade for the lot. Therefore a lot of clear grade 12 inch cants may 
contain individual cants that do not meet this grade and still qualify 
for export, provided the lesser grade cants do not make up more than 10 
percent of the total lot. If a given lot of 12 inch cants is outside 
this accepted grading tolerance level, the exporter will have to remove 
the below grade cants from the lot and re-saw them to not more than 
8\3/4\ inches in thickness before exporting or be in violation of the 
Act. Accordingly, no change in the rule as proposed is necessary.
    Comment. Several respondents stated that the final regulations 
should allow export of clear lumber meeting the referenced grades in 
thicknesses up to and including 12 inches nominal. These respondents 
stated that a nominal 12 inches would permit cants cut from fresh cut 
green trees to be sawn slightly thicker than a true 12 inches to allow 
for shrinkage back to 12 inches as the wood dries.
    Response. The Department declines to adopt this comment. The Act 
states specifically the maximum thickness of a cant meeting clear grade 
specification permitted to be exported without further processing is 12 
inches (16 U.S.C. 620e(7)(ii)).
    Comment. One respondent commented that a producer should be 
permitted to seek export customers who can use mismanufactured products 
as is, without further manufacture.
    Response. Section 493(7)(B) of the Act (16 U.S.C. 620e(7)(B)) 
states explicitly the lumber grades and maximum timber sizes that may 
be exported for further manufacturing outside the United States. In 
accordance with the Act, products needing further processing before use 
must meet these grades and size restrictions before being exported. No 
change in the final rule is made in response to this comment.
    Comment. Two respondents stated that the rule also should expressly 
permit the chipping of any Federal log or portion of a Federal log at 
domestic operations and that any log which is used solely for domestic 
chipping be considered a pulp or cull log even if it meets technical 
specifications for some other grade. Another respondent suggested that 
a load of logs consisting mainly of chip logs with some higher-grade 
logs mixed in should be classified as chip logs, even if all or some of 
the higher-grade logs are processed into some other product. This would 
prevent waste and encourage the most efficient use of these Federal 
logs.
    Response. The rule does not preclude the chipping of any log 
obtained from Federal lands. However, the Act at 16 U.S.C. 
620e(7)(B)(ix), exempts only pulp and cull logs from the meaning of the 
term ``unprocessed timber,'' with regard to logs that are processed at 
domestic pulp mills, domestic chip plants or other domestic operations 
for the purpose of conversion of the log into chips. Congress did not 
state that any log converted into chips is exempted from the 
restrictions on unprocessed 

[[Page 46901]]
timber. Rather, Congress specifically excepted pulp and cull logs if 
they are processed into chips.
    To assure that pulp and cull logs that may be indistinguishable 
from unprocessed timber are not subsequently exported, they must be 
identified, pursuant to the revised definition of unprocessed timber in 
36 CFR 223.186 of this rule.

Determination of Unprocessed Western Red Cedar

    Since publishing the proposed rule, the Bureau of Export 
Administration, Department of Commerce, published a proposed rule on 
June 3, 1991 (56 FR 25054), and a final rule on January 6, 1993 (58 FR 
487), amending the Export Administration Regulation at 15 CFR 777.7, 
governing the export of unprocessed western red cedar. The Department 
of Commerce's final rule revises the definition of processed western 
red cedar to exclude any individual piece of western red cedar having a 
cross section that exceeds 2,000 square centimeters (310 square 
inches), regardless of grade. This change makes the United States' 
western red cedar export restrictions consistent with those of the 
Providence of British Columbia, Canada. Section 223.187(c) of this rule 
has been revised to conform with the change in the Department of 
Commerce's rule governing export of western red cedar.
    Comment. One respondent mentioned the proposed rule published by 
the U.S. Department of Commerce and urged that the U.S. and Canadian 
Governments develop a standard definition for all species of 
unprocessed timber.
    Response. Section 491(d)(5) of the Act (16 U.S.C. 620c(d)(5)), 
which imposes restrictions on exports of unprocessed timber originating 
from State or other public lands, states ``nothing in this section 
shall be construed to supersede the provisions of section 7(i) of the 
Export Administration Act of 1979 (50 U.S.C. App. 2406(i)).'' In order 
to provide a consistent definition of western red cedar for Federal as 
well as State and other public lands, and to provide for consistent 
exporting procedures, Sec. 223.187 of the proposed rule included the 
definition of western red cedar taken from the timber export 
regulations established by the Secretary of Commerce at 15 CFR 777.7, 
which implement section 7(i) of the Export Administration Act, as 
amended. Discussions on standard definitions of unprocessed timber for 
species other than western red cedar have not been undertaken as of 
this date. However, the Act specifically defines unprocessed timber in 
section 493(7)(A) and (B), and is sufficient for the purposes of this 
rule making.
    In order to monitor any indirect substitution violations, the 
Department has added a certificate to a new paragraph (d) similar to 
the certificate for Sec. 223.187(b) with regard to the intent of the 
shipper of record. The certificate requires the shipper of record to 
identify whether the product is intended for end product use, and to 
acknowledge that only processed western red cedar that is intended for 
end product use is exempt from the prohibition against indirect 
substitution. Western red cedar products that are ``processed'' may be 
exported, but they are not excluded from the prohibition against 
indirect substitution unless they are intended for end product use. 
Without this certificate, the Department has no way of enforcing the 
exemption from indirect substitution allowed for ``finished products'' 
of western red cedar, because the Department could not determine by 
inspection whether a product is intended for end product use. The 
certificate reads as follows: ``I certify that the products in the 
shipment identified by my shipping order number ________, dated 
________, are manufactured in accordance with the attached order from 
______ (buyer) ______ of ______ (address) ______, numbered ________ and 
dated ________, are / are not intended for end product use. I 
understand that only western red cedar products that are finished 
products are exempt from the prohibition against indirect substitution 
in the Forest Resources Conservation and Shortgage Relief Act of 1990 
(16 U.S.C. 620b(b)(1)) and its implementing regulations. I make this 
certification with full knowledge and understanding of the export and 
substitution restrictions of the Forest Resources Conservation and 
Shortage Relief Act of 1990 (16 U.S.C. 620, et seq.) (Act) and its 
implementing regulations. I fully acknowledge and understand that to 
require western red cedar under the indirect substitution exemption in 
section 490(b)(1) of the Act (16 U.S.C. 620b(b)(1)) for purposes other 
than domestic processing into finished products will be a violation of 
this Act, its implementing regulations, and the False Statements Act 
(18 U.S.C. 1001), and may subject me to the penalties and remedies for 
such violation.'' The signatory process and Chief Executive Officer 
authorization of the signatory is the same as for the certificate in 
Sec. 223.187(b).
    Otherwise, the Department has made several changes to the text as 
proposed for technical and editorial clarity, but such changes have no 
substantive effect.

Section 223.188  Prohibitions Against Exporting Federal Timber

    This section of the proposed rule was identical to that in the 
interim rule. Section 489 of the Act (16 U.S.C. 620a) continues the 
prohibition against the export of timber from Federal lands west of the 
100th meridian in the contiguous 48 States that has been renewed 
annually through the Appropriations Act for Interior and Related 
Agencies.
    Comment. Only one comment was received on this section. The 
respondent stated that ``Our company opposes export of logs regardless 
of origin.''
    Response. The Act does not prohibit exporting of logs from private 
lands as long as logs from Federal lands are not substituted for those 
exported private logs in the domestic market. The Department has no 
authority to restrict private log exporting allowed by the Act; 
therefore, this section of the final rule is unchanged.

Section 223.189  Prohibitions Against Substitution

    This section of the proposed rule also was almost identical to that 
in the interim rule; the proposed rule added a paragraph (a)(3) to 
Sec. 223.189. This section was repeated in the proposed rule to provide 
readers with a comprehensive review of the Act's implementing 
regulations and to provide for public comment on the interim rule. 
Several changes have been made to clarify this section.
    Section 490 of the Act (16 U.S.C. 620b) limits direct and indirect 
substitution of unprocessed Federal timber for unprocessed timber 
exported from private lands. Section 490(a) of the Act (16 U.S.C. 620b) 
entitled ``Direct Substitution'') states that no person may purchase 
directly from any Department or agency of the United States unprocessed 
timber originating from Federal lands west of the 100th meridian in the 
contiguous 48 States if:
    (A) Such unprocessed timber is to be used in substitution for 
exported unprocessed timber originating from private lands; or
    (B) Such person has exported unprocessed timber originating from 
private lands during the preceding 24-month period.
    Proposed Sec. 223.189(a)(3) stated that no person may acquire 
unprocessed timber from Federal lands if the person transfers 
unprocessed timber originating from private lands west of the 100th 
meridian in the contiguous 48 States to a third person, and that third 
party or successive parties export that unprocessed private timber. The 
third 

[[Page 46902]]
party or successive parties who acquire such unprocessed timber 
originating from private lands west of the 100th meridian in the 
contiguous 48 states may not export such timber.
    Proposed paragraph (a)(3) would reduce the potential for violations 
of the substitution prohibition. The potential is particularly high in 
multiple transfers of unprocessed timber originating from private lands 
in which any of the parties acquire or wish to acquire Federal timber. 
The paragraph would protect the person who acquires unprocessed Federal 
timber and transfers unprocessed private timber from a possible 
substitution violation by making it unlawful for the person acquiring 
the private timber to export it.
    The Act exempts from these prohibitions persons with historic 
export quotas. The 24-month restriction is waived by a certification 
process described in Sec. 490 of the Act, and Sec. 223.189 (c) and (d) 
of the proposed rule.
    Nineteen public comments were received on this section.
    Comment. Several respondents said that the certification language 
should indicate that the individual signing the certification on behalf 
of a corporation is doing so in his or her capacity as an officer or 
agent of that corporation, not in a personal capacity.
    Several respondents also commented that a corporation's Chief 
Executive Officer should not necessarily be required to sign the 
certification, since the Chief Executive Officer may have limited 
knowledge of the firm's acquisition and disposition of unprocessed 
timber. These respondents suggested that a designated officer or agent 
of the corporation be permitted to sign the certification on behalf of 
the corporation.
    Response. The certification language holds the corporate officer 
signing the certification liable in a corporate capacity, not a 
personal capacity. The certificate must be signed by someone with 
authority to bind the corporation. The Department prefers to have the 
signature of the official with clear authority to bind the corporation, 
the Chief Executive Officer: it would be difficult for the Department 
to determine if officers, other than the Chief Executive Officer, could 
bind the corporation. This requirement is similar to the requirement in 
36 CFR 223.171(b)(6)(1992), issued pursuant to the Federal Timber 
Contract Payment Modification Act (16 U.S.C. 618), with which 
participating timber purchasers complied. In that regulation, the Chief 
Executive Officer is required to sign a statement for a corporation 
certifying the accuracy of information submitted. The Chief Executive 
Officer need not have personal knowledge of the information which he or 
she is certifying, but must ascertain that the information is true, 
complete, and accurate to the best of his or her knowledge and belief.
    Comment. One respondent wrote that certifications should not be 
binding if a person or corporation later decides to stop buying Federal 
timber.
    Response. The Department declines to adopt this proposal. As 
discussed earlier, the final rule adopts and amended the definition of 
``substitution'', which states that substitution occurs when a person 
exports during any calendar year in which the person has Federal timber 
in the person's possession or under contract within the same geographic 
and economic area.
    Comment. One respondent objected to implementation of the interim 
rule before the public had a chance to comment on it.
    Response. The Department would have preferred prior notice and 
comment; however, for the reasons set forth in the preamble to the 
interim rule, immediate implementation was necessary. Comment on the 
interim rule was provided for in the proposed rule. These comments have 
been analyzed in this rule.
    Comment. Three respondents asked that provisions for requesting 
waivers of 24-month prohibition against purchasing Federal timber 
following export of private timber indicate when and under what 
circumstances waivers will be granted.
    Response. The waiver of the 24-month prohibition was available only 
to applicants applying by December 20, 1990. Acceptance or rejection of 
waivers depended upon the Administrative Law Judge's ruling on sourcing 
area applications. That ruling has occurred, and applicants have been 
notified of those decisions. In addition, the Forest Service has sent 
letters advising each applicant of the status of its sourcing area 
application and request for waiver. Therefore, no change in the rule is 
necessary. Persons whose waivers were disapproved are not bound by the 
request for the waiver (36 CFR 223.189(g)(2)).
    Comment. One person commented that the rule should clarify that 
persons signing the waiver of the 24-month prohibition, which requires 
export to cease for three years, may not export within the sourcing 
area for as long as the sourcing area is approved.
    Response. The Department agrees with this comment. Therefore, in 
response to this comment, the Department has added a sentence to 
proposed paragraph (f), now paragraph (5) of Sec. 223.189(f), stating 
that persons signing the waiver, like all sourcing area holders, may 
not export unprocessed private timber originating from within the 
sourcing area.
    Comment. Several respondents asked for clarification regarding 
whether a person who may not purchase unprocessed Federal timber may 
purchase unprocessed private timber from a person who may purchase 
unprocessed Federal timber.
    Response. A person who may purchase unprocessed Federal timber may 
purchase unprocessed private timber from someone who may purchase 
unprocessed Federal timber, provided that the person purchasing the 
unprocessed private timber does not export the private timber if the 
timber must be domestically processed (e.g., if the private timber 
originates from within a sourcing area).
    Proposed paragraph (a)(3) has been rewritten to clarify that a 
person may not purchase unprocessed Federal timber in the west if the 
person transfers unprocessed private timber from the west that requires 
domestic processing, to a third party, if that party or successive 
parties exports the unprocessed private timber. The last sentence 
concerning the prohibition against third or successive parties 
exporting such timber has also been modified to state that the 
restriction applies to private timber that requires domestic 
processing. The restrictions in paragraph (a)(3) are meant only to 
apply to timber requiring domestic processing, to follow the intent of 
the Act, which provides certain exemptions allowing for the purchase of 
unprocessed Federal timber and the export of unprocessed private 
timber.
    Comment. Several respondents expressed concern that they could lose 
their right to buy Federal timber and be in violation of the 
substitution prohibitions, if a party to whom they sell unprocessed 
Federal timber exports private timber.
    Response. Section 492(a)(2) of the Act (16 U.S.C. 620d(a)(2)) 
states that a person who transfers unprocessed Federal timber will 
provide to the person acquiring such timber a written notice regarding 
the Federal origin of the timber, and receive from such party written 
acknowledgment of the notice and an agreement to comply with the 
requirements of the Act. 36 CFR 223.193(b) implements section 492(a)(2) 
of the Act (16 U.S.C. 620d(a)(2)), and provides procedures to follow 
when timber from Federal lands is transferred 

[[Page 46903]]
to another person. To implement this provision, the Department has 
developed forms intended to relieve the seller of liability if 
subsequent buyers violate the export or substitution restrictions of 
the Act. A seller or buyer who cannot produce the appropriate document 
upon request could be found in violation of the Act. Accordingly, no 
change in the rule is necessary to respond to the concern.
    Comment. One respondent expressed concern that the rule makes the 
Federal purchaser who sells private timber responsible for the acts of 
subsequent purchasers of private timber. One respondent suggested that 
persons with sourcing areas who sell private timber originating from 
the sourcing area be required to notify the buyer that such timber must 
be domestically processed.
    Response. In order to protect Federal purchasers from the actions 
of subsequent private purchasers, the proposed rule included an 
acknowledgment of the prohibition, and an agreement to notify 
subsequent holders of the timber and marking requirements for 
unprocessed private timber. These requirements have not been changed in 
the final rule. 36 CFR 233.194. The Department has clarified 
Sec. 223.189(a)(3) to state that a person may not purchase unprocessed 
Federal timber if the person exports or sells for export unprocessed 
private timber that requires domestic processing.
    Comment. In connection with private timber monitoring, one 
respondent asked whether the prohibition against a Federal purchaser's 
selling private timber for export applies when the Federal purchaser 
sells ``cutting rights'' to the private timber. This respondent also 
asked if the prohibition applies when the Federal purchaser sells 
private land and timber.
    Response. Since ``cutting rights'' are basically a timber sale, 
private timber acquired in this manner would be subject to the 
prohibition against substitution. If land with timber on it is sold, 
the purchaser would be evaluated separately from the seller, unless the 
purchaser and the seller are the same ``person'' under the definitions 
in the Act and in these regulations (for instance, if they are 
affiliated). However, if the land is sold, and the seller reacquires 
the cut over land within 24 months of the original sale, that person 
would be subject to the prohibition against substitution. Current 
definitions in the statute and the rules govern this situation. No 
change to the rule is necessary in response to this comment. It should 
be noted that the sale of land encompassing part or all of a sourcing 
area, and/or the sale of the sourcing area facility, being a change in 
circumstances, will trigger a review of the sourcing area.
    Comment. Several respondents suggested that the rules exempt 
surplus species from substitution prohibitions.
    Response. The Department agrees with this comment. While the Act 
specifically exempts surplus species from the prohibition against 
export of unprocessed Federal timber, it does not exempt surplus 
species from the prohibition against substitution. However, the intent 
of the prohibition against substitution supports the exemption of 
surplus species from the prohibition against substitution. The 
Conference Report states that, ``[t]he general reason for limiting 
substitution is to restrict companies from purchasing Federal timber 
for their mills and then exporting private timber from the same general 
area.'' (Conf. Rpt. at 252.) Presumably, the private timber that is 
exported would be processed in the mill if Federal timber could not be 
purchased for that purpose. A species may be declared surplus to 
domestic needs if there is no domestic market for the species. If there 
is no domestic market, there would be no manufacturing of that species 
in domestic mills. The purchase of the surplus species would not 
facilitate the purchaser's exporting of private timber by providing 
Federal timber for the purchaser's mill. Therefore, there is no reason 
to subject surplus species to the prohibition against substitution. 
Accordingly, a new paragraph (a)(4) of Sec. 223.189 has been added to 
the final rule to exempt surplus species from the prohibition against 
substitution, and states: ``The prohibitions in paragraphs (a)(1)-(3) 
shall not apply to specific quantities of grades and species of 
unprocessed timber which the Secretary of Agriculture has determined to 
be surplus to domestic manufacturing needs.''
    Paragraph (a)(1) of the proposed rule (now paragraph (a)(1)(A)) has 
been modified to reflect the modified definition of substitution. 
Paragraph (a)(2) has been added to the prohibitions against 
substitution to parallel when substitution occurs, pursuant to the 
definition in Sec. 223.186. Paragraph (a)(2) concerns the prohibition 
against exporting unprocessed private timber and purchasing unprocessed 
Federal timber in the same geographic and economic area in the same 
calendar year. Explanations of these modifications may be found in the 
preamble discussion of the definition of substitution.
    Paragraph (3) has been added to Sec. 223.189(e) to clarify that a 
portion of National Forest System timber from Washington State is 
exempt from the prohibition against indirect substitution, pursuant to 
Sec. 223.203. Section 223.189(f) has been revised by adding paragraph 
(4) to reflect the revised definition of substitution. The revised 
definition of substitution includes the export of unprocessed private 
timber during any calendar year that a person has unprocessed Federal 
timber in possession or under contract.
    Having considered the comments addressing Sec. 223.189, the 
Department is adopting this section as proposed with the changes to the 
provisions as discussed.

Section 223.190  Sourcing Area Application Procedures

    Subsection 490(c) of the Act (16 U.S.C. 620b) requires the 
Secretary of Agriculture to prescribe procedures for applying for 
approval of a sourcing area. At a minimum, the procedures shall require 
the applicant to state the location of private lands from which, in the 
previous year, the applicant has harvested or otherwise acquired 
unprocessed timber which was exported from the United States; and the 
location of each timber manufacturing facility owned or operated by the 
applicant within the proposed sourcing area boundaries from which the 
applicant proposes to process timber originating from Federal lands.
    The Act also requires that the Secretary provide the opportunity 
for a hearing on the application and that approval or disapproval be on 
the record.
    Any sourcing area approval must be based on a determination by the 
Secretary that the area includes the manufacturing facilities at which 
the applicant expects to process the Federal timber, and that the area 
is geographically and economically separate from any area from which 
that person harvests for export any unprocessed timber originating from 
private lands.
    The Secretary also shall consider equally the timber purchasing 
patterns of the applicant on private and Federal lands with those of 
other persons in the same local vicinity and the relative similarity of 
such purchasing patterns. The interim rule defined manufacturing 
facilities in the ``same local vicinity'' as those facilities located 
within 30 miles of the community where the applicant's facility is 
located. However, the term ``same local vicinity'' may include more 
distant communities if manufacturing facilities in those communities 
depend on the same source of timber and have similar purchasing 
patterns. Thus, the 

[[Page 46904]]
relative similarity of purchasing patterns would be determined by 
examining the location and similarity of unprocessed timber being 
acquired for the affected facilities.
    Nine respondents commented on this section of the rule.
    Comment. Several respondents indicated that the final rule should 
specify who may apply for a new sourcing area or request modification 
of an existing sourcing area, and what time constraints might apply.
    Response. The Department agrees with the suggestions to state who 
may apply for a sourcing area. A person who is not an exporter, or is 
not affiliated with a person who exports, may not apply for a sourcing 
area. The Act states that the Secretary may approve a sourcing area if 
the area where the applicant desires to purchase Federal timber is 
economically and geographically separate from the area from which that 
person ``harvests for export'' unprocessed private timber (16 U.S.C. 
620b(c)(3)). The language is clearly geared towards current exporters. 
Further, a person who does not export does not need a sourcing area.
    In contrast, person need only ``desire'' to process Federal timber 
in order to apply for a sourcing area (16 U.S.C. 620b(c)(3)). In fact, 
a person could not both be processing Federal timber outside of an 
approved sourcing area and exporting unprocessed private timber without 
violating the prohibition against substitution. The ``desire'' to 
process Federal timber may include the intent to acquire or become 
affiliated with a mill that processes Federal timber. In the case of an 
affiliation, the Department must have written confirmation that the 
sourcing area applicant intends to acquire or affiliate with a mill 
that processes Federal timber as soon as the sourcing area is approved. 
This will prevent persons from obtaining a sourcing area when one is 
not needed; in other words, when both processing Federal timber and 
exporting private timber are not occurring. In order to clarify that 
the ``desire'' to process Federal timber may include the intent to 
acquire or become affiliated with a mill that processes Federal timber, 
and that written proof of this intent is required when applying for a 
sourcing area, the Department has expanded paragraph (a) for 
Sec. 223.190 of the rule as follows: ``Subject to the restrictions 
described in Sec. 223.189 of this subpart and, except as provided in 
paragraph (b) of this section, a person who owns or operates a 
manufacturing facility and who exports unprocessed timber originating 
from private lands may apply for a sourcing area in accordance with the 
procedures of this section. However, an owner/operator of a 
manufacturing facility who exports unprocessed timber originating from 
private lands may not possess or acquire unprocessed timber originating 
from Federal lands unless the acquisition is within an approved 
sourcing area. A person who intends to acquire or become affiliated 
with a manufacturing facility that processes Federal timber and who is 
an exporter may apply for a sourcing area. Written proof of the intent 
to acquire or affiliate must be included in the sourcing area 
application, signed by the applicant and the person or, in the case of 
a corporation, the Chief Executive Officer, whose company the applicant 
intends to acquire or affiliate with. This certification must be on 
letterhead and must be notarized. A sourcing area application that the 
Secretary determines would be approved will be granted tentative 
approval pending final notification by the applicant of acquisition of 
or affiliation with the manufacturing facility. The tentative approval 
of the sourcing area will lapse unless the acquisition or affiliation 
occurs within 30 days of the tentative approval of the sourcing area. A 
sourcing area is not valid until final approval of the sourcing area.
    The direct substitution prohibition did not apply to a person who 
applied for a sourcing area on or before December 20, 1990. A request 
for modification of an existing sourcing area shall trigger a review 
pursuant to the procedures and restrictions in Sec. 223.191(e).''
    Comment. One respondent suggested that marking a private timber 
source on a map was adequate. Another respondent stated that the exact 
location of timber sales for exported timber need not be identified.
    Response. The Act requires that sourcing area applicants provide 
the Secretary with the ``location of private lands from which such 
person has harvested or otherwise acquired'' exported timber (16 U.S.C. 
620b(c)(A)). While the Act does not require the identity of individual 
timber sales, it does require the identity of the lands where timber 
sales were purchased. No change in the rule is necessary.
    Comment. Several respondents thought that sourcing area applicants 
should be required to show where private and federal timber had been 
acquired in the previous 24 months in order to provide information on 
``timber purchasing patterns on private and federal lands of the 
applicant.'' The Act requires consideration of this factor in the 
determination of an economically and geographically separate sourcing 
area. One respondent thought that sourcing area applicants should be 
required to document that no private timber had been exported from 
within the area that is the subject of the application, since the Act 
provides for the sourcing area exemption if a person has not exported 
unprocessed private timber from within the sourcing area in the 
previous 24 months.
    Response. The Department has records of timber sale purchases on 
Forest Service lands, so the applicant need not provide this 
information. An application encompassing lands administered by other 
federal agencies would be reviewed by those agencies. As far as 
information regarding private timber purchases, 16 U.S.C. 620b(c)(2)(A) 
of the Act and Sec. 223.190(c)(1)(iii) of the interim rule (and this 
final rule) require that applicants provide information on the location 
of private timber purchases in the previous 12 months. The Forest 
Service can verify these purchases and the purchases of others in the 
area through Forest Service records and, in the case of private timber 
purchases, through state harvesting permits, severance or yield tax 
records, industrial safety records and by other means. The Department 
believes that this information is sufficient to determine whether a 
sourcing area is economically and geographically separate from an 
applicant's exporting area.
    However, the Department agrees that the Act requires that persons 
with sourcing areas may not have exported unprocessed private timber 
originating from private lands within the previous 24 months. To 
clarify implementation of this requirement, the Department has amended 
the requirement in paragraph (iii) of Sec. 223.190(c)(1) to read as 
follows: ``The location of private lands within and outside the desired 
sourcing area where the person has, within the 24 months immediately 
preceding the date of the application, acquired unprocessed timber 
originating from private land which was exported * * *.'' The Act 
requires sourcing area applicants to provide ``at a minimum * * * 
information regarding the location of private lands within the previous 
year'' from which the person has harvested or otherwise acquired 
unprocessed timber for export (16 U.S.C. 620b(c)(2)(A)). Given the 
Act's requirement that no export has occurred within the sourcing area 
in the previous 24 months, requiring information regarding private 
timber purchases for the previous 24 months comports with 

[[Page 46905]]
the Act's requirements. The Act's requirement of a year's worth of 
information addresses the application process. Rather than obtaining 
additional information from the applicant during the adjudication 
process to determine whether exporting has occurred during the previous 
24 months within the proposed sourcing area, the Department believes it 
is more efficient to obtain all of the information at once. This 
information is required for sourcing area applications submitted on or 
after September 8, 1995. Further, the Department has added a sentence 
to the certification that accompanies the sourcing area application in 
Sec. 223.190(c)(4). The sentence reads as follows: ``I certify that I 
have not exported unprocessed timber originating from private lands 
within the boundaries of the sourcing area that is the subject of this 
application in the previous 24 months.''
    Comment. One respondent suggested that a map of haul roads used for 
timber sourcing the manufacturing facility be included in the 
application, and that the rule clarify that the application be public 
information.
    Response. The interim rule already required a map of the intended 
sourcing area (36 CFR 223.190(c)(1)). The Department believes that this 
is sufficient, along with the records of timber sale purchases, to meet 
the Act's requirements without requiring that haul roads be identified.
    The interim rule states that applications are not confidential 
information (36 CFR 223.190(d)). The rule acknowledges that some 
information may be deemed confidential under the Freedom of Information 
Act. Therefore, the rule allows applicants to mark such information for 
consideration of confidentiality. This information should not hinder 
other parties in their review of sourcing area applications.
    Comment. One respondent stated that overlapping sourcing areas of 
different applicants caused concern regarding complexity of 
administration.
    Response. Each sourcing area application is adjudicated on its own 
merits. As long as each sourcing area application meets the criteria in 
the Act and the regulations, it will be approved. It is likely that 
different applicants will have valid sourcing areas that overlap. 
Overlapping sourcing areas will increase the complexity of 
administration and will require strict accountability and tracking. No 
change in the rule is necessary.
    Comment. One respondent thought that the substantive standard for 
evaluation of a sourcing area should be clearly stated.
    Response. The Department believes that the standard for evaluation 
was stated clearly in 36 CFR 223.190(h)(5) (now 36 CFR 223.190(i)) and 
no change is necessary.
    Comment. One respondent stated that the definition of ``same local 
vicinity'' is too broad and does not accurately reflect the intent of 
Congress. Another respondent said that the final rule should specify 
that the applicants need only identify those competitors located within 
30 miles known by the applicant to have similar sourcing patterns and 
products. Several respondents said that the term ``same general 
vicinity,'' found at 36 CFR 223.190(c)(2), should be defined. Another 
respondent stated that the only reason ``same local vicinity'' seems to 
encompass mills beyond 30 miles in the regulations is for notice and 
commenting purposes; if the Department wants input from a broader 
spectrum, it should change the notice requirements, but persons beyond 
the ``same local vicinity'' should not be weighted equally with those 
in the same local vicinity.
    Response. The Act at 16 U.S.C. 620b(c)(3) requires that the 
Secretary consider the timber purchasing patterns of the applicant as 
well as other persons ``in the same local vicinity.'' In implementing 
this requirement, the interim rule used the guidance in the Conference 
Report and stated that ``same local vicinity'' is normally the 
manufacturing facilities located within 30 miles of the community where 
the applicant's manufacturing facility is located. However, this 
definition alone is inadequate to cover the Act's requirement to 
consider timber purchasing patterns, so the interim rule stated that 
the ``same local vicinity'' may include more distant communities if 
those communities are dependent on the same source of timber and have 
similar purchasing patterns. Applicants are required to provide this 
information, to the best of their knowledge, since they would be the 
primary source of this information.
    ``Same general vicinity'' was a typographical error, which has been 
corrected to read, ``same local vicinity.'' The notice requirement is 
meant to notify those persons whose purchasing patterns would be 
relevant to the sourcing area application. No change in the rule is 
necessary.
    Comment. One respondent suggested that only the predominant 
activities of other mills should be considered in determining the 
``relative similarity of purchasing patterns'' in 36 CFR 
223.190(h)(5)(iii) (now 36 CFR 223.190(i)(3)). The respondent stated 
that one-time purchase of federal timber should not be compared to a 
dozen purchases by a competitor.
    Response. Pursuant to the Act, the Department considers only 
purchasing patterns. An anomalous sale would not be considered a 
pattern. No change is necessary in the rule in response to this 
comment.
    Further review of the sourcing area procedure has indicated that 
the similarity of products being produced by the applicant and other 
manufacturing facilities in the same local facility, as specified under 
paragraph (iii) of Sec. 223.190(h)(5) of the interim rule and proposed 
rule (now paragraph (3) of Sec. 223.190(i)), is not significant in 
determining the ``relative similarity of purchasing patterns.'' The 
major factor needed to determine the similarity of purchasing patterns 
is whether the timber that competing purchasers bid on and bought was 
similar. This criterion was already included in paragraph (h)(5)(iii) 
(now paragraph (i)(3)).
    Accordingly, paragraph (i)(3) of Sec. 223.190 in the rule has been 
revised to eliminate consideration of the similarity of products being 
produced by competing facilities in the same local vicinity as a factor 
to determine the similarity of purchasing patterns.
    Comment. Several respondents stated that sourcing areas should be 
approved as requested if there is no ``credible opposition'' to the 
application.
    Response. The Act establishes specific criteria by which the 
Secretary may approve an application. The Secretary may approve an 
application ``only if'' the Secretary determines that the requested 
sourcing area is economically and geographically separate from the area 
from which the applicant harvests private timber for export (16 U.S.C. 
620b(c)(3)). Thus, regardless of the extent of opposition to an 
application, the Secretary must make an independent determination using 
the standards established by the Act.
    Comment. Several respondents stated that applicants should be 
allowed to provide supplemental information after submission of the 
application if other parties raise issues or questions about the 
application.
    Response. The Act requires the sourcing area determinations to be 
made ``on the record and after an opportunity for a hearing'' (16 
U.S.C. 620b(c)(3)). This process, pursuant to the Administrative 
Procedure Act (5 U.S.C. 554), requires the Department to give parties 
an opportunity for submission and consideration of facts, arguments and 
offers of settlement when time and 

[[Page 46906]]
the public interest allow. Applicants must submit the information 
required by the Act and implementing regulations in order for the 
application to be processed, regardless of additional information that 
may be supplied pursuant to the formal adjudication.
    Comment. One respondent suggested that this section should state 
that a sourcing area applicant need not submit a sourcing area 
application to the Bureau of Indian Affairs, even if the Bureau's lands 
are part of the proposed sourcing area.
    Response. In defining ``Federal lands,'' Section 493 of the Act (16 
U.S.C. 620e) specifically excludes Indian and Native Corporation lands. 
This exclusion is repeated in Sec. 223.186 of this rule. The Department 
feels these exclusions are adequate and declines to repeat these 
exclusions in this section of the rule.
    Comment. Another respondent suggested that this section be revised 
to limit the persons entitled to request a hearing to the applicant and 
other applicants for the same competing sourcing area.
    Response. The Department disagrees. Section 490(c)(3) of the Act 
directs the Secretary to approve or disapprove an application, ``on the 
record and after an opportunity for a hearing.'' Use of this specific 
language places the Act under the provisions of the Administrative 
Procedures Act, which requires public involvement in the decision-
making process.
    Comment. One respondent stated that section 556(d) of the 
Administrative Procedure Act (5 U.S.C. 551, et seq.), the statute 
governing the administrative process by which sourcing area 
determinations are made, does not require a full, evidentiary hearing, 
but allows for a hearing based in part or in full on written 
submissions.
    Response. Section 556(d) of the Administrative Procedure Act states 
that, ``(i)n rule making or determining claims for money or benefits or 
applications for initial licenses an agency may, when a party will not 
be prejudiced thereby, adopt procedures for the submission of all or 
part of the evidence in written form'' Sourcing area applications are 
not claims, for either money or benefits. Sourcing area applications 
may be viewed like a ``license,'' in which case, submission of the 
evidence could be in written form. However, the agency has sole 
discretion to adopt procedures for a hearing based solely on written 
evidence, and only when a party will not be prejudiced. Based on the 
initial round of sourcing area applications, in which the ability to 
cross examine witnesses and to bring all parties together was 
significant in making fair, informative determinations, the Department 
declines to adopt this suggestion.
    Comment. One respondent suggested that final regulations should 
state explicitly that firms with domestic mills in approved sourcing 
areas may use non-Federal unprocessed timber from outside an approved 
sourcing area to supplement their log supply.
    Response. The Act provides for the specific exemption from the 
prohibition against substitution in the form of sourcing areas. 
Sourcing areas have specific requirements. Among these requirements is 
that sourcing areas include all of the private and Federal lands that 
source the manufacturing facility (36 CFR 223.186). To haul unprocessed 
private timber originating outside of the sourcing area into the 
sourcing area violates the approved sourcing area boundary. The area 
from which the sourcing area holder harvests for export has exported 
unprocessed timber is no longer geographically and economically 
separate from the area from which the person sources the manufacturing 
facility (16 U.S.C. 620b(c)(3)). Once the sourcing area holder is no 
longer abiding by the sourcing area boundaries, the sourcing area 
holder may no longer depend on the valid exemption from substitution 
that a sourcing area provides. The sourcing area holder would then be 
in violation of the sourcing area boundary, as well as the prohibition 
against substitution by having purchased unprocessed Federal timber 
west of the 100th meridian in the contiguous 48 States within 24 months 
of having exported unprocessed private timber from the west. In order 
to clarify this issue, the Department has added paragraph (k) to 
Sec. 223.190 that states as follows: ``Transporting or causing to be 
transported unprocessed private timber from outside of a sourcing area 
into a sourcing area by the holder of the sourcing area is prohibited 
as a violation of the sourcing area boundary. Such violation will cause 
a review of the sourcing area, and could subject the sourcing area 
holder to the penalties and remedies for violations of the Forest 
Resources Conservation and Shortage Relief Act of 1990, 16 U.S.C. 620, 
et seq., and its implementing regulations.''
    Comment. One respondent stated that the regulations should clarify 
when a sourcing area is ``in effect.''
    Response. An approved sourcing area is in effect until the holder 
of the sourcing area relinquishes it, or the sourcing area is 
disapproved upon review of the sourcing area. A sentence clarifying 
this has been added to new paragraph (m) of Sec. 223.190.
    Comment. Several respondents stated that a person with an approved 
sourcing area should be allowed to relinquish the sourcing area and 
then export timber from private lands in that area at any time.
    Response. The Department disagrees with this comment. While a 
person with an approved sourcing area may relinquish the sourcing area 
at any time, the person may not begin exporting from that area 
immediately. A person may not export unprocessed private timber as long 
as that person has unprocessed Federal timber in the person's 
possession or under contract in the same fiscal year, pursuant to the 
definition of substitution in Sec. 223.186. To clarify this issue with 
regard to sourcing areas, the Department is amending Sec. 223.190 by 
adding paragraph (1). Paragraph (1) states that sourcing areas may be 
relinquished at any time provided the following certification waiver is 
signed:
    ``I am relinquishing the approved sourcing area, described in the 
Secretary's determination in FSAA ________ on ______, 19____. I 
understand that I may not export unprocessed timber originating from 
private lands west of the 100th meridian in the contiguous 48 States 
during a fiscal year in which I have unprocessed timber originating 
from Federal lands west of the 100th meridian in the contiguous 48 
States in my possession or under contract, pursuant to the prohibitions 
against substitution in the Forest Resources Conservation and Shortage 
Relief Act of 1990 (16 U.S.C. 620, et seq.) (``Act'') and its 
implementing regulations. I also understand that I may not purchase 
unprocessed timber originating from Federal lands west of the 100th 
meridian in the contiguous 48 States within 24 months of having 
exported unprocessed timber originating from private lands west of the 
100th meridian in the contiguous 48 States, pursuant to the prohibition 
against substitution in the Act and its implementing regulations. I 
make this certification with full knowledge and understanding of the 
Act and its implementing regulations and do fully understand that 
exporting unprocessed timber originating from private lands west of the 
100th meridian in the contiguous 48 States during a fiscal year in 
which I have unprocessed timber originating from Federal lands west of 
the 100th meridian in the contiguous 48 States in possession or under 
contract, or purchasing unprocessed timber originating from Federal 
lands west of 

[[Page 46907]]
the 100th meridian in the contiguous 48 States within 24 months of 
having exported unprocessed timber originating from private lands west 
of the 100th meridian in the contiguous 48 States is a violation of the 
substitution provisions of the Act, its implementing regulations, and 
the False Statements Act (18 U.S.C. 1001), and may subject me to the 
penalties and remedies provided for such violation.''
    The certificate must be signed by the person making such 
certification or, in the case of a corporation, by its Chief Executive 
Officer; must be on company letterhead; and must be notarized.
    Comment. One respondent had several comments about the 
certification that accompanies the sourcing area application, found at 
36 CFR 223.190(c)(4). First, the respondent recommended striking the 
phrase ``concerning my timber purchasing and export patterns'' from 
both the first and second sentences. The respondent stated that 
applicants should certify to the truth of the entire application, not 
just the purchasing and export activities, and that the certification 
could be misunderstood to require applicants to submit information not 
otherwise required. The respondent further stated that the 
certification incorrectly cites section 492 in order to prohibit the 
export of unprocessed private timber. The respondent contends that 
nothing in the Act prohibits the export of private unprocessed timber.
    Response. The Department disagrees that the certification language 
``concerning my timber purchasing and export patterns'' should be 
deleted. Complete and accurate information regarding an applicant's 
timber purchasing and export patterns is crucial to the determination 
of whether an applicant's intended Federal timber purchasers are 
economically and geographically separate from the applicant's exporting 
area. Regarding the reference to section 492, the Department agrees 
that this citation could benefit from some clarification. Therefore, 
the Department is changing the reference to section 492 to a general 
reference to the entire Act, to ensure that applicants review the 
entire Act for potential violations. The new citation will be 16 U.S.C. 
620, et seq. The Department is also deleting the reference to the 
requirement to cease purchasing unprocessed Federal timber within the 
proposed sourcing area if the sourcing area is disapproved, since only 
initial applicants could have been purchasing unprocessed Federal 
timber before the sourcing area's approval. The Department has also 
added the phrases ``and its implementing regulations'' to the sentence 
about the prohibition against exporting unprocessed private timber from 
within an approved sourcing area. While these changes may clarify the 
certification language, the Department believes that the original 
certification published in the interim rule was sufficiently clear. 
Applicants signing the initial certification are bound by that 
certification.
    Comment. One respondent stated that in order for the Secretary to 
``consider equally'' competitors' practices, the Forest Service should 
have information from the competitors that is as complete and reliable 
as the applicant's information. Several respondents said that persons 
submitting information should have to certify that information provided 
is complete and accurate. The respondent also said that the complete 
sourcing information of all competitors from the same local vicinity 
should be examined, not just a contesting competitor.
    Response. The Department agrees that complete and accurate 
information regarding competitors is necessary to determine whether a 
sourcing area should be approved. The Department makes its own 
independent assessment of competitors in the same local vicinity based 
on information submitted, including the Forest Service's records. The 
Department does not believe that competitors need to provide certain 
information; the information received is weighted based on its 
completeness and accuracy, as judged against other submissions. The 
Department does agree, however, that parties to a sourcing area 
determination should certify to the truth of what they are providing. 
Therefore, the Department is amending 36 CFR 223.190 by adding a new 
paragraph (j) that states that a person submitting a written comment 
certify at the end of the comment, but before the signature that the 
information provided is true and accurate, to the best of the person's 
knowledge, and that failure to provide true and accurate information 
could be a violation of the False Statements Act (18 U.S.C. 1001).
    Comment. One respondent stated that the agency should show which 
boundaries the Department would approve, and permit the applicant to 
revise its application to match those boundaries. Another respondent 
said that sourcing area applications should not simply be denied, but 
that applicants should be able to modify the proposed sourcing area.
    Response. The Act does not require the Department to provide the 
boundaries that the agency would accept except for applications 
received by December 20, 1990 (16 U.S.C. 620(c)(4); 36 CFR 223.191). 
However, the procedures provided for recommended settlements and 
adjustments during the initial application process, and will provide 
the same opportunities for subsequent applications.
    Comment. One respondent said the rule should state that a person 
may apply for a sourcing area at any time, but will receive certain 
advantages if the person applied by December 20, 1990.
    Response. The Department believes this was clarified in the final 
rule of limited scope, published on December 19, 1991 (56 FR 65834). 
The sections of that rule that have information about sourcing areas 
may be found at 36 CFR 223.191, and have been repeated in this rule 
making for clarity.
    The rule making that established the procedures for sourcing area 
applications and reviews of sourcing areas made technical amendments to 
this section to conform it to the procedures. Additional technical 
amendments were made in this rule making to conform it to the 
procedures. Otherwise, except as noted earlier, this section is adopted 
as proposed.
Section 223.191  Sourcing Area Disapproval and Review Procedures

    Section 223.191 was included in the interim rule, published 
November 20, 1990 (55 FR 48572), and was revised by the final rule 
published in the Federal Register on December 19, 1991 (56 FR 65834). 
The rule making that established the procedures for sourcing area 
applications and reviews of sourcing areas made technical amendments to 
this section to conform it to the procedures. No changes were proposed 
or are being made to this section by this rule making. Section 223.191 
is included in this final rule for continuity and to avoid confusion as 
to its status.

Section 223.192  Procedures for a Non-Manufacturer

    Section 223.192 gives non-manufacturers the opportunity to make the 
same business decisions as manufacturers; that is, whether to export 
unprocessed private timber or buy Federal timber. However, because the 
non-manufacturer does not have a manufacturing facility, the non-
manufacturer cannot establish a sourcing area.
    Five responses were received from the public on this section of the 
rule.
    Comment: All five respondents commented that they could find 
nothing in the Act preventing non-manufacturers from having sourcing 

[[Page 46908]]
areas, or required that timber be processed by the original purchaser. 
The parties said that the final rule should allow non-manufacturers to 
apply for sourcing areas from within which such a person could buy 
Federal timber, but not export timber from private lands.
    Several of these respondents stated further that controls on 
indirect substitution prevent abuses, and that there is no reason to 
limit competition for Federal timber further by preventing non-
manufacturers from bidding in areas that are economically and 
geographically separate from any areas from which they and their 
affiliates may export private timber.
    Response. The Department disagrees with these comments. The 
exemption that allows a person to purchase Federal timber while 
exporting private timber is the sourcing area exemption. The Act 
clearly directs the sourcing area exception to the prohibition against 
substitution toward persons with manufacturing facilities. Subsection 
490(c)(3) of the Act (16 U.S.C. 620(c)(3)) states that the Secretary 
may approve the application, ``only if * * * the area that is the 
subject of the application, in which the timber manufacturing 
facilities at which the applicant desires to process timber originating 
from Federal lands are located'' is geographically and economically 
separate from lands from which the applicant exports. Further, 
subsection 490(c)(2) of the Act (16 U.S.C. 620b(c)(2)) requires 
information from the applicant regarding the location of each timber 
manufacturing facility ``owned and operated'' by the applicant. This 
scheme clearly indicates that Congress intended the Act to limit the 
sourcing area exception to persons who both export private timber and 
manufacture timber domestically. Therefore, the Department declines to 
adopt these comments in the final rule.
    Some minor, no-substantive changes have been made to the text of 
this section as proposed for technical and editorial clarity.

Section 223.193  Procedures for Reporting Acquisition and Disposition 
of Federal Timber

    Annual report. Section 492(a)(1) of the Act provides that each 
person who, either directly or indirectly, acquires unprocessed timber 
originating from Federal lands west of the 100th meridian in the 
contiguous 48 States shall report the receipt and disposition of such 
timber to the Secretary concerned, in such form as the Secretary may, 
by rule, prescribe; and that such person may not be held responsible 
for the reporting of the disposition of any such timber held by 
subsequent persons. In addition, the Conference Report on this section 
states that the conferees intend the Secretary of Agriculture to have a 
complete account of transactions relating to the acquisition and 
disposition of unprocessed timber originating from Federal lands (Conf. 
Rpt. p. 259).
    The rule (Sec. 223.193(a)) as proposed would have required that an 
annual report on the acquisition and disposition of Federal timber be 
submitted to the Forest Service. Any person acquiring and/or disposing 
of such timber would be required to submit an annual report.
    As proposed, such report would provide, by fiscal year, an 
accounting of the unprocessed Federal timber acquired, processed, 
stored, or transferred to another person. The report would require 
statements regarding the volume of timber acquired, processed, stored 
and/or transferred to another person, and the origin of such timber. In 
addition, the report would require the date of acquisition or disposal, 
from whom acquired, the timber sale name, the contract number, log 
brands, bar coded tag number and other markings for timber acquired or 
disposed. The rule as proposed would require submission of the first 
report December 1, 1991, and subsequent reports on December 1 of each 
year thereafter.
    Twenty-seven respondents commented on this section. The comments 
essentially focused on three topic areas: The need for the annual 
report; the difficulty in obtaining the unprocessed Federal timber 
inventory information requested; and the burden that the information 
requirement would place on individual companies.
    Comment. Comments received questioning the need for the annual 
report were as follows:
     Annual reporting requirements are not necessary and they 
are unduly burdensome.
     An annual report may be appropriate for holders of the 
State of Washington indirect substitution quotas, but should be limited 
to the facts necessary to show that the quota has not been exceeded.
     The Act does not require retention of these and other 
records for three years.
     The annual report is redundant; the Department already has 
this information through the tracking system and/or at the end of each 
sale.
    Response. Section 492 of the Act (16 U.S.C. 620d(a)) states that 
each person who acquires unprocessed Federal timber, directly or 
indirectly, shall report to the Secretary the receipt and disposition 
of such timber. The Secretary will prescribe in the rule the form of 
the report, which would include frequency. Section 492 of the Act also 
requires the Secretaries of Agriculture and the Interior to report to 
Congress on the disposition of unprocessed Federal timber in the west 
and the practice of indirect substitution, based on the information 
gathered in subsection (a) (16 U.S.C. 620(b)). Form(s) and reporting 
frequency as shown in the final rule are those considered to be the 
minimum necessary to meet the Act's requirements of reporting and 
monitoring. Retention of these records for three years is important for 
monitoring purposes, as logs are often in commerce for several years. 
The annual report is not redundant. The annual report informs the 
Department as to what volume has been processed and what volume has 
been exported; the transfer documents inform the Department as to the 
commercial path of timber. Taken together, these documents allow the 
Department to track timber from the first purchase through processing 
or exporting. Further, information gathered at the end of each sale 
does not account for annual processing of Federal timber by third 
parties, which the annual report will do.
    Comments. Several respondents commented that the information for 
the annual report required by pre-enactment rules at Sec. 223.48 is 
sufficient to meet the accounting requirements of the Act, and strongly 
objected to the volume inventory reporting requirement in the proposed 
rule. Specific comments included the following:
     Logs generally are sorted by species, size, or grade, and 
are placed into corresponding storage decks. These decks contain logs 
from all origins. Tracking such logs by origin would be very costly and 
impractical.
     To comply with the rule, a purchaser may be forced to buy 
more land and expand the log yard to accommodate the additional decks 
needed to separate logs according to origin as well as species, size, 
grade, etc.
     There is no way to determine the actual volume of Federal 
timber held in inventory without making estimates at the mill.
     Inventory tagging of each log is possible, but costly. 
Moreover, tags are easily lost in handling, and many purchases do not 
have computers and scanners to handle tags.
     The rules would require the scaling and labeling of every 
log, in addition to branding and marking.
     It is proper to maintain requirements for sale-by-sale 
disposition 

[[Page 46909]]
of Federal timber on an annual basis, but 100 percent accountability of 
each individual log cannot be achieved.
    Response. The Department agrees with many of these concerns. 
Accordingly, the Department has removed the requirements to report 
volume in inventory at the beginning and end of the year. Otherwise, 
other than as noted, the Department has adopted the form as proposed, 
with minimal changes in titles, instructions, and certification 
language. The information requirements in paragraphs (a)(1) through 
(a)(7) of Sec. 223.193 in the proposed rule have been reduced and 
revised in new paragraphs (a)(1) through (a)(5) in this rule as 
discussed below.
    The Department believes that information regarding individual logs 
acquired is not onerous and provides the Department with information to 
track logs as required by the Act. Brands other than brands registered 
by a State or agency are required to have a pictorial representation on 
the form for purposes of identification, since they do not have 
registration numbers. Contracts awarded before August 20, 1990, require 
purchasers to submit an annual report on form FS-2400-46, Purchaser 
Certification of Timber Domestically Processed or Exported (OMB No. 
0596-0021, Expires March, 1997). The annual report under Sec. 223.193 
of this final rule will be very similar to the present reporting form. 
Like the present reporting form, the annual report under Sec. 223.193 
will include a requirement to record the volume of unprocessed private 
timber exported. This can be found in new paragraph (4) of Sec. 223.193 
of this rule.
    The major differences between the present form FS-2400-46 and the 
new annual reporting form are as follows: (1) The form title is changed 
to read ``Certification of Receipt and Disposition of Timber 
Originating from National Forest Lands''; and (2) the instructions 
state that any person who directly or indirectly acquired or processed 
timber originating from National Forest System lands in the previous 
calendar year must complete the annual report. The Department has 
changed the final rule to require the annual report by calendar year, 
rather than fiscal year, because of the purchasers' familiarity with 
reporting by calendar year and to provide consistency with prohibitions 
in the regulations.
    The Department wants to clarify that actual volume must be 
reported. In order to monitor and investigate transactions, and to 
prosecute violations of the Act, the Department must have the actual 
volume recorded. This will enable the Department to validate the 
accuracy of the information submitted. Further, the Department will be 
able to meet the Act's requirement to submit the report to Congress 
based on the information gathered. Further, the Department needs actual 
volume recorded in order to monitor the annual quota exempted from the 
indirect substitution prohibition in Washington State. Third party 
scaling organizations have the ability to provide accounting reports, 
and do so as a matter of course, which will reduce the reporting 
burden.
    Comment. Several persons commented that if annual reports are 
required the first one should not be due before the rules have been in 
effect for the previous year.
    Response. The Department agrees. The first annual report will be 
for the first calendar year in which the rules are published with the 
first report due March 1 following the first reporting period. Calendar 
years prior to the rule's publication will be reported on the current 
FS-2400-46 form.
    Comment. One respondent said that the person submitting the annual 
report should not have to certify that the information is not 
confidential.
    Response. The Department has revised this requirement. If a person 
submitting the annual report would like something to be kept 
confidential, the person should so mark the information. The Department 
will then evaluate the confidentiality of the information pursuant to 
the applicable laws.
    A new paragraph, Sec. 223.193(a)(5)(ii), has been added to assure 
that the certifier is eligible to acquire unprocessed timber 
originating from Federal lands in accordance with the Act. This 
certification is needed to help assure that the requirements of the Act 
are enforceable.
    A new paragraph, Sec. 223.193(a)(5)(iv), has been added to require 
the retention of the form and records for three (3) years and to make 
them available for inspection to authorized Federal officials on 
request. Retention of these records for three years is important for 
monitoring purposes and for enforcement of the Act, as logs are often 
in commerce for several years.

Transfer of Unprocessed Federal Timber

    Section 492(a)(2) of the Act states that each person who transfers 
to another person unprocessed timber originating from Federal lands 
west of the 100th meridian in the contiguous 48 states shall, before 
completing such transfer: (1) Provide to the person receiving the 
timber a written notice which identifies the Federal origin of the 
timber, (2) receive from that person a written acknowledgment of the 
notice and an agreement that person will comply with the Act, and (3) 
provide the appropriate Regional Forester, or other official to whom 
such authority has been delegated, with copies of all such notices, 
acknowledgments, and agreements.
    Section 223.193(b) of the proposed rule would require each person 
who transfers unprocessed timber originating from National Forest 
System lands to provide such other person with the notice, 
acknowledgment, and agreement executed on a form provided by the Forest 
Service. The proposed Sec. 223.193(b) would also require the transferor 
to provide copies of each such executed form to the appropriate 
Regional Forester within 10 days of such transfer.
    The transferor includes anyone who sells, trades, or otherwise 
transfers unprocessed Federal timber. The transferor is not only the 
initial holder of a contract to harvest Federal timber, but is also any 
person who subsequently acquires the Federal timber, and in turn 
transfers it to another person.
    Proposed Sec. 223.193(b) would require the transferor to state the 
origin, species, volume, from who acquired, timber sale name, contract 
number, log brand, bar-coded tag number, and other markings of 
unprocessed Federal timber on the form. The proposed form would contain 
a statement that the purchaser of Federal timber, whether directly or 
indirectly obtained from the Federal government, agrees to maintain 
records of all transactions involving unprocessed Federal timber for a 
period of three (3) years from the date of the transfer, and will make 
all records involving log transactions available to an authorized U.S. 
Government official upon request.
    The proposed form also would include a certificate stating that the 
information supplied is a true, accurate, current, and complete 
statement to the best of the transferor's knowledge, and agreeing to 
send the form to the appropriate Regional Forester or other 
administering office within ten (10) days of the transfer. The 
transferor would agree to obtain a fully completed Notice of Origin 
form from the transferee, and the transferor would acknowledge that 
failure to report completely and accurately the transfer of unprocessed 
Federal timber will subject the transferor to the penalties and 
remedies in the Act and the penalties in the False Statements Act. The 
transferor would also be required to acknowledge that he or she has 
read and understands the form. The certification would also require the 
transferor to 

[[Page 46910]]
acknowledge that the information provided is not confidential.
    Comments. Several comments were received on this procedure. Some 
respondents were concerned that a seller of Federal logs might be held 
liable for the illegal actions of the buyer or subsequent buyers, or 
that the seller would be certifying that the buyer will comply with the 
Act, including the requirement to retain records.
    One person stated that the rule should indicate that a timber 
seller is exonerated from further liability if all necessary notices, 
certifications, acknowledgments, and record keeping obligations 
required under the Act are satisfied.
    Response. Section 492(a) of the Act (16 U.S.C. 620d(a)(1)) states 
that the transferor of unprocessed Federal logs may not be held 
responsible for subsequent persons' reports of the disposition of such 
timber. The transaction reporting form to be supplied by the Forest 
Service, when properly completed and returned to the Forest Service, 
will release the seller from such liability.
    By completing the form, the seller does not certify that the buyer 
is legally eligible to purchase unprocessed Federal timber pursuant to 
the Act. The rules and the form require the buyer of the timber to make 
that certification. The form is a way to notify the buyer, who may have 
no direct contact with the Federal government, of the rules to which 
the purchaser is bound.
    However, the Department agrees that a statement clarifying 
liability should appear in the rule. Therefore, the Department has 
added to the final rule paragraph (4) of Sec. 223.193(b), which states: 
``Except as otherwise provided by law, a person who transfers 
unprocessed Federal timber to another person and meets all notice, 
certification acknowledgment, reporting and record keeping requirements 
contained in this section shall be relieved from further liability for 
such timber pursuant to the Act.''
    Comment. One individual stated that the 10-day period for 
distribution of the completed transfer document was unrealistically 
short, especially for a company engaged in a large number of such 
transactions. Another stated that requiring prompt reporting of such 
comprehensive information is a substantial and costly burden, 
particularly given the penalties for mis-reporting or making a single 
mistake. Still another stated that a phase-in period should be allowed 
so that companies can adjust or alter their accounting system to meet 
these requirements.
    Response. Effective monitoring and enforcement are dependent on 
prompt reporting of transfers. All the documents needed to report a 
transfer are available at the time a transfer agreement is reached, 
therefore there is little reason that more than 10 calendar days are 
needed to report that transfer to the Forest Service. The Department 
also does not believe a phase-in period for complying with these 
requirements is necessary. The proposed rule has given persons ample 
time to prepare for compliance with the final rule. Therefore, no 
change in the final rule is needed.
    Comment. One respondent said that the certification language in 
Sec. 223.193(b)(3)(vi) should state, ``an acknowledgment of the 
prohibition against acquiring unprocessed federal timber by a person'' 
who is prohibited by the Act from purchasing unprocessed Federal timber 
directly from the United States, rather than from a person.
    Response. The Department does not agree with the comment. The rule 
already provides that the person acknowledges that he or she may 
purchase unprocessed Federal timber in accordance with the Act 
(Sec. 223.193(b)(3)(ix)). This separate acknowledgment reminds the 
person acquiring the timber that Federal timber that may not be 
purchased directly, may not be purchased indirectly either. No change 
in the rule is necessary.
    Comment. One respondent stated that the transfer form should be 
shorter, with an acknowledgment of the requirement for domestic 
processing of unprocessed Federal timber, and an acknowledgment that 
the transfer of unprocessed Federal timber to persons who are not 
qualified to acquire Federal timber constitutes a violation of the Act, 
and an acknowledgment from the person acquiring the timber that the 
person will domestically process the timber.
    Response. The certifications provide that the person receiving the 
timber knows that the timber must be domestically processed, and that 
the timber is subject to the prohibition against substitution 
(Sec. 223.193(b)(3) (vii) and (ix)). The Department agrees, however, 
that the person transferring the timber needs to acknowledge that 
transfer of the timber to persons not qualified to acquire Federal 
timber constitutes a violation of the Act. Persons not qualified to 
acquire Federal timber are those who could not acquire that timber 
directly from the Federal government, in violation against 
substitution, or those who acquire the Federal timber for export. 
Completion of the form, including acknowledgment of the buyer's 
eligibility to acquire the timber is sufficient to protect the seller 
of the timber from an invalid transfer (New paragraph (4) of 
Sec. 223.193 relieves a person of liability if all notices, agreements 
and acknowledgments in this section are met except as otherwise 
provided by law). Accordingly, a sentence has been added to the 
certification at Sec. 223.193(b)(2)(ii) that the certifier acknowledges 
that the transfer of unprocessed Federal timber to a person who is not 
eligible to acquire such timber either because of a substitution 
violation, or because the person is acquiring such timber for export is 
a violation of the Act.
    Comment. One respondent stated that a violation of the terms of the 
certification should not be a violation of the Act, but a violation of 
the contract.
    Response. The terms of the certification include an agreement to 
comply with the Act, and follow procedures to ensure that the 
government can monitor the transfer of logs, pursuant to 16 U.S.C. 
620d(a). Additionally, the Act states that any violation of the Act or 
regulations implementing the Act is punishable by fines, the amount of 
which is determined by the specific circumstances. Further, transfer of 
logs does not always occur within the context of a government contract, 
although violation of the Act is grounds for canceling a government 
contract (16 U.S.C. 620d(d)(2)). Therefore, no change is made to the 
certification language in response to this comment.
    Comment. One respondent outlined an alternative to the 
certifications, branding and painting developed in the proposed rules. 
The respondent stated that the Department should certify all purchasers 
who are authorized to buy Federal timber. This would include 
manufacturers, non-manufacturers and those who buy Federal timber from 
third parties.
    Purchasers certified to purchase Federal timber would report all 
transactions, including transfer of private timber, to the agency 
within 10 days. A transfer agreement would be developed by the agency 
including the agency certification numbers for buyer and seller, 
estimated volume and a statement that all logs with yellow paint must 
be domestically produced.
    All Federal logs would be painted on at least one end prior to 
leaving the sale area. All logs requiring domestic processing which are 
transferred to a third party would be painted on both ends with yellow 
paint prior to transfer. All logs transferred to a third party would be 
hammer branded with a mill brand prior to transfer. Waivers would be 
provided. The respondent states that 

[[Page 46911]]
the key to the Act is to show that a person who purchased Federal 
timber has not sold private timber for export, and that anyone may 
purchase unmarked logs, but purchasers authorized to purchase Federal 
timber may not transfer unmarked logs for export. Therefore, there is 
no reason to identify the origin as long as logs are marked for 
domestic processing.
    Response. The Department disagrees with this approach. First, while 
the Department can identify purchasers of Federal timber, it has no way 
of identifying persons who acquire Federal timber beyond the first 
purchaser. Therefore, a national certification of all persons who 
acquire Federal timber is not possible. Second, while it is true that a 
major component of the Act is that a person acquiring Federal timber 
has not transferred private timber for export, simply certifying that a 
person may acquire Federal timber is inadequate for enforcement of the 
Act. A person with a sourcing area may acquire Federal timber from 
within that sourcing area, and may transfer private timber for export 
outside of the sourcing area. Simply identifying the person is 
inadequate; the Department would need to establish where the timber 
originated to determine whether there had been a violation. The ability 
to purchase unmarked logs would render meaningless any tracking system. 
The Department would have no way of knowing whether a violation of the 
Act had occurred, based on either the transferor or the origin of the 
logs. Further, a person acquiring such logs also has no assurance that 
the transaction is legal. The Department has tried to make the tracking 
system as straightforward as possible while enabling the monitoring of 
the logs, as required by the Act. No change in the rule has been made 
in response to this comment.
    Comment. One person stated that the amount of information that must 
be promptly reported by the buyer and seller of logs, coupled with the 
penalties for each violation of these requirements, make these 
requirements a substantial barrier to transferring logs to processors 
that can mill them to their highest and best use.
    Another respondent commented that requiring that records be 
maintained for 3 years will create considerable additional storage 
requirements, and that there is no reason to collect the amount of 
information required in this section. This person said that only a 
signed statement stipulating that the logs must be domestically 
processed should be required.
    Response. The Act requires the Secretary to draft any regulations 
necessary to implement the Act. The Department believes that the names 
of the log seller and the buyer, the log identification markings, the 
Federal agency contract number, and the volume of Federal logs included 
in the transaction is the minimum amount of information needed to 
monitor compliance with the Act. The log identification marks and 
contract number are necessary to determine origin of the logs and the 
original buyer. The volume is necessary to track logs, to determine the 
extent of an alleged violation and to help assess civil penalties. The 
retention of unprocessed log transfer transaction statements is 
necessary for the Department to monitor and assure compliance with log 
export and substitution restrictions. Without such records, the 
Department could not fulfill its responsibilities to implement and 
enforce the Act. Therefore, the Department declines to adopt these 
comments.
    Comment. One person commented that because many log transfer 
agreements are made before actual volume measurements are performed, 
the Department must be willing to accept estimated log volumes rather 
than actual log volumes on the transfer form.
    Response. The Department will accept volume estimates used in the 
actual transaction. If the transaction is based on standing tree 
(cruise) estimates, that will be the volume used for reporting the 
transaction. If the transaction is based on actual log scale volume, 
that is the volume to be reported. The phrase ``estimated volume or 
actual volume if the transfer is based on log scale volume,'' has been 
added to paragraph (b)(1) in response to this comment.
    Comment. One person commented that there is no justification for 
requiring either the transferrers or the transferees to certify that 
the information submitted is not confidential.
    Response. The Department has revised this requirement. If a person 
signing the transfer form would like to keep something confidential, 
the person should mark the information. The Department will then 
evaluate the confidentiality of the information pursuant to the 
applicable laws. Therefore, the Department has modified the sentence on 
confidentiality in the form and in paragraph (b)(3)(ix) of proposed 
Sec. 223.193.
    Comment. One respondent stated that a person transferring 
unprocessed federal logs must certify that the person understands the 
Act and regulations which can involve complex legal issues. Two 
respondents expressed concern that the rule requires persons to reach 
legal conclusions on issues where the law is unclear with regard to the 
log transfer documents and the annual reports, and complained that the 
administering agency is unwilling to give advisory opinions.
    Response. While the Act, and therefore the regulations implementing 
the Act can be complex, a purchaser of unprocessed timber must 
understand these rules in order to abide by the law. No enforcement of 
the reporting requirements of the Act or these rules will occur until 
after this rule is published. The Forest Service is willing to meet 
with anyone to discuss the Act and/or the regulations when the 
regulations are finalized. However, the Department cannot give legal 
advice. No change in the rule is necessary.
    A new paragraph, Sec. 223.193(b)(3)(ii), has been added to clarify 
that the purchaser of Federal timber agrees to allow Federal officials 
access to log storage and processing facilities for the purpose of 
monitoring compliance with the Act and implementing regulations. This 
requirement clarifies that the Federal logs in possession of an 
indirect purchaser are subject to the same review as Federal logs 
acquired directly. Without access to log storage and processing 
facilities, the Department believes the Act's requirements to monitor 
indirect substitution and enforce its prohibitions would be severely 
hampered because of an inability to monitor log movement.
    A new paragraph, Sec. 223.193(b)(3)(iv), has been added to assure 
that indirect purchasers are aware the Act requires anyone who acquires 
federal timber to report the timber's receipt and disposition, 16 
U.S.C. 620d(a)(1). Therefore, this paragraph references the required 
annual report.
    Other than the changes noted, the Department has adopted several 
minor changes to the proposed text of this section for technical and 
editorial clarity which have no substantive effect.

Section 223.194  Procedures for Reporting Acquisition and Disposition 
of Private Timber

    Under the Act, a person who sells or otherwise transfers private 
timber that requires domestic processing and has in the person's 
possession or subsequently acquires unprocessed Federal timber could be 
in violation of the prohibition against substitution if the buyer of 
the unprocessed private timber were to export it. To protect a person 
who deals in both unprocessed Federal and unprocessed private timber 
from such 

[[Page 46912]]
substitution liability, proposed Sec. 223.194 would require such a 
person to notify and receive an acknowledgment from the person 
acquiring the unprocessed private timber that such timber must be 
domestically processed, not exported, and would require that such 
transfers be reported to the Forest Service within 10 days of the 
transaction. The Forest Service would provide a form for such purpose. 
The statement on the proposed form would provide: (1) Notice to the 
person receiving the unprocessed private timber that exporting that 
timber would violate the regulations prohibiting substitution; (2) 
Notice to the person receiving the unprocessed private timber that the 
timber has been identified for domestic manufacturing by marking the 
logs with highway yellow paint that must be retained on the timber; (3) 
The acknowledgment of the notice by the recipient; (4) An agreement to 
include the statement in any subsequent transaction documents; (5) A 
signed copy of the transaction statement to be sent to the applicable 
Regional Forester within ten (10) calendar days of the transaction; and 
(6) An agreement to retain records of all transactions involving 
acquisition and disposition of unprocessed timber from Federal or 
private lands west of the 100th meridian in the contiguous 48 states 
for a period of three (3) years from the date of disposal by 
manufacturing or transfer.
    Comments. This requirement drew 18 responses, most of which 
generally opposed the reporting requirements involving the acquisition 
and disposition of private timber, and specifically opposed the 
frequency requirements. These respondents said that their internal 
accounting and office practices made compliance within the 10 day time 
frame impossible. Other respondents said the reporting procedures were 
satisfactory.
    Response. The Act specifically prohibits substitution of 
unprocessed Federal timber for export unprocessed private timber, and 
assigned the responsibility for monitoring compliance of these 
prohibitions to the Secretaries of Agriculture and the Interior. 
Reporting the acquisition and disposition of private timber, along with 
random site visits, are crucial to fulfilling this monitoring 
responsibility. The Department cannot enforce the Act's prohibition 
against substitution and the specific exceptions, without the ability 
to track unprocessed private timber. Therefore, the Department declines 
to adopt the suggestions that the proposed reporting of private timber 
transactions be removed from the rule. As stated earlier, the 
Department believes that prompt reporting of transfers is vital to 
effective enforcement of the Act and believes that reporting such 
transfers within 10 calendar days is not excessively burdensome.
    Comment. One respondent commented that the requirement to notify 
the person receiving unprocessed private timber that the timber has 
been identified for domestic processing by a spot of yellow paint that 
must be retained would be extremely expensive, and particularly 
difficult for small businesses.
    Response. In order to enforce the Act's restrictions against direct 
and indirect substitution, it is necessary to mark all logs that must 
be domestically processed. Otherwise, there is no way to distinguish 
between private logs that may be exported, because there is no link to 
the acquisition of federal logs, and private logs that may not be 
exported because of the potential violation of substitution. The 
additional requirements, required by the Act's prohibitions, are the 
minimal means of identifying logs to be processed. No change in the 
rule has been made in response to this comment.
    Comment. One person stated the rule should require persons who sell 
private timber from within their approved sourcing area to notify 
purchasers that they cannot export the logs under the Act.
    Response. The rule's ``Notice and Acknowledgment of Requirement to 
Domestically Process Timber Originating from Private Land'' 
accomplishes this objective.
    Comment. One respondent states that the rule should clarify that 
the transaction statements are not required from persons who trade in 
private timber that originates from outside a sourcing area.
    Response. There are no requirements to complete such a statement 
for transactions involving unprocessed private timber from outside a 
person's approved sourcing area, because such timber does not require 
domestic processing. However, the Department agrees that this could be 
clarified. Therefore, paragraph (a) of Sec. 223.194 has been amended to 
delete the language regarding private lands located within a sourcing 
area, and to add a new sentence at the end of the paragraph as follows: 
``Unprocessed timber originating from private lands located outside of 
a sourcing area may be transferred by the holder of the sourcing area, 
or by persons acquiring such unprocessed timber who are eligible to 
export such timber, without including such a statement.''
    Paragraph (a) of Sec. 223.194 has also been amended to note that 
the reporting requirement applies to timber that requires domestic 
processing, including private timber originating within a sourcing 
area. This clarification is included to encompass all timber that 
requires domestic processing.
    Paragraphs (b)(1) and (2) have been revised to include the required 
contents of the notice, including an agreement to permit authorized 
Federal officials access to private log storage and processing 
facilities in order to monitor compliance with the Act. As with 
monitoring of Federal log transfers, discussed earlier in this 
preamble, without permission to enter into private log storage and 
processing facilities of those persons in possession of private timber 
that requires domestic processing, the Department believes the indirect 
substitution prohibitions of the Act will be substantially 
unenforceable. This monitoring is a necessary component of enforcing 
the prohibition against substitution through the export of private 
timber that requires domestic processing, pursuant to 
Sec. 223.189(a)(3).
    Paragraph (b) has also been revised to include acknowledgments that 
the person transferring or acquiring the unprocessed private timber is: 
(1) Aware that failure to comply with the domestic manufacturing 
requirement for the unprocessed timber or failure to notify subsequent 
persons of these requirements is a violation of the Act, (2) 
understands that failure to completely and accurately report and 
identify unprocessed timber is a violation of the Act and the False 
Statements Act (18 U.S.C. 1001), and (3) the form has been read and 
understood. These acknowledgments are needed to assure that the 
certifier is aware of and understands the potential consequences of 
violating the Act. These changes assure that the requirements of the 
Act are enforceable.
    Paragraph (b) has also been revised to remove the actual 
certification statements appearing on the form from the rule.
    Further, the Department has clarified in new paragraph (c) that 
persons who fully comply with the notification requirement in this 
section are not liable for the actions of persons who subsequently 
acquire such timber in violation of the Act, except as otherwise 
provided by law.
    The Department has adopted several minor changes to the proposed 
text of this section for technical and editorial clarity but which have 
no substantive effect.

[[Page 46913]]


General Comments Relating to the Reporting Requirements of Both 
Sections 223.193 and 223.194

    Comment. Several respondents indicated the reporting requirements 
are too burdensome and costly. Some stated the burden is greatest on 
the smaller businesses that must commit substantial amounts of their 
limited time and resources to understanding and complying with these 
rules. Some stated that these requirements could eliminate some small 
businesses from continuing to purchase Federal logs. One respondent 
suggested that there be an annual notification by company, rather than 
a notification on each sale. One respondent said that it is impractical 
to require accounting by individual logs. Two respondents wrote that 
while these are new and added administrative procedures for the 
purchasers of Federal timber, the provisions appear reasonable and 
necessary to fulfill the intent of the legislation.
    Response. As discussed previously, the annual reporting 
requirements of the Act do not differ significantly from what is 
presently being required in contracts awarded before August 20, 1990. 
The difference is that under the Act, persons who acquire National 
Forest System timber indirectly must submit an annual report. 
Previously only those persons who acquired unprocessed timber from 
National Forest System lands directly had to submit an annual report. 
In addition, the transfer reporting requirements under the Act are new. 
Contracts awarded before August 20, 1990 do not have this reporting 
requirement. Individual logs have never been requested to be identified 
in annual reports; reporting is done by volume.
    The Act requires that a person notify the recipient about the 
Federal origin of the timber before a transfer occurs; an annual report 
would not meet this requirement. Completion of these transaction 
reports, which are on forms furnished by the Forest Service, takes from 
5-20 minutes each to complete. The Department does not believe the new 
forms will have a major impact on timber purchasers, including small 
businesses.
    The most time-consuming task is the annual report. However, most 
National Forest System timber purchasers have been providing similar 
information in the previous annual report since 1973.
    The initial impact to all businesses will be the submitting of two 
different sets of forms: those for sales awarded before August 20, 
1990, and those awarded on or after August 20, 1990.
    The Department anticipates that at least 90 percent of the pre-
enactment contracts will be completed and closed within three years of 
publication of this rule. The dual reporting burden will be steadily 
and substantially reduced over that period.
    Comment. One respondent asked that the terms ``transaction'' and 
``transaction statement'' be defined. Specifically, the respondent was 
concerned that a ``transaction statement'' not include log prices.
    Response. The Department agrees. These terms are used in 
Sec. 223.194 and have been defined in Sec. 223.186 of this rule as 
follows: ``Transaction means an arrangement involving the transfer of 
unprocessed timber. Transaction statement is a signed copy of one of 
the transaction reporting forms in 36 CFR 223.193 and 223.194.'' The 
transaction statement does not require information regarding log 
prices.
    Comment. One person was concerned that the forms are inappropriate 
for a corporation or partnership because they are written for the 
individual. The person suggested that the forms be revised to 
accommodate all types of businesses.
    Response. The forms are drafted to accommodate the definition of a 
person, which includes the individual as well as corporations. 
Therefore, the suggestion is not adopted. The individual signing the 
form is responsible for the content in that person's official capacity.
    Comment. One respondent stated that maintaining records for three 
years is not necessary.
    Response. The retention of acquisition and disposition records is 
necessary for the Department to monitor and ensure compliance with the 
prohibitions against export and substitution. Logs are often in 
commerce for several years. Without the availability of records, the 
Department could not fulfill its responsibilities to implement and 
enforce the Act on National Forest System lands by tracking the timber 
back to its source. The Act provides for the Secretary to draft such 
regulations as may be necessary to implement the Act.
    Paragraphs (a)(5)(iv), (b)(2)(iv), and (b)(3)(I) of Sec. 223.193 
and paragraphs (b)(1)(iv) and (b)(2)(iv) of Sec. 223.194 implement this 
requirement of the Act. Paragraphs (b)(1)(iv) and (b)(2)(iv) of 
Sec. 223.194 have been revised to make them consistent with paragraphs 
(a)(5)(iv), (b)(2)(iv), and (b)(3)(I) of Sec. 223.193, relating to the 
availability of records. The portion of paragraph (a) of Sec. 223.194 
that concerns the notification statement has been changed to paragraph 
(b), and has been revised to clarify that notification is necessary 
only for timber that requires domestic processing. Some other minor 
changes have been made to the proposed text of this section for 
technical and editorial clarity but which will have no substantive 
effect.

Section 223.195  Procedures for Identifying and Marking Timber

    Section 223.195 of the proposed rule would require marking and 
identifying of unprocessed logs originating from National Forest System 
lands located west of the 100th meridian in the 48 contiguous States. 
Proposed Sec. 223.195 would require each unprocessed log originating 
from National Forest System lands west of the 100th meridian in the 
contiguous 48 states to be marked on each end with a spot of highway 
yellow paint and with a hammer brand approved for use by the Forest 
Supervisor of the National Forest from which the unprocessed log 
originates. In addition, if the unprocessed log is sold to a third 
party, proposed Sec. 223.195 would require it to be tagged on one end 
with a bar-coded tag, which would identify the origin of the 
unprocessed log by timber sale contract number, region, national 
forest, ranger district, and log number.
    As proposed, Sec. 223.195 would permit only the Regional Foresters 
of Regions 1, 2, 3, and 4 to waive the requirements to hammer-brand on 
an individual sale basis if there is no history of logs from any origin 
being exported from the area of the purchaser's operations if the 
purchaser is in compliance with these regulations, including the 
provision relating to transfer documents, and the purchaser has 
certified that he or she has not exported logs from that area in the 
last 24 months.
    Proposed Sec. 223.195 would reserve highway yellow paint for 
identifying logs originating from west of the 100th meridian in the 
contiguous 48 states that require domestic manufacturing.
    Comments. This section drew 70 responses. Forty-four comments 
opposed the proposed use of bar code tags as burdensome, costly and 
unnecessary to implement the Act.
    Response. In analyzing all comments and conducting surveys of 
National Forests and bar code tag manufacturers, the Department 
concludes that at this time bar coding would not be an effective or 
efficient way to track logs. Therefore, the bar coding requirements 
have been removed from the final rule. Likewise, these requirements 
have been removed from the reporting requirements in Secs. 223.193 and 
223.194. However, authorization is provided for the testing of 
alternative methods for possible future revision of this rule.

[[Page 46914]]

    Comments. Twenty-four comments addressed the double-end hammer 
branding and yellow painting requirements for identifying National 
Forest logs. None supported this requirement, but several persons said 
they preferred hammer branding and painting to tagging logs with bar 
codes. Comments included the following points:
     Increased branding and painting makes the entire industry 
pay for the actions of a few bad characters.
     Some sales are so far removed from export yards that 
increased branding and painting are not necessary.
     Branding and painting requirements compromise safety, 
because they are manual work that must be done on the landing.
     The waiver provisions are unrealistic, too stringent, and 
not adjustable to local circumstances or conditions. Judgment as to 
requirements should be returned to the field.
     Painting and branding small and lower valued timber is 
problematic; flexibility regarding requirements should be made 
available in Regions 5 and 6, to accommodate conditions on the ground.
     Painting and branding should be required only on most logs 
and/or a minimum of 10 logs per load. Many logs larger than 10'' or 
12'' should be branded on one end.
     Branding and painting on both ends conflicts with the 
utilization standards that require logs to be bucked at the break; this 
is impossible to do because the long is shattered.
    Response. Following the reassessment of the use of bar coded tags, 
the Department believes that hammer branding and yellow painting are 
the best options currently available for identifying logs not available 
for export. The Department must be able to identify and track 
unprocessed Federal and private logs ineligible for export. To make 
tracking possible and to comply with the Act, all Federal and private 
logs required to be domestically processed must have long lasting and 
easily recognizable identifying marks which will stay on the logs until 
processed.
    The Department acknowledges that some logs have more export value 
than others, and that it is difficult to get a legible brand on a small 
diameter log 100 percent of the time. With regard to the utilization 
standards, each end may need to be sawed in some instances. 
Consequently, the Department has rewritten proposed Sec. 223.195 in the 
final rule to include paragraphs (e) and (f).
    Paragraph (e) permits the Chief of the Forest Service to waive the 
painting requirements on National Forest logs and private logs when 
other identification methods that are equal or better than the yellow 
painting method are found. An easily identified marking indicating 
which logs must be domestically processed is essential for enforcement 
purposes. However, this waiver allows for developing technology.
    Paragraph (f) amends the criteria by which the Regional Forester 
may waive all or a portion of the branding requirements in Regions 1, 
2, 3 and 4. The Regional Forester remains the appropriate person to 
grant waivers. The Regional Forester has the broad perspective 
regarding exporting in the region. Given the Department's recent 
experiences with logs being transported great distances for commercial 
purposes, this broad perspective is essential to make the waiver 
determination. The proposed requirement that exporting not have 
occurred in the area of the purchaser's operations has been modified in 
the final rule. The requirement in the final. rule is that exporting 
not have occurred in the previous five years in the purchaser's area of 
operations. While providing some time for logs to be in commerce, this 
modification also accounts for changed market conditions. However, to 
ensure effective enforcement of the Act, a new paragraph (iv) has been 
added to Sec. 233.195(f)(1) to state that if the Regional Forester 
determines that exporting is or has been occurring within the person's 
area of operation within the previous 5 years, the Regional Forester 
shall revoke the waiver. Further, the certificate for Regions 1-4 
states that the person not have exported in the area of operations in 
the past five years, to parallel the waiver requirement. In addition, 
the waiver is valid only for the person's area of operations. The 
Department believes it is helpful to provide flexibility to those 
purchasers whose logs would not have the opportunity to intermingle 
with export traffic. However, it is essential to monitor those logs 
that do leave the area of operations, and have a greater opportunity to 
intermingle with export traffic, in order to enforce the Act. Unmarked 
logs make enforcement of the Act's restrictions impossible, since their 
ability to be exported is not documented.
    Paragraph (f) also allows for waiver of branding on one end on logs 
less than ten inches in diameter on the large end within Region 5 & 6 
that will be processed at a specifically identified facility. The 
Department recognizes that it may be difficult to brand a small log. 
One respondent suggested a waiver for logs less than eight inches in 
diameter on the large end. However, the Department is permitting waiver 
of one-end branding for logs less than ten inches on the large end, 
because there has not been significant demand for round wood of this 
size in the export market, so the chance of these logs mingling with 
exportable logs is low. However, paragraph (iv) states that if the 
Regional Forester determines that logs ten (10) inches or less in 
diameter inside bark on the large end are being exported in the Region, 
the Regional Forester shall revoke the waiver. This allows the agency 
to respond effectively to changed conditions. All waivers are granted 
on an individual timber sale basis.
    The Department has also moved the waiver of painting requirements 
to paragraph (e), following the requirements to paint unprocessed 
timber originating from private lands in paragraph (d). This move 
clarifies that the waiver of painting requirements may apply to all 
unprocessed logs otherwise requiring yellow paint.
    With regard to safety, logging is universally recognized as an 
inherently dangerous occupation. To minimize safety hazards to both 
private and Federal employees, logging contractors, landowners and 
managing agencies must work together to provide a reasonably safe 
working environment. Log accountability and identification must also be 
provided to assure that the government receives full payment for logs 
and that logs requiring domestic processing are not exported. No change 
in the rule is necessary; however, the Department is always interested 
in more efficient and effective methods for identifying and tracing 
logs to assure compliance with the Act.
    Comment. One respondent commented that long logs are manually 
bucked, decked, and held for processing through a small sawmill or 
chip-and-saw. These logs are ``in process,'' but the regulations do not 
recognize this situation. More flexible identification of in-process 
logs is necessary--or Regional Foresters need more funding and 
direction to monitor and enforce existing regulations. Another 
respondent stated that non-grade logs are often difficult to brand and 
paint, discouraging the use of small and highly defective logs because 
of cost.
    Response. The proposed rule would require that if a log is cut into 
two or more pieces, each piece shall be identified in the same manner 
as the original piece. This provision was deemed necessary to assure 
that all Federal logs and other logs requiring 

[[Page 46915]]
domestic processing are properly identified, even when such logs are 
remanufactured into shorter length segments, to prevent possible 
exporting.
    However, the Department has concluded that in some situations it 
may be highly impractical, very costly and not necessarily in the 
Government's interest for a person to have available for use all 
branding hammers needed to replace brands assigned to logs of Federal 
origin that he or she may be acquiring from other persons. 
Consequently, paragraph (b)(1) permitting the use of yard catch brands 
has been added to Sec. 223.195 of the final rule as follows: ``A 
generic log hammer brand, knows as a ``catch brand'', used to identify 
ownership, may be used to replace lost, removed, unreadable or 
otherwise missing brands where such use is authorized by the Regional 
Forester and approved by the Contracting Officer. Use of such a catch 
brand on a log or log segment will signify Federal origin.''
    Further, the Department recognizes that sometimes such re-branding 
may not be appropriate or necessary, particularly where such pieces are 
being immediately processed, and/or final processing is to continue on-
site, within a relatively short period of time. Accordingly, the 
Department has added the following to paragraph (b)(2) of Sec. 223.195: 
``The requirement to preserve identification of log pieces shall not 
apply to logs cut into two or more segments as part of the mill in-feed 
process immediately before processing. Log segments that are returned 
to or placed in storage must be marked on both ends with yellow 
paint.''
    With regard to non-grade logs that may be difficult to brand and 
paint, the Department has provided a waiver of branding on one end for 
logs 10'' or less, assuming they are not being exported in the Region. 
The Department believes that the waiver addresses this respondent's 
concern.
    Comment. One respondent objected to the waiver in a person's area 
of operations. The respondent stated that his company had many areas of 
operations, and one area should not be affected by another.
    Response. The area of operations that will be considered is within 
the Region where the waiver will occur. Otherwise, the Regional 
Forester could not grant a waiver. A smaller area would lose meaning in 
terms of identifying transport of logs for export. No change to the 
rule is necessary in response to this comment.
    Comment. The same respondent said that the criterion in the 
proposed rule at 36 CFR 223.195(c)(4)(ii), now in paragraph (f)(1)(ii) 
of the final rule, that persons must certify that they have not 
exported unprocessed timber from private lands west of the 100th 
meridian in the contiguous 48 States in the previous 24 months means 
that those with statutory exemptions from substitution in other 
circumstances (sourcing areas) could not receive a waiver.
    Response. The waiver of branding would have to be evaluated along 
with any exemptions from substitution to which a person is subject. 
However, even if exporting is allowed in the same area that Federal 
timber may be purchased, for instance, under the indirect substitution 
exemption in Sec. 223.203, this would not affect branding requirements. 
The Department would need to monitor the flow of logs especially 
carefully in this situation, to insure that the intermingling of 
exportable and non-exportable logs does not occur. No change in the 
rule is necessary in response to this comment.
    Comment. One respondent stated that the waiver provision is too 
limited to be useful, because it requires no history of logs from any 
origin being exported from the area. This respondent felt that few 
waivers will be implemented because Region 1 logs have been exported, 
and other Regions will be reluctant to grant waivers.
    Response. The Department believes the revision of the waiver 
provisions in the final rule discussed above adequately addresses this 
comment. The revised waiver procedures give the Regional Foresters the 
ability to address unique local conditions.
    Comment. One respondent stated that the annual requirement to 
certify that a Federal timber purchaser has not exported would suffice 
for the certification in the waiver of branding requirements.
    Response. The Department believes that a separate certification for 
the particular purpose of waiving branding in a specific area is less 
confusing, since the purposes of each form are different.
    Comment. One respondent suggested that notification of log sales 
between companies within a Region be reported to the Federal government 
in lieu of the marking and certification requirements. Only logs 
leaving a region would be required to be marked.
    Response. In order to monitor export activity effectively, logs 
must be identified. A notification will not assist in identifying logs. 
Consistent and accurate tracking of these portable, fungible products 
requires individual log identification.
    Analysis of these comments revealed that the proposed rule failed 
to state when such identifying marks should be applied to the logs. 
With regard to National Forest System logs, the product identification 
provision, C(T)6.82, in the timber sale contract requires that painting 
and branding of products be done before removal from the sale area. 
This has been a long-standing requirement and practice. Therefore, the 
Department has added this requirement to paragraph (c) of the final 
rule to avoid any possible confusion as to when the identifying marks 
are to be applied to logs originating from National Forest System 
lands.
    With regard to private logs requiring domestic manufacturing, they 
must be marked before removal from the harvest area. If private logs 
are acquired by a person who may not export such logs, the logs must be 
marked by the person acquiring the logs at the time of the acquisition. 
This requirement has been added to paragraph (d) of the final rule.
    Comment. One person stated that an estimated additional cost of 
$1.00 per thousand board feet will be incurred to comply with the new 
regulations requiring the painting of private and Federal logs and that 
these requirements appeared to not recognize the principle of cost/
benefit ratios.
    Response. The Department recognizes that some companies will incur 
additional costs by complying with these marking requirements. However, 
with the exception of the requirement to paint private logs, very 
similar branding and painting requirements have been required of 
National Forest timber sale purchasers in most areas of Regions 5 and 6 
for at least 20 years, and more recently in Region 1. The Department 
believes the additional cost of properly identifying logs requiring 
domestic manufacturing in areas where branding and painting has not 
been extensively utilized in the past is necessary for effective 
implementation of the Act.
    Comment. One respondent stated that adding yellow paint to private 
logs could cause confusion, because Federal and private loads could not 
be readily distinguished from a distance.
    Response. The purpose of the yellow paint is to identify the log as 
requiring domestic processing, not to identify ownership or origin. 
Loads of National Forest, Bureau of Land Management, State Forest, and 
some private logs in Oregon and Washington currently carry yellow paint 
marks. Log identification is maintained by the log brands and truckload 
receipts displayed on each respective load. Therefore, the Department 
believes that the yellow paint does not cause confusion, and that no 
revision of the rule is warranted.

[[Page 46916]]

    Comment. One respondent was concerned with the requirement that 
each unprocessed log shall be marked on each end with a spot of yellow 
paint and with a hammer brand approved for use.
    Response. The Department expects timber sale administrators to 
administer contract requirements in a firm and reasonable manner to 
assure compliance with the objectives and provisions of the Act and 
these regulations. This rule provides for waivers of the requirements 
in some circumstances.
    Comment. One respondent stated that the Department should waive the 
bar code tagging and highway yellow paint requirements on private 
timber for any purchaser who doesn't export logs.
    Response. The requirement to use bar coding has been removed in the 
final rule. The export of private timber which has been identified as 
requiring domestic processing is a substitution violation. Only private 
timber that requires domestic processing must be painted. The yellow 
paint markings are essential to monitor compliance with the 
prohibitions against substitution. However, the Department has adopted 
a limited waiver of painting requirements where special conditions 
warrant, pursuant to Sec. 223.195(e) of the final rule.
    Comment. One reviewer stated a need for quick release of log brands 
for reuse.
    Response. The proposed rule would require a 24-month waiting period 
before release of an assigned log brand to ensure that all logs 
harvested under the assigned brand had been domestically manufactured. 
The 24-month period guards against substitution violations. The 
Department recognizes that in those States that require registered log 
brands, many companies will have to develop and register additional log 
brands to meet this requirement. The Forest Service will strive to 
release brands for re-assignment as soon as possible following the 24-
month period. No revision of the rule is necessary.
    The Department has made several minor changes to the text of this 
section as proposed for technical and editorial clarity, but which have 
no substantive effect.

Section 223.196  Civil Penalties for Violation

    Section 492(c) of the Act establishes civil penalties for violation 
of the Act of not more than $500,000 for each violation or three times 
the gross value of the unprocessed timber involved for a violator who 
exported or caused to be exported unprocessed Federal timber; not more 
than $500,000 for a violator who willfully violates any provision of 
the Act or any regulation issued under the Act; not more than $75,000 
for each violator who commits a violation in disregard of such 
provisions and/or regulations; and not more than $50,000 for each 
violation by a violator who should have known that the action 
constituted a violation of such provisions and regulations.
    The last three penalties may be assessed regardless of whether a 
violation caused the actual export of unprocessed Federal timber. The 
Act also provides that a penalty assessed under the Act shall not 
exclude any other penalty provided by law and shall be subject to 
review in an appropriate United States district court.
    The proposed rule at Sec. 223.196 merely repeats the language of 
the Act.
    This section drew four comments.
    Comment: Some respondents felt that 100 percent compliance with the 
branding, painting, log tagging, bar coding, and inventory requirements 
is impossible. They thought that minor instances of an illegible brand, 
or a missed log brand or paint should be handled in relation to the 
infraction. These respondents felt the final rule must be flexible and 
attainable so that responsible and prudent purchasers can operate 
without facing civil penalties. In the view of these respondents, 
current log accountability requirements adequately meet the Act's 
enforcement objectives. Another respondent said that the Forest Service 
should list priorities for enforcement.
    Response: The Department recognizes that the law and these rules 
must be administered with prudence and good judgment. The Act imposes 
strict fines on violations of ``any provision'' of the Act or 
regulations implementing the Act. The Act also states that the 
Secretary may assess fines based ``on the record and after an 
opportunity for a hearing.'' Therefore the Act ensures that those 
persons accused of violations will have a full and fair opportunity to 
present their views and that the actual assessment of penalties is 
discretionary. The Department believes that the regulations as written 
reflect the Act. The Department expects all timber sale purchasers and 
other persons acquiring unprocessed Federal timber to comply with the 
log identification requirements contained in this rule. The Forest 
Service will enforce the Act and these regulations as written, and will 
consider infractions on a case-by-case basis. The Department disagrees 
that current log accountability requirements are adequate and declines 
to adopt this comment.
    Comment. One person stated that the penalties for non-willful 
offenses are excessive, and another person stated that the ``stiff 
penalties for lost or damaged tags are unreasonable.''
    Response: The Department has no authority to change the penalties 
stipulated in the Act. However, Congress established maximum penalties 
(``not more than''), but not minimum penalties. The severity of the 
penalty to be assessed in each case will be based on the severity of 
the offense. Bar code tags are not required in the final rule. No 
change in the rule as proposed is necessary to respond to this comment.
    Comment. One person suggested making the penalty for exporting 
Federal timber severe enough to deter violations of the Act.
    Response. Congress authorized the Secretary to assess civil 
penalties of up to $500,000 for each violation, and to debar and cancel 
contracts in order to deter illegal exports or substitution activities. 
Moreover, the penalties provided by the Act do not exclude any other 
penalty provided by law. The Department has no statutory authority to 
establish penalties beyond those specified by law. Therefore, this 
comment cannot be adopted.

Section 223.197  Civil Penalty Assessment Procedures

    Section 492(c) of the Act (16 U.S.C. 620d(c)) provides that if the 
Secretary of Agriculture finds, on the record and after an opportunity 
for a hearing, that a person has violated the Act or its regulations, 
he or she may impose certain civil penalties for such violation(s). For 
purposes of assessing these penalties, the Department has added the 
Forest Resources Conservation and Shortage Relief Act of 1990 (16 
U.S.C. 620, et seq.) to the list of statutes governed by the 
adjudicatory procedures at 7 CFR 1.130, et seq. in a separate, final 
rulemaking document (56 FR 22105, May 14, 1991).
    Comment. Two persons commented that, as determined in ``Tall v. 
United States'', factual determinations can be made only by a jury, not 
simply on an administrative record.
    Response: The Administration Procedure Act (APA), under 5 U.S.C. 
554, governs formal adjudication if a statute requires a determination 
to be made, ``on the record after opportunity for an agency hearing * * 
*.'' The Act requires the Secretary to assess certain penalties if he/
she finds, ``on the record and after an opportunity for a hearing'' 
that a person meets the elements of the various penalties (16 U.S.C. 
620d(c)(1)).

[[Page 46917]]

    While section 554 exempts an adjudication from the formal 
administrative adjudication process if a matter is subject to a 
subsequent trial of the law and the facts de novo in a court (5 U.S.C. 
554(1)), this exception is not found in the Act. On the contrary, the 
Act states that an administrative penalty shall be, ``subject to review 
in an appropriate United States district court'' (16 U.S.C. 
620d(c)(3)). In other words, adjudication of civil penalties may occur 
in an ordinary formal administrative process, with record review in 
district court. None of the research data bases revealed a case 
entitled ``Tall v. United States'' dealing with this issue.

Section 223.198  Administrative Remedies for Violation

    Section 492(d)(2) of the Act provides that, in addition to the 
provision for debarment in subpart C of this part, the head of the 
appropriate Federal department or agency also may cancel any contract 
entered into with a person found to have violated the Act or 
regulations or contracts issued under the Act.
    The proposed rule would clarify that such a finding shall 
constitute a serious violation of contract terms pursuant to 
Sec. 223.116(a)(1) regarding cancellation of contracts.
    Three persons responded to this section.
    Comment. These persons suggest that no adverse action should be 
taken against a timber purchaser before expiration of all appeal rights 
on debarment proceedings. To do otherwise would violate substantive and 
procedural due process protections.
    Response. To protect the public's interest the Department will 
continue to suspend timber sale operations as soon as improprieties are 
determined. This is consistent with current procedure under existing 
regulations. The procedures applicable to the debarment of persons 
violating the Act, or any regulation or contract issued under the Act 
are not applicable to existing contracts which are under consideration 
for cancellation. The debarment procedures apply to future timber sales 
and future acquisitions of Federal timber. Any debarment action will be 
taken consistent with the Act and the regulation issues pursuant to the 
Act. No change in the rule as proposed is necessary to address this 
comment.
    Comment. One respondent suggested that contracting officers be 
given appropriate guidance on which violations justify the drastic 
remedy of contract cancellation, including direction on considering 
whether the violation was intentional, produced significant financial 
benefits to the perpetrator, etc. Another respondent said that the 
authority to cancel contracts should not be delegable.
    Response. Adequate checks and balances currently exist. Having been 
given broad powers under the Contract Disputes Act of 1978 (41 U.S.C. 
601 et seq.), contracting officers are still required to draw counsel 
and advice from Forest Service law enforcement specialists to determine 
criminal intent, the Regional Forester's and Chief's contracting 
specialists, the Department's Office of the General Counsel (OGC), and 
in some cases the Department of Justice's U.S. Attorney's Office before 
deciding which violations justify contract cancellation. No additional 
direction in this final rule is necessary.

Section 223.199  Procedures for Cooperation with Other Agencies

    Section 495 of the Act (16 U.S.C. 620f) states that the Secretaries 
of Agriculture and Interior shall, in consultation, each prescribe new, 
coordinated, and consistent regulations to implement this title on 
lands which they administer. Subsection 491(d)(2) of the Act (16 U.S.C. 
602c(d)(2)) authorizes the States to cooperate with Federal and State 
Agencies with appropriate jurisdiction to further the intent of this 
title. The Act also requires the Secretary of Commerce to issue certain 
orders and promulgate rules and guidelines necessary to carry out this 
title.
    State and Federal government agencies clearly have individual 
responsibilities under the Act. Cooperation among these agencies in 
monitoring and enforcing these regulations provides the most efficient 
use of limited personnel and financial resources. Cooperative 
Agreements and/or Memoranda of Understanding between governmental 
agencies are common in similar situations where there are common 
responsibilities and interests.
    Cooperative efforts to enforce this Act might include exchanging 
information on sourcing area applications, sourcing area approvals or 
disapprovals, log brands being used, logging activity, and proposed 
timber sales. Agencies may cooperate on monitoring export facilities or 
log storage areas so that each agency would not be required to make 
separate visits. This cooperative effort would also reduce the impact 
on the operators of the export facilities and storage areas.
    The Department has consulted with and discussed cooperative 
agreements with the Bureau of Land Management, the Department of 
Defense and other agencies managing public timber resources in the 
development of the rule as proposed.
    Comment. One person commented that neither the preamble nor the 
proposed regulations mentions any consultation or any effort to be 
coordinated and consistent at the national level.
    Response. Cooperative agreements and Memoranda of Understanding 
with other public agencies may be developed at the National Forest, 
Regional or National Office levels, depending on the program impacts 
and range of interest. National manuals and handbooks provide direction 
and guidelines for drafting assistance and consulting with higher-level 
officials and the Department's Office of General Counsel before 
entering into such agreements. No further direction is necessary in 
this final rule.

Section 223.200  Determination of Surplus Species

    Section 489(b) of the Act (16 U.S.C. 620a(b)) and the proposed rule 
would require that determinations that specific quantities of grades 
and species are surplus to domestic manufacturing needs must be made in 
accordance with Title 5, United States Code, section 553, the rule 
making section of the Administrative Procedure Act. The proposed rule 
also would require that withdrawals of such determinations be done in 
accordance with the same procedure. Section 491(h) of the Act (16 
U.S.C. 620c) requires withdrawals of such determinations to be done 
``by rule.''
    The proposed rule would require that review of a determination that 
a quantity of grade or species is surplus must be reviewed at least 
once every three (3) years. Notice of the review will be published in 
the Federal Register. The public will have at least 30 days to comment 
on the review.
    The proposed rule specifically requested comments on the current 
determinations that Alaska yellow cedar and Port Orford cedar supplies 
are surplus to domestic manufacturing needs. These comments will be 
used to develop a separate rule making on surplus species 
determinations. The proposed rule repeated the interim rule which 
continued the surplus designation of these two species until hearings 
could be held, in order to avoid the disruption that could be caused by 
suddenly discontinuing their present surplus status.
    Fourteen responses were received on this section. Most of these 
addressed whether Port Orford cedar should be classified as being 
surplus to domestic 

[[Page 46918]]
manufacturing needs. Other species discussed and/or proposed for 
surplus consideration were Alaskan yellow cedar, Western juniper, Rocky 
Mountain juniper and Pacific yew.
    Comment. Six respondents stated that there is a strong domestic 
demand for Port Orford cedar, and urged that Port Orford cedar no 
longer be exported in log form. Five other respondents stated Port 
Orford cedar is still surplus to domestic manufacturing needs, and that 
if the species were to be declared non-surplus it would disrupt 
employment and adversely affect the local communities where it is grown 
and harvested.
    Response. The Department is considering these comments in its 
development of the proposed rule on surplus species.
    Comment. One respondent stated that hearings could pose problems 
for small manufacturers, who might be ``disciplined'' by larger 
companies for opposing the export of Port Orford Cedar.
    Response. The Act requires a ``hearing'' on the issue of surplus 
species. Hearings will be conducted via the rule making process. 
Comments may be submitted anonymously in response to the proposed rule 
on surplus species when it is published.
    Comment. Comments regarding other species were as follows:
    One person stated that Alaska yellow cedar is not surplus to 
domestic manufacturing needs, and that a hearing would find mills 
willing to purchase and process the species should it be prohibited 
from export. Another party stated that Alaska yellow cedar is surplus.
    One person responded that Western/Rocky Mountain/Utah juniper 
should be made a surplus species. This respondent and another 
respondent suggested also that Pacific yew should also be declared 
surplus and permitted to be exported because there is little if any 
domestic use for this species.
    Response. Again, these comments will be analyzed in the development 
of the proposed determination of the surplus species regulation. All 
interested parties should be prepared to submit comments regarding this 
proposed determination during the comment period provided in the 
Federal Register publication.
    Comment. Two persons commented that the proposed procedures in the 
rule for determining surplus species appear adequate, and another party 
commented that the entire set of regulations should be finalized before 
determining if Port Orford cedar or Alaska yellow cedar supplies exceed 
domestic manufacturing needs.
    Response. The Department agrees with these comments. No revision of 
the rule is necessary. Some minor changes to the text of this section 
as proposed have been made for technical and editorial clarity, but 
have no substantive effect.

Section 223.201  Limitations on Timber Harvested in Alaska

    Section 223.161 of the current regulations is repeated, with minor 
editing, in this Subpart to consolidate all export and substitution 
restriction rules applicable to all States located west of the 100th 
meridian. The repetition was needed to make clear that the provision 
regarding Alaska applies to contracts entered into before, during, and 
after the date of enactment of the Act.
    No comments were received on this section. Therefore, the 
Department adopts this section, with only minor editing.

Section 223.202  Information Requirements

    This rule imposes additional information collection requirements in 
the form of applications, certifications, reports and record keeping 
requiring clearance from OMB for compliance with the Paperwork 
Reduction Act. In the proposed rule, this section provided estimates of 
the time needed to collect this information, and provided addresses to 
send comments on these estimates.
    The comments submitted concerning the information collection 
requirements relating to the proposed annual report and the transaction 
notices are discussed in the Department's responses to comments 
received on Secs. 223.193 and 223.194.
    Comment. Several respondents stated that there will be a 
significant, additional paperwork burden on private companies.
    Response. Section 492 of the Act (16 U.S.C. 620d) specifically 
requires that log transactions be reported. The implementing 
regulations require the minimum burdens necessary for enforcement of 
this and other provisions of the Act. The Department has worked to 
lessen the paperwork burden in this final rule.

Section 223.203  Indirect Substitution Exception for National Forest 
System Timber From Within Washington State

    Section 223.203 was included in the final rule published in the 
Federal Register on December 19, 1991 (56 FR 65834). Section 223.203 is 
included in this rule making for continuity and to avoid confusion as 
to its status. The names of the persons obtaining a share of the 
Washington State quota of unprocessed Federal timber that is exempt 
from the prohibition against substitution, and the amount of the share 
for each person, are identified in a new paragraph (e) of Sec. 223.203. 
The Act requires that the names of persons obtaining such shares and 
the amount of the shares be established ``by rule.'' 16 U.S.C. 
620b(b)(2)(A).
    Otherwise, the Department has made minor changes to the text for 
technical and editorial clarity, including the removal of paragraph (a) 
in its entirety as redundant and unnecessary. The prohibition against 
indirect substitution discussed in this paragraph is covered in 
Sec. 223.189 of this subpart. The remaining paragraphs in this section 
have been correspondingly re-coded to reflect the deletion in this rule 
making. These changes have no substantive effect.

General Comments

    Several comments that did not fit into any of the above regulatory 
sections are addressed here.
    Comment. One respondent expressed the belief that face-to-face 
communications between potentially affected timber industry companies 
and the Federal land management agencies are critical in the 
development of any regulation.
    Response. Publishing through the Federal Register and receiving 
public comments was the most efficient and cost effective method 
available to develop these rules. The Forest Service plans to conduct 
several informational meetings nationwide after the final regulations 
go into effect. This will give interested persons an opportunity to 
gain a better understanding of the rules and how they will be applied.
    Comment. One respondent thought that assumptions made in the 
National Forest Management Plans on local timber demand will be 
outdated because exporting firms will gain additional access to certain 
Federal timber through sourcing areas, and that some forest plans may 
have to be amended to reflect this change in timber demand.
    For example, increased demand might prompt the Forest Service to 
increase the annual allowable sale quantity in a particular forest 
plan. However, such an increase could significantly affect the 
environmental quality of the forest. Direct or indirect environmental 
impacts may result from the proposed rule, and such impacts should be 
analyzed in a review in compliance with the National Environmental 
Policy Act (NEPA).

[[Page 46919]]

    Another respondent expressed concern for the lack of any 
environmental review associated with the rule. The respondent stated 
that the rule permits previously ineligible persons to buy Federal 
timber. The respondent stated that could change the timber demand which 
might cause the Forest Service to increase the allowable sale quantity 
in a particular forest plan. The respondent concluded that such an 
increase might have substantial environmental ramifications on the 
affected forest, and therefore an environmental review is necessary.
    Response. The Department has conducted an environmental assessment 
and made a Finding of No Significant Impact (see information under 
``Environmental Impact'', below). The existing rules at 36 CFR 223.160 
are less restrictive as to who may buy Federal timber than the Act and 
these implementing regulations. The existing rules require only that a 
company not export private timber from within an area tributary to its 
domestic processing plant if that person also purchased Federal timber 
directly from a Federal agency to supply that plant. If the company had 
an established ``historic quota'' that company could purchase Federal 
timber and export private timber from within its tributary area if 
neither its historic purchase quota nor its historic export quota were 
exceeded in any calendar year.
    However, the existing rules did not restrict indirect substitution, 
so when a company reached its historic export or purchase quota, it 
could continue to acquire from a third party all the federal timber it 
wanted from within its tributary area for its plant.
    Moreover, a company's tributary area was not subject to approval by 
the Department. The tributary area was simply the geographic area from 
which unprocessed timber was delivered to a processing facility and was 
not subject to a formal review and approval process. The tributary area 
changed with the circumstances.
    This Act eliminates historic quotas, and prohibits companies from 
exporting private timber from within an approved sourcing area, or from 
west of the 100th meridian in the contiguous 48 States if the company 
has no approved sourcing area, and prohibits indirect substitution. 
Instead of the tributary areas under the old rule, the Act requires 
sourcing areas to be formally approved by the Secretary--and those 
sourcing areas can be changed only upon review and agreement of the 
Department. This Act imposes far more restrictive conditions in order 
for exporting companies to acquire federal timber than under the pre-
enactment rules.
    Further, any proposed change in the allowable sale quantity on a 
forest would be subject to an environmental review at the time of the 
proposal.
    All aspects of forest plans are subject to monitoring and periodic 
reviews, including the allowable sale quantity (ASQ). All reviews shall 
consider the Standards and Guidelines from which the specific plan was 
developed, plus any modifications, and shall be conducted within NEPA 
guidelines. This regulation proposed only to limit the persons eligible 
to purchase National Forest timber. The regulation does not affect the 
quantity or quality of timber to be sold, where the sales are located 
(other than west of the 100th meridian in the contiguous 48 States), 
the contract period, or operating seasons. The Department disagrees 
that this rule may cause an increase in demand for National Forest 
System timber.
    Comment. One respondent stated that log exporting problems should 
be regulated at the docks where the ships are loaded by stopping all 
log exports, not by burdening private companies with excessive log 
identification and reporting regulations.
    Response. The Act requires monitoring at the time of acquisition. 
The Act does not prohibit export of all logs, but of Federal logs and 
some private logs. Given this divergent treatment of a fungible 
commodity, it is necessary to regulate the logs in transit, as well as 
on the export docks.
    Comment. Several respondents said that the regulations will have 
adverse effects on competition and employment, as mill owners will not 
be competitive in bidding for private timber, and that the annual 
effect of the regulation will be over $100 million.
    Response. While the Act does monitor commerce, it also preserves 
processing jobs and natural resources domestically. The regulations 
implement these objectives through monitoring and enforcement 
mechanisms.
    Comment. Several respondents commented that the proposed rule 
imposes significant new requirements on small business timber sale 
purchasers and other entities.
    Response. The proposed rule in and of itself does not impose 
significant new requirements. The Act places certain requirements on 
persons engaged in acquiring unprocessed timber originating from 
Federal lands west of the 100th meridian in the contiguous 48 States 
and exporting unprocessed private timber originating from private 
lands. The Act also requires the Secretary of Agriculture to implement 
the requirements of the Act through this rule making. The final rule 
simply implements the provisions of the Act. Further, the Department 
has modified the rule in order to further minimize the burdens on 
timber purchasers while still enabling enforcement of the Act.

Amendment to 36 CFR Part 261--Prohibitions

    Part 261--Prohibitions would be amended to include 16 U.S.C. 620(f) 
as part of the authority citation.

Section 261.6  Timber and Other Forest Products

    The proposed rule would add paragraph (i) to Sec. 261.6 making a 
violation of the Act, or its implementing regulations, subject to 
penalties under Part 261. Subsections 492(c) (1) and (2) and Subsection 
492(d) of the Act specifically provide for civil penalties and 
administrative remedies for violations of the Act that are included in 
another section of the proposed rule. Subsection 492(c)(3) of the Act 
states that the penalties provided under Sec. 492(c) do not exclude any 
other penalty provided by law. Proposed Sec. 261.6(i) is such a 
penalty. Inclusion of violations under Secs. 223.185 through 223.202 in 
Sec. 261.6(i) is essential for consistent and complete implementation 
of the Act. The prohibition at Sec. 261.6(g) regarding the current 
export regulations existing at subpart D would be retained to continue 
enforcement of regulations governing timber sale contracts issued prior 
to enactment and publication of this final rule.
    Comment. One said that the Act did not authorize criminal 
penalties, nor are they necessary in light of the serious civil and 
administrative sanctions.
    Response. Criminal sanctions are authorized by the Organic Act, 16 
U.S.C. 551, and by 18 U.S.C. 3559(a)(7) and 18 U.S.C. 3571(b)(6). These 
sanctions applied to export violations before enactment of the Act, and 
are another tool for enforcement. Consequently, it is not necessary to 
change this section.

Summary

    Having fully considered the relevant comments received on the 
proposed rule, the Department is adopting this final rule, with the 
modifications previously described in response to comments received. 
This rule supersedes those provisions of the interim rule published in 
the Federal Register on November 20, 1990. Together with the rule of 
December 19, 1991, (56 FR 65834) this rule comprises the implementing 
regulations for the 

[[Page 46920]]
Forest Resources Conservation and Shortage Relief Act of 1990 except 
for the separate rule making to be done on surplus species.
    This rule is effective upon publication. This rule making relates 
to agency management, public property and contracts, and therefore 
pursuant to the Administrative Procedure Act (5 U.S.C. 553(a)(2), is 
exempt from the 30-day delay between publication of a rule and its 
effective date. Further, a delayed effective date is not required if a 
rule is a substantive rule which grants or recognizes an exemption (5 
U.S.C. 553(d)(1)). This rule provides certain exemptions from the 
restrictions on substitution, and therefore may be effective 
immediately. In addition, a delayed effective date is not required if 
good cause is found and published with the rule (5 U.S.C. 553(d)(3)). 
Good cause exists to make this rule making effective upon publication 
due to the many deadlines in the Act for monitoring and enforcement of 
the Act.

Environmental Impact

    Based on both experience and environmental analysis, this final 
rule will have no significant effect on the quality of the human 
environment, individually or cumulatively, and the Forest Service has 
made a Finding of No Significant Impact (40 CFR 1508.27). This rule 
only establishes certain administrative procedures to limit the persons 
qualified to purchase unprocessed timber originating from Federal lands 
west of the 100th meridian in the contiguous 48 States. It does not 
affect the amount of timber to be sold, where the sales will be 
located, when they will be operated, the contract period, the contract 
size, resource protection requirements, or any aspect of on-the-ground 
contract performance. This rule does not alter the requirement that 
each timber sale must be analyzed and documented in compliance with the 
National Environmental Policy Act and its implementing regulations. 
Copies of the Environmental Assessment and Finding of No Significant 
Impact may be obtained by writing or calling the person or office 
listed earlier in this document under FOR FURTHER INFORMATION CONTACT.

Controlling Paperwork Burdens on the Public

    Because of the previous publication of portions of this 
comprehensive rule making, some sections of this rule making already 
have OMB control numbers. Previously approved OMB Control Numbers 0596-
0114, 0596-0115, and 0596-0021, as well as new information collection 
requirements, are being consolidated under OMB Control Number 0596-
0114.
    The procedures in Secs. 223.189 and 223.192, and some of the 
procedures in Sec. 223.190 were approved by the Office of Management 
and Budget (OMB) and assigned Control Number 0596-0114 upon issuance of 
the interim rule. Control Number 0596-0114 has been reapproved by OMB 
for use through May 31, 1997. OMB approved the information collection 
requirements in Secs. 223.191 and 223.203 for use through August 31, 
1995, and assigned them Control Number 0596-0115. OMB approved the 
information collection requirements in Sec. 223.48 and Sec. 223.87 for 
use through May 31, 1997 and assigned them Control Number 0596-0021; 
the information collection requirements in Sec. 223.48 and Sec. 223.87 
have been revised.
    The application and reporting procedures in Secs. 223.187, 223.193, 
223.194, 223.195, and some of the procedures in Sec. 223.190 of this 
final rule contain new record keeping and reporting requirements as 
defined in 5 CFR part 1320 and, therefore, impose additional paperwork 
burdens on the affected public. The Office of Management and Budget 
(OMB) has approved these requirements, and assigned them Control Number 
0596-0114.

Unfunded Mandates Reform

    Pursuant to Title II of the Unfunded Mandates Reform Act of 1995, 
which the President signed in law on March 22, 1995, the Department has 
assessed the effects of this rule on State, local, and tribal 
governments and the private sector. This rule does not compel the 
expenditure of $100 million or more by any State, local, or tribal 
governments or anyone in the private sector. Therefore, a statement 
under section 202 of the Act is not required.

Regulatory Impact

    This final rule was reviewed under USDA procedures and determined 
to be a significant rule under Executive Order 12866 on Regulatory 
Planning and Review because of the strong public interest expressed in 
the proposed rule. Accordingly, this final rule was subject to OMB 
review.
    This rule has been considered in light of the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.), and it has been determined that 
the action will not have a significant economic impact on a substantial 
number of small entities as defined by that Act. Economic impacts 
associated with implementation of this rule result directly from the 
Forest Resources Conservation and Shortage Relief Act, and not from the 
rule itself. The rule imposes no additional requirements on small 
business timber sale purchasers or other small entities beyond what is 
required by the Forest Resources Conservation and Shortage Relief Act 
of 1990.
    This rule has been reviewed in accordance with the principles and 
criteria contained in Executive Order 12630 and it has been determined 
that the rule does not pose the risk of a taking of constitutionally 
protected private property.
    This rule has been reviewed under Executive Order 12778, Civil 
Justice Reform. Under this rule: (1) All state and local laws and 
regulations are in conflict with this rule or which could impede its 
full implementation will be preempted; (2) no retroactive effect will 
be given to this rule; and (3) it will not require administrative 
proceedings before parties may file suit in court challenging its 
provisions.

List of Subjects

36 CFR Part 223

    Exports, Government contracts, National Forests, Reporting 
requirements, and Timber sales.

36 CFR Part 261

    Crime, Law enforcement, and National Forests.

    Therefore, for the reasons set forth in the preamble, part 223 and 
part 261 of Title 36 of the Code of Federal Regulations are amended as 
follows:

PART 223--SALE AND DISPOSAL OF NATIONAL FOREST SYSTEM TIMBER

    1. The authority citation for part 223 is revised to read as 
follows:

    Authority: 90 Stat. 2958, 16 U.S.C. 472a; 98 Stat. 2213, 16 
U.S.C. 618, 104 Stat. 714-726, 16 U.S.C. 620-620j, unless otherwise 
noted.

Subpart B--Timber Sale Contracts

    2. Revise Sec. 223.87 to read as follows:


Sec. 228.87  Requirements of bidders concerning exports.

    In order to have a bid considered responsive for a sale of timber 
from National Forest System lands, each bidder must certify that the 
bidder is eligible to purchase timber from National Forest System lands 
consistent with the Forest Resources Conservation and Shortage Relief 
Act of 1990 (16 U.S.C. 620, et seq.) and its implementing regulations 
at 36 CFR part 223, and that the bidder's timber purchase and export 
activities are in compliance with the timber export and substitution 
provisions of the Forest Resources Conservation and Shortage 

[[Page 46921]]
Relief Act of 1990 (16 U.S.C. 620, et seq.) and its implementing 
regulations at 36 CFR part 223.

Subpart C--Suspension and Debarment of Timber Purchasers

    3. Revise paragraph (a) of Sec. 223.130 to read as follows:


Sec. 223.130  Scope.

    (a) This subpart prescribes policies and procedures governing the 
debarment and suspension of purchasers of National Forest System 
timber. This subpart further prescribes policies and procedures 
governing those persons who violate the Forest Resources Conservation 
and Shortage Relief Act of 1990 (16 U.S.C. 620, et seq.).
* * * * *
    4. Revise Sec. 223.131 to read as follows:


Sec. 223.131  Applicability.

    These regulations apply to purchasers of National Forest System 
timber as well as to those persons who violate the Forest Resources 
Conservation and Shortage Relief Act of 1990 (16 U.S.C. 620, et seq.). 
These regulations do not apply to Forest Service procurement contracts 
which are governed by regulations at 41 CFR 4-1.6.
    5. Amend Sec. 223.133 by revising the definitions of Affiliates, 
Debarment, and Purchaser and by adding in alphabetical order 
definitions of Federal lands and Person to read as follows:


Sec. 223.133  Definitions.

* * * * *
    Affiliates are business concerns or persons, whose relationship 
entails the following:
    (a) either party directly or indirectly controls or has the power 
to control the other; or
    (b) a third party directly or indirectly controls or has the power 
to control both. In determining whether affiliation exists, the Forest 
Service shall consider all appropriate factors, including, but not 
limited to, common ownership, common management, common facilities, and 
contractual relationships. Further guidelines to be used in determining 
affiliation are found in the Small Business Administration regulation 
in 13 CFR 121.401.
* * * * *
    Debarment means action taken by a debarring official under 
Secs. 223.136 through 223.140 to exclude a purchaser from Forest 
Service timber sale contracts for a reasonable, specified period of 
time. A purchaser so excluded is ``debarred.'' Debarment pursuant to 
the Forest Resources Conservation and Shortage Relief Act of 1990 (16 
U.S.C. 620, et seq. means action taken by a debarring official under 
Secs. 223.136-223.140 to exclude persons from entering into any 
contract for the purchase of unprocessed timber originating from 
Federal lands and from taking delivery of unprocessed Federal timber 
purchased by another party for the period of debarment.
* * * * *
    Federal lands means, for the purposes of the Forest Resources 
Conservation and Shortage Relief Act of 1990 (16 U.S.C. 620, et seq.), 
lands that are owned by the United States, but does not include any 
lands the title to which is:
    (a) Held in trust by the United States for the benefit of any 
Indian tribe or individual,
    (b) Held by any Indian tribe or individual subject to a restriction 
by the United States against alienation, or
    (c) Held by any Native Corporation as defined in section 3 of the 
Alaska Native Claims Settlement Act (43 U.S.C. 1602).
* * * * *
    Person means any individual, partnership, corporation, association, 
or other legal entity, and includes any subsidiary, subcontractor, 
parent company, and business affiliates.
* * * * *
    Purchaser means any person, who:
    (a) Submits bids for, is awarded, or reasonably may be expected to 
submit bids for or be awarded, a Forest Service timber sale contract;
    (b) Conducts business with the Forest Service as an agent or 
representative of another timber sale purchaser; or
    (c) For the purposes of the Forest Resources Conservation and 
Shortage Relief Act of 1990 (16 U.S.C. 620, et seq.) (Act), any person 
who violates the Act or any regulation or contract issued under the 
Act, or any person who may reasonably be expected to enter into a 
contract to purchase or receive delivery of unprocessed Federal timber 
in violation of the Act or its implementing regulations.
* * * * *
    6. Revise Sec. 223.135 to read as follows:


Sec. 223.135  Effect of listing.

    (a) Except as otherwise provided in paragraph (b) of this section, 
purchasers debarred or suspended in accordance with this subpart shall 
be excluded from bidding on or award of Forest Service timber sale 
contracts. The Forest Service shall not knowingly solicit or consider 
bids from, award contracts to, approve a third party agreement with, or 
renew or otherwise extend, except pursuant to the terms of a contract 
term adjustment, an existing timber sale contract with these 
purchasers, unless the Chief of the Forest Service or authorized 
representative determines, in writing, that there is a compelling 
reason for such action.
    (b) In addition to the provisions of paragraph (a) of this section, 
persons debarred pursuant to Sec. 223.137(g) shall be prohibited from 
entering into any contract to purchase unprocessed timber from Federal 
lands and shall also be precluded from taking delivery of Federal 
timber purchased by another person for the period of debarment.
* * * * *
    7. Amend Sec. 223.136 by revising paragraph (b) to read as follows:


Sec. 223.136  Debarment.

* * * * *
    (b) Effect of proposed debarment. (1) Upon issuance of a notice of 
proposed debarment by the debarring official and until the final 
debarment decision is rendered, the Forest Service shall not solicit or 
consider bids from, award contracts to, approve a third party agreement 
with, renew or otherwise extend, except pursuant to the terms of a 
contract term adjustment, any contract with that purchaser. The Chief 
of the Forest Service or authorized representative may waive this 
exclusion upon a written determination identifying compelling reasons 
to continue doing business with that purchaser pending completion of 
debarment proceedings.
    (2) In addition to paragraph (b)(1) of this section, issuance of a 
notice of proposed debarment under Sec. 223.137(g) shall preclude such 
person from entering into any contract to purchase unprocessed timber 
originating from Federal lands, and from taking delivery of unprocessed 
Federal timber from any other party who purchased such timber.
* * * * *
    8. Amend Sec. 223.137 by adding paragraph (g) to read as follows:


Sec. 223.137  Causes of debarment.

* * * * *
    (g) Violation of the Forest Resources Conservation and Shortage 
Relief Act of 1990 (16 U.S.C. 620, et seq.). (Act) or any regulation or 
contract issued under the Act.
* * * * *
    9. Revise paragraphs (a) and (b) of Sec. 223.139 to read as 
follows:


Sec. 223.139  Period of debarment.

    (a) Debarment shall be for a period commensurate with the 
seriousness of the cause(s):
    (1) The debarring official shall consider any suspension period or 

[[Page 46922]]
    period since issuance of the notice of proposed debarment in 
determining the debarment period.
    (2) Generally, a debarment for those causes listed at Sec. 223.137 
(a)-(f) of this subpart should not exceed three (3) years, except as 
otherwise provided by law.
    (3) A debarment for the causes listed at Sec. 223.137(g) shall not 
exceed five (5) years.
    (b) The debarring official may extend the debarment for those 
causes listed at Sec. 223.137 (a)-(f) of this subpart for an additional 
period if that official determines that an extension is necessary to 
protect the Government's interest. However:
    (1) A debarment may not be extended solely on the basis of the 
facts and circumstances upon which the initial debarment action was 
based;
    (2) If debarment for an additional period is necessary, the 
debarring official shall initiate and follow the procedures in 
Sec. 223.138 to extend the debarment.
* * * * *

Subpart D--Timber Export and Substitution Restrictions

    10. Revise Sec. 223.159 to read as follows:


Sec. 223.159  Scope and applicability.

    The rules of this subpart apply to all timber sale contracts 
awarded before August 20, 1990, the date of enactment of the Forest 
Resources Conservation and Shortage Relief Act of 1990 (16 U.S.C. 620, 
et seq.). The rules at Sec. 223.162 shall remain in effect for all 
contracts awarded on or after August 20, 1990, until September 8, 1995. 
Contracts awarded on or after August 20, 1990 are subject to the rules 
of subpart F of this part, unless otherwise noted. Contracts awarded on 
or after September 8, 1995 are governed in full by subpart F.
Sec. 223.161  [Removed and reserved]

    11. Remove and reserve Sec. 223.161.


Sec. 223.163  [Removed]

    12. Remove Sec. 223.163.
    13. Subpart F is revised to read as follows:

Subpart F--The Forest Resources Conservation and Shortage Relief Act of 
1990 Program

Sec.
223.185  Scope and applicability.
223.186  Definitions.
223.187  Determination of unprocessed timber.
223.188  Prohibitions against exporting unprocessed Federal timber.
223.189  Prohibitions against substitution.
223.190  Sourcing area application procedures.
223.191  Sourcing area disapproval and review procedures.
223.192  Procedures for a non-manufacturer.
223.193  Procedures for reporting acquisition and disposition of 
unprocessed Federal timber.
223.194  Procedures for reporting the acquisition and disposition of 
unprocessed private timber.
223.195  Procedures for identifying and marking unprocessed timber.
223.196  Civil penalties for violation.
223.197  Civil penalty assessment procedures.
223.198  Administrative remedies.
223.199  Procedures for cooperating with other agencies.
223.200  Determinations of surplus species.
223.201  Limitations on unprocessed timber harvested in Alaska.
223.202  Information requirements.
223.203  Indirect substitution exception for National Forest System 
timber from within Washington State.


Sec. 223.185  Scope and applicability.

    This subpart implements 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. As of September 8, 1995, this subpart applies to unprocessed 
timber originating from private lands west of the 100th meridian in the 
contiguous 48 States that requires domestic processing. Except as 
provided later in this paragraph, this subpart applies to all 
unprocessed timber originating from National Forest System lands west 
of the 100th meridian in the contiguous 48 States acquired from timber 
sale contracts awarded on or after August 20, 1990. The rules regarding 
substitution at Sec. 223.162 of subpart D apply to unprocessed timber 
acquired from timber sale contracts awarded between August 20, 1990, 
and September 8, 1995, as provided in Sec. 490(a)(2)(A) of the Act. The 
rules regarding reporting the acquisition and disposition of 
unprocessed Federal timber at Sec. 223.193 of this subpart apply to all 
transfers of unprocessed Federal timber originating from National 
Forest System lands west of the 100th meridian in the contiguous 48 
States regardless of timber sale contract award date.


Sec. 223.186  Definitions.

    The following definitions apply to the provisions of this subpart:
    Acquire means to come into possession of, whether directly or 
indirectly, through a sale, trade, exchange, or other transaction. The 
term ``acquisition'' means the act of acquiring. The terms ``acquire'' 
and ``purchase'' are synonymous and are used interchangeably.
    Act means the Forest Resources Conservation and Shortage Relief Act 
of 1990 (Pub. L. No. 101-382, 104 Stat. 714-726; 16 U.S.C. 620-620j).
    Area of operations refers to the geographic area within which logs 
from any origin have neither been exported nor transported to an area 
where export occurs. The area of operations will be determined for 
individual Forest Service Administrative Units or groups of 
Administrative Units by the Regional Foresters of Regions 1, 2, 3, and 
4 on an as-needed basis, and used as part of the criteria for 
evaluating requests to waive the identifying and marking requirements 
for unprocessed Federal logs.
    Cants or Flitches are synonymous, and mean trees or portions of 
trees, sawn on one or more sides, intended for remanufacture into other 
products elsewhere.
    Civil penalties:
    Willful disregard means a person knew or showed reckless disregard 
for the matter of whether the person's conduct is prohibited by the 
Forest Resources Conservation and Shortage Relief Act of 1990, 16 
U.S.C. 620, et seq. with regard to the prohibition against exporting 
unprocessed Federal timber (including causing unprocessed timber to be 
exported).
    Willfully means a person knew or showed reckless disregard for the 
matter of whether the person's conduct is prohibited by the Forest 
Resources Conservation and Shortage Relief Act of 1990, 16 U.S.C. et 
seq., or regulations issued under the Act, even though such violation 
may not have caused the export of unprocessed Federal timber in 
violation of the Act.
    Disregard means to ignore, overlook, or fail to observe any 
provision of the Act or a regulation issued under this Act, even though 
such violation may not have caused the export of unprocessed Federal 
timber in violation of the Act.
    Should have known means committing an act that a reasonable person 
in the timber industry would have known violates a provision of the Act 
or regulations issued under the Act, even though the violation may not 
have caused the export of unprocessed Federal timber in violation of 
the Act.
    Each violation refers to any violation under the Act or its 
implementing regulations with regard to a single act, which includes 
but is not limited to a single marking (or lack thereof) on a single 
log, the export of a single log, or a single entry on a document.
    Export means transporting, or causing to be transported, either 
directly or through another party, unprocessed 

[[Page 46923]]
timber to a foreign country. 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.
    Federal lands means lands that are owned by the United States west 
of the 100th meridian in the contiguous 48 States, but do not include 
any land the title to which is;
    (1) Held in trust by the United States for the benefit of any 
Indian tribe or individual;
    (2) Held by any Indian tribe or individual subject to a restriction 
by the United States against alienation; or
    (3) Held by any Native Corporation as defined in section 3 of the 
Alaska Native Claims Settlement Act (43 U.S.C. 1602).
    Finished products means products from trees, portions of trees or 
other roundwood products processed to standards and specifications 
intended for end product use.
    Fiscal year means the Federal fiscal year beginning October 1, and 
ending the following September 30.
    Gross value means the total value a person received from the 
transfer of unprocessed Federal timber involved in a violation, before 
production, delivery, agent fees, overhead, or other costs are removed.
    Hammer brand refers to an identifying mark or brand composed of 
numbers, letters, characters, or a combination of numbers, letters, or 
characters permanently attached to a hammer, or other similar striking 
tool. The hammer brand must make a legible imprint of the brand in the 
end of a log when struck.
    Highway yellow paint refers to an oil base or equivalent yellow 
paint of lasting quality comparable to the yellow paint used to mark 
highways.
    Log refers to an unprocessed portion of a tree that is transported 
to a manufacturing facility or other location for processing, 
transferring to another person, or exporting. ``Logs'' is synonymous 
with ``timber''.
    Manufacturing facility means a permanently located processing plant 
used to convert unprocessed timber into products.
    Non-manufacturer means a person who does not own or operate a 
manufacturing facility.
    Person means any individual, partnership, corporation, association, 
or other legal entity and includes any subsidiary, subcontractor, 
parent company, and business affiliates. Persons are affiliates of each 
other when either directly or indirectly, one person controls or has 
the power to control the other or a third party or parties control or 
have the power to control both. In determining whether or not 
affiliation exists, consideration shall be given to all appropriate 
factors, including but not limited to common ownership, common 
management, common facilities, and contractual relationships.
    Private lands means lands, located west of the 100th meridian in 
the contiguous 48 States held or owned by a person. Such term does not 
include Federal lands or public lands, or any land the title to which 
is;
    (1) Held in trust by the United States for the benefit of any 
Indian tribe or individual;
    (2) Held by any Indian tribe or individual subject to a restriction 
by the United States against alienation; or
    (3) Held by any Native Corporation as defined in section 3 of the 
Alaska Native Claims Settlement Act (43 U.S.C. 1602).
    Processed means timber processed into products listed in 
Sec. 223.187 of these regulations.
    Purchase has the same meaning as acquire. The terms are used 
interchangeably.
    Same geographic and economic area means the land within the 
boundaries of an approved sourcing area.
    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 manufacturing facility; a sourcing 
area must be geographically and economically separate from any area 
from which that person harvests for export any unprocessed timber 
originating from private lands.
    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 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.
    Transaction means an arrangement involving the transfer of 
unprocessed timber.
    Transaction statement is a signed copy of one of the transaction 
reporting forms in 36 CFR 223.193 and 223.194.
    Transfer means to pass title, sell, trade, exchange, or otherwise 
convey unprocessed timber to another person.
    Unprocessed timber means trees or portions of trees or other 
roundwood not processed to standards and specifications suitable for 
end product use and intended for remanufacture. Unprocessed timber does 
not include products intended for remanufacture that meet the criteria 
listed in Sec. 223.187(a) (2) or (3). 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 
part of a structure kit, that are indistinguishable from other 
unprocessed timber.


Sec. 223.187  Determinations of unprocessed timber.

    (a) All species except western red cedar. Unprocessed timber, as 
defined in Sec. 223.186 of this Subpart, does not include timber 
processed into any one of the following:
    (1) Lumber or construction timbers, except western red cedar, 
meeting current American Lumber Standards Grades or Pacific Lumber 
Inspection Bureau Export R or N list grades, sawn on 4 sides, not 
intended for remanufacture. To determine whether 

[[Page 46924]]
such lumber or construction timbers meet this grade and intended use 
standard, the shipper of record must have in its possession for each 
shipment or order, and available for inspection upon the request of the 
Forest Service:
    (i) A legible copy of a lumber inspection certificate certified by 
a lumber inspection/grading organization generally recognized by the 
industry as setting a selling standard; and,
    (ii) A statement by the manufacturer certifying under the penalties 
provided in section 492 of the Act (16 U.S.C. 620d) and the False 
Statements Act (18 U.S.C. 1001) that the products in the shipment or 
order are intended to be used as shipped, are manufactured into 
products, or processed into pulp, and are not to be manufactured into 
other products. The certification statements shall be made in 
accordance with paragraph (b) of this section. The certification 
statements in paragraph (b) of this section are not required if the 
lumber or construction timbers described in paragraph (a)(1) of this 
section or the pulpwood bolts described in paragraph (a)(8) of this 
section otherwise may be exported without regard to an intent to 
remanufacture or process into pulp. For instance, because the timber 
originates from private land from which timber may be exported.
    (2) Lumber, construction timbers, or cants for remanufacture, 
except western red cedar, meeting current American Lumber Standards 
Grades or Pacific Lumber Inspection Bureau Export R or N list clear 
grades, sawn on 4 sides, not to exceed 12 inches (30.5 cm) thick. To 
determine whether such lumber, timbers, or cants meet this grading 
standard, the shipper of record must have in its possession for each 
shipment or order and available for inspection, upon the request of the 
Forest Service, a legible copy of a lumber inspection certificate 
certified by a lumber inspection/grading organization generally 
recognized by the industry as setting a selling standard.
    (3) Lumber, construction timbers, or cants for remanufacture, 
except western red cedar, that do not meet the grades referred to in 
paragraph (a)(2) of this section and are sawn on 4 sides, with wane 
less than \1/4\ of any face, not exceeding 8\3/4\ inches (22.2 cm) 
thick.
    (4) Chips, pulp, or pulp products.
    (5) Veneer or plywood.
    (6) Poles, posts, or piling cut or treated with preservatives for 
use as such.
    (7) Shakes or shingles.
    (8) Aspen or other pulpwood bolts, not exceeding 100 inches in 
length, exported for processing into pulp. Shippers of record of such 
pulpwood bolts must have in their possession, and available for 
inspection upon request of the Forest Service, in accordance with 
paragraph (b) of this section, a manufacturer's certificate that such 
bolts are intended for processing into pulp.
    (9) Pulp logs or cull logs processed at domestic pulp mills, 
domestic chip plants, or other domestic operations for the purpose of 
conversion of logs into chips.
    (b) Export product certifications. (1) Manufacturers of lumber or 
construction timbers described in paragraph (a)(1) of this section and 
pulpwood bolts described in paragraph (a)(8) of this section, shall 
certify to the following statements:
    (2) Lumber or construction timbers; ``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 
intended to be used as shipped and are not to be remanufactured into 
other products. 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 understand 
that exporting unprocessed timber originating from Federal lands or 
unprocessed timber from private lands which is required to be processed 
domestically is 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 provided for such violations.''
    (3) Pulpwood bolts. ``I certify that the pulpwood bolts 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 
intended to be processed into pulp and are not to be remanufactured 
into other products. 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 understand 
that exporting unprocessed timber originating from Federal lands or 
unprocessed timber from private lands which is required to be processed 
domestically is 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 provided for such violations.''
    (4) Signatory procedures. Certificates shall be on company 
letterhead, and signed by the person manufacturing the shipment. In the 
case of a corporation, the certificates must be signed by a person 
authorized, in writing, by the Chief Executive Officer pursuant to 36 
CFR 223.187(b)(4), to sign the certificates in 36 CFR 223.187(b) on 
behalf of the corporation.
    (5) Chief Executive Officer Authorization. The authorization by the 
Chief Executive Officer shall be on company letterhead, shall be 
notarized, and shall read as follows:

    ``I authorize ________ to sign the certificates in 36 CFR 
223.187(b) on behalf of (name of corporation). I make this 
authorization 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 understand that exporting 
unprocessed timber originating from Federal lands or unprocessed 
timber originating from private lands which is required to be 
processed domestically is 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 provided for such 
violation.''

    (6) Exporters of other timber products originating from Federal 
lands not specifically listed in Sec. 223.187 which may develop export 
markets in the future may also require similar certification 
statements. Such statements will be provided by the Forest Service.
    (c) Western red cedar. Unprocessed western red cedar timber does 
not include manufactured lumber authorized for export under license by 
the Department of Commerce, and lumber from private lands processed to 
standards established in the lumber grading rules of the American 
Lumber Standards Association or the Pacific Lumber Inspection Bureau, 
or timber processed into any of the following products:
    (1) Lumber of American Lumber Standards Grades of Number 3 
dimension or better, or Pacific Lumber Inspection Bureau Export R-List 
Grades of Number 3 common or better, with a maximum cross section of 
2,000 square centimeters (310 square inches) for any individual piece 
of processed western red cedar, regardless of grade. To determine 
whether such lumber meets these established standards, grades and size 
restrictions, the shipper of record must have in its possession for 
each shipment, and available for inspection upon the request of the 
Forest Service, a legible copy of a lumber inspection certificate 
certified by a lumber 

[[Page 46925]]
inspection/grading organization generally recognized by the industry as 
setting a selling standard. Export restrictions governing western red 
cedar timber harvested from Federal, State or other public lands are 
found in 7(i) of the Export Administration Act of 1979 as amended (50 
U.S.C. appendix 2406(i)), and implementing regulations at 15 CFR 777.7.
    (2) Chips, pulp, and pulp products;
    (3) Veneer and plywood;
    (4) Poles, posts, pilings cut or treated with preservatives for use 
as such and not intended to be further processed; and
    (5) Shakes and shingles.
    (d) Finished Products. Shippers of record of products manufactured 
from unprocessed western red cedar originating from Federal lands, 
acquired by the manufacturer under the exemption from the prohibition 
against indirect substitution at Sec. 223.189(e)(1), must have in their 
possession for each shipment a certificate from the manufacturer that 
such products are finished products as defined in Sec. 223.186 of this 
subpart. The certification statement shall read as follows:
    (1) ``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 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 Shortage 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 acquire western red cedar under the indirect 
substitution exemption in 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 provided 
for such violation.''
    (2) Signatory procedures. Certificates shall be on company 
letterhead, and signed by the person manufacturing the shipment. In the 
case of a corporation, the certificate must be signed by a person 
authorized, in writing, by the Chief Executive Officer, pursuant to 36 
CFR 223.187(d)(3), to sign the certificate in 36 CFR 223.187(d)(1) on 
behalf of the corporation.
    (3) Chief Executive Officer Authorization. The authorization by the 
Chief Executive Officer shall be on company letterhead, shall be 
notarized, and shall read as follows:

    ``I authorize ________ to sign the certificate in 36 CFR 
223.187(d)(1) on behalf of (name of corporation). I make this 
authorization 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 understand that exporting 
unprocessed timber originating from Federal lands or unprocessed 
timber originating from private lands which is required to be 
processed domestically is 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 provided for such 
violation.''


Sec. 223.188  Prohibitions against exporting unprocessed Federal 
timber.

    No person who acquires unprocessed timber originating from Federal 
lands west of the 100th meridian in the contiguous 48 States may export 
such timber from the United States, or sell, trade, exchange, or 
otherwise convey such timber to any other person for the purpose of 
exporting such timber from the United States. This prohibition does not 
apply to specific quantities of grades and species of such unprocessed 
Federal timber that the Secretary of Agriculture determines to be 
surplus to domestic manufacturing needs.


Sec. 223.189  Prohibitions against substitution.

    (a) Direct substitution prohibition. Except as otherwise provided 
by this section:
    (1) 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:
    (i) Such person acquires unprocessed timber originating 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
    (ii) Such person has, during the preceding 24-month period, 
exported unprocessed timber originating from private lands.
    (2) No person may export or sell 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.
    (3) No person may purchase 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 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.
    (4) The prohibitions in paragraphs (a) (1)-(3) of this section 
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.
    (b) Exemptions. (1) Pursuant to section 490(c) of the Act (16 
U.S.C. 620b), all persons who applied for a sourcing area by December 
20, 1990, in accordance with Sec. 223.190 of this subpart, were exempt 
from the prohibitions against substitution, in accordance with 
Sec. 223.189(a)(1) of this subpart, until such time that the approving 
official approved or disapproved the application.
    (2) Pursuant to Section 490(a) of the Act (16 U.S.C. 620b), an 
exemption to the prohibition in Sec. 223.189(a)(1)(B) of this subpart 
is provided to:
    (i) A person with a historic export quota who submitted a 
certification in accordance with Sec. 223.189 (c) and (d) of this 
subpart; and
    (ii) A non-manufacturer who submitted a certification in accordance 
with Sec. 223.192 of this subpart.
    (3) Pursuant to Sec. 490(c) of the Act (16 U.S.C. 620b), the 
prohibitions against direct substitution in Sec. 223.189(a) (1) and (2) 
of this subpart do not apply to a person who acquires unprocessed 
timber originating from Federal lands within an approved sourcing area, 
does not export unprocessed timber originating from private lands 
within the approved sourcing area while the approval is in effect, and, 
if applicable, received a waiver of the prohibition against exporting 
unprocessed timber originating from private lands within the sourcing 
area during the preceding 24 months, in accordance with Sec. 223.189 
(f) and (g) of this subpart.
    (c) Historic export quota exemption. The prohibition against the 
purchase of Federal timber for a person who has exported unprocessed 
timber originating 

[[Page 46926]]
from private lands, within the preceding 24-month period, shall not 
apply to a person with a historic export quota approved by the 
Secretary and who has been exporting unprocessed private timber in 
accordance with the log export and substitution regulations of the 
Secretary of Agriculture at 36 CFR part 223, subpart D, in effect 
before August 20, 1990, if:
    (1) That person certified in writing to the Regional Forester of 
the Region administering the historic export quota, on or before 
November 20, 1990, that the person would cease exporting unprocessed 
timber originating from private lands on or before February 20, 1991, 
and
    (2) The exporting ceased in accordance with such certification.
    (d) Application for historic export quota exemption. To obtain an 
exemption from the prohibition against export within the preceding 24-
month period for purchasing Federal timber based on an approved 
historic export quota described in paragraph (c) of this section, a 
person must have applied in writing to the applicable Regional Forester 
on or before November 20, 1990. The certificate must have been 
notarized. The application was required to be on company letterhead and 
must have included:
    (1) An agreement to retain records of all transactions involving 
acquisition and disposition of unprocessed timber from both private and 
Federal lands within the area(s) involved in the certification, for a 
period of three (3) years beginning November 20, 1990, and to make such 
records available for inspection upon the request of the Regional 
Forester, or other official to whom such authority has been delegated.
    (2) A signed certification which reads as follows:

    ``I have purchased, under an historic export quota approved by 
the Secretary of Agriculture, unprocessed timber originating from 
Federal lands located west of the 100th meridian in the contiguous 
48 States during the preceding 24 months in direct substitution for 
exported unprocessed timber originating from private lands. I desire 
to purchase directly from a Department or agency of the United 
States, unprocessed timber originating from Federal lands located in 
such area of the United States. I make this certification for the 
exemption from the prohibition against export within the preceding 
24-month period for purchasing Federal timber required by the Forest 
Resources Conservation and Shortage Relief Act of 1990, (Pub. L. No. 
101-382, August 20, 1990, 16 U.S.C. 620, et seq.) (Act). I hereby 
certify that I will cease all exporting of such unprocessed private 
timber from lands west of the 100th meridian in the 48 contiguous 
States of the United States by February 20, 1991. I make this 
certification with full knowledge and understanding of the 
requirements of this Act and do fully understand that failure to 
cease such exporting as certified will be a violation of this Act 
(16 U.S.C. 620d) and the False Statements Act (18 U.S.C. 1001), and 
may subject me to the penalties and remedies provided from such 
violation.''

    (3) The certification must have been signed by the person making 
such certification or, in the case of a corporation, by its Chief 
Executive Officer.
    (e) Indirect substitution prohibition. No person may purchase from 
any other person unprocessed timber originating from Federal lands west 
of the 100th meridian in the contiguous 48 States if such person would 
be prohibited by paragraph (a) of this section from purchasing such 
timber directly from a Department or agency of the United States, 
pursuant to Sec. 490(b) of the Forest Resources Conservation and 
Shortage Relief Act of 1990 (16 U.S.C. 620, et seq.). The prohibition 
in this paragraph does not apply to the following:
    (1) To the acquisition of western red cedar, which is domestically 
processed into finished products.
    (2) To a person who acquires unprocessed timber originating from 
Federal lands within an approved sourcing area, does not export 
unprocessed timber originating from private lands within the approved 
sourcing area while the approval is in effect, and, if applicable, 
receives a waiver of the prohibition against exporting unprocessed 
timber originating from private lands within the sourcing area during 
the preceding 24 months in accordance with Sec. 223.189 (f) and (g) of 
this subpart.
    (3) To the limited amount of unprocessed National Forest System 
timber within Washington State that is exempt from the prohibition 
against indirect substitution, pursuant to Sec. 223.203.
    (f) Waiver within a sourcing area. The prohibitions in 
Sec. 223.189(a) (1) and (2) against direct and indirect acquisition of 
unprocessed timber originating from Federal lands do not apply if:
    (1) A person acquires such timber from within an approved sourcing 
area located west of the 100th meridian in the 48 contiguous States;
    (2) Has not exported unprocessed timber originating from private 
lands located within the approved sourcing area during the preceding 24 
months;
    (3) Does not export such private timber from within the approved 
sourcing area during the period the sourcing area is in effect; and
    (4) Does not export such private timber during any calendar year in 
the same geographic and economic area that unprocessed timber 
originating from Federal lands west of the 100th meridian in the 
contiguous 48 States is under contract or in possession, if the 
sourcing area is no longer in effect, pursuant to the definition of 
substitution in 36 CFR 223.186.
    (5) The appropriate Regional Forester could waive, in writing, the 
prohibition against export within the preceding 24-month period for any 
person who certified in writing, on or before November 20, 1990, that 
on or before February 20, 1991, that person would cease exporting 
unprocessed timber originating from private lands within the approved 
sourcing area for a period of not less than three (3) years. 
Signatories of this certificate who received an approved sourcing area, 
like all holders of sourcing areas, are subject to the prohibition 
against exporting unprocessed timber originating from private lands 
within the sourcing area boundaries, pursuant to this paragraph.
    (g) Application for waiver within a sourcing area. To obtain a 
waiver of the prohibition against export within the preceding 24-month 
period for purchasing Federal timber described in paragraph (f) of this 
section, a person must have submitted a request for waiver, in writing, 
to the Regional Forester of the region in which the manufacturing 
facility being sourced is located, which must have been received by the 
Regional Forester on or before November 20, 1990, and which must have 
been signed by the person making such request or, in the case of a 
corporation, by its Chief Executive Officer. The request for waiver 
must be notarized and, in the case of a corporation, with its corporate 
seal affixed. The request shall be on company letterhead with its 
corporate seal affixed and must include:
    (1) An agreement to retain records of all transactions involving 
acquisition and disposition of unprocessed timber from both private and 
Federal lands within the area(s) involved in the waiver request, for a 
period of three (3) years beginning November 20, 1990, and to make such 
records available for inspection upon the request of the Regional 
Forester, or other official to whom such authority has been delegated.
    (2) A signed certification statement which reads as follows:

    ``I have engaged in exporting of unprocessed timber originating 
from private land located within the sourcing area for which I am 
applying. I desire to purchase directly from a department or agency 
of the 

[[Page 46927]]
United States unprocessed timber originating from Federal lands located 
within the desired sourcing area. I hereby request waiver of the 
prohibition against export within the preceding 24-month period for 
purchasing Federal timber required by the forest Resources 
Conservation and Shortage Relief Act of 1990 (Pub. L. No. 101-382, 
August 20, 1990, 16 U.S.C. 620, et seq.) (Act). I hereby certify 
that I will cease all exporting of such unprocessed private timber 
from within the desired sourcing area by February 20, 1991, and will 
not resume such exporting for a period of not less than three (3) 
years. I make this certification with full knowledge and 
understanding of the requirements of this Act and do fully 
understand that failure to cease such exporting as certified will be 
a violation of Section 492 of this Act (16 U.S.C. 620d) and the 
False Statements Act (18 U.S.C. 1001), and may subject me to the 
penalties and remedies provided for such violation.''
Sec. 223.190  Sourcing area application procedures.

    (a) 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 Federal 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).
    (b) As provided in the Act, a person who has requested an exemption 
or waiver of the prohibition against export within the preceding 24-
month period, pursuant to Sec. 223.189 of this subpart, must have 
applied for the desired sourcing area on or before December 20, 1990.
    (c) Applications. Sourcing area applications shall include:
    (1) A map of sufficient scale and detail to clearly show:
    (i) The applicant's desired sourcing area boundary. This boundary 
will include both the private and Federal lands from which the 
applicant intends to acquire unprocessed timber for sourcing its 
manufacturing facilities;
    (ii) The location of the timber manufacturing facilities owned or 
operated by the applicant within the proposed sourcing area where the 
person intends to process timber originating from Federal land;
    (iii) 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, sold, traded, 
exchanged, or otherwise conveyed to another person for the purpose of 
exporting such timber;
    (2) A list of other persons with timber manufacturing facilities 
located within the same general vicinity as the applicant's facilities;
    (3) Any other information the applicant may believe is appropriate 
to support approval of the requested sourcing area; and
    (4) A statement signed by the person certifying under the penalties 
provided in Section 492 of this Act (16 U.S.C. 620d) and the False 
Statements Act (18 U.S.C. 1001) that the information provided in 
support of the application is true, complete, and accurate to the best 
of the applicant's knowledge. The statement shall read as follows:

    ``I certify under penalties of 16 U.S.C. 620d and 18 U.S.C. 
1001, that the information provided in support of this application, 
is true, complete, and accurate to the best of my knowledge 
concerning my timber purchasing and export patterns. I certify that 
the information provided concerning my timber purchasing and export 
patterns fully and accurately reflects, to the best of my knowledge, 
the boundaries of the sourcing area for which I am applying. 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 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. I fully understand that, 
if this application is approved, exporting unprocessed private 
timber originating from within the approved sourcing area will be a 
violation of this Act (16 U.S.C. 620, et seq.) its implementing 
regulations, and the False Statements Act (18 U.S.C. 1001), and may 
subject me to the penalties and remedies provided for such 
violation.''

    (d) Confidential information. Applications are not considered 
confidential. However, if a person does submit confidential information 
as part of an application, the information should be marked 
confidential. Information so marked will be afforded the rights and 
protection provided under the Freedom of Information Act.
    (e) Where to submit the application. A sourcing area applicant 
shall send the application to the Office of Administrative Law Judges 
and shall, simultaneously, send a copy of the sourcing area application 
to the Forest Service Regional Forester of the region in which the 
manufacturing facility being sourced is located. Where the sourcing 
area application will cover purchases from more than one agency, 
application is to be made to the agency from which the applicant 
expects to purchase the preponderance of its Federal timber. The 
sourcing area applicant must also send a complete copy of the 
application to each agency concerned. The lead agency shall make the 
decision in consultation with, and upon co-signature of, the other 
agencies concerned.
    (f) Signatory procedures. Sourcing area applications must be signed 
by the person making the request, or in the case of a corporation, by 
its Chief Executive Officer, and must be notarized. The application 
shall be on company letterhead.
    (g) The sourcing area application and review process will be 
conducted pursuant to the Rules of Practice Governing the Adjudication 
of Sourcing Area Applications and Formal Review of Sourcing Areas 
Pursuant to the Forest Resources Conservation and Shortage Relief Act 
of 1990 (16 U.S.C. 620, et seq.), found at 7 CFR part 1, subpart M.
    (h) A final decision on a sourcing area application or a formal 
sourcing area review will be issued within four (4) months of the 
receipt of the application or initiation of the review.
    (i) The following criteria must be met for sourcing area approval:
    (1) The Administrative Law Judge, or, on appeal, the Judicial 
Officer must find that the proposed sourcing area is 

[[Page 46928]]
geographically and economically separate from any area that the 
applicant harvests or expects to harvest for export any unprocessed 
timber originating from private lands. In making such a finding, the 
Administrative Law Judge, or, on appeal, the Judicial Officer shall 
consider the timber purchasing patterns of the applicant on private and 
Federal lands equally with those of other persons in the same local 
vicinity and the relative similarity of such purchasing patterns.
    (2) The ``same local vicinity'' will normally be manufacturing 
facilities located within 30 miles of the community where the 
applicant's manufacturing facility is located, but may include more 
distant communities if manufacturing facilities in those communities 
depend on the same source of timber and have similar purchasing 
patterns.
    (3) The relative similarity of purchasing patterns of other mills 
shall be determined by considering the location and similarity of 
unprocessed timber being acquired by those facilities.
    (4) Lines defining the geographic area shall be based on major 
natural and cultural features, including, but not limited to, prominent 
ridge systems, main roads or highways, rivers, political subdivisions, 
and not characterized by random lines.
    (j) Comments. Persons may submit comments on sourcing area 
applications pursuant to the Rules of Practice Governing the 
Adjudication of Sourcing Area Applications and Formal Review of 
Sourcing Areas Pursuant to the Forest Resources Conservation and 
Shortage Relief Act of 1990 (16 U.S.C. 620, et seq.), found at 7 CFR 
part 1, subpart M. Persons submitting a comment must certify at the end 
of the comment, but before the signature, to the following: ``I certify 
that the information provided by me is true and accurate, to the best 
of my knowledge, and I understand that failure to provide true and 
accurate information could be violation of the False Statements Act (18 
U.S.C. 1001).''
    (k) Transporting or causing to be transported unprocessed private 
timber from outside of a sourcing area into a sourcing area by the 
holder of the sourcing area is prohibited as a violation of the 
sourcing area boundary. Such violation will cause a review of the 
sourcing area, and could subject the sourcing area holder to the 
penalties and remedies for violations of the Forest Resources 
Conservation and Shortage Relief Act of 1990, 16 U.S.C. 620, et seq., 
and its implementing regulations.
    (1) A person with an approved sourcing area may relinquish the 
sourcing area at any time provided the person certifies to the 
following:

    ``I am relinquishing the approved sourcing area, described in 
the Secretary's determination in FSAA ________ on ________, 19____. 
I understand that I may not export unprocessed timber originating 
from private lands west of the 100th meridian in the contiguous 48 
States during the fiscal year in which I have unprocessed timber 
originating from Federal lands west of the 100th meridian in the 
contiguous 48 States in my possession or under contract, pursuant to 
the prohibition against substitution in the Forest Resources 
Conservation and Shortage Relief Act of 1990 (16 U.S.C. 620, et 
seq.) (``Act'') and its implementing regulations. I also understand 
that I may not purchase unprocessed timber originating from Federal 
lands west of the 100th meridian in the contiguous 48 States within 
24 months of having exported unprocessed timber originating from 
private lands west of the 100th meridian in the contiguous 48 
States, pursuant to the prohibitions against substitution in the Act 
and its implementing regulations. I make this certification with 
full knowledge and understanding of the Act and its implementing 
regulations and do fully understand that exporting unprocessed 
timber originating from private lands west of the 100th meridian in 
the contiguous 48 States during a fiscal year in which I have 
unprocessed timber originating from Federal lands west of the 100th 
meridian in the contiguous 48 States in possession or under 
contract, or purchasing unprocessed timber originating from Federal 
lands west of the 100th meridian in the contiguous 48 States within 
24 months of having exported unprocessed timber originating from 
private lands west of the 100th meridian in the contiguous 48 States 
is a violation of the substitution provisions of the Act and the 
False Statements Act (18 U.S.C. 1001), and may subject me to the 
penalties and remedies provided for such violation.''

    The certificate must be signed by the person making such 
certification or, in the case of a corporation, by its Chief Executive 
Officer; must be on company letterhead; and must be notarized.
    (m) A sourcing area is in effect until it is relinquished by the 
sourcing area holder, or is disapproved upon review of the sourcing 
area.


Sec. 223.191  Sourcing area disapproval and review procedures.

    (a) Notwithstanding any other provision of law, an applicant whose 
sourcing area application was submitted by December 20, 1990, and was 
disapproved could either phase out of purchasing Federal timber or 
phase out of exporting unprocessed timber originating from private 
lands within the sourcing area that would have been approved, as 
follows:
    (1) Phase-out of Federal timber purchasing. The applicant could 
purchase, in the 9-month period after receiving the application 
disapproval, unprocessed timber originating from Federal lands in the 
disapproved sourcing area, in an amount not to exceed 75 percent of the 
annual average of such person's purchases of unprocessed Federal timber 
in such area during the 5 full fiscal years immediately prior to the 
date of submission of the application. In the 6-month period 
immediately following the 9-month period, such person could purchase 
not more than 25 percent of such annual average, after which time the 
prohibitions against direct substitution, set forth in Sec. 223.189 of 
this subpart, shall apply; or
    (2) Phase-out of private timber exporting. The applicant could 
continue to purchase unprocessed timber originating from Federal lands 
within the disapproved sourcing area without being subject to the 
phase-out of Federal timber purchasing procedures described in 
paragraph (a) of this section, if the following requirements were met:
    (i) The applicant certified to the Regional Forester or the 
approving official to whom such authority has been delegated, within 90 
days after receiving the disapproval decision, as follows:
    (A) An applicant that has exported unprocessed timber originating 
from private lands from the geographic area that would have been 
approved provided a signed certification that reads as follows:

    ``I have engaged in the exporting of unprocessed private timber 
originating from private lands located within the geographic area 
the approving official would have approved as a sourcing area for my 
manufacturing facility. I desire to continue purchasing unprocessed 
Federal timber from within such area. I hereby certify that I will 
cease all exporting of unprocessed timber from private lands located 
within the area that would have been approved by [the applicant 
shall insert date 15 months from date of receipt of the disapproval 
decision]. I agree to retain records of all transactions involving 
acquisition and disposition of unprocessed timber from both private 
and Federal lands within the area involved in the certification, for 
a period of three (3) years beginning on the date of receipt of the 
disapproval notification, and to make such records available for 
inspection upon the request of the Regional Forester, or other 
official to whom such authority has been delegated. I make this 
certification with full knowledge and understanding of the 
requirements of the Forest Resources Conservation and Shortage 
Relief Act of 1990 (16 U.S.C. 620, et seq.) (Act) and do fully 
understand that failure to cease such exporting as certified will be 
a violation of the Act and may subject me to the penalties and 
remedies for such violation. Further, I fully understand that such 
violation may subject me to the penalty of perjury pursuant to the 
False Statements Act (18 U.S.C. 1001). 

[[Page 46929]]
I certify that the information in this certificate is true, complete, 
and accurate to the best of my knowledge and belief.'';

or,

    (B) An applicant who has not exported unprocessed timber 
originating from private lands from the geographic area that the 
Secretary would have approved provided a signed certification that 
reads as follows:

    ``I have not exported timber originating from private lands 
within both the sourcing area that the Secretary would have approved 
and the disapproved sourcing area in the past 24 months, pursuant to 
the Forest Resources Conservation and Shortage Relief Act of 1990 
(16 U.S.C. 620, et seq.), and I am accepting the area that the 
Secretary would have approved as my sourcing area. I certify that 
the information in this certificate is true, complete, and accurate 
to the best of my knowledge and belief.''

    (ii) Each certification statement set forth in paragraph (a)(2)(i) 
of this section must have been signed by the person making such 
certification or, in the case of a corporation, by its Chief Executive 
Officer; must have been on company letterhead; must have been 
notarized; and must have had a corporate seal attached.
    (iii) The person signing such certification set forth in paragraph 
(a)(2)(i)(A) of this section must have provided to the Regional 
Forester the annual volume of timber exported by that person during the 
five (5) full fiscal years immediately preceding submission of the 
application, originating from private lands in the geographic area for 
which the application would have been approved.
    (iv) When the applicant submitted the certificate, the area the 
Secretary would have approved, as shown on the sourcing area map 
provided by the Secretary, became an approved sourcing area. If the 
certificate was not submitted, the sourcing area that would have been 
approved did not become an approved sourcing area.
    (3) The phase-out of Federal timber purchasing and the phase-out of 
private timber exporting procedures provided by paragraphs (a)(1) and 
(a)(2) of this section do not apply to persons submitting sourcing area 
applications after December 20, 1990, or to persons requesting review 
of disapproved sourcing areas.
    (b) Limits on purchases and exports. (1) During the 15-month period 
following disapproval of a sourcing area, a person who elects to phase-
out of private timber exporting as described in paragraph (a)(2) of 
this section, may not:
    (i) Purchase more than 125 percent of the person's annual average 
purchases of unprocessed timber originating from Federal lands within 
the person's disapproved sourcing area during the five (5) full fiscal 
years immediately prior to submission of the application; and,
    (ii) Export unprocessed timber originating from private lands in 
the geographic area determined by the approving official for which the 
application would have been approved, in amounts that exceed 125 
percent of the annual average of that person's exports of unprocessed 
timber from such private land during the five (5) full years 
immediately prior to submission of the application.
    (2) At the conclusion of the 15-month export phase-out period, the 
prohibition against exporting private timber originating from within 
the area shall be in full force and effect as long as the sourcing area 
remains approved, pursuant to this subpart F of this part 223.
    (c) Presentation of map to applicant whose sourcing area is 
disapproved. The area determined by the deciding official that would 
have been approved shall be drawn on a map and presented to the 
applicant by the deciding official with the notice of disapproval of 
the application.
    (d) Effect of prior certification to cease exporting. An 
applicant's previous certification to cease exporting beginning 
February 20, 1991, for a period of three (3) years from within the 
disapproved sourcing area pursuant to paragraphs (f) and (g) in 
Sec. 223.189 of this subpart shall remain in full force and effect for 
persons with approved and disapproved sourcing areas.
    (e) Review process and frequency. (1) Approved sourcing areas shall 
be reviewed not less often than every five (5) years. A tentative date 
for a review shall be included in the Administrative Law Judge's, or, 
on appeal, the Judicial Officer's determination or stated in writing by 
the Regional Forester following the determination. At least 60 days 
prior to the tentative review date, the Regional Forester or other such 
reviewing official shall notify the person holding the sourcing area of 
the pending review, publish notice of such review in newspapers of 
general circulation within the sourcing area, and invite comments, to 
be received no later than 30 days from the date of the notice, from all 
interested persons, including the person holding the sourcing area. For 
10 working days following the comment period, any person submitting a 
written comment and the person with the sourcing area may review the 
comments. If there is disagreement among the persons who submitted 
written comments regarding the proper sourcing area, the reviewing 
official shall convene an informal meeting convenient to the persons 
that all interested persons may attend. If an agreement cannot be 
reached among the persons, formal administrative adjudication shall 
occur. The Administrative Law Judge, or, on appeal, the Judicial 
Officer shall, on the record and after opportunity for a hearing, 
approve or disapprove the sourcing area being reviewed, pursuant to the 
Rules of Practice Governing the Adjudication of Sourcing Area 
Applications and Formal Review of Sourcing Areas Pursuant to the Forest 
Resources Conservation and Shortage Relief Act of 1990 (16 U.S.C. 620, 
et seq.), found at 7 CFR part 1, subpart M.
    (2) Disapproved sourcing areas shall be reviewed using the process 
described in paragraph (e)(1) of this section upon resubmission of an 
application, provided the applicant has accepted the area the Secretary 
would have approved as a sourcing area pursuant to paragraph (a)(2) of 
this section.
    (3) The Department reserves the right to schedule a review, at the 
request of the Forest Service or the person holding the sourcing area, 
at any time prior to the scheduled tentative review date, with 60 days 
notice.
    (4) Sourcing areas being reviewed shall continue in full force and 
effect pending the final review determination.
    (f) Reporting and record keeping procedures. The reporting and 
record keeping procedures in this section constitute information 
collection requirements as defined in 5 CFR part 1320. These 
requirements have been approved by the Office of Management and Budget 
and assigned clearance number 0596-0115.


Sec. 223.192  Procedures for a non-manufacturer.

    (a) Persons who do not own or operate a manufacturing facility 
(non-manufacturer) are not eligible to apply for or be granted a 
sourcing area.
    (b) The prohibition against the purchase of Federal timber for a 
person who has exported unprocessed timber originating from private 
lands within the preceding 24-month period shall not apply, if the 
person certified in writing to the Regional Forester of the region(s) 
in which the person purchases National Forest System timber by November 
20, 1990, that the person would cease exporting unprocessed timber 
originating from private lands by February 20, 1991, for a period of 
three (3) years, and the exporting did cease in accordance with such 
certification.

[[Page 46930]]

    (c) To obtain an exemption from the prohibition against export 
within the preceding 24-month period for purchasing Federal timber 
described in Sec. 223.189 (a) and (b) of this subpart, a person must 
have applied in writing to the applicable Regional Forester on or 
before November 20, 1990. The application was required to be on company 
letterhead and, in the case of a corporation, with its corporate seal 
affixed, and must have included:
    (1) An agreement to retain records of all transactions involving 
acquisition and disposition of unprocessed timber from both private and 
Federal lands within the area(s) involved in the certification, for a 
period of three (3) years beginning November 20, 1990, and to make such 
records available for inspection upon the request of the Regional 
Forester, or other official to whom such authority has been delegated.
    (2) A signed certification which reads as follows:

    ``I have engaged in the exporting of unprocessed timber 
originating from private lands located west of the 100th meridian in 
the contiguous 48 States during the preceding 24 months. I desire to 
purchase directly from a department or agency of the United States, 
unprocessed timber originating from Federal lands located in such 
area of the United States. I make this certification for the 
exemption from the prohibition against export within the preceding 
24-month period for purchasing Federal timber required by the Forest 
Resources Conservation and Shortage Relief Act of 1990 (Pub. L. No. 
101-382, August 20, 1990, 16 U.S.C. 620, et seq.) (Act). I hereby 
certify that I will cease all exporting of such unprocessed private 
timber from west of the 100th meridian in the contiguous 48 States 
of the United States by February 20, 1991. I make this certification 
with full knowledge and understanding of the requirements of this 
Act and do fully understand that failure to cease such exporting as 
certified will be a violation of this Act (16 U.S.C. 620d) and the 
False Statements Act (18 U.S.C. 1001), and may subject me to the 
penalties and remedies provided for such violation.''

    (3) The certification must have been signed by the person making 
such certification or, in the case of a corporation, by its Chief 
Executive Officer. The certificate must have been notarized.


Sec. 223.193  Procedures for reporting acquisition and disposition of 
unprocessed Federal timber.

    (a) Annual report. Each person who directly or indirectly acquires 
or possesses unprocessed timber originating from National Forest System 
lands located west of the 100th meridian in the 48 contiguous States 
shall submit an annual report on a form provided by the Forest Service 
on the acquisition and disposition of such timber. Such report shall be 
on a calendar year basis and shall be sent to the Regional Forester, or 
other official to whom such authority is delegated, who administers the 
National Forest System lands from which the majority of timber 
originated, not later than March 1 of each year, beginning March 1, 
1997. The form shall include:
    (1) A summary for the calendar year listing, by company, from whom 
the timber was acquired; the date of acquisition; the origin of 
National Forest System timber acquired; the sale name; the contract 
number(s); brand registration number(s) of brands registered by a state 
or agency or a pictorial representation of sale brand(s) if brands not 
registered by a state or agency; to whom the timber was sold, 
transferred or otherwise conveyed to another person; and the date of 
disposal;
    (2) An accounting by origin, in net board feet Scribner or cubic 
feet, of the volume of National Forest System timber acquired, the 
volume domestically processed by the purchaser or affiliates, and the 
volume sold or transferred for domestic processing;
    (3) The volume by species of National Forest System surplus species 
timber acquired and exported or sold for export;
    (4) The volume (MBF Net Scribner or cubic) of the unprocessed 
timber originating from private lands west of the 100th meridian in the 
contiguous 48 States that was exported, and
    (5) A certificate stating that:
    (i) The certifier has read and understands the form;
    (ii) The certifier is eligible to acquire unprocessed timber 
originating from Federal lands in accordance with the Act;
    (iii) The information supplied is a true, accurate, current, and 
complete statement of the receipt and disposition of unprocessed timber 
originating from National Forest System lands to the best of the 
certifier's knowledge;
    (iv) The certifier agrees to retain a copy of the form and records 
of all transactions involving unprocessed Federal timber and to make 
such records available for inspection upon request of an authorized 
official of the United States for three (3) years from the date of 
disposal by manufacture or transfer; and
    (v) The certifier acknowledges that failure to report completely 
and accurately the receipt and disposition of timber will subject the 
certifier to the penalties and remedies in the Act and the penalties in 
the False Statements Act (18 U.S.C. 1001).
    (6) The information provided is presumed to be not confidential, 
unless specifically marked confidential, in which case confidentiality 
will be evaluated under applicable laws.
    (b) Transfer of unprocessed National Forest System timber. Each 
person who transfers to another person unprocessed timber originating 
from National Forest System lands shall undertake the following:
    (1) Before completing such transfer, provide to such other person a 
written notice of origin, species, estimated volume or actual volume if 
the transfer is based on log scale volume, from whom acquired, sale 
name, contract number, and log brand of unprocessed National Forest 
System timber being transferred on a form provided by the Forest 
Service;
    (2) Before completing such transfer, certify that the information 
supplied is a true, accurate, current, and complete statement to the 
best of his or her knowledge. As part of the certification, the 
certifier shall:
    (i) Agree to send a signed copy of the form required in paragraph 
(b)(1) of this section within 10 calendar days of such transfer, which 
shall include all notices, acknowledgments, and agreements, required by 
this section, to the appropriate Regional Forester who administers the 
National Forest System lands from which this timber originates, or 
other official to whom such authority is delegated, and to retain a 
copy for the certifier's records;
    (ii) Acknowledge that the transfer of unprocessed Federal timber to 
a person for export or to a person who may not purchase timber directly 
from the Federal government is a violation of the Act;
    (iii) Agree to obtain full completed notice of origin form from the 
transferee;
    (iv) Agree to retain records of all transactions involving 
unprocessed Federal timber for a period of three (3) years from the 
date of transfer and to make all records involving log transactions 
available to an appropriate Federal official upon request. Records 
include all forms and certificates required by these regulations;
    (v) Acknowledge that failure to report completely and accurately 
the receipt and disposition and/or transfer of unprocessed National 
Forest System timber will subject the certifier to the penalties and 
remedies in the Act (16 U.S.C. 620, et seq.) and the penalties in the 
False Statements Act (18 U.S.C. 1001); and
    (vi) Certify that he or she has read and understands the form.
    (3) Before completing such transfer, obtain from the person 
acquiring such 

[[Page 46931]]
timber on the same form provided by the Forest Service.
    (i) An agreement to retain for a period of three (3) years from 
date of transfer the records of all sales, exchanges, or other 
disposition of such timber, and make such records available for 
inspection upon the request of an authorized official of the United 
States;
    (ii) An agreement to allow Federal officials access to log storage 
and processing facilities for the purpose of monitoring compliance with 
the Act and implementing regulations;
    (iii) An agreement to maintain and/or replace all brands and paint 
identifying the Federal origin of each piece of unprocessed Federal 
timber as described in Sec. 223.195;
    (iv) An agreement to submit, by March 1, the annual report required 
in Sec. 223.193(a);
    (v) An agreement to submit a completed notice of origin form for 
the Federal timber received and to receive an agreement to comply with 
the Act and regulations in such form if the person transfers any or all 
of the timber listed in the document;
    (vi) An acknowledgment of the prohibition against acquiring 
unprocessed Federal timber from a person who is prohibited by the Act 
from purchasing the timber directly from the United States;
    (vii) An acknowledgment of the prohibitions against exporting 
unprocessed Federal timber and against acquiring such timber in 
substitution for unprocessed private timber west of the 100th meridian 
in the contiguous 48 States;
    (viii) A declaration of its business size and manufacturing 
classification, as defined under the Small Business Administration 
Regulations at 13 CFR part 121; and
    (ix) A certificate stating that the certifier has read and 
understands the form; is eligible to acquire unprocessed timber 
originating from Federal lands in accordance with the Act; has been 
notified that some or all of the unprocessed timber included in this 
transfer is subject to export and substitution restrictions; supplied 
information is a true, accurate, current, and complete statement of the 
receipt and disposition of the unprocessed timber originating from 
National Forest System lands to the best of the certifier's knowledge; 
and acknowledges that failure to report completely and accurately the 
transfer of unprocessed Federal timber will subject the certifier to 
the penalties and remedies in the Act (16 U.S.C. 620, et seq.) and the 
penalties in the False Statements Act (18 U.S.C. 1001). The information 
provided is presumed to be not confidential, unless specifically marked 
confidential, in which case confidentiality will be evaluated under 
applicable laws.
    (4) Except as otherwise provided by law, a person who transfers 
unprocessed Federal timber to another person and meets all notice, 
certification, acknowledgment, reporting and record keeping 
requirements contained in this section shall be relieved from further 
liability for such timber pursuant to the Act.


Sec. 223.194  Procedures for reporting the acquisition and disposition 
of unprocessed private timber.

    (a) Notice of domestic processing requirement. Each person who 
acquires unprocessed timber originating from Federal lands located west 
of the 100th meridian in the 48 contiguous States, and who also 
possesses or acquires unprocessed timber from private lands located 
west of the 100th meridian in the 48 contiguous States that requires 
domestic processing, including unprocessed timber originating within an 
approved sourcing area, and in turn sells, trades or otherwise conveys 
such unprocessed private timber to another person, must include a 
statement notifying the person acquiring the unprocessed private timber 
that such private timber must be domestically processed. Unprocessed 
timber originating from private lands located outside of a sourcing 
area may be transferred by the holder of the sourcing area, or by 
persons acquiring such unprocessed timber who are eligible to export 
such timber, without including such a statement.
    (b) The notification statement, pursuant to paragraph (a) of this 
section, shall accompany each transaction involving unprocessed private 
timber that requires domestic processing. The statement shall be on a 
form provided by the Forest Service or a legible copy of such form.
    (1) On such form, described in paragraph (b) of this section, the 
person transferring the timber shall:
    (i) Give notice to the person receiving the unprocessed private 
timber that exporting that timber would violate the Act and its 
implementing regulations;
    (ii) Give notice to the person receiving the unprocessed private 
timber that the timber has been identified for domestic manufacturing 
by a spot of highway yellow paint on each log end that must be retained 
on the timber;
    (iii) Agree to send a signed copy of the transaction statement to 
the Regional Forester within 10 calendar days of the transaction;
    (iv) Agree to retain records of all transactions involving the 
acquisition and disposition of unprocessed timber for a period of three 
(3) years from the date of disposal by manufacturing or transfer and to 
make such records available for inspection upon the request of an 
authorized official of the United States;
    (v) Acknowledge that failure to completely and accurately report 
and identify unprocessed timber is a violation of the Act, and 
regulations issued under the Act, and the False Statements Act (18 
U.S.C. 1001); and
    (vi) Certify that the form has been read and understood.
    (2) On such form, described in paragraph (b), the person acquiring 
the timber shall:
    (i) Acknowledge receipt of the notice of requirement to 
domestically process timber originating from private land;
    (ii) Certify that a statement pursuant to paragraph (b)(1) will be 
included in any subsequent transaction documents;
    (iii) Agree to maintain yellow paint markings on each log end until 
the timber is domestically processed or transferred;
    (iv) Agree to retain records of all transactions involving the 
acquisition and disposition of unprocessed timber for a period of three 
(3) years from the date of disposal by manufacturing or transfer and to 
make such records available for inspection upon the request of an 
authorized official of the United States;
    (v) Agree to send a signed copy of the transaction statement to the 
Regional Forester within 10 calendar days of the transaction;
    (vi) Agree to allow authorized officials access to log storage and 
processing facilities for the purpose of monitoring compliance with the 
Act and its implementing regulations;
    (vii) Acknowledge that failure to comply with the domestic 
manufacturing requirements for unprocessed timber or failure to notify 
subsequent persons of this requirement may subject the certifier to the 
civil penalties and administrative remedies provided in the Act and 
regulations issued under the Act;
    (viii) Acknowledge that failure to completely and accurately report 
and identify unprocessed timber is a violation of the Act, and 
regulations issued under the Act, and the False Statements Act (18 
U.S.C. 1001); and
    (ix) Certify that the form has been read and understood.
    (c) Except as otherwise provided by law, a person who transfers 
unprocessed private timber to another person and meets all notice, 
certification, 

[[Page 46932]]
acknowledgement, distribution, reporting and record keeping 
requirements contained in this section shall be relieved from further 
liability for such timber with regard to the export and substitution 
restrictions pursuant to the Act.


Sec. 223.195  Procedures for identifying and marking unprocessed 
timber.

    (a) Highway yellow paint. The use of highway yellow paint on 
unprocessed logs west of the 100th meridian in the contiguous 48 States 
shall be reserved for identifying logs requiring domestic 
manufacturing.
    (b) Preserving identification. All identifying marks placed on an 
unprocessed log to identify the National Forest System origin of that 
log and/or to identify the log as requiring domestic processing shall 
be retained on the log until the log is domestically processed. If the 
identifying marks are lost, removed, or become unreadable, they shall 
be replaced. If the log is cut into two or more segments, each segment 
shall be identified in the same manner as the original log.
    (1) A generic log hammer brand, known as a ``catch brand'', used to 
identify ownership, may be used to replace lost, removed, unreadable or 
otherwise missing brands where such use is authorized by the Regional 
Forester and approved by the Contracting Officer. Use of such a catch 
brand on a log or log segment will signify Federal origin.
    (2) The requirement to preserve identification of log pieces shall 
not apply to logs cut into two or more segments as a part of the mill 
in-feed process immediately before processing. Log segments that are 
returned to or placed in storage must be marked on both ends with 
yellow paint.
    (c) National Forest System logs. Except as otherwise provided in 
this subsection, all unprocessed logs originating from National Forest 
System timber sales west of the 100th meridian in the contiguous 48 
States shall, before being removed from the timber sale area, be marked 
on each end as follows:
    (1) Painted on each end with a spot of highway yellow paint not 
less than three square inches in size; and,
    (2) Branded on each end with a hammer brand approved for use by the 
Forest Supervisor of the National Forest from which the logs originate. 
The brand pattern may not be used to mark logs from any other source 
for a period of 24 months after all logs have been removed from the 
sale area and until such brand pattern is released in writing by the 
Forest Supervisor.
    (d) Private logs. All unprocessed logs originating from private 
lands west of the 100th meridian in the contiguous 48 States that 
require domestic manufacturing pursuant to Sec. 223.194 of this 
subpart, shall be painted on each end with a spot of highway yellow 
paint not less than three (3) square inches in size before removal from 
the harvest area. If private logs are acquired by a person who may not 
export such logs, the logs must be marked by the person acquiring the 
logs at the time of the acquisition.
    (e) Waiver of painting requirements. The log painting requirements 
pursuant to paragraphs (c)(1) and (d) of this section may be waived if 
the Chief of the Forest Service determines that alternate methods for 
identifying logs required to be domestically processed are equal to or 
better than the procedures required herein.
    (f) Waiver of branding requirements. Regional Foresters may waive 
the branding requirements pursuant to paragraph (c)(2) of this section 
as follows:
    (1) Regions 1, 2, 3, and 4. On an individual timber sale basis, all 
or a portion of the branding requirements pursuant to paragraph (c)(2) 
of this section may be waived, if:
    (i) Unprocessed logs from any origin are not known to have been 
exported by any person from the person's area of operations within the 
previous 5; years.
    (ii) The person certifies as follows:

    ``I hereby request waiver of the requirements to brand each end 
of individual logs originating from the ________ timber sale, Forest 
Service contract number ________ pursuant to 36 CFR 223.195. I 
certify that I have not exported or sold for export unprocessed 
timber from private lands within my area of operations in five 
years. I certify that I understand, that if granted, the waiver 
applies only to unprocessed logs being processed within my area of 
operations. I certify that any unprocessed logs to which this waiver 
applies that are transferred, or sold for transfer, outside my area 
of operations will be branded on both ends in full compliance with 
36 CFR 223.195. I make this certification with full knowledge and 
understanding of the requirement of the Forest Resources 
Conservation and Shortage Relief Act of 1990 (16 U.S.C. 620, et 
seq.) (Act) and its implementing regulations at 36 CFR part 223. I 
fully understand that failure to abide by the terms of the waiver 
will be a violation of this Act (16 U.S.C. 620, et seq.) and the 
False Statements Act (18 U.S.C. 1001) and may subject me to the 
penalties and remedies provided for such violation.'' ;

and,

    (iii) The person otherwise complies with the regulations relating 
to transfers of logs between persons.
    (iv) If the Regional Forester determines that unprocessed logs from 
my origin are being exported, or are known to have been exported within 
the previous 5 years, by any person from the person's area of 
operations, the Regional Forester shall revoke the waiver.
    (2) Regions 5 and 6. On an individual timber sale basis, the 
branding requirement pursuant to paragraph (c)(2) of this section may 
be waived for logs ten (10) inches or less in diameter inside bark on 
the large end may be waived if:
    (i) One end of each log is branded;
    (ii) The person certifies as follows:

    ``I hereby request waiver of the requirement to brand each end 
of individual logs ten (10) inches or less in diameter inside bark 
on the large end, originating from the ________ timber sale, U.S. 
contract number ________ pursuant to 36 CFR 223.195. I certify that 
I understand, if granted, that the waiver applies only to 
unprocessed logs being processed at ________, and further certify 
that any and all unprocessed logs to which waiver would apply that 
are transferred, or sold for transfer, will be branded on both ends 
in full compliance 36 CFR 223.195. I make this certification with 
full knowledge and understanding of the requirements of the Forest 
Resources Conservation and Shortage Relief Act of 1990 (Pub. L. No. 
101-382, August 20, 1990; 16 U.S.C. 620, et seq.) (Act) and its 
implementing regulations at 36 CFR Part 223. I fully understand that 
failure to abide by the terms of the waiver will be a violation of 
this Act (16 U.S.C. 620, et seq.) and the False Statements Act (18 
U.S.C. 1001) and may subject me to the penalties and remedies 
provided for such violation.'';

and,

    (iii) The purchaser otherwise complies with the regulations 
relating to transfers of logs between persons.
    (iv) If the Regional Forester determines that logs ten (10) inches 
or less in diameter inside bark on the large end are being exported in 
the Region, the Regional Forester shall revoke the waiver.
    (3) The Chief of the Forest Service may authorize the testing of 
alternative methods of branding for consideration in future amendment 
of these regulations. Such alternative methods and logs marked under 
those methods shall be closely monitored.


Sec. 223.196  Civil penalties for violation

    (a) Exporting Federal timber. If the Secretary of Agriculture 
finds, on the record and after providing an opportunity for a hearing, 
that a person, with willful disregard for the prohibition in the Act 
exporting unprocessed Federal timber, exported or caused to be exported 
unprocessed timber originating from Federal lands in 

[[Page 46933]]
violation of the Act, the Secretary may assess against such person a 
civil penalty of not more than $500,000 for each violation, or 3 times 
the gross value of the unprocessed timber involved in the violation, 
whichever amount is greater.
    (b) Other violations. If the Secretary of Agriculture finds, on the 
record and after providing an opportunity for a hearing, that a person 
has violated any provision of the Act, or any regulation issued under 
the Act relating to National Forest System lands, even though that the 
violation may not have caused the export of unprocessed Federal timber 
in violation of such Act, the Secretary may:
    (1) Assess against such person a civil penalty of not more than 
$500,000, if the Secretary determines that the person committed such 
violation willfully;
    (2) Assess against such person a civil penalty of not more than 
$75,000 for each violation, if the Secretary determines that the person 
committeed such violation in disregard of such provision or regulation; 
or
    (3) Assess against such person a civil penalty of not more than 
$50,000 for each violation, if the Secretary determines that the person 
should have known that the action constituted a violation.
    (c) Penalties not exclusive and judicial review. A penalty assessed 
under paragraph (a) or (b) of this section shall not be exclusive of 
any other penalty provided by law, and shall be subject to review in an 
appropriate United States district court.


Sec. 223.197  Civil penalty assessment procedures.

    Adjudicatory procedures for hearing alleged violations of this Act 
and its implementing regulations and assessing penalties shall be 
conducted under the rules of practice governing formal adjudicatory 
proceedings instituted by the Secretary. Such procedures are found at 7 
CFR 1.130, et seq.


Sec. 223.198  Administrative remedies.

    In addition to possible debarment action provided under subpart C 
of this part, the Chief of the Forest Service, or other official to 
whom such authority is delegated, may cancel any timber sale contract 
entered into with a person found to have violated the Act or 
regulations issued under the Act. Such a finding shall constitute a 
serious violation of contract terms pursuant to Sec. 223.116(a)(1) of 
this part.


Sec. 223.199  Procedures for cooperating with other agencies.

    The Regional Foresters may enter into agreements to cooperate with 
the Department of the Interior, the Department of Defense, and other 
Federal, State and local agencies for monitoring, surveillance and 
enforcing the Act.


Sec. 223.200  Determinations of surplus species.

    (a) Determinations that specific quantities of grades and species 
are surplus to domestic manufacturing needs and withdrawals of such 
determinations shall be made in accordance with title 5, United States 
Code, section 553.
    (b) Review of a determination shall be made at least once in every 
3-year period. Notice of such review shall be published in the Federal 
Register. The public shall have no less than 30 days to submit comments 
on the review.
    (c) Alaska yellow cedar and Port Orford cedar, which the Secretary 
of Agriculture found to be surplus to domestic processing needs 
pursuant to 36 CFR 223.163, the rules in effect before August 20, 1990, 
shall continue in that status until new determinations are published.


 Sec. 223.201  Limitations on unprocessed timber harvested in Alaska.

    Unprocessed timber from National Forest System lands in Alaska may 
not be exported from the United States or shipped to other States 
without prior approval of the Regional Forester. This requirement is 
necessary to ensure the development and continued existence of adequate 
wood processing capacity in Alaska for the sustained utilization of 
timber from the National Forests which are geographically isolated from 
other processing facilities. In determining whether consent will be 
given for the export of timber, consideration will be given to, among 
other things, whether such export will:
    (a) Permit more complete utilization on areas being logged 
primarily for local manufacture,
    (b) Prevent loss or serious deterioration of logs unsalable locally 
because of an unforeseen loss of market,
    (c) Permit the salvage of timber damaged by wind, insects, fire or 
other catastrophe,
    (d) Bring into use a minor species of little importance to local 
industrial development, or
    (e) Provide material required to meet urgent and unusual needs of 
the Nation. (16 U.S.C. 472a; 16 U.S.C. 551; 16 U.S.C. 616)


Sec. 223.202  Information requirements.

    (a) The procedures in Sec. Sec. 223.189 and 223.192, and some of 
the procedures in Sec. 223.190 were approved by the Office of 
Management and Budget (OMB) and assigned Control Number 0596-0114 upon 
issuance of the interim rule. Control Number 0596-0114 has been 
reapproved by OMB for use through May 31, 1997. OMB approved the 
information collection requirements in Sec. Sec. 223.191 and 223.203 
for use through August 31, 1995, and assigned them Control Number 0596-
0115. OMB approved the information collection requirements in 
Sec. Sec. 223.48 and 223.87 for use through March 31, 1997 and assigned 
them Control Number 0596-0021; the information collection requirements 
in Sec. Sec. 223.48 and 223.87 have been revised. OMB Control Numbers 
0596-0114, 0596-0115, and 0596-0021 have been consolidated under OMB 
Control Number 0596-0114.
    (b) The application and reporting procedures in Sec. Sec. 223.187, 
223.193, 223.194, 223.195, and some of the procedures in Sec. 223.190 
of this final rule contain new record keeping and reporting 
requirements as defined in 5 CFR part 1320 and, therefore, impose 
additional paperwork burdens on the affected public. The Office of 
Management and Budget (OMB) has approved these requirements, and 
assigned them Control Number 0596-0114.
Sec. 223.203  Indirect substitution exception for National Forest 
System timber from within Washington State.

    (a) Exception limits. A limited amount of unprocessed National 
Forest System timber originating from within Washington State could 
have been acquired by a person otherwise covered by the prohibition 
against indirect substitution, pursuant to Sec. 490(b) of the Act and 
Sec. 223.189(e) of this subpart.
    (1) The amount of such unprocessed timber was limited to whichever 
is less:
    (i) The higher of the applicant's actual purchase receipts for 
unprocessed timber originating from National Forest System lands within 
Washington State or the Department's records, during fiscal years 1988, 
1989, and 1990, divided by 3; or
    (ii) 15 million board feet.
    (2) Such limit shall not exceed such person's proportionate share 
of 50 million board feet.
    (b) Application, review and approval process. To obtain a share of 
the 50 million board feet exempted from the prohibition against 
indirect substitution in section 490(b) of the Act, a person must have 
submitted an application. Applications were required to include at 
least the following:
    (1) The amount of volume exception being requested, in thousand 
board feet (MBF);

[[Page 46934]]

    (2) A signed certification that reads as follows:

    ``I certify that, except for an approved share of unprocessed 
Federal timber, in accordance with 36 CFR 223.203, the prohibition 
contained in section 490(b) of the Act (16 U.S.C. 620b) applies to 
me. I have exported unprocessed timber originating from private 
lands from west of the 100th meridian in the 48 contiguous States 
and have acquired unprocessed timber from National Forest System 
lands located within Washington State in 1988, 1989 and/or 1990. I 
certify that the information provided in support of this application 
is a true, accurate, current and complete statement, to the best of 
my knowledge and belief. I agree to retain records of all 
transactions involving the acquisition and disposition of 
unprocessed timber from Federal lands within the area involved in 
this application for a period of 3 years beginning on the date the 
application is approved, and to make such records available for 
inspection upon the request of the Regional Forester or other 
official to whom such authority has been delegated. I make this 
certification with full knowledge and understanding of the 
requirements of the Act and do fully understand that if this 
application is approved, the amount of exception granted under this 
approval may not be exceeded in any one fiscal year, and do fully 
understand that if such exception is exceeded I will be in violation 
of the Act (16 U.S.C. 620, et seq.), and I may be subject to the 
penalties and remedies provided for such violation. Further, I do 
fully understand that such violation may subject me to the penalty 
of perjury pursuant to the False Statements Act (18 U.S.C. 1001).'';

and

    (3) The application listed under this section must have been signed 
by the person making such application or, in the case of a corporation, 
by its Chief Executive Officer. The application must have been on the 
company's letterhead and must have been notarized.
    (4) The application made under this section must have been mailed 
to the Regional Forester in Portland, Oregon, no later than January 8, 
1992. Applicants were notified of the approving official's decision by 
letter. If approved, the amount of the exception becomes effective upon 
publication in the Federal Register.
    (5) Prospective applicants could review Department records upon 
request prior to the deadline for submitting applications. An applicant 
could voluntarily submit information documenting the amount of 
purchases of unprocessed timber originating from National Forest System 
lands within Washington State. The Department then determined which 
amount is higher, verified by either the Department's records or the 
applicant's records. The Department then determined the applicant's 
portion of the 50 million board feet by determining the lesser of the 
amount verified by the records or 15 million board feet. Applicants 
could submit the information documenting the amount of purchases in the 
following manner:
    (i) Actual receipts for purchasing unprocessed timber from National 
Forest System lands within Washington State; or
    (ii) A statement by a certified public accountant of:
    (A) A summary by fiscal year for 1988, 1989 and 1990 of the 
applicant's acquisitions of timber originating from National Forest 
System lands in the State of Washington, listing total volume for each 
of the three fiscal years; and
    (B) The average volume for the three fiscal years. The volumes to 
be reported were the harvest volumes, except in the case of open sales. 
Advertised volumes had to be reported for open sales.
    (C) The certified public accountant must have certified to the 
following:

    ``I certify that under the penalties and remedies provided in 
Sec. 492 of the Act (16 U.S.C. 620d) and the penalty of perjury 
provided in the False Statements Act (18 U.S.C. 1001) that the 
information provided in support of this application is, to the best 
of my knowledge and belief, a true, accurate, current, and complete 
statement of [applicant's company's name] National Forest System 
timber acquisitions originating from within the State of Washington 
for fiscal years 1988, 1989 and/or 1990.''

    (D) The certified public accountant's statement and certification 
must have been on the accountant's company letterhead, must have been 
notarized, and must have accompanied the applicant's application.
    (c) Selling and trading rights. The purchase limit right obtained 
under this rule may be sold, traded, or otherwise exchanged with any 
other person subject to the following conditions:
    (1) Such rights may not be sold, traded, or otherwise exchanged to 
persons already in possession of such rights:
    (2) Any person selling, trading, or exchanging any or all of the 
rights obtained under this rule shall advise the Regional Forester of 
the amount being traded and the name(s) of the person(s) acquiring such 
rights within 15 days of the transaction; and
    (3) No person may have or acquire more than 15 million board feet 
in one fiscal year.
    (d) Information collection. The application procedures in this 
section constitute information collection requirements as defined in 5 
CFR part 1320. These requirements have been approved by the Office of 
Management and Budget and assigned clearance number 0596-0114.
    (e) Persons with approved shares. The application period for shares 
of the indirect substitution exception for acquiring unprocessed timber 
originating from National Forest Systems lands within the State of 
Washington closed on January 8, 1992. Persons with approved shares are 
responsible for monitoring and controlling their acquisitions of 
National Forest System timber originating from within the State of 
Washington to assure approved share amounts are not exceeded in any 
Federal fiscal year. Unused portions of annual shares may not be 
``banked'' for use in future fiscal years. The acquisition of such 
National Forest System timber must be reported to the Forest Service in 
accordance with Sec. 223.193 of this subpart. The following shares are 
approved as of September 8, 1995:
    (1) Cavenham Forest Industries, Portland, OR, 1,048,000 board feet.
    (2) Weyerhauser, Tacoma, WA, 15,000,000 board feet.

PART 261--PROHIBITIONS

    13. The authority citation for part 261 is revised to read as 
follows:
    Authority: 16 U.S.C. 551; 16 U.S.C. 472; 7 U.S.C. 1011(f); 16 
U.S.C. 1246(i); 16 U.S.C. 1133(C)-(d)(1); 16 U.S.C. 620(f).

Subpart A--General Prohibitions

    14. Amend Sec. 261.6 by adding paragraph (i) to read as follows:


Sec. 261.6  Timber and other forest products.

* * * * *
    (i) Violating the Forest Resources Conservation and Shortage Relief 
Act of 1990 (16 U.S.C. 620, et seq.), or its implementing regulations 
at 36 CFR 223.185-223.203.
* * * * *
    Dated: August 28, 1995.
James R. Lyons,
Under Secretary, Natural Resources and Environment.
[FR Doc. 95-21912 Filed 9-7-95; 8:45 am]
BILLING CODE 3410-11-M