[Federal Register Volume 61, Number 204 (Monday, October 21, 1996)]
[Proposed Rules]
[Pages 54589-54593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26755]
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DEPARTMENT OF AGRICULTURE
Forest Service
36 CFR Part 223
RIN 0596-AB41
Sale and Disposal of National Forest Timber; Indices To Determine
Market-Related Contract Term Additions
AGENCY: Forest Service, USDA.
ACTION: Proposed rule; request for comments.
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SUMMARY: The Forest Service proposes to amend current regulations to
require the use of Industry Series Producer Price Indices from the
Bureau of Labor Statistics, rather than the currently required indices
in the Commodity Series. Use of a different Producer Price Index series
requires a change in procedures for determining when market-related
contract term additions are needed. In addition to changing the index
series, the proposed rule makes technical changes including: Applying
the indices on a sale-by-sale basis, based on species and product,
rather than a National Forest basis; precluding market-related contract
term additions on contracts for sales with a primary objective of
harvesting damaged, dead, or dying timber and contracts with provisions
for stumpage rate adjustment; and minor changes to clarify or simplify
procedures for applying the indices. The intended effect is to grant
timber sale contract term additions based on more representative market
criteria.
DATES: Comments must be received in writing by November 20, 1996.
ADDRESSES: Send written comments to Director, Timber Management Staff
(2400), Forest Service, USDA, P.O. Box 96090, Washington, DC 20090-
6090.
The public may inspect comments received on this proposed rule in
the office of the Director, Timber Management Staff, Forest Service,
USDA, Wing 3NW, Auditor's Building, 201 14th Street, S.W., Washington,
DC 20250, between the hours of 8:30 a.m. and 4:30 p.m. Those wishing to
inspect 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: .
Background
On December 7, 1990, the Forest Service published a final rule (55
FR
[[Page 54590]]
50643) to establish procedures at 36 CFR Sec. 223.52 for extending
contract termination dates to prevent contract default or severe
financial loss to the purchaser in response to adverse conditions in
the timber markets. Experience has indicated that the market declines
that would cause a market-related contract term addition generally
coincide with substantial economic dislocation in the wood products
industry. Such economic distress broadly affects community stability,
the ability of the wood products industry to supply construction lumber
and other wood products from domestic sources, and threatens the
existence of wood manufacturing plants needed to meet future demands
for wood products. Accordingly, the 1990 rule provides that if there is
a drastic decline in wood product prices sufficient to trigger the
market-related contract term addition, there would be a corollary
substantial overriding public interest to extend the term of existing
timber sale contracts, as required by the National Forest Management
Act of 1976 (16 U.S.C. 472a(c)) and existing regulations at 36 CFR
223.115(b).
The 1990 rule requires the use of various wood product Producer
Price Indices, prepared by the Department of Labor, Bureau of Labor
Statistics, to determine whether a drastic reduction in wood product
prices has occurred. Since adoption of the rule, a drastic reduction
occurred for Douglas-fir, Dressed Index, during the first quarter of
1991 and, most recently, in the second quarter of 1995. As a result,
the Forest Service notified purchasers and, upon the purchasers'
written request, added an additional year to timber sale contract terms
for qualifying contracts.
Appearing before the House Appropriations Subcommittee on Interior
and Related Agencies, on April 28, 1992 (Testimony Report number, T-
RCED-92-58), the General Accounting Office (GAO) testified that the
Forest Service's timber sale contract extension rule was inconsistent
with the way other governmental agencies have addressed the impact of
declining markets on timber purchasers. GAO also testified that, in
implementing the regulation in 1991, the Forest Service used a formula
with inappropriate data to reach a determination that prices for wood
products from the Pacific Northwest had drastically declined.
Specifically, GAO testified that the Forest Service used a formula
developed with data that were not adjusted to account for seasonal
fluctuations. GAO noted that if the Forest Service had used the Bureau
of Labor Statistics' seasonally adjusted data, the formula would not
have indicated a drastic price reduction and would not have triggered
contract extensions on the west side of the Pacific Northwest.
GAO further testified that the Bureau of Labor Statistics advises
use of seasonally adjusted data which are designed to eliminate the
effects of normal market fluctuations that occur at about the same
time, and in about the same magnitude, each year, such as price
movements resulting from normal weather patterns and regular production
and marketing cycles. GAO recommended that the Secretary of Agriculture
direct the Chief of the Forest Service to: (1) stop using the Bureau of
Labor Statistics' unadjusted indices in reaching determinations that
wood product prices have drastically declined, and (2) make eligible
only those contracts that do not already reflect falling prices.
The Secretary of Agriculture agreed to re-examine the use of the
Bureau of Labor Statistics' unadjusted Producer Price Indices to
determine whether wood product prices showed a drastic decline and
whether to make eligible only those contracts that do not already
reflect falling prices. Subsequently, the Forest Service concurred that
seasonally adjusted Producer Price Indices, adjusted to a constant
dollar base, could be used to determine whether a drastic reduction in
wood product prices has occurred and, therefore, whether a market-
related contract term addition should be granted. However, in December
1994, the Bureau of Labor Statistics stopped applying seasonal
adjustments to the related Producer Price Indices, since they found
insufficient statistical evidence to demonstrate a need to continue
adjusting these indices.
The Producer Price Indices currently used by the Forest Service are
from the Commodity Series prepared by the Bureau of Labor Statistics.
However, the Bureau of Labor Statistics has determined that the
Industry Series, rather than the Commodity Series, should be used as
the principal series to measure market changes. The Industry Series
includes indices for Western Softwood, Eastern Softwood, and Hardwood
Lumber and is more representative of the sawmill industry than the
indices used with the Commodity Series. The Industry Series is more
representative because the Industry Series softwood lumber indices
include rough lumber and the Hardwood Lumber Index excludes the
secondary industries of dimension stock and flooring.
In order to utilize or maximize use of all resources with the least
impact on the environment, many sales consist primarily of chipable
material. Current market-related contract term addition procedures do
not use an index to reflect market changes in chipable material;
however, to fill this need, the Forest Service proposes to apply the
Industry Series Wood Chip Index to measure market changes for the price
of chips and to address the volatility of the wood chip market.
A review of other readily available indices representing the same
wood product markets shows that indices comparable to the Producer
Price Indices do not exist. Some regional indices are available;
however, the timing, frequency, and procedure for collection of
information for these indices varies. Some index services or
associations use previous month invoice prices that are provided by
their members, while other services use current month negotiated bid
prices or sale prices. Reliable indices, prepared nationally and
applied consistently, are not available. Therefore, the Forest Service
proposes to codify the use of the following Bureau of Labor Statistics
(BLS) indices from the Industry Series:
------------------------------------------------------------------------
Industry
BLS producer price index code
------------------------------------------------------------------------
Hardwood Lumber.............................................. 2421 #1
Eastern Softwood Lumber...................................... 2421 #3
Western Softwood Lumber...................................... 2421 #4
Wood Chips................................................... 2421 #5
------------------------------------------------------------------------
Each Producer Price Index is adjusted to a constant dollar base by
dividing it by the Producer Price Index for All Commodities, Commodity
Code 00000000. The Forest Service currently monitors the various
indices and determines that a drastic reduction in wood product prices
has occurred when, for 2 or more consecutive quarters after the
contract award, the applicable adjusted price index is less than 80
percent of the average of such adjusted index for the 4 highest of the
8 calendar quarters immediately prior to the qualifying quarter.
Because the Industry Series indices are less species specific, they are
less volatile. Therefore, in order to continue to identify severe
market declines, it is necessary to change the triggering percentage to
85 percent when Industry Series indices are used. The indices and the
adjustment procedures are set forth in proposed paragraphs (b) (1) and
(2).
Other Provisions of the Proposed Rule
Paragraph (a) of Sec. 223.52 is proposed to be revised to clarify
the conditions and provisions for adding contract time
[[Page 54591]]
to timber sale contracts. Proposed paragraph (a)(1) makes minor non-
substantive changes to current paragraph (a) to clarify the conditions
for granting a timber sale contract extension.
Currently, Regional Foresters, for those Regions with more than one
Producer Price Index, determine the index to be used on each National
Forest in that Region. The Forest Service recognizes that applying the
Bureau of Labor Statistics' indices on a National Forest basis may not
reflect actual sale characteristics. Therefore, in proposed paragraph
(a)(2), the Forest Service proposes that Forest Supervisors shall
determine the index to be used for each sale. The selected index would
then reflect the predominant species and product, by volume, included
in the sale area and would be more representative of the species and
products actually in the sale area than applying the indices on a
National Forest level.
Periodically, catastrophic events severely damage timber. The
damaged timber must be harvested within a relatively short time period
to avoid substantial losses in both quantity and quality of timber due
to deterioration. The critical time period available for harvesting
damaged timber and avoiding substantial deterioration varies with the
season of the year, the species of timber, the damaging agent, and the
location of the damaged timber. In most cases, significant
deterioration can be avoided if the damaged timber is harvested within
1 year of the catastrophic event. Accordingly, the proposed rule
provides that when the primary objective of a timber sale contract is
to harvest damaged, dead, or dying timber, a market-related contract
term addition provision will not be included in the contract because
such a provision could delay harvest. Therefore, in proposed paragraph
(a)(3)(i), the Forest Service proposes not to allow market-related
contract term addition on sales that have a primary objective of
harvesting damaged, dead, or dying timber.
In the past, contract lengths were relatively long (4 or more
years). Most current timber sale contracts have a duration of 3 years
or less, and many of the current contracts allow for stumpage rate
adjustment, which provides a stumpage price adjustment for the timber
sale purchaser as the timber markets change. Under current regulations,
the market-related contract term addition provision offers a second and
unnecessary method of addressing adverse market conditions, when
adequate adjustment may already be provided in many contracts through
stumpage rate adjustment. Therefore, in proposed paragraph (a)(3)(ii),
the Forest Service proposes not to allow market-related contract term
addition on sales with stumpage rate adjustment provisions.
To codify the indices available for use in market-related contract
term additions, proposed paragraph (b)(1)(i) of Sec. 223.52 lists the
indices available for use in market-related contract term additions.
The proposed indices use Bureau of Labor Statistics' Industry Series
indices, since the Industry Series is now the principal series
supported by Bureau of Labor Statistics. Species specific indices are
not available from the Industry Series. The Eastern Softwood Lumber and
Western Softwood Lumber Indices reflect the similarity of the markets
in each geographic region. These indices also include rough lumber
which was not included in the indices used previously from the
Commodity Series. The Hardwood Lumber Index now excludes the secondary
industries of dimension stock and flooring. The Wood Chip Index is
added to provide a better measure of market changes for sales that
include primarily chipable material.
The Bureau of Labor Statistics issues preliminary indices and, when
data is finalized, issues final indices. The final indices may indicate
a qualifying quarter when the preliminary data does not indicate a
qualifying quarter or vice versa. The Forest Service wishes to use the
most current data, but does not want to redetermine whether past
quarters are qualifying quarters. Redetermining whether past quarters
are qualifying quarters would sometimes indicate that market-related
contract term additions had been granted when they were not justified
or that they had not been granted when they were justified. Therefore,
in proposed paragraph (b)(1)(ii), the agency proposes to use the most
current data, but not to revise the determination of qualifying
quarters when final Producer Price Index data is available.
The current regulations designate the Regional Forester as the
official who determines when a drastic reduction in wood product prices
has occurred. In practice, the Chief makes this determination;
therefore, proposed paragraph (b)(2) names the Chief as the determining
official.
Paragraph (b)(2) also would be revised to provide that a drastic
reduction in wood product prices occurs when, for 2 or more consecutive
quarters, the applicable adjusted price index is less than 85 percent
of the average of such adjusted index for the 4 highest of the 8
calendar quarters immediately prior to the qualifying quarter. The
percentage was changed from 80 percent because the indices used from
the Industry Series are less species specific and, therefore, less
volatile. A higher percentage better identifies drastic reductions in
wood product prices.
The Forest Service proposes revising paragraph (b)(2) to clarify
that the 8 calendar quarters to be used for calculating market-related
contract term additions are the 8 quarters immediately prior to each
qualifying quarter. This is the method used in the examples of the
operation of the market-related contract term addition published as the
proposed rule on November 6, 1987 (52 FR 43020), and is the process
that has been used since 1990 for calculating the market-related
contract term additions.
Paragraph (c) of Sec. 223.52 would be revised to remove the
reference to the Regional Forester to conform to the change in
paragraph (b)(2) specifying that the Chief of the Forest Service makes
the determination and to make clear that contracts eligible for term
addition are those which have been awarded but are not yet terminated.
The current regulation requires that periodic payment dates be
recalculated based on the revised contract termination date. Current
contract procedures, however, require that the periodic payment dates
be delayed by an amount of time equal to the additional contract time.
The contract procedure delays periodic payments for more time than the
procedure in the current rule allows. Therefore, the Forest Service
proposes to revise paragraph (d) of Sec. 223.52 to provide a delay in
periodic payment dates equal to the amount of additional contract time.
This proposed change will not only make the regulation consistent with
current contract procedures, but will also better provide the
assistance that is needed during market declines.
Regulatory Impact
This proposed rule has been reviewed under USDA procedures and
Executive Order 12866 on Regulatory Planning and Review. It has been
determined that this is not a significant rule. This rule will not have
an annual effect of $100 million or more on the economy nor adversely
affect productivity, competition, jobs, the environment, public health
or safety, nor State or local governments. This rule will not interfere
with an action taken or planned by another agency nor raise new legal
or policy issues. In short, little or no effect on the national economy
will result from this proposed rule change. This action consists of
administrative changes to regulations affecting timber
[[Page 54592]]
sale contract length. The Producer Price Indices selected and revised
procedures better reflect the cyclic nature of lumber markets and help
the agency determine whether a drastic downturn has actually occurred
in these particular markets. Finally, this action will not alter the
budgetary impact of entitlements, grants, user fees, or loan programs
or the rights and obligations of recipients of such programs.
Accordingly, this proposed rule is not subject to OMB review under
Executive Order 12866.
Moreover, this proposed rule has been considered in light of the
Regulatory Flexibility Act (5 U.S.C. 610 et seq.), and it is hereby
certified that this action will not have a significant economic impact
on a substantial number of small entities as defined by that Act.
Failure to adopt these improved procedures for measuring drastic
decline in wood product prices will subject both small purchasers and
large purchasers to increased risk of default in those situations where
current indices are not as valid as indicators of price decline as
those being proposed in this rule. Modifications to timber sale
contracts have the intended effect of allowing purchasers of timber
sales to complete timber sales when adverse conditions have occurred in
the timber market and when no other means of adjustment, such as
stumpage rate adjustment, are available.
Unfunded Mandates Reform
Pursuant to Title II of the Unfunded Mandates Reform Act of 1995,
which the President signed into 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.
Environmental Impact
This proposed rule deals with business practices related to timber
sale contracts and, as such, has no direct effect on the amount,
location, or manner of timber offered for purchase. Section 31.1b of
Forest Service Handbook 1909.15 (57 FR 43180; September 18, 1992)
excludes from documentation in an environmental assessment or impact
statement ``rules, regulations, or policies to establish Service-wide
administrative procedures, program processes, or instructions.'' The
agency's preliminary assessment is that this rule falls within this
category of actions and that no extraordinary circumstances exist which
would require preparation of an environmental assessment or
environmental impact statement. A final determination will be made upon
adoption of the final rule.
Controlling Paperwork Burdens on the Public
This proposed rule does not contain any recordkeeping or reporting
requirements or other information collection requirements as defined in
5 CFR 1320 and, therefore, imposes no paperwork burden on the public.
Accordingly, the review provisions of the Paperwork Reduction Act of
1995 (44 U.S.C. 3501, et seq.) and implementing regulations at 5 CFR
part 1320 do not apply.
Comments Invited
The Forest Service invites comments on this proposal to use
Producer Price Indices from the Industry Series and to change the
operational procedures that apply to market-related contract term
additions on timber sales. Comments received will be considered in the
development of the final rule, which will be published in the Federal
Register.
List of Subjects in 36 CFR Part 223
Administrative practice and procedure, Exports, Forests and forest
products, Government contracts, National forests, Reporting and
recordkeeping requirements.
Therefore, for the reasons set forth in the preamble, it is
proposed to amend Part 223 of Title 36 of the Code of Federal
Regulations as follows:
PART 223--SALE AND DISPOSAL OF NATIONAL FOREST SYSTEM TIMBER
1. The authority citation for Part 223 continues to read as
follows:
Authority: 90 Stat. 92958, 16 U.S.C. 472a; 98 Stat. 2213, 16
U.S.C. 618; unless otherwise noted.
2. Revise Sec. 223.52 to read as follows:
Sec. 223.52 Market-related contract term additions.
(a) Contract provision. (1) Except as provided in paragraph (a)(3)
of this section, each timber sale contract containing periodic payment
requirements shall contain a provision allowing for the addition of
time to the contract term, under the following conditions:
(i) The Chief of the Forest Service has determined that adverse
wood products market conditions have resulted in a drastic reduction in
wood product prices applicable to the sale; and
(ii) The purchaser makes a written request for additional time to
perform the contract.
(2) The contract term addition provision must also specify the
index to be applied to each sale. The Forest Supervisor shall determine
the index to be used for each sale based on the species or product
characteristics, by volume, being harvested on the sale. Only one index
may apply to a given sale. The Forest Supervisor may select only from
the indices listed in paragraph (b) of this section.
(3) A market-related contract term addition provision shall not be
included in contracts if either of the following circumstances exist:
(i) The sale has a primary objective of harvesting damaged, dead,
or dying timber; or
(ii) The contract has a provision for stumpage rate adjustment.
(b) Determination of drastic wood product price reductions. (1) The
Forest Service shall monitor and use Producer Price Indices for wood
products, as prepared by the Department of Labor, Bureau of Labor
Statistics (BLS), adjusted to a constant dollar base, to determine if
market related contract term additions are warranted.
(i) The Forest Service shall monitor and use only the following
indices:
------------------------------------------------------------------------
Industry
BLS producer price index code
------------------------------------------------------------------------
Hardwood Lumber.............................................. 2421#1
Eastern Softwood Lumber...................................... 2421#3
Western Softwood Lumber...................................... 2421#4
Wood Chips................................................... 2421#5
------------------------------------------------------------------------
(ii) When final indices are not available, preliminary indices
shall be used; however, in such event, determination of a qualifying
quarter will not be revised when final indices become available.
(2) The Chief of the Forest Service shall determine that a drastic
reduction in wood product prices has occurred when, for 2 or more
consecutive quarters, the applicable adjusted price index is less than
85 percent of the average of such adjusted index for the 4 highest of
the 8 calendar quarters immediately prior to the qualifying quarter. A
qualifying quarter is a quarter where the applicable adjusted index is
more than 15 percent below the average of such index for the 4 highest
of the previous 8 calendar quarters. Qualifying quarter determinations
will be made using the Producer Price Indices for the months of March,
June, September, and December.
(3) A determination, made pursuant to paragraph (b)(2) of this
section, that a drastic reduction in wood product prices has occurred
shall constitute a finding that the substantial overriding
[[Page 54593]]
public interest justifies the contract term addition.
(c) Granting market-related contract term additions. When the Chief
of the Forest Service determines, pursuant to this section, that a
drastic reduction in wood product prices has occurred, the Forest
Service is to notify affected timber sale purchasers. For any contract
which has been awarded and has not been terminated, the Forest Service,
upon a purchaser's written request, will add 1 year to the contract's
term, except as provided in paragraphs (c) (1) through (3) of this
section. This 1-year addition includes time outside of the normal
operating season.
(1) For each additional consecutive quarter, in which a contract
qualifies for a market-related contract term addition, the Forest
Service will, upon the purchaser's written request, add an additional 3
months during the normal operating season to the contract.
(2) No more than twice the original contract length or 3 years,
whichever is less, shall be added to a contract's term by market-
related contract term addition.
(3) In no event shall a revised contract term exceed 10 years as a
result of market-related contract term additions.
(d) Recalculation of periodic payments. Where a contract is
lengthened as a result of market conditions, any subsequent periodic
payment dates shall be delayed 1 month for each month added to the
contract's term.
Dated: October 8, 1996.
J. Kenneth Myers,
Acting Chief.
[FR Doc. 96-26755 Filed 10-18-96; 8:45 am]
BILLING CODE 3410-11-M