[Federal Register Volume 62, Number 87 (Tuesday, May 6, 1997)]
[Proposed Rules]
[Pages 24776-24795]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11629]


      

[[Page 24775]]

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Part V





Environmental Protection Agency





_______________________________________________________________________



40 CFR Part 80



Regulation on Fuels and Fuel Additives; Baseline Requirements for 
Gasoline Produced by Foreign Refiners; Proposed Rule

  Federal Register / Vol. 62, No. 87 / Tuesday, May 6, 1997 / Proposed 
Rules  

[[Page 24776]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[FRL-5821-5]
RIN 2060-AH48


Regulation of Fuels and Fuel Additives: Baseline Requirements for 
Gasoline Produced by Foreign Refiners

AGENCY: Environmental Protection Agency.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This proposed rule would revise the requirements for imported 
gasoline. The Agency is proposing that a foreign refiner could choose 
to petition EPA to establish an individual baseline reflecting the 
quality and quantity of gasoline produced at a foreign refinery in 1990 
that was shipped to the United States. The foreign refiner would be 
required to meet the same requirements relating to the establishment 
and use of individual refinery baselines as are met by domestic 
refiners. Additional requirements are also being proposed to address 
issues that are unique to refiners and refineries located outside the 
United States, related to tracking the movement of gasoline from the 
refinery to the United States border, monitoring compliance with the 
requirements that apply to parties outside the United States, and 
imposition of appropriate sanctions for violations. EPA is also 
proposing that it would monitor the quality of imported gasoline, and 
if it exceeded a specified benchmark, EPA would apply appropriate 
remedial action. EPA is proposing that the baseline for gasoline 
imported from refiners without an individual baseline would be adjusted 
to remedy the exceedance.
    EPA believes the proposed rulemaking would be consistent with the 
Agency's commitment to fully protect public health and the environment, 
and with the U.S. commitment to ensure that the regulation is 
consistent with the obligations of the United States under the World 
Trade Organization.

DATES: The Agency will hold a public hearing on today's proposal if one 
is requested by May 13, 1997. If a public hearing is held, it will take 
place on May 20, 1997. If a public hearing is held on today's proposal, 
comments must be received by June 19, 1997. If a hearing is not held, 
comments must be received by June 5, 1997.

ADDRESSES: To request a hearing or to find out if and where a hearing 
is being held, please call Karen Smith at (202) 233-9674. Send comments 
to Public Docket A-97-26 at the address below. It is also requested 
that two duplicate copies of comments be sent to the person listed in 
the FOR FURTHER INFORMATION CONTACT section of this document. Materials 
relevant to this NPRM are contained in Public Dockets A-91-02 and A-92-
12, A-94-25 and A-96-33 located at Room M-1500, Waterside Mall (ground 
floor), U.S. Environmental Protection Agency, 401 M Street S.W., 
Washington, DC 20460. The docket may be inspected from 8 a.m. until 
5:30 p.m. Monday through Friday. A reasonable fee may be charged by EPA 
for copying docket materials.

FOR FURTHER INFORMATION CONTACT: Karen Smith, Fuels and Energy 
Division, U.S. EPA (6406J), 401 M Street, SW., Washington, DC 20460, 
Telephone: (202) 233-9674.

SUPPLEMENTARY INFORMATION: Regulated entities. Entities potentially 
regulated by this action are those foreign refiners and importers which 
produce, import or distribute gasoline for sale in the United States. 
Regulated categories and entities include:

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                                                Examples of regulated   
                 Category                             entities          
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Industry..................................  Foreign Refiners, Importers.
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    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities potentially regulated by this 
action. This table lists the types of entities that EPA is now aware 
could potentially be regulated by this action. Other types of entities 
not listed in the table could also be regulated. To determine whether 
your company or facility may potentially be regulated by this action, 
you should carefully examine the applicability criteria of Part 80, 
Subpart D, of title 40 of the Code of Federal Regulations. If you have 
questions regarding the applicability of this action to a particular 
entity, consult the person listed in the preceding FOR FURTHER 
INFORMATION CONTACT section.
    Copies of this proposed rule are available on the Internet at 
www.epa.gov., and also on the OAQPS Technology Transfer Network 
Bulletin Board System (TTNBBS). The TTNBBS can be accessed with a dial-
in phone line and a high-speed modem (PH# 919-541-5742). The parity of 
your modem should be set to none, the data bits to 8, and the stop bits 
to 1. Either a 1200, 2400, 9600, or 14400 baud modem should be used. 
When first signing on, the user will be required to answer some basic 
informational questions for registration purposes. After completing the 
registration process, proceed through the following series of menus:
    (T) GATEWAY TO TTN TECHNICAL AREAS (Bulletin Boards)
    (M) OMS
    (K) Rulemaking and Reporting
    (3) Fuels
    (9) Reformulated gasoline
    A list of ZIP files will be shown, all of which are related to the 
reformulated gasoline rulemaking process. The individual foreign 
refinery baseline proposed rule is identified by the title: 
``FORBASE.ZIP.'' To download this file, type the instructions below and 
transfer according to the appropriate software on your computer: 
ownload, rotocol, xamine, ew, ist, or elp Selection 
or  to exit: D FORBASE.ZIP
    You will be given a list of transfer protocols from which you must 
choose one that matches with the terminal software on your own 
computer. Then go into your own software and tell it to receive the 
file using the same protocol. Programs and instructions for de-
archiving compressed files can be found via ystems Utilities from 
the top menu, under rchivers/de-archivers.

I. Background

A. Current Requirements for Imported Gasoline

    On December 15, 1993, EPA issued the final regulations that 
establish requirements for reformulated gasoline (RFG) and conventional 
gasoline (CG) (together the Gasoline Rule), as prescribed by section 
211(k) of the Clean Air Act (the Act). See 59 FR 7716 (February 16, 
1994). Under the Gasoline Rule, compliance by refiners and importers 
with the CG requirements and certain RFG requirements is measured 
against baselines that are intended to reflect a refinery or importer's 
1990 gasoline quality. Domestic refiners are required to establish 
individual refinery baselines of the quality and quantity of the 
gasoline produced at each refinery in 1990. Domestic refinery baselines 
are calculated using, in hierarchical order based on the availability 
of data, 1990 gasoline test data (Method 1), 1990 blendstock test data 
(Method 2), or post-1990 blendstock and/or gasoline test data (Method 
3). Under the Gasoline Rule domestic blenders of gasoline and importers 
of foreign-produced gasoline are treated differently than domestic 
refiners in that they are required to establish baselines of the 
quality and quantity of gasoline they produced or imported in 1990 
using Method 1 data,

[[Page 24777]]

if available. However, almost all blenders and importers lack the 
actual 1990 test data necessary to establish a baseline using Method 1 
data. As a result, blenders and importers are assigned the statutory 
baseline, a baseline established by EPA in 1993 to approximate average 
gasoline quality in the United States in 1990,1 with the 
consequence that almost all gasoline produced at foreign refineries is 
evaluated using the statutory baseline.2 The baseline-
setting scheme is specified in 40 CFR 80.91 through 80.93, and is 
discussed in the Preamble to the final rule at 59 FR 7791 (February 16, 
1994).
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    \1\ The statutory baseline is calculated pursuant to section 
211(k)(10)(B) of the Act which specifies the properties of 
summertime statutory baseline gasoline, and instructs the EPA to 
establish the average properties of 1990 wintertime gasoline. The 
Gasoline Rule specifies the properties of 1990 wintertime gasoline 
in Sec. 80.45(b)(2), and the combined summer and winter, or annual, 
statutory baseline gasoline properties in Sec. 80.91(c)(5).
    Importers are required to meet various conventional gasoline 
requirements by comparing the annual average quality of the gasoline 
they import against the statutory baseline. An individual batch of 
imported conventional gasoline is not subject to any requirements, 
only the annual average of gasoline imported by the importer. 
Foreign refiners are not subject to the requirements of the current 
Gasoline Rule.
    \2\ Only one importer had the Method 1 data necessary to 
establish an individual baseline.
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    In preparing the Gasoline Rule, EPA focused on three major issues 
regarding the use of individual baselines for foreign refiners in the 
RFG and CG programs. EPA's overriding consideration was the ultimate 
environmental consequences of the baseline-setting scheme. The three 
issues that EPA focused on were: (1) The technical difficulty of using 
baseline-setting Methods 2 and 3 to accurately predict the quality of 
the subset of a foreign refinery's gasoline that was exported to the 
U.S. in 1990; (2) the ability of the Agency to adequately verify and 
enforce the use of individual foreign refinery baselines, including 
problems identifying the refinery of origin of imported gasoline and 
enforcing gasoline content requirements against a foreign refiner; and 
(3) the risk of adverse environmental effects from providing refiners 
or importers with options in establishing baselines.
    In developing the Gasoline Rule, EPA considered but did not go 
forward with allowing foreign refiners the option of petitioning EPA to 
establish individual baselines using Methods 1, 2, and 3, or defaulting 
to the statutory baseline. EPA's reasons for not adopting the option at 
that time are discussed at 59 FR 7785-88 (February 16, 1994). When EPA 
issued the final rule on December 15, 1993, however, it was not fully 
satisfied that the baseline-setting scheme applicable to importers and 
foreign refiners was the optimum solution and continued to consider the 
issue.

B. May 1994 Proposal

    In May 1994, EPA proposed to amend the Gasoline Rule to define 
criteria and procedures by which foreign refiners would be allowed to 
establish individual refinery baselines that reflected the properties 
and volume of the gasoline that was produced at a foreign refinery in 
1990 and exported for use within the United States. Under this 
proposal, if a foreign refiner made the requisite showing through a 
petition process EPA would establish an individual foreign refinery 
baseline. U.S. importers of RFG produced at the foreign refinery would 
have used the individual foreign refinery baseline values to 
demonstrate compliance with the limited number of RFG requirements that 
are based on individual baselines. Importers would not have been 
allowed to use individual foreign refinery baselines for the CG 
requirements. Foreign refinery baselines would have been used only 
during the period 1995 through 1997 3 and only up to a 
volume of gasoline each year that equaled the foreign refinery's 1990 
baseline volume. The proposal also included detailed enforcement and 
verification procedures.
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    \3\ Individual refinery baselines are used to set certain 
content requirements for RFG only through 1997. See 40 CFR 80.41.
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    Subsequent to the May 1994 proposal, Congress included limitations 
on EPA's appropriations related to the May 1994 proposal. Based on this 
EPA did not conclude the rulemaking process.

C. The WTO Dispute Settlement Proceeding

    In 1995, the governments of Venezuela and Brazil initiated dispute 
settlement proceedings before the World Trade Organization (WTO), 
challenging as discriminatory the different treatment applied by the 
Gasoline Rule to imported gasoline and that produced by U.S. refiners. 
Among other defenses, the United States argued that the rule was 
justified by the difficulties associated with implementing and 
enforcing individual baseline requirements with respect to foreign 
refiners and by the environmental risk resulting from providing foreign 
refiners the choice of employing individual baselines. The initial 
dispute settlement panel reviewing the matter found the regulation 
discriminatory under the General Agreement on Tariffs and Trade 1994 
(GATT) and that the United States had not shown that the GATT's health, 
environment, or conservation exceptions applied. The WTO Appellate 
Body, reviewing the U.S. arguments regarding the GATT conservation 
exception, recognized that the United States had legitimate concerns, 
but concluded the rule did not satisfy all the requirements for this 
exception. The Appellate Body based this conclusion on its views that 
(1) the United States had not adequately explored options available to 
deal with its concerns, in particular international cooperative 
arrangements and (2) the United States had been concerned about the 
costs of the various regulatory options to domestic refiners but not to 
foreign refiners. The Appellate Body recommended that the United States 
bring EPA's regulations into conformity with WTO obligations, leaving 
the United States to determine how it would comply.
    On June 19, 1996 after the Administration had consulted with 
Congress, the United States advised the WTO that the United States 
intended to meet U.S. obligations with respect to the results of the 
WTO dispute settlement proceedings, that the EPA had initiated an open 
process to examine any and all options for compliance, and that a key 
criterion in evaluating options would be fully protecting public health 
and the environment. On June 28, 1996, EPA issued an invitation for 
public comment in the Federal Register (61 FR 33703), seeking input and 
suggestions from all interested parties. The comment period closed on 
September 26, 1996.

D. Invitation for Public Comment

    The invitation for public comment was an attempt to identify any 
and all options available to the Agency to meet U.S. international 
obligations in response to the WTO decision. EPA's goal was to identify 
all feasible options that are consistent with EPA's commitment to fully 
protect public health and the environment, and at the same time are 
consistent with the obligations of the United States under the WTO.
    Specifically, EPA invited comment on: (1) How to accurately 
establish a reliable and verifiable individual baseline for a foreign 
refinery; (2) how EPA could adequately monitor compliance with and 
enforce any baseline requirements; (3) how EPA could effectively 
determine the refinery of origin of imported gasoline, so as to 
determine the appropriate baseline to apply to the imported gasoline; 
(4) the potential environmental impacts from

[[Page 24778]]

implementing any suggested options; and (5) a method by which EPA could 
better quantify or characterize potential environmental impacts of any 
options proposed. EPA also requested that commenters provide 
information and analysis on the public health, environmental and 
economic impact associated with any option presented.
    EPA received sixteen comments from various interested parties 
during the comment period.
    Many comments stated that EPA's action on the WTO dispute could 
impact the requirements only for CG and not for RFG, because beginning 
in January 1998, individual baselines cease having any relevance for 
RFG requirements, and it would be difficult to implement any rule 
change before January 1998.
    Comments by domestic refiners and certain domestic refiner 
associations highlighted four major concerns:

    (1) The necessity for adequate compliance, audit, and 
enforcement requirements. The comments questioned EPA's ability to 
establish reliable and verifiable baselines, and to effectively 
monitor compliance by foreign refiners with requirements and enforce 
violations that are documented.
    (2) The technical difficulties associated with establishing a 
foreign refinery's baseline that would reflect the quality only of 
the subset of the refinery's gasoline that was exported to the U.S. 
in 1990, because the quality of this subset may differ from the 
refinery's overall average gasoline quality.
    (3) The possibility that the quality of imported gasoline would 
decline if foreign refiners are given the option of establishing 
individual refinery baselines because foreign refiners whose 1990 
gasoline was dirtier than the statutory baseline would have an 
incentive to seek an individual baseline, whereas refineries whose 
1990 gasoline was cleaner than the statutory baseline would not have 
such an incentive. This concern, according to some commenters, 
should be avoided by requiring all foreign refiners to establish 
individual refinery baselines. This scenario is often called 
``gaming''.
    (4) The U.S. does not impose requirements on gasoline produced 
at a foreign refinery that is not exported to the U.S. Domestic 
refiners must produce clean gasoline for RFG areas without degrading 
the CG sold elsewhere in the United States, essentially controlling 
all gasoline produced at a domestic refinery. Foreign refiners have 
the flexibility to produce clean gasoline for the U.S. market by 
disposing of dirty components in gasoline sold into markets outside 
the U.S., according to the comments.

    One domestic refiner proposed that a single national baseline 
replace individual baselines for conventional gasoline.
    Venezuelan and Brazilian refiners affirmed their ability to 
accurately establish reliable and verifiable individual baselines in 
the same manner as domestic refiners, and commented that EPA's gaming 
concern has no merit particularly if all foreign refiners establish 
individual refinery baselines.
    A European refiner urged EPA to allow foreign refineries to 
establish individual baselines if they have the necessary supporting 
data.
    Independent gasoline marketers in the U.S. strongly urged quick 
compliance with the WTO decision to increase competition in the 
gasoline market. State and local air management districts asked EPA to 
commit to adopt measures that would protect public health and the 
environment.
    EPA received additional comments from representatives of 
independent refiners and representatives of independent importers and 
blenders following the close of the comment period. The independent 
refiners suggested that foreign refiners should be required to 
establish individual baselines and should not be allowed to default to 
the statutory baseline. Foreign refiners that do not establish an 
individual baseline should be excluded from the U.S. market. Foreign 
refiners should be subject to the full range of compliance and 
enforcement measures necessary to secure compliance by foreign parties. 
Importers should no longer be allowed to use the statutory baseline, 
but would have to use the individual baseline applicable to the 
gasoline they imported, to avoid gaming by foreign refiners with clean 
individual baselines.
    Independent importers and blenders suggested that all market 
participants that are similarly situated should be treated in the same 
manner, that it is important to preserve the ability of independent 
importers to reblend and reclassify imported CG as RFG, that the use of 
individual baselines should not restrict the ability to import other 
gasoline under the importer's statutory baselines, that liability for 
the use of an individual baseline should fall on the foreign refiner 
not the importer, and that mandatory use of individual baselines by 
foreign refiners should not be imposed as it would limit gasoline 
supplies coming to the United States.

E. Requiring Individual Baselines for Foreign Refiners

    In preparing this proposal EPA attempted to identify any and all 
options available to the Agency to meet U.S. international obligations 
in response to the WTO decision. EPA's goal was to identify all 
feasible options that are consistent with EPA's commitment to fully 
protect public health and the environment, and at the same time are 
consistent with the obligations of the United States under the WTO. 
Comments submitted to EPA during and after the public comment period, 
and EPA's prior investigations on this issue, identified two broad 
approaches for consideration involving individual baselines for foreign 
refineries.4
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    \4\ The discussion in the preamble will focus on imports of CG, 
as compared to imports of RFG. After January 1, 1998, individual 
baselines have no application in the RFG program. For CG, however, 
individual baselines will continue to be used in setting the 
compliance requirement for all CG. The application of the proposal 
to RFG prior to January 1, 1998 is discussed separately in this 
notice at section II.F.
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    One approach would require the use of individual baselines (IB) by 
foreign refiners. It would be mandatory, not optional. Under this 
approach, EPA would apply basically the same requirements that apply to 
domestic refiners to foreign refiners.
    This approach would require foreign refiners who market gasoline to 
the U.S. to submit petitions to establish an individual refinery 
baseline, using the same methods and procedures currently in the 
regulations. Once an IB was assigned for a refinery, that IB would be 
used in developing a volume weighted compliance baseline. Under one 
approach, the foreign refiner would meet the exhaust toxics and 
NOx requirements for CG exported to the U.S. by that foreign 
refinery, in the same manner as domestic refiners. Under an alternative 
approach the domestic importer would establish a volume weighted 
compliance baseline reflecting the quantity and IBs of gasoline 
imported from various foreign refineries, and the domestic importer 
would meet the applicable CG requirements. In either case, the use of a 
foreign refinery IB would be subject to a volume cap, as for domestic 
refiners. Foreign refiners would be subject to audits and inspections 
to verify the IB and to verify the quantity and quality of gasoline 
sent to the U.S. from that foreign refinery.
    Significant additional requirements would also need to be imposed 
on gasoline imported under a foreign refiner's IB. For domestic 
refiners, almost all gasoline is produced for the U.S. market and the 
very small volume that is exported can be readily tracked and 
subtracted from the domestic refiner's compliance calculations. The 
domestic refiner then bases its CG compliance calculations on the 
quality and quantity of finished gasoline when it leaves the refinery. 
At that point it has entered the U.S. gasoline market, and there is no 
need to track the gasoline or

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to segregate it from gasoline produced by another refinery.
    For a foreign refiner, only a portion of the refinery's total 
production is likely to be sent to the U.S., ranging from a very small 
percentage to a significant minority of production. The gasoline also 
may travel through a long and complicated distribution system from the 
point it leaves the refinery gate to the point it enters the U.S. 
market. However the IB for a specific foreign refinery would properly 
apply only to gasoline produced at that foreign refinery, and would not 
apply to gasoline produced at a different foreign refinery.
    Several facts would therefore need to be clearly established to 
properly apply a foreign refinery's IB to a batch of imported gasoline. 
First, the refinery that produced the specific batch of imported 
gasoline must be identified. Second, it must be demonstrated that this 
batch of gasoline has not been mixed with gasoline produced by a 
different foreign refinery with a different IB, from the point it left 
the refinery-of-origin to the point it entered the U.S. market. Third, 
the total amount of CG and RFG produced by the foreign refinery and 
sent to the U.S. market must be determined, to establish when the 
volume cap is exceeded. As with domestic refiners, it would also be 
important to track blendstocks produced and sent to the U.S. from a 
foreign refinery, so a foreign refiner could not avoid a stringent IB 
by shipping blendstocks instead of finished gasoline. Tracking and 
segregation requirements would need to be adopted to implement this.
    A certain amount of gasoline is imported from fungible gasoline 
supplies, where the refinery of origin is not known. This occurred in 
1990, and would be expected to continue to occur in the future. It 
would be reasonable to allow the practice to continue, and gasoline 
imported from such sources would continue to be subject to the 
statutory baseline (SB). However a mechanism would need to be imposed 
so that this supply of fungible gasoline could not be used as a way to 
avoid a more stringent IB.
    Under this approach, EPA would need to establish IBs for all 
foreign refineries, most of which sent only a small volume of gasoline 
to the U.S. in 1990. The methods used to set IBs for domestic refiners 
could still be used to establish the quality and quantity of gasoline 
sent to the U.S. by a foreign refiner in 1990. Given the large number 
of foreign refineries involved and the potential for widely varying 
technical and other ability to establish IBs, it is not clear that all 
foreign refiners would have the information necessary to establish an 
accurate IB for gasoline sent to the U.S. in 1990.
    The Department of Energy (DOE) has advised EPA that this approach 
could seriously affect the supply and price of gasoline in the U.S. 
market. Currently gasoline is imported into the U.S. market from a free 
moving and fungible distribution system for imported gasoline. The 
volume of imported gasoline, while small compared to the total U.S. 
gasoline supply, can have a significant impact on gasoline prices. 
Imported gasoline tends to moderate price increases by increasing the 
sources of gasoline to meet U.S. demand, whether in response to a trend 
of increasing demand over time, or a short term supply problem based on 
local or temporary changes in domestic supply or demand.
    The approach outlined above would significantly change the way 
gasoline is imported to the U.S. market, greatly increasing the 
complexity and making it more likely that gasoline could not be quickly 
and readily diverted to the U.S. market to meet demand. This would make 
it more likely that imported gasoline would not play the same role that 
it currently does in moderating price increases. The long term supply 
implications are harder to predict.
    The increase in complexity from this approach is based on the need 
to ensure that the right IB is applied to a batch of imported gasoline, 
that an IB is only used up to the applicable volume cap, and that 
parties do not circumvent the appropriate IB by shifting gasoline or 
blendstocks through other parties. Modifying the tracking and 
monitoring restrictions described above to try and resolve the supply 
concerns would increase the risk of adverse environmental effect from 
this approach.
    EPA is also concerned that this approach might produce incentives 
that would tend to reduce the average quality of imported CG. For 
example, gasoline from refiners with cleaner IBs would be measured 
against a more stringent baseline than under the current rules, while 
gasoline from refiners with dirtier IBs would be measured against a 
less stringent baseline than under the current rules. Additional costs 
would be associated with segregation, tracking, and other requirements 
described above. To the extent these changes put refiners with clean 
IBs at an economic disadvantage compared to refiners with either the SB 
or an IB dirtier than the SB, it could potentially push the supply of 
gasoline away from refiners with clean IBs.
    After evaluating this approach, EPA has decided to not propose it. 
While it appears generally neutral in requiring individual baselines 
for both domestic and foreign refiners, upon full consideration this 
approach presents too great a risk of adverse effects on gasoline 
supply and prices. EPA also has questions as to its environmental 
neutrality. The Agency is instead proposing the optional use of 
individual baselines, with specific provisions for monitoring gasoline 
quality and remedying any adverse environmental effects.

II. Description of Proposal

A. Introduction

    Today's proposed approach involves the use of optional IBs for 
foreign refiners. Specific regulatory provisions would be implemented 
to ensure that the optional use of an IB would not lead to adverse 
environmental impacts. This would involve monitoring the average 
quality of imported gasoline, and if a specified benchmark is exceeded, 
remedial action would be taken. The remedial action proposed is that 
the requirements for imported gasoline would be made more stringent. 
This would ensure the environmental neutrality of this approach.
    Under this approach, the procedures and methods for setting an IB, 
as well as the tracking, segregation and other compliance related 
provisions described below would all apply. However, they would only 
apply where a foreign refiner chose to apply for an IB.
    Under this approach, the volume of gasoline that could be imported 
under the IB for a foreign refinery would be limited in the same manner 
as for domestic refiners, relative to a refinery's 1990 baseline 
volume. Since the foreign refiner sought an IB in order to specifically 
produce gasoline for the U.S. market, the tracking and segregation 
requirements noted above should not have a significant impact on the 
ready availability of gasoline for import. The current requirements for 
imported gasoline would continue to apply for all of the other gasoline 
imported into the U.S. DOE does not believe this approach has the 
potential to adversely impact gasoline supply and prices.
    There is however some concern about the possible environmental 
impact of such an approach. A foreign refiner may seek an IB only if it 
would be less stringent than the SB. Gasoline produced by this foreign 
refiner would then be measured against this less stringent IB. Other 
imported gasoline would be measured against the SB. As

[[Page 24780]]

compared to the situation in 1990, there would be the potential for the 
quality of imported gasoline to degrade from an emissions perspective.
    The size and amount of this impact, however, is difficult to 
quantify. It would depend on the number of foreign refiners that 
received an IB, the specific emissions levels of the IBs assigned, and 
the volume of gasoline included in the IB.5 It would also 
depend on the source and amount of CG and RFG imported into the U.S. in 
a specific year. It is also hard to quantify to what extent, if any, 
foreign refiners who produced gasoline in 1990 that was cleaner that 
the SB would ship gasoline that is dirtier than what they shipped in 
1990. These circumstances, as well as the existence of a volume cap on 
the use of IB's, and the large variation in the total levels of CG and 
RFG imports each year make it difficult to assess in advance the risk 
of an adverse environmental impact.
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    \5\ To date, only a limited number of foreign refineries have 
indicated an interest in establishing an IB. However, under the 
proposal any foreign refiner could apply for an IB.
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    EPA is proposing to address the potential environmental concerns 
with this approach by (1) establishing a benchmark for the quality of 
imported gasoline that would reasonably identify when the factors 
identified above have led to an adverse environmental impact, (2) 
monitoring imported gasoline to determine whether the benchmark has 
been exceeded, and (3) if an exceedance of the benchmark occurs, 
imposing a remedy that compensates for the adverse environmental 
impact.6
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    \6\ EPA has adopted an analogous approach in the RFG program. 
Domestic refiners may chose to meet certain RFG requirements on 
average, instead of meeting the RFG per-gallon requirements. However 
a refiner who chooses the averaging requirements must implement a 
compliance survey for the covered areas involved. In a compliance 
survey the emissions quality of the retail gasoline in a covered 
area is tested, and the average gasoline quality is compared to a 
preestablished benchmark. If the average quality falls short of the 
benchmark, the compliance requirements for RFG used in that covered 
area are increased in stringency by a specified amount. Surveys are 
conducted each year, and the requirements are increased in 
stringency each time the area fails an annual compliance survey. The 
stringency of the requirements can be reduced if the area does not 
fail a compliance survey for a specified number of years. See 40 CFR 
80.41, 80.68.
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    As discussed below, the proposed benchmark for imported gasoline 
quality would be the volume-weighted average of the IBs for domestic 
refiners. As discussed below, EPA is proposing a benchmark for exhaust 
NOX set at the volume weighted average for domestic 
baselines. No benchmark would be set at this time for toxics, as there 
does not appear to be the same potential for environmental degradation 
that there could be for NOx.
    EPA would monitor the quality of imported gasoline based on the 
annual compliance reports filed by importers and foreign refiners 
producing gasoline that is exported to the U.S. Each year EPA would 
evaluate the volume weighted annual average quality of the three prior 
years and compare it to the benchmark. If the average quality of 
imported gasoline exceeded the benchmark, NOx requirements for gasoline 
imported from refiners without an IB (currently set at the SB) would 
increase in stringency the following year by an amount equivalent to 
the exceedance. This would occur each time the annual monitoring 
indicated that the benchmark was exceeded. If the amount of an 
exceedance either increased or decreased, the amount of the remedy 
would be correspondingly adjusted. If the annual monitoring showed that 
imported gasoline did not exceed the benchmark, the compliance 
requirements would be reduced to the SB for the following year. The 
more stringent requirement would apply to all imported gasoline except 
for gasoline produced by foreign refiners with an IB.
    EPA's proposed approach meets the goals announced in the Invitation 
for Public Comment, and avoids the potential supply, price and 
environmental consequences of the alternative approaches considered by 
EPA.

B. Requirements for Foreign Refiners with Individual Refinery Baselines

1. Establish Refinery Baselines
    Under this proposal, a foreign refiner would have the option of 
submitting an individual refinery baseline petition to EPA. The 
refinery baseline would reflect the quality and quantity of gasoline 
produced at the foreign refinery in 1990 that was exported to the U.S.
    The procedures for establishing individual refinery baselines are 
listed in Secs. 80.90 through 80.93. These procedures were used by 
domestic refiners to predict their overall gasoline quantity and 
quality for 1990. The procedures require the use of data from 1990 
gasoline or gasoline blendstocks where available. If this data is not 
available, post-1990 gasoline must be sampled and tested. The refiner 
must then compare its 1990 and post-1990 refinery operations, and 
identify all changes in operations that could cause the 1990 and post 
1990 fuel parameters to differ in quality or volume. The refiner must 
then adjust the post-1990 data to account for these differences, 
thereby deriving the quality and volume of the gasoline produced in 
1990.
    EPA is proposing that foreign refiners that elect to develop 
individual refinery baselines would also follow these procedures. 
Additionally, EPA is proposing that foreign refiners would use these 
procedures to determine the quality and quantity of gasoline they 
produced in 1990 that was exported to the U.S. Specifically, in today's 
proposed regulations, EPA has included requirements that baseline 
submittals for foreign refineries would have to include information 
that would estimate the refinery's overall 1990 gasoline quantity and 
quality, and the quantity and quality of the subset of the refinery's 
gasoline that was exported to the United States in 1990. Under 
Sec. 80.92 baseline petitions would have to be supported by the report 
of an EPA-approved baseline auditor.
    i. Required Information. The requirements for establishing 
individual foreign refinery baselines would be basically the same as 
the baseline establishment requirements for domestic refineries. EPA is 
proposing additional requirements for foreign refineries that address 
the unique circumstances associated with establishing the quality and 
quantity only of gasoline sent to the U.S. in 1990.
    The procedures for developing individual refinery baselines, set 
forth in Secs. 80.90 through 80.93, are highlighted below and discussed 
with respect to foreign refineries. Comments are requested on EPA's 
extension of the baseline development procedures to foreign refineries, 
especially where modifications have been proposed to account for the 
unique circumstances associated with foreign refinery baselines.
     A foreign refinery's individual baseline (i.e., quality 
and quantity information) would be calculated using, in hierarchical 
order based on the availability of data, 1990 gasoline test data 
(Method 1), 1990 blendstock test data (Method 2), or post-1990 
blendstock and/or gasoline test data (Method 3) for its total 1990 
gasoline production in the same manner required of domestic refiners. 
Foreign refineries have the additional requirement of using these 
methods to determine the quality and quantity of the subset of gasoline 
exported to the United States in 1990.
     All data collected beginning in 1990 and through the last 
date of any data collection under Sec. 80.91(d)(1)(I)(B) must be used 
in the development of both the overall refinery baseline and the 
baseline of the gasoline exported to the U.S. in 1990.
     Baseline petitions would have to be submitted in the same 
manner as is

[[Page 24781]]

required of domestic refiners under Sec. 80.93, except that EPA is 
proposing that baseline petitions would have to be submitted before 
January 1, 2002. This would allow for the collection of both summer and 
winter data and the preparation of a baseline petition subsequent to 
June 1, 2000, the scheduled date EPA would announce the average quality 
of imported gasoline for the first monitoring period of 1998 and 1999. 
EPA would require the same type and quality of information and level of 
accuracy in establishing a baseline no matter when a foreign refiner 
applies for a baseline. Comments are requested on the appropriateness 
of this deadline.
     EPA is also proposing that in order for a refinery to 
receive an approved baseline, the refinery would have to commit to give 
EPA's auditors full access to the foreign refinery to conduct announced 
and unannounced inspections and audits related to the baseline 
development and submission. EPA baseline audits could occur at any time 
after a baseline petition has been submitted, either before or after 
EPA approves a refinery baseline.
     Under Sec. 80.93(b)(1)(I) foreign refiners would have to 
provide any additional information requested by EPA to support a 
baseline submittal or petition, as is true for domestic refiners.
     Under Sec. 80.93(c) a separate baseline would be 
established for each foreign refinery. However, as is the case of U.S. 
refiners a foreign refiner could petition EPA for a single refinery 
baseline for two closely integrated facilities under Sec. 80.91(e)(1). 
In addition, as is the case for U.S. refiners a foreign refiner who 
operates more than one refinery with individual baselines would be able 
to aggregate the baselines of some or all of its refineries under 
Sec. 80.101(h).
     EPA is proposing that all documentation included in a 
baseline submission or petition would have to be in the English 
language or include an English language translation.
    EPA requests comments on any aspects of the baseline development 
regulations, Secs. 80.90 through 80.93, relative to the development of 
foreign refinery baselines, particularly concerning any unique aspects 
of developing or verifying foreign refinery baselines for a refinery's 
total 1990 gasoline production and for the subset of gasoline exported 
to the U.S. in 1990.
    ii. EPA Action on Baseline Submissions. As for the domestic refiner 
baseline approval process, EPA would subject foreign refinery baseline 
submissions to an in-depth analysis and review. EPA would also reserve 
the right to inspect, audit and review all records or facilities used 
to generate data submitted to the Agency prior to acting on a baseline 
submission or petition.
    After conducting its review of the data and analysis in a baseline 
submission, EPA would assign an individual baseline that represents the 
quality and quantity of gasoline exported to the U.S. in 1990. EPA will 
consider all information submitted and the analysis performed by the 
refiner and the baseline auditor in assigning a foreign refinery 
baseline. EPA expects the refiner's submission to consider all relevant 
factors in determining the quality and quantity of the subset of 
gasoline sent to the U.S. in 1990. This would include consideration of 
the grades of gasoline sent to the U.S., the season for which the 
gasoline was produced, the types of crude oil and blendstocks used, the 
effect of fuel requirements in the U.S. in 1990, and any other factors 
that would affect how the quality and quantity of a refinery's U.S. 
market gasoline might vary from other gasoline produced at that 
refinery.
    EPA believes individual refinery baselines can be established for 
foreign refineries for which individual baselines are sought to the 
same degree of confidence as the baselines established for domestic 
refineries, through use of all available data, and the ability to use 
current data and operating conditions to estimate 1990 gasoline quality 
and quantity.
    The baseline approval process is an iterative one, beginning with 
the submission of the baseline or a baseline petition. EPA, any EPA 
contractors, representatives of the foreign refinery knowledgeable of 
the refinery's baseline development, and the refinery's baseline 
auditor will all be closely involved throughout. EPA expects that its 
questions regarding the baseline submission or petition will receive 
quick and adequate response from the refinery's representatives. To 
this end, EPA believes it would be useful to have an English-speaking 
foreign refinery representative knowledgeable about the baseline 
development of the refinery as the main contact.
    EPA would not assign an individual refinery baseline where an 
individual refinery baseline submission is significantly incomplete, or 
inadequate to establish an accurate baseline, and the refiner fails to 
cure the defect after a request for more information. In such a case 
the refinery would not receive an individual baseline.
2. Compliance with CG Exhaust Toxics and NOX Requirements
    EPA is proposing that foreign refiners who obtain individual 
foreign refinery baselines would have to meet the exhaust toxics and 
NOX emissions performance requirements for CG produced at 
the foreign refinery that is exported to the United States. In 
addition, foreign refiners with an individual refinery baseline would 
be required to meet all requirements used to demonstrate compliance 
with the CG performance requirements. These are the same requirements 
that apply to domestic refiners, and include the following:
     To register with EPA, Sec. 80.103.
     To designate each batch of CG or RFG, Sec. 80.65(d).
     To determine the volume and properties of each CG batch 
through sampling and testing, Sec. 80.101(I).
     To determine the volume of each RFG batch in order to 
complete the CG compliance baseline calculation in Sec. 80.101(f).
     To prepare product transfer documents for RFG and CG, 
Secs. 80.77 and 80.106.
     To keep certain records for five years, Secs. 80.74 and 
80.104.
     To submit reports to EPA on each batch of RFG and CG, on 
the volume of RFG, and on the annual average quality of CG, Secs. 80.75 
and 80.105.
     To comply with an annual cap on the volume of specified 
blendstocks that are transferred to others and used to produce gasoline 
for the U.S., Sec. 80.102.
     To have an independent audit performed of refinery 
operations each year to review certain activities related to the RFG 
and CG requirements, Secs. 80.125 through 80.130. However, the audit 
procedures for RFG would be limited to the procedures that evaluate the 
quantity of RFG, and audits would not be required to include procedures 
intended to verify information about RFG that is unrelated to the 
compliance baseline calculation, such as RFG quality or VOC-control 
designations.
     To not combine CG with RFG and classify the mixture as 
RFG, Sec. 80.78(a)(10).
    Certain adjustments to these provisions are specified in the 
proposed regulations to apply them to foreign refiners.
    EPA believes that foreign refiners with individual baselines should 
be able to meet these requirements as do domestic refiners, and EPA 
would intend to monitor compliance with, and enforce violations of 
these requirements with regard to foreign refiners just as for domestic 
refiners.

[[Page 24782]]

    Under Sec. 80.101(f) a compliance baseline for exhaust toxics and 
NOX compliance is calculated for each calendar year 
averaging period based on a refinery's 1990 baseline volume and 
baseline exhaust toxics and NOX values, and the total 
gasoline volume (CG and RFG \7\) produced at the refinery during the 
averaging period.\8\ As a result, a foreign refiner with an individual 
refinery baseline would be required to establish the volume of U.S. 
market gasoline that is RFG in order to calculate the refinery's 
compliance baseline for the exhaust toxics and NOX CG 
requirements.\9\
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    \7\ The compliance baseline equation at Sec. 80.101(f) requires 
a refiner to include the volumes of all gasoline used in the U.S., 
including CG, RFG, RFG blendstock for oxygenate blending (RBOB), and 
California gasoline under Sec. 80.81. Thus, a foreign refiner would 
be required to include each of these products in the compliance 
baseline calculations, and to meet the refinery of origin tracking 
requirements that are described below. However, for ease of 
discussion this preamble will collectively refer to all non-CG 
products as RFG.
    \8\ Under Sec. 80.101(f) compliance baselines are calculated for 
a refinery each calendar year using an equation that caps use of 
individual refinery baselines based on the refinery's total gasoline 
production (RFG and CG) during an averaging period, as compared to 
the refinery's 1990 baseline volume. Thus, where a foreign 
refinery's volume of gasoline for the U.S. (CG and RFG) during an 
averaging period is equal to or less than the refinery's 1990 
baseline volume, the refinery's compliance baseline emission values 
for CG for the averaging period would be the refinery's 1990 
baseline emission values. However, where a refinery's gasoline 
volume during an averaging period exceeds the refinery's 1990 
baseline volume, the refinery's compliance baseline emission values 
for the averaging period would move in the direction of the 
statutory baseline emission values. In the case of foreign refiners, 
these calculations would use only the volumes of gasoline that were 
exported to the U.S. in 1990 and during the averaging period.
    Section 80.101(b) requires use of compliance baselines only for 
the simple model requirements that apply before 1998. However, in 
another rulemaking EPA will be proposing to require use of 
compliance baselines for the complex model requirements that apply 
beginning in 1998, and EPA believes any change to the compliance 
baseline provision will be final before 1998. As a result, this 
foreign refiner proposal assumes that compliance baselines will be 
required for exhaust toxics and NOX compliance. In any 
case, the same provision would apply to both domestic and foreign 
refiners.
    \9\ EPA is proposing that if a foreign refiner begins using an 
individual refinery baseline on a date other than on January 1, the 
compliance baseline calculation for the initial year would use a 
reduced baseline volume to reflect the portion of the year the 
individual refinery baseline is in use.
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    Therefore, a foreign refiner with an individual refinery baseline 
would be required to designate each batch of U.S. market gasoline as CG 
or RFG, to establish the volume and properties of U.S. market batches 
that are designated as CG, and to establish the volume of U.S. market 
batches that are designated as RFG. The CG and RFG produced at a 
foreign refinery with an individual baseline is called ``Foreign 
Refiner Gasoline,'' or ``FRGAS,'' in this proposal.
    All foreign refiners with individual refinery baselines would be 
required to submit annual reports to EPA that demonstrate the average 
exhaust toxics and NOX emissions for CG FRGAS meets the 
refinery's compliance baseline for the averaging period.
    Additional requirements, described below, would allow EPA to 
monitor that the specific barrels of gasoline identified by the foreign 
refiner as U.S. market gasoline actually is delivered for use in the 
United States, and to conduct enforcement audits and inspections of 
foreign refinery operations.
    Under today's proposal, CG FRGAS would be treated basically under 
the same rules as gasoline produced for the U.S. market at a domestic 
refinery. The CG FRGAS would be subject to the same CG requirements as 
the CG produced by domestic refiners. Starting in 1998 a refinery's 
annual average CG exhaust toxics and NOX emissions could not 
exceed its individual baseline for these fuel characteristics. In order 
to evaluate compliance, however, CG FRGAS would need to be designated 
as such at the point of production, and would need to be tracked to 
determine that it in fact is exported to the U.S.
    In order to determine compliance with the CG requirements for 
FRGAS, the quality and quantity of each batch of CG must be determined. 
The volume of RFG FRGAS also would have to be determined, because the 
compliance baseline applicable to a refinery depends on the total 
volume of gasoline produced at a refinery for the U.S. market, 
including both CG and RFG. To determine the quality and/or quantity of 
this gasoline, a foreign refiner would have to designate FRGAS when it 
is produced. It also is important that gasoline used in a foreign 
refinery's compliance calculation all be designated as FRGAS and 
actually imported into the U.S.
    EPA expects foreign refiners would be able to determine how much 
FRGAS they intend to produce, and would be able to institute reasonable 
distribution and marketing changes to implement the proposed 
requirements. A foreign refiner of FRGAS would need to monitor the 
gasoline quality to ensure it meets the CG requirements, and this 
gasoline normally would be subject to emissions requirements that are 
different from those in other markets. The additional requirements 
proposed today all flow from this and could be implemented in a 
reasonable fashion.
    However, a major change could occur in a foreign refiner's ability 
to change the destination of FRGAS after the gasoline has left the 
foreign refinery and has entered the distribution system. Under the 
current regulations, such gasoline could at any time be sent to the 
U.S. market, including after it has left the foreign refinery. Gasoline 
currently may be taken from a fungible distribution system and sent to 
the U.S., as long as the importer's annual average meets their 
compliance baseline. This would not be possible for FRGAS under the 
requirements discussed above. Unless a foreign refiner designates FRGAS 
at the point of production, it would not meet the requirements 
described above for export of FRGAS to the U.S.
    EPA requests comment on whether foreign refiners with individual 
baselines should be allowed to divert to non-U.S. markets gasoline 
shipments that originally were intended for the U.S. market where the 
foreign refiner can demonstrate the gasoline in fact was not imported 
into the U.S., and if so, the type of showing that should be required.
    EPA also requests comment on whether a foreign refiner with an 
individual refinery baseline should be given the option of classifying 
CG as FRGAS or as non-FRGAS. If this option were allowed a foreign 
refiner could have two categories of CG: CG that is classified as 
FRGAS, and CG that is not classified as FRGAS.
    In the case of CG that is classified as FRGAS the foreign refiner 
would include the gasoline in the refinery CG compliance calculations, 
and would meet the refinery tracking requirements, described below. CG 
that is not classified as FRGAS would be excluded from the refinery CG 
compliance calculations, and the refiner would not be required to meet 
the refinery tracking requirements.
    However, the foreign refiner would continue to be required to 
include all RFG produced in compliance baseline calculations and to 
meet the refinery tracking requirements for all RFG, i.e., all RFG 
would have to be classified as FRGAS. This distinction between RFG and 
CG is necessary in order to prevent adverse environmental effects. As 
in the case of domestic refiners, all RFG must be included in a 
refinery's compliance baseline calculation because a larger RFG volume 
results in a larger volume of CG that is subject to the statutory 
baseline. In contrast, there is no adverse environmental effect if a 
refiner classifies CG as non-FRGAS, because the non-FRGAS CG would be 
subject to the statutory baseline by default.
    Under the option of allowing foreign refiners to elect to classify 
CG as FRGAS, the U.S. importer would meet

[[Page 24783]]

the tracking requirements, described below, only for the CG batches 
that are identified as FRGAS. EPA would be able to monitor foreign 
refinery compliance by comparing the volume of each refinery's gasoline 
identified as FRGAS as reported by U.S. importers, with the volume 
reported by the foreign refiner.
Requirements for Tracking Refinery of Origin
    The proposed requirements concerning CG FRGAS are premised on 
foreign refiners accurately identifying the gasoline (both CG and RFG) 
that is exported to the U.S. There is the potential for adverse 
environmental results if a foreign refiner includes in CG compliance 
calculations gasoline that is not exported to the U.S. In addition, 
there is environmental risk if a foreign refiner fails to include in CG 
compliance calculations gasoline that is exported to the U.S.
    For this reason EPA is proposing requirements to ensure that 
gasoline is properly identified as FRGAS at the U.S. port of entry, and 
that all gasoline designated as FRGAS by a foreign refiner is in fact 
delivered to the U.S. These proposed requirements also would give U.S. 
importers the information necessary to demonstrate that imported CG is 
in fact FRGAS in order to exclude the gasoline from the importer's CG 
compliance calculations. EPA would be provided the information 
necessary to monitor compliance by foreign producers of FRGAS.
    Test results at the U.S. port of entry, in the absence of 
additional information, are inadequate to distinguish between gasoline 
that is FRGAS, and other gasoline. In addition, without additional 
requirements EPA would have scant ability to know if all the gasoline 
included in a foreign refiner's CG compliance calculations in fact was 
delivered to the U.S.
    The requirements proposed today to address this issue involve 
segregation of FRGAS produced at each foreign refinery; documentation 
prepared by the foreign refiner certifying that FRGAS is being included 
in the foreign refinery's compliance calculations; sampling and testing 
at the load port and the port of entry; independent attest engagements 
by the foreign refiner to verify the volumes claimed by the foreign 
refiner; and determinations by an independent party of the volume, 
quality and refinery of origin of FRGAS loaded onto a ship.
    i. Segregation of FRGAS. In the absence of restrictions, FRGAS from 
multiple foreign refineries could be stored, transported, combined and 
recombined, and sold and resold, by parties other than the foreign 
refiner in locations other than those controlled by the foreign 
refiner, and in countries other than those where the foreign refinery 
is located. EPA would have to rely on assertions and records of third 
party owners or custodians that gasoline imported into the U.S. as 
FRGAS contains only FRGAS. EPA is concerned that it would be unable to 
routinely conduct the types of inspections and audits of these third 
parties that would be necessary to ensure that non-FRGAS is not mixed 
with FRGAS, and that FRGAS is not diverted to non-U.S. markets.
    The factors giving rise to these concerns are not present in the 
case of gasoline produced at domestic U.S. refineries, because there is 
little question of which gasoline produced at domestic refineries is 
used in the U.S. Gasoline produced at U.S. refineries is sampled and 
tested before leaving the refinery, and almost all then immediately 
enters U.S. commerce. Gasoline to be exported from the U.S. normally is 
identified at the time of production, and always is identified when 
actually leaving the U.S. As a result, and in contrast to the situation 
for foreign refineries, EPA can enforce the requirements for CG 
produced at domestic refineries based on refinery gate testing and 
reporting, with no need to track the gasoline after leaving the 
refinery.
    EPA is proposing that the FRGAS produced at each foreign refinery 
must remain physically segregated from the FRGAS produced at other 
foreign refineries, from the foreign refinery to the U.S. port of 
entry. As a result of this requirement, when a foreign refiner loads 
FRGAS onto a ship for transport to the U.S. the foreign refiner must 
know the gasoline is exclusively FRGAS that is being included in the 
refinery compliance calculations, or compliance baseline calculations 
in the case of RFG.
    This segregation requirement would not prohibit a foreign refiner 
from combining batches of CG FRGAS, or combining batches of RFG FRGAS, 
that are produced at a single refinery into larger volumes for 
shipment. In addition, EPA is proposing that the FRGAS produced at 
multiple refineries that have been aggregated under Sec. 80.101(h) 
could be combined, because aggregated refineries must be operated by 
the same refiner.
    EPA requests comment on whether a foreign refiner with more than 
one refinery should be allowed to mix FRGAS produced at its different 
refineries prior to shipment to the U.S.
    Under today's proposal there is no need to track gasoline produced 
at foreign refineries after the gasoline leaves the U.S. port of entry, 
and foreign-produced gasoline then could be fungibly mixed in the same 
manner as gasoline produced at domestic refineries.
    ii. Foreign Refiner Certification of FRGAS. EPA is proposing that 
foreign refiners of FRGAS would be required to prepare a certification, 
signed by an appropriate foreign refiner official, for FRGAS when it is 
loaded onto a ship for transport to the U.S. This certification would 
identify the gasoline as being FRGAS, the foreign refinery where the 
FRGAS was produced, the volume and properties of the FRGAS being 
transported, and a declaration that CG FRGAS is being included in the 
CG exhaust toxics and NOx compliance calculations for the foreign 
refinery. The volume and properties of CG, and the volume of RFG, 
contained in each ship compartment would have to be separately 
identified.
    The foreign refiner certification would have to be supported by an 
inspection by an independent, EPA-approved third party such as an 
independent laboratory. The independent party would review documents 
that reflect the transportation and storage of the FRGAS in question 
from the point of production at the foreign refinery to the point of 
ship loading. The inspector thus would confirm the refinery of origin 
and that there was no fungible mixing of the FRGAS with any gasoline 
produced at any other refinery. The independent party also would be 
required to confirm the volume and properties of the CG FRGAS, and the 
volume of RFG FRGAS, loaded onto the ship, through inspection of the 
ship prior to loading, and measurement and sampling of the gasoline 
contained in each ship compartment subsequent to loading.
    The independent party would prepare a report on these inspections 
that would become a part of the foreign refiner's certification. EPA is 
proposing that the independent party also would submit an inspection 
report to EPA.
    iii. U.S. Importer Receipt of FRGAS. A U.S. importer would classify 
imported CG as FRGAS if the gasoline is accompanied by a foreign 
refiner certification that is properly supported by an independent 
party's report. In addition, the volume and properties of the CG 
measured by the U.S. importer at the U.S. port of entry would be 
compared with the load port volume and property measurements, and this 
comparison would have to indicate that the FRGAS loaded onto the ship 
was not mixed with other gasoline or otherwise changed en route to the 
U.S. The same

[[Page 24784]]

would apply for RFG FRGAS, but only the volume would be reviewed. 
10
---------------------------------------------------------------------------

    \10\  However, an importer of RFG is required under Sec. 80.65 
to determine the volume and properties of imported RFG.
---------------------------------------------------------------------------

    The proposed regulations include criteria for comparing the load 
port and port of entry testing. The test results would have to agree, 
for each relevant Complex Model parameter, within the limits used for 
comparing domestic refiner and independent laboratory test results in 
Sec. 80.65(e). EPA also is proposing that the two volume 
determinations, corrected for temperature and density, would have to 
agree within one percent. EPA believes this level of volume correlation 
is appropriate because it is well within the level of correlation 
normally expected in commercial transactions. EPA understands that 
protests normally are initiated if ship volume determinations in 
commercial dealings differ by 0.5%.
    EPA requests comment on the proposed requirements for comparing 
load port and port of entry testing, and on any other approach for 
these comparisons that would be preferable to those proposed. In 
particular, EPA requests comment on whether load port and port of entry 
testing could rely on a subset of the properties listed in Sec. 80.65, 
and whether the test-to-test differences allowed in Sec. 80.65 are more 
or less stringent than necessary.
    Importers would be required to include in their CG compliance 
calculations any imported CG for which the importer does not obtain a 
certificate by the foreign refiner supported by a report prepared by an 
independent third party.
    In the case of CG for which the importer obtains a properly 
supported foreign refiner certificate, but where the volume and/or 
parameter results from the load port and port of entry do not meet the 
correlation requirements, the gasoline nevertheless would be imported 
as FRGAS. However, the foreign refiner would have to adjust its CG 
compliance calculations to reflect the exhaust toxics and 
NOX emissions of the FRGAS as tested at the U.S. port of 
entry if these emissions results, in grams per mile, are higher than at 
the load port, and based on the larger of the two volume measurements 
if the volumes do not properly correlate. If the parameter results 
correlate but the volumes do not, the foreign refiner would have to 
adjust its CG compliance calculations to reflect the volume measured at 
the U.S. port of entry.
    EPA is proposing that U.S. importers would report to EPA on each 
batch of FRGAS imported, that would identify the foreign refinery, 
whether the FRGAS is CG or RFG, the volume and properties of CG FRGAS, 
and the volume of RFG FRGAS.
    iv. Attest Engagement Requirements. Under today's proposal foreign 
refiners of FRGAS would be required to meet the independent attest 
engagement requirements in Secs. 80.125 through 80.130, the same as 
domestic refiners, although the attest requirements for RFG are limited 
to those related to the volume of RFG produced at a foreign 
refinery.11 EPA is proposing additional attest requirements 
that relate to the FRGAS requirements. These attest requirements would 
supplement the requirements regarding an independent party 
determination of the refinery that produced FRGAS loaded onto a ship. 
The focus of the attest requirements would be on the foreign refinery 
operations while the independent party's primary focus would be on the 
transportation and storage of gasoline from the refinery to the point 
of ship loading.
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    \11\ ``Attest engagement'' is a term of art used by auditors to 
describe the conduct of specified audit procedures--the auditor 
attests to the conduct and results of the specified audit, or 
attest, procedures completed during the attest engagement. The 
requirements in Secs. 80.125 through 80.130 consist of specified 
attest procedures dealing with the Gasoline Rule and instructions 
for the conduct of these procedures.
---------------------------------------------------------------------------

    Under the proposed procedures, the auditor would be required to 
confirm the overall production for the refinery in question, and that 
the gasoline claimed to be RFG and CG FRGAS was part of that overall 
production. The attester would confirm the transfer of FRGAS from the 
refinery to ships and would identify the ships. In addition, the 
auditor would use commercial publications that list vessel sailings to 
confirm that ships used to transport FRGAS traveled to the U.S.
    EPA is proposing that the attest requirements would be fulfilled 
either by auditors who are independent under Sec. 80.65(f)(2)(ii), and 
who either are U.S. certified public accountants (CPA's) or who are 
approved by EPA. EPA approval would be based on the ability to perform 
the required work as demonstrated through a petition process.
    Independent auditors would have to agree to allow EPA inspections 
and audits relative to their work under the Gasoline Rule for the 
foreign refiner in a manner similar to the commitments required by 
foreign refiners, described below.
    v. Requirements for Third Parties. EPA is proposing that FRGAS 
sampling, testing, volume determinations and determinations of refinery 
of origin at the loading port would have to be performed by an 
independent party. The proposed criteria for independence would be the 
same criteria that apply for the independent sampling and testing 
requirement for domestic refiners and importers, and that are specified 
at Sec. 80.65(f)(2)(ii). In addition, EPA is proposing that persons 
performing this work would have to be EPA approved. EPA approval would 
be based on the ability to perform the required work as demonstrated 
through a petition process.
    EPA also is proposing that independent parties would have to agree 
to allow EPA inspections and audits relative to their work under the 
Gasoline Rule for the foreign refiner that are similar to the 
commitments required by foreign refiners, described below.
4. Measures Related to Monitoring Compliance and Enforcement
    i. Introduction. EPA believes the proposed requirements for foreign 
refiners with individual refinery baselines must be subject to strong 
measures for monitoring compliance and enforcing violations. However, 
there are a number of unique problems associated with monitoring 
compliance and enforcing requirements for parties and transactions that 
occur overseas. EPA is proposing a range of provisions designed to 
address these concerns in a comprehensive manner. These provisions are 
intended to promote EPA's ability to monitor compliance with the 
requirements related to foreign refinery baselines, to conduct 
enforcement actions when violations of these requirements are found, 
and to impose sanctions that would constitute a deterrent to future 
violations.
    The purpose of the proposed provisions is to assure EPA's 
compliance and enforcement activities with regard to foreign refiners 
will be on the same footing as domestic refiners, in order to assure 
achievement of the environmental objectives of the gasoline programs.
    ii. Inspections and audits. EPA would intend to inspect and audit 
foreign refineries with individual baselines and other facilities 
located overseas to determine compliance with requirements related to 
establishing a baseline, identifying refineries or origin, and other 
requirements proposed today. Foreign refiner inspections and audits 
would be like domestic refiner inspections and audits with regard to 
types of facilities visited, types of information reviewed, and types 
of persons who conduct the inspections and audits. In addition, the 
inspections

[[Page 24785]]

and audits would be both announced and unannounced, as with domestic 
inspections and audits.
    Inspections and audits would be conducted at foreign refineries 
with individual baselines, at laboratories where the foreign 
refineries' gasoline is tested, at offices of pipelines, terminals and 
other third parties who had title or custody to gasoline between its 
production and arrival in the U.S., and at offices of independent third 
parties and independent auditors who have tested the refineries' 
gasoline or audited the refineries' operations under EPA requirements. 
The inspections and audits would be conducted by EPA employees and by 
contractors to EPA.
    Refinery baseline audits would include reviews of records that were 
used to prepare baseline petitions, including refinery production, 
testing and shipment records that are relevant to baseline 
establishment, reviews of independent baseline auditor work papers, and 
interviews with refinery employees and others with knowledge about 
these records.
    Inspections and audits for compliance with requirements such as 
those related to identifying the source refinery for gasoline exported 
to the U.S. would focus on the sampling and testing requirement, and on 
gasoline movements from the foreign refinery to the foreign load port. 
Sampling and testing would be evaluated by reviewing sampling and 
testing records, observing samples being collected and analyzed, by 
interviewing persons involved in sampling and testing, and by 
collecting gasoline samples for analysis by EPA. Source refinery 
assertions would be audited by reviewing records related to gasoline 
production, storage and transport at all locations from the foreign 
refinery to the foreign load port, and by interviewing persons at these 
locations. In addition, EPA would review the work papers of the 
independent third party, and the independent auditor, who verify the 
source refinery identification, and would interview these individuals.
    EPA is proposing that foreign refiners would have to agree to allow 
full and complete access to EPA employees and contractors to conduct 
inspections and audits as a condition to establishment of a baseline, 
and would have to use independent third parties and independent 
auditors who agree to give EPA full and complete access as well.
    The agreements would have to specify that EPA inspections and 
audits may be either announced or unannounced, and may be conducted by 
any authorized representative of EPA, including EPA employees and 
contractors. The foreign refiner, third parties, and auditors would 
have to agree to supply documents requested by an EPA inspector or 
auditor, and to make available for interview, within a reasonable time, 
any employee identified by EPA. The foreign refiner would have to agree 
to supply English language translations of documents requested during 
an audit, and to supply English language translators and/or 
interpreters to assist the EPA employees and contractors. The cost of 
supplying the English language translations, translators and 
interpreters would have to be borne by the foreign refiner.
    The foreign refiner agreement would have to be signed by the 
president or owner of the foreign refiner, and in the case of 
independent third parties and auditors by the president or owner of 
these companies.
    The foreign refiner would have to agree that authorized 
representatives of EPA would be allowed to enter the relevant 
facilities for the purpose of inspecting and auditing foreign 
refineries that export gasoline to the U.S., and facilities where 
gasoline exported to the U.S. are analyzed. These inspections could be 
for the following purposes:
     The inspection of gasoline production facilities;
     The collection of gasoline samples;
     The inspection of records related to gasoline production, 
sale, transfers, transport, storage, and sampling and testing; and
     The taking of testimony or statements of persons.
    The foreign refiner and third party commitments also would specify 
that EPA representatives would not be subject to civil liability that 
would result from any actions by the EPA representatives within the 
scope of their audit and inspection work, including any findings or 
conclusions regarding compliance or noncompliance by the foreign 
refiner with requirements that are the subject of the audits and 
inspections.
    The refiner agreement also would include a limited waiver of 
sovereign immunity with regard to refineries that are state owned, and 
with regard to any employees of state owned refineries. This waiver of 
sovereign immunity would include both civil and criminal liability, and 
would be limited to violations of Clean Air Act section 211(k) and the 
regulations promulgated thereunder at 40 CFR Part 80, subparts D, E and 
F, and other relevant laws and regulations including but not limited to 
Clean Air Act sections 113, 114, 211 (c) and (d), and Title 18 United 
States Code. This waiver of sovereign immunity also will apply to any 
employee or agent of a refinery owned or operated by the foreign 
government.
    Where a foreign refiner failed to abide by the terms of the foreign 
refiner agreement, or a foreign government failed to allow entry for 
the purpose of EPA inspections and audits, EPA could withdraw or 
suspend the refiner's individual refinery baseline.
    iii. Civil and criminal enforcement actions. A foreign refiner with 
an individual refinery baseline who submits false documents to EPA or 
who fails to meet other requirements would be subject to civil, and in 
certain cases criminal, enforcement, and EPA is proposing requirements 
that would facilitate prosecution of such violations. These 
requirements would consist of certain waivers and agreements by the 
foreign refiner that would be included in the agreement submitted to 
EPA, discussed above.
    EPA is proposing that each foreign refiner seeking an individual 
refinery baseline would be required to identify an agent for service in 
the U.S. and agree that service on this agent constitutes service on 
the foreign refiner and its employees. EPA also is proposing that the 
agent for service must be located in the District of Columbia.
    EPA is proposing that foreign refiners would have to agree that the 
forum for civil enforcement actions would be governed by Clean Air Act 
(CAA) section 205. CAA section 205(b) specifies that the venue for 
district court actions is either the district where the violation 
occurred or where the defendant resides or in the Administrator's 
principal place of business. However, EPA believes that the U.S. 
district court for the District of Columbia would be the appropriate 
court for violations related to the requirements proposed today that 
are committed by defendants who reside outside the U.S. Administrative 
assessment of civil penalties is allowed under CAA section 205(c) where 
the penalty amount does not exceed $200,000, or where the EPA 
Administrator and the Attorney General jointly determine that a case 
involving a larger penalty is appropriate for administrative penalty 
assessment.
    EPA is proposing that foreign refiners of FRGAS would have to agree 
that civil and criminal enforcement actions would use the same U.S. 
civil and criminal substantive and procedural laws that apply in 
enforcement actions against domestic refiners.
    iv. Sanctions for civil and criminal violations. The sanctions for 
civil and

[[Page 24786]]

criminal violations committed by foreign refiners with individual 
refinery baselines or employees of such foreign refiners would include 
the sanctions specified in the Clean Air Act. Under CAA section 211(d) 
the penalty for civil violations of the RFG and conventional gasoline 
requirements is up to $25,000 per day of violation plus the amount of 
economic benefit or savings resulting from the violation. Injunctive 
authority is included under section 211(d)(2) as well. CAA section 
113(c) specifies that the criminal penalty for first violations of 
knowingly making false statements or reports is a fine pursuant to 
title 18 of the U.S. Code, or imprisonment for up to 5 years, or both. 
The period of maximum imprisonment and the maximum fine are doubled for 
repeat convictions.
    EPA is proposing that foreign refiners seeking an individual 
refinery baseline would be required to post a bond with the U.S. 
Treasury that would be available to satisfy any civil penalty or 
criminal fine that is imposed against the refiner or its employees. The 
amount of this bond would be $0.01 per gallon of conventional gasoline 
exported by the refiner to the U.S. per year, based on the maximum 
annual volume of conventional gasoline exports during the most recent 
five year period during which the foreign refiner exported conventional 
gasoline to the U.S. using an individual refinery baseline. However, 
the initial bond amount would be based on the volume of conventional 
gasoline produced at a foreign refinery that was exported to the U.S. 
during the year immediately preceding the year the baseline petition is 
submitted.\12\ The foreign refiner would be required to submit with its 
baseline petition a bond to reflect this volume, and to include with 
its baseline petition information necessary to accurately establish the 
conventional gasoline volume for the preceding year. The foreign 
refiner then each year would take into account in its bond amount 
calculation the conventional gasoline volume for an additional year 
until there is a five year history, at which time the conventional 
gasoline volume review would include only the most recent five years.
---------------------------------------------------------------------------

    \12\ A foreign refinery's 1990 baseline volume would not be 
appropriate for setting the bond amount, because in 1990 the 
Gasoline Rule was not in effect, so there was no gasoline identified 
as conventional or RFG.
---------------------------------------------------------------------------

    As an alternative to posting the bond with the U.S. Treasury, a 
foreign refiner could meet the bond requirement by obtaining a bond in 
the proper amount from a third party surety agent that would be payable 
to satisfy U.S. administrative or judicial judgments against the 
foreign refiner, provided EPA agrees in advance as to the third party 
and the nature of the surety agreement.
    As with domestic refiners, any violation of a regulatory 
requirement by a foreign refiner could result in the imposition of 
penalties. For foreign refiners with individual refinery baselines the 
assessment of a penalty also could result in the forfeiture of a bond 
to satisfy the penalty. This would, for example, include a failure to 
allow EPA inspections and audits; failure to submit required audit 
reports prepared by an independent auditor; or failure to properly 
identify the source refinery for FRGAS.
    EPA is proposing that if a foreign refiner with an individual 
refinery baseline fails to meet the requirements proposed today, 
including those that apply to all refiners under the current 
regulations, and/or the additional requirements that would apply only 
to foreign refiners, then EPA could administratively withdraw or 
suspend its individual refinery baseline.
    EPA is proposing that withdrawal or suspension of an individual 
refinery baseline could be imposed for all of the refineries operated 
by a foreign refiner, or for a subset of a foreign refiner's refineries 
where appropriate. EPA would impose this sanction in a particular case 
only after evaluating the circumstances and exercising its discretion 
based on factors such as egregiousness, willfulness and prior 
violations. The withdrawal or suspension could be imposed for a limited 
time.

C. Baseline Adjustment for Imported Gasoline that is Not FRGAS

1. Introduction
    Allowing foreign refiners to choose whether to establish an IB 
creates a potential for adverse environmental impact. This would be 
addressed by monitoring the quality of imported gasoline, comparing it 
to a benchmark, and taking remedial action if the benchmark is 
exceeded. The details of this proposal are described below.
2. Monitoring
    Under the current regulations, importers submit an annual report 
concerning the quality of the CG they import. See 40 CFR 80.105. 
Importers submit an annual report after the end of the calendar year, 
comparing the quality of the gasoline they imported against the 
applicable annual average requirements. Starting in 1998, these 
requirements are for exhaust toxics and NOX emission 
performance, determined under the Complex Model.
    Under the current rules, the annual report is due by the last day 
of February following the end of the annual averaging period. An attest 
engagement report is due by May 30th. The importer's report must 
include the total gallons of CG imported, the annual average compliance 
baseline, and the annual average for the gasoline imported that 
calendar year. The importer must also include the volume, grade and 
qualities for each batch of imported gasoline.
    Under today's proposal, importers would continue to submit the 
reports described above for CG produced by foreign refiners without an 
IB. For gasoline produced by a foreign refiner with an IB, both the 
importer and the foreign refiner would submit reports to EPA. In 
combination these reports would contain all of the information 
submitted for gasoline produced by refiners without an IB.
    These annual reports submitted by importers and foreign refiners 
would provide EPA with batch by batch information for all CG imported 
during that year. From these, EPA could determine the volume weighted 
average quality for all imported CG. This would be a simple and 
straightforward way to monitor imported gasoline quality. Additional 
sampling and testing by EPA would be duplicative, as the importer must 
sample and test each batch of imported gasoline. 40 CFR 80.101(I).
3. An Appropriate Benchmark
    The purpose of the benchmark is to reasonably determine when 
allowing foreign refiners the option to use an IB or to not use an IB 
has caused degradation of the quality of imported gasoline from 1990 
quality of imported gasoline.
    Ideally, EPA would use the volume weighted average of the quality 
of gasoline sent to the U.S. by foreign refineries in 1990. EPA does 
not have this information, but does have information on the volume 
weighted average baselines for domestic refineries. This average 
accounts for approximately 95% of the U.S. gasoline market in 1990, and 
reflects a wide diversity in types and kinds of refineries. There is no 
available data indicating that gasoline imported from foreign 
refineries was not consistent with this average, and absent evidence to 
the contrary it is not unreasonable to assume that average foreign 
gasoline quality in 1990 was generally equivalent to domestic gasoline 
quality. Also it would not be reasonable to measure overall quality for 
gasoline produced by

[[Page 24787]]

foreign refiners using stricter criteria than that applied to domestic 
refiners, in the absence of evidence indicating otherwise.
    The benchmark should be set at a point such that an exceedance of 
the benchmark reasonably indicates that the average quality of imported 
gasoline has degraded from 1990 levels because of the option provided 
to foreign refiners in using or not using an IB. Many additional 
factors also affect the average quality of imported gasoline. For 
example, there is a wide variety in the level of imports from year to 
year. The source and volume of imports from specific countries and 
refineries also varies significantly from year to year. Despite general 
trends in amount and source of imported gasoline, there remains a lot 
of year to year variability. A change in average gasoline quality 
during any particular year therefore might indicate the effects of 
allowing the option for IBs, or it might reflect the unique 
circumstances of that year, which may well change the next year.
    Since the existence of an exceedance of the benchmark is designed 
to detect a multi-year trend, EPA is proposing that a three year 
average be compared against the benchmark. This would be a rolling 
average; e.g. the average for years 1 through 3 would be compared to 
the benchmark one year, the next year the average for years 2 through 4 
would be compared, and so on.
    EPA is proposing to set a benchmark for exhaust NOX at 
the volume weighted baseline average for domestic refiners. This would 
be 1465 mg/mile for NOX.13
---------------------------------------------------------------------------

    \13\ This value applies under the Phase 2 Complex Model.
---------------------------------------------------------------------------

    For toxics, the evidence to date tends to show there would not 
likely be an adverse impact from allowing the option to use IBs. In 
1995, the volume weighted annual average of imported gasoline for 
exhaust toxics was 86.64 mg/mile. This was cleaner than both the 
statutory baseline (104.5 mg/mile) and the volume weighted average for 
domestic baselines (97.34 mg/mile).14 In addition, one 
foreign refiner that is a major supplier to the U.S. market has 
submitted detailed information to EPA on their expected IB, and the 
information submitted by the foreign refiner to date indicates that 
their IB for exhaust toxics would be cleaner than the SB.15 
EPA believes the present circumstances may not lead to a risk of 
adverse environmental impact, and a benchmark and provisions for 
remedial action may not be needed for exhaust toxics. Instead, EPA 
would monitor the average quality of imported gasoline for exhaust 
toxics as it would for NOX, and if an adverse trend were to 
occur EPA would develop a benchmark and remedial provisions analogous 
to that proposed for NOX.
---------------------------------------------------------------------------

    \14\ In 1995 the volume weighted average for NOX for 
imported gasoline was 1415.9 mg/mile, while the SB was 1461 mg/mile, 
and the volume weighted average for domestic baselines was 1465 mg/
mile.
    \15\ See 59 FR 22809 (May 3, 1994).
---------------------------------------------------------------------------

    At the start of the program, EPA is proposing that the volume 
weighted average for 1998 and 1999 be compared to the benchmark, and 
then the average for 1998, 1999 and 2000, to start the three year 
rolling average. A one year average for 1998 alone would not by itself 
appear adequate to detect a multi-year trend, while a two year average 
would be more effective in this regard. The effects of imports in 1998 
would be still be fully accounted for, in the two year average 
including 1999. Since an IB might start to be used in 1997, EPA also is 
proposing to include with the 1998 imports all gasoline imported in 
1997 after the date any gasoline subject to an IB is imported in 1997.
    EPA invites comment on an alternative involving comparing the 1998 
average to the benchmark, then the 1998 and 1999 combined average, and 
then the three year average starting with 1998, 1999 and 2000.
4. Remedial Action Upon an Exceedance
    If a volume weighted three year annual average for imported CG 
exceeds the benchmark for NOX then EPA would take remedial 
action. Under the proposal, the remedial action would be an adjustment 
applied to the compliance baseline for CG not included in the CG 
compliance calculations of a foreign refiner with an IB. EPA is 
proposing an adjustment to the baseline that would equal the amount of 
the exceedance of the benchmark.
    This would be reevaluated each year by comparing the average for 
the three prior years to the benchmark. If there were no exceedance, 
then a prior adjustment would be terminated. If there were an 
exceedance, then a new adjustment would be imposed that equals the 
amount of the current exceedance. For example, if the three year annual 
average exceeded the NOX benchmark by 5 mg/mile, then the 
compliance baseline for NOX would be adjusted by 5 mg/mile. 
If there were no exceedance in the next years comparison, then the 
adjustment would be dropped.16
---------------------------------------------------------------------------

    \16\ For the initial years of the program, EPA is proposing that 
an exceedance for 1998 and 1999 lead to a remedial adjustment that 
equals the exceedance, but no more than 1% of the SB for 
NOX. This would also apply if EPA were to compare 1998 
separately to the benchmark. The 1% cap is designed to avoid 
imposing an unnecessarily stringent adjustment that could result 
from the absence of data from a complete three year cycle.
---------------------------------------------------------------------------

    EPA also invites comment on whether there should be some minimum 
level of an exceedance above the benchmark before remedial action is 
taken. Such a level would need to be set at a point where the benefits 
from taking a remedial action are de minimis, given the likelihood that 
the next year's comparison to the benchmark would in all likelihood 
show whether or not there is a clear exceedance of the benchmark, and 
any appropriate action would be taken at that point.
5. Imported Gasoline Subject to the Remedial Action
    A foreign refiner using an IB would follow the same procedures as a 
domestic refiner--the quality of its CG would be measured against the 
IB of the refiner that produced it. Foreign refiners without an IB 
would have chosen to have their gasoline measured against the SB 
instead of an IB, and reasonably could be expected to include refiners 
whose IB would have been more stringent than the SB. It is the use of 
IBs by some refiners, and the degradation below 1990 quality in CG 
produced by foreign refiners without an IB, that causes the average CG 
quality to be adversely affected when other refiners are at their IB. 
Since the foreign refiner with an IB would be acting no differently 
than domestic refiners with an IB, it is appropriate to only apply the 
remedial action to CG imported from refiners without an IB.

D. Requirements for U.S. Importers

    Under today's proposal U.S. importers would be required to meet 
exhaust toxics and NOX requirements for all imported CG that 
is not designated as FRGAS, and would exclude from importer CG 
compliance calculations all CG that is designated as FRGAS. A mechanism 
is proposed by which U.S. importers would demonstrate that imported CG 
is FRGAS. The baseline that would apply to U.S. importers would be the 
statutory baseline or any adjusted baseline as discussed in section 
II.C above. EPA is not proposing to change the current requirement that 
U.S. importers meet all requirements for imported RFG.
    EPA also is requesting comment on an option where U.S. importers 
would meet the exhaust toxics and NOX requirements for CG 
produced at a foreign refinery with an individual refinery baseline 
using the foreign refinery's baseline, taking into account

[[Page 24788]]

the volume cap on use of the foreign refinery's individual baseline.
1. Imported CG FRGAS
    Imported CG FRGAS would be excluded from the U.S. importer's CG 
compliance calculations. This would prevent the double counting that 
would result if FRGAS were included in the CG compliance calculations 
of both the foreign refiner and the U.S. importer. However, the U.S. 
importer would determine the quality and quantity of CG FRGAS at the 
U.S. port of entry, which the importer would report to the foreign 
refiner and to EPA in order to be compared with the foreign load port 
testing.
    A U.S. importer would classify an imported CG batch as FRGAS if the 
gasoline is accompanied by a certification prepared by the foreign 
refiner that identifies the gasoline as FRGAS to be included in the 
foreign refinery CG compliance calculations, and a report on the FRGAS 
batch prepared by an independent third party. These procedures are 
described in greater detail in section II.B.3 of this preamble. In this 
way the U.S. importer would act like a domestic distributor and would 
not be responsible for meeting the exhaust toxics and NOX 
requirements for CG. The U.S. importer would not be responsible for 
whether the foreign refiner meets the annual exhaust toxics and 
NOX requirements for CG, including whether the foreign 
refiner properly calculates the refinery's compliance baseline each 
year.
    However, the U.S. importer would be responsible for ensuring the 
foreign refiner certification was in fact prepared by the foreign 
refiner named on the certificate, and that the foreign refinery has 
been assigned an individual refinery baseline by EPA. If a CG FRGAS 
certification was not prepared by the named foreign refiner, for 
example if it is a forgery, the U.S. importer would be required to 
include the CG in the importer's CG compliance calculations. Similarly, 
if the certificate accompanying a batch of CG FRGAS names a foreign 
refinery that has not been assigned an individual baseline, the U.S. 
importer would be required to include the CG in the importer's CG 
compliance calculations. It is necessary to make U.S. importers 
responsible for accounting for imported CG in these situations, because 
otherwise EPA would be unable to enforce the CG requirements. EPA would 
have great difficulty enforcing requirements with regard to a foreign 
party who may have created fraudulent FRGAS certification documents, or 
a foreign refiner who does not have an individual refinery baseline.
    EPA believes U.S. importers can easily protect themselves against 
this type of liability. EPA would publish on the RFG computer bulletin 
board the identity of foreign refineries that have been assigned 
individual baselines, that could be used by importers to identify 
legitimate foreign refiners of FRGAS. Importers can avoid relying on 
false certificates by selecting reliable business partners, or by 
contacting the foreign refiner to ensure the authenticity of the 
certificate for any particular FRGAS batch.
    The U.S. importer would use an independent laboratory to determine 
information about each CG FRGAS batch. The batch quality and quantity 
would be determined through sampling and testing prior to off loading 
the ship, that could be compared with the quality and quantity 
determined at the load port after the ship was loaded. The independent 
lab also would use the product transfer documents to determine the 
identity of the foreign refinery where the FRGAS was produced. The 
importer would submit a report to the foreign refiner and to EPA 
containing the batch information.
    U.S. importers would not be able to classify CG FRGAS as ``gasoline 
treated as blendstock,'' (GTAB), because to do so would result in the 
same CG being included in two compliance calculations.17 In 
addition, U.S. importers could not use GTAB procedures to convert FRGAS 
that is CG into RFG, for the same reason that domestic regulated 
parties are not allowed to convert CG into RFG. Conversion of CG into 
RFG is prohibited because of concern such conversions could result in 
degradation of the CG gasoline pool. For example, in the absence of 
this constraint a refiner could produce very clean CG that in fact 
meets the RFG requirements, include this gasoline the refiner's CG 
compliance calculations to offset other dirty CG, and then convert this 
gasoline into RFG. The effect of this form of gaming would be 
degradation in the average quality of the refiner's CG. This same 
effect would be possible if importers could convert CG FRGAS into RFG.
---------------------------------------------------------------------------

    \17\ EPA has issued guidance under the current regulations that 
allows importers to classify imported gasoline as blendstock, called 
GTAB, that the importer must use to produce gasoline at a refinery 
operated by the importer-company. The purpose of the GTAB procedures 
is to enable importers to conduct remedial blending of imported 
gasoline, or to reclassify gasoline with regard to RFG or CG, before 
imported gasoline is introduced into U.S. commerce. This puts 
importers on a more equal footing with refiners, who are able to 
reblend or reclassify gasoline prior to shipping gasoline from the 
refinery.
---------------------------------------------------------------------------

2. Imported CG That Is Not FRGAS
    U.S. importers would meet all current requirements for imported CG 
that is not FRGAS, including requirements for annual average exhaust 
toxics and NOX. However, the baseline used by importers 
would be the baseline described in section II.C of this preamble. In 
the case of CG that is not FRGAS, importers would have no requirements 
related to tracking the refinery of origin. In addition, importers 
would be able to use the current GTAB procedures to reblend or 
reclassify imported CG that is not FRGAS.
3. Imported RFG
    U.S. importers would include all imported RFG in the importers' RFG 
compliance calculations as is currently required, including imported 
RFG FRGAS and imported RFG that is not FRGAS. However, in the case of 
imported RFG FRGAS the importer would have to meet additional 
requirements related to tracking the refinery of origin. The importer 
would have an independent laboratory determine the volume of each RFG 
FRGAS batch, and report this volume to the foreign refiner and to EPA 
to be compared with the load port volume. The volume of RFG produced at 
a foreign refinery with an individual baseline is used to calculate the 
refinery's CG compliance baseline, which constitutes a volume cap on 
use of an individual refinery baseline.
    U.S. importers would be able to use GTAB procedures for imported 
RFG that is both FRGAS and non-FRGAS, because foreign refiners would 
not have included the RFG in RFG compliance calculations. As a result, 
an importer could use GTAB procedures to blend additional blendstocks 
with RFG or to reclassify RFG as CG.
4. Alternative Option of U.S. Importer Accounting for FRGAS
    EPA requests comment on an alternative option where U.S. importers, 
and not foreign refiners, would meet the exhaust toxics and 
NOx requirements for CG produced at foreign refineries with 
an individual baseline. The importer would use the baseline that 
applies to the foreign refiner for this gasoline. This alternative 
would require the foreign refiner to specify the baseline values that 
apply to each CG batch, based on the volume of CG and RFG produced at 
the foreign refinery for the U.S. market each year as compared to the 
refinery's

[[Page 24789]]

baseline volume.18 In addition, the U.S. importer and 
foreign refiner would be required to track the refinery of origin for 
the CG produced at foreign refineries with individual baselines using 
procedures similar to those described in section II.B.3 of this 
preamble.
---------------------------------------------------------------------------

    \18\  For example, foreign refiners could be required to assign 
the individual refinery baseline to CG batches that are produced at 
a foreign refinery each year before the refinery's total volume of 
U.S. market gasoline (RFG plus CG) equals the refinery's baseline 
volume, and to assign the adjusted statutory baseline to subsequent 
CG batches.
---------------------------------------------------------------------------

    Under this alternative U.S. importers would calculate an annual 
compliance baseline for exhaust toxics and NOx, based on the 
volume-weighted baselines of all CG imported during the year--the 
assigned baseline values for CG produced at foreign refineries with 
individual baselines, and the statutory baseline for other CG.
    Under this alternative foreign refiners with individual refinery 
baselines, and U.S. importers, would be required to track movements of 
blendstock produced at foreign refineries with individual baselines, to 
ensure the foreign refiner abides by the blendstock transfer 
requirements specified in Sec. 80.102. However, under Sec. 80.102 
blendstock tracking is required only of refiners with a baseline 
parameter that is more stringent than the statutory baseline for that 
parameter. As a result, blendstock tracking would be required for any 
foreign refinery with an individual baseline value for either exhaust 
toxics or NOx that is more stringent than the statutory 
baseline values for exhaust toxics or NOx.
    U.S. importers would be allowed to use the GTAB procedures for CG 
produced at a foreign refinery with an individual baseline under this 
alternative, because the foreign refiner would not have included the 
gasoline in refinery CG compliance calculations. In this way, imported 
CG could be reblended or reclassified as RFG. Like under current GTAB 
procedures the baseline applicable to each imported CG batch, i.e., the 
baseline assigned by the foreign refiner, would be carried over to the 
importer-company's refinery for that batch.
    Under this alternative, the U.S. importer would be responsible for 
using the proper baseline for each imported CG batch. If a foreign 
refiner assigns an improper baseline to a batch and the U.S. importer 
uses the improper baseline values, the U.S. importer would be required 
to recalculate its CG compliance using the proper baseline. This 
recalculation would be necessary regardless of when the improper 
baseline values are discovered, and if the recalculation results in a 
violation of the exhaust toxics and NOx requirements the 
importer would be liable for the violation. Similarly, if the foreign 
refinery for imported CG is improperly identified and the U.S. importer 
uses the improper baseline values, the U.S. importer would be required 
to recalculate its compliance baseline using the proper baseline 
values, and would be liable for any resulting penalties.

E. Early Use of Individual Foreign Refinery Baselines

    EPA is proposing that a foreign refiner who submits a petition for 
an individual refinery baseline could begin using the individual 
baseline prior to EPA approval of the baseline petition, provided EPA 
makes a preliminary finding the baseline petition is complete, and the 
foreign refiner also has completed certain requirements proposed today. 
However, any gasoline imported under a requested IB would be subject to 
the actual IB assigned by EPA.
    EPA would conduct a completeness evaluation as the first step in 
baseline review process, and would notify a foreign refiner of the 
results of the completeness review on request. However, the initial 
completeness review would not bar EPA from requiring a foreign refiner 
to submit additional information later in the baseline review process.
    The additional requirements a foreign refiner would have to 
complete in order to use an individual baseline early are related to 
ensuring EPA's ability to monitor and enforce compliance by the foreign 
refiner with all applicable requirements during the early use period. 
The particular requirements that would have to be met are: (1) The 
commitments regarding EPA inspections and the forum for enforcement 
actions, and (2) the requirements related to bond posting.
    If these conditions are met, the foreign refiner could begin 
classifying CG and RFG as FRGAS, and could use the individual refinery 
baseline to demonstrate compliance with the CG parameter and emissions 
requirements.19 However, EPA is proposing that a foreign 
refiner would be required to meet the CG requirements for FRGAS using 
the refinery baseline values that ultimately are approved by EPA. Thus, 
if a foreign refiner elects to use an individual refinery baseline 
early, and uses baseline values that are less stringent than the 
baseline values ultimately approved by EPA, the refiner's compliance 
with the CG exhaust toxics and NOx requirements will 
nevertheless be measured relative to the approved baseline values. If 
this evaluation results in a violation of the CG requirements, the 
foreign refiner will be held liable.
---------------------------------------------------------------------------

    \19\  During 1997, under Sec. 80.101(b)(1) the CG requirements 
are for sulfur, T-90, olefins and exhaust benzene emissions. 
Beginning in 1998 the CG requirements are for exhaust toxics and 
NOx emissions.
---------------------------------------------------------------------------

F. Requirements for RFG Before 1998

    The focus of this proposal is on the requirements for CG, because 
the CG requirements rely on refinery baselines both now and in the 
future. The RFG requirements for sulfur, T-90 and olefin content also 
rely on individual refinery baselines, but only until the Complex Model 
applies beginning in January, 1998. EPA believes an approach similar to 
that proposed for CG could be used to allow foreign refiners to use 
individual refinery baselines for these RFG requirements until January, 
1998. However, the comments received during the comment period 
indicated that there is little if any interest in this matter given 
that the complex model will apply in the very near future.
    EPA requests comment on whether the provisions for this rule should 
include the provisions necessary to allow use of foreign refinery 
baselines for the RFG requirements, and whether any foreign refiner 
believes it would be able to take advantage of these requirements if 
they were promulgated.

III. Public Participation

    EPA believes these proposed requirements would be consistent with 
the Agency's commitment to fully protect public health and the 
environment, and with the U.S. commitment to ensure that the Gasoline 
Rule is consistent with the obligations of the U.S. under the WTO. EPA 
invites comment on all aspects of today's notice and also seeks comment 
on whether or not the proposal meets the goal stated above. EPA invites 
comment on the need for the proposed provisions, the environmental 
impact of the provisions, and the costs for all parties, foreign and 
domestic, who would be affected by the proposed changes to the Gasoline 
Rule. The Agency invites any alternative approaches to regulating 
imported gasoline that would achieve the same goal.

IV. Administrative Designation and Regulatory Analysis

A. Executive Order 12866

    Under Executive Order 12866, (58 FR 51735 (October 4, 1993)) the 
Agency must determine whether the regulatory action is ``significant'' 
and therefore

[[Page 24790]]

subject to Office of Management and Budget (OMB) review and the 
requirements of the Executive Order. The Order defines ``significant 
regulatory action'' as one that is likely to result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another Agency;
    (3) Materially alter the budgetary impact of entitlement, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    Pursuant to the terms of Executive Order 12866, it has been 
determined that this rule is a ``significant regulatory action,'' as 
such, this action was submitted to OMB for review. Changes made in 
response to OMB suggestions or recommendations will be documented in 
the public record.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) general requires an agency to 
conduct a regulatory flexibility analysis of any rule subject to notice 
and comment rulemaking requirements unless the agency certifies that 
the rule will not have a significant economic impact on a substantial 
number of small entities. Small entities include small businesses, 
small not-for-profit enterprises, and small governmental jurisdictions. 
This proposed rule would not have a significant impact on a substantial 
number of small entities because only a limited number of domestic 
entities would be affected by this proposal and would be small 
entities. In addition, today's proposal would not significantly change 
the requirements applicable to importers of gasoline produced by 
foreign refineries.
    Of the entire population of importers currently reporting to the 
EPA, somewhat less than 100 importers that would be subject to today's 
proposed rule are small entities. Under 40 CFR. 80.65 and 80.101 the 
requirements for imported CG must currently be met by the importer. The 
current requirements are based on the statutory baseline while today's 
proposed rule would require either foreign refiners or importers to 
meet the CG requirements using the baselines of the various foreign 
refineries. Other importers would continue to meet the CG requirements 
using the statutory baseline or an adjusted baseline. This would not, 
however, have a significant impact on the importer, as the importer 
would continue to only import gasoline that allows it to meet the 
annual average requirements, and such gasoline would continue to be 
available from the foreign refineries. The provision generally 
corresponds with existing requirements. This proposal would continue 
the requirement that importers be responsible for sampling and testing 
for foreign gasoline imported into the U.S. Importers will be 
responsible for this activity at the port of entry in the U.S. 
Importers would rely on the foreign refiners and the independent 
party's to establish refinery of origin. Importers can accomplish this 
by making private arrangements with the importing foreign refiner and 
the independent party. The Agency believes that, in general, exercising 
good business practices with reputable foreign refiners would tend to 
eliminate any impact on the importer. The impact of today's proposal 
would therefore either not increase an importers cost, or would do so 
only marginally.
    The issue of baselines for imported gasoline is discussed generally 
in section VII-C of the Regulatory Impact Analysis that was prepared to 
support the Final Rule for gasoline. A copy of this document may be 
found in the RFG docket, number A-92-12, at the location identified in 
the ADDRESSES section of this document.
    Therefore, I certify that this action will not have a significant 
economic impact on a substantial number of small entities.

C. The Paperwork Reduction Act

    The information collection requirements in this proposed rule has 
been submitted for approval to the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. An 
Information Collection Request (ICR) document has been prepared by EPA 
(ICR No. 1591.08) and a copy may be obtained from Sandy Farmer, 
Regulatory Information Division; U.S. Environmental Protection Agency 
(2136); 401 M St., S.W.; Washington, DC 20460 or by calling (202) 260-
2740.
    This proposal would allow foreign refiners to establish individual 
baselines to demonstrate compliance with the Agency's gasoline rule. 
The information collected would enable EPA to evaluate imported 
gasoline in a manner similar to gasoline produced at domestic 
refineries. Section 211(k) specifically recognizes the need for 
recordkeeping, reporting and sampling/testing requirements for 
enforcement of this program. Because of the complex nature of the 
gasoline rule, EPA cannot determine compliance merely by taking samples 
of gasoline at various facilities.
    For purposes of this document, EPA expects that at most 
approximately three foreign refiners will petition the agency 
annually.20 The EPA estimates that approximately 66 batches 
of CG would be imported into the United States annually subject to an 
individual baseline. These batches of CG must be sampled and tested by 
an independent laboratory making the total cost burden shared by the 
independent importers approximately $24,000 a year. The collection of 
information has an estimated recordkeeping and reporting burden 
averaging 4.1 hours per respondent, or a total estimated burden of 812 
hours shared by all respondents annually. This estimate includes time 
for reviewing instructions, searching existing data sources, gathering 
and maintaining the data needed, and completing and reviewing the 
collection of information.
---------------------------------------------------------------------------

    \20\ To date, only a limited number of foreign refiners have 
indicated an interest in establishing an IB. However, under the 
proposal any foreign refiner could apply for an IB.
---------------------------------------------------------------------------

    Burden means the total time, effort, or financial resources 
expended by persons to generate, maintain, retain, or disclose or 
provide information to or for a Federal agency. This includes the time 
needed to review instructions; develop, acquire, install, and utilize 
technology and systems for the purposes of collecting, validating, and 
verifying information, processing and maintaining information, and 
disclosing and providing information; adjust the existing ways to 
comply with any previously applicable instructions and requirements; 
train personnel to be able to respond to a collection of information; 
search data sources; complete and review the collection of information, 
and transmit or otherwise disclose the information.
    An Agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations are listed in 40 CFR Part 9 and 48 CFR Chapter 15.
    The Agency requests comments on the need for this information, the 
accuracy of the provided burden estimates, and any suggested methods 
for minimizing respondent burden, including through the use of 
automated

[[Page 24791]]

collection techniques. Send comments on the ICR to the Director, 
Regulatory Information Division; U.S. Environmental Protection Agency 
(2136); 401 M St., S.W.; Washington, DC 20460; and to the Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
725 17th St., N.W., Washington, DC 20503, marked ``Attention: Desk 
Officer for EPA.'' Include the ICR number in any correspondence. Since 
OMB is required to make a decision concerning the ICR between 30 and 60 
days after May 6, 1997, a comment to OMB is best assured of having its 
full effect if OMB receives it by June 5, 1997. The final rule will 
respond to any OMB or public comments on the information collection 
request.

D. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, EPA 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local, and tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. Before promulgating an EPA rule for which a written statement 
is needed, section 205 of the UMRA generally requires EPA to identify 
and consider a reasonable number of regulatory alternatives and adopt 
the least costly, most cost-effective or least burdensome alternative 
that achieves the objectives of the rule. The provisions of section 205 
do not apply when they are inconsistent with applicable law. Moreover, 
section 205 allows EPA to adopt an alternative other than the least 
costly, most cost-effective or least burdensome alternative if the 
Administrator publishes with the final rule an explanation why that 
alternative was not adopted. Before EPA establishes any regulatory 
requirements that may significantly or uniquely affect small 
governments, including tribal governments, it must have developed under 
section 203 of the UMRA a small government agency plan. The plan must 
provide for notifying potentially affected small governments, enabling 
officials of affected small governments to have meaningful and timely 
input in the development of EPA regulatory proposals with significant 
Federal intergovernmental mandates, and informing, educating, and 
advising small governments on compliance with the regulatory 
requirements.
    Today's rule contains no Federal mandates (under the regulatory 
provisions of Title II of the UMRA) for State, local, or tribal 
governments or the private sector.

V. Statutory Authority

    The statutory authority for the rules proposed today is granted to 
EPA by sections 114, 211 (c) and (k), and 301 of the Clean Air Act, as 
amended, 42 U.S.C. 7414, 7545 (c) and (k), and 7601.

List of Subjects in 40 CFR Part 80

    Environmental protection, Air pollution control, Fuel additives, 
Gasoline, Motor vehicle pollution, Penalties, Reporting and 
recordkeeping requirements.

    Dated: April 29, 1997.
Carol M. Browner,
Administrator.
    40 CFR Part 80 is proposed to be amended as follows:

PART 80--REGULATIONS OF FUELS AND FUEL ADDITIVES

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

    Authority: Sections 114, 211 and 301(a) of the Clean Air Act, as 
amended (42 U.S.C. 7414, 7545 and 7601(a)).

    2. Section 80.94 is proposed to be added to subpart E to read as 
follows:


Sec. 80.94  Requirements for gasoline produced at foreign refineries.

    (a) Definitions. (1) A foreign refinery means a refinery that is 
located outside the United States, the Commonwealth of Puerto Rico, the 
Virgin Islands, Guam, American Samoa, and the Commonwealth of the 
Northern Mariana Islands (collectively referred to in this section as 
``the United States'').
    (2) A foreign refiner means a refiner of a foreign refinery.
    (3) FRGAS means gasoline produced at a foreign refinery that has 
been assigned an individual refinery baseline, and that is included in 
the foreign refinery's conventional gasoline compliance calculations, 
or compliance baseline calculations.
    (b) Baseline establishment. Any foreign refiner may submit to EPA a 
petition for an individual refinery baseline, under Secs. 80.90 through 
80.93, for any foreign refinery that produced gasoline in 1990 that was 
exported to the United States.
    (1) The provisions for baselines as specified in Secs. 80.90 
through 80.93 shall apply to a foreign refinery, except where provided 
otherwise in this section.
    (2) The baseline for a foreign refinery shall reflect only the 
volume and properties of gasoline produced in 1990 that was imported 
into the United States.
    (3) A baseline petition shall establish the volume of conventional 
gasoline produced at a foreign refinery and exported to the United 
States during the calendar year immediately preceding the year the 
baseline petition is submitted.
    (4) In making determinations for foreign refinery baselines EPA 
will consider all information supplied by a foreign refiner, and in 
addition may rely on any and all appropriate assumptions necessary to 
make such a determination.
    (5) Where a foreign refiner submits a petition that is incomplete 
or inadequate to establish an accurate baseline, and the refiner fails 
to cure this defect after a request for more information, then EPA 
shall not assign an individual refinery baseline.
    (6) Baseline petitions under this paragraph (b) must be submitted 
before January 1, 2002.
    (c) General requirements for foreign refiners with individual 
refinery baselines. Any foreign refiner of a refinery that has been 
assigned an individual baseline under paragraph (b) of this section 
shall designate all gasoline produced at the foreign refinery that is 
exported to the United States as FRGAS.
    (1)(i) In the case of conventional gasoline FRGAS the foreign 
refiner shall meet all requirements that apply to refiners under 
subparts D, E and F of this part.
    (ii) If the foreign refinery baseline is assigned, or a foreign 
refiner begins early use of a refinery baseline under paragraph (q) of 
this section, on a date other than January 1, the compliance baseline 
for the initial year shall be calculated under Sec. 80.101(f) using an 
adjusted baseline volume, as follows:

AV1990=(D/365)xV1990

where:
AV1990=Adjusted 1990 baseline volume;
D=Number of days remaining in the year beginning with the day the 
foreign refinery baseline is approved or the day the foreign refiner 
begins early use of a refinery baseline;
V1990 = Foreign refinery's 1990 baseline volume.

    (2) In the case of reformulated gasoline and RBOB FRGAS, the 
foreign refiner shall meet the following requirements:
    (i) The designation requirements in Sec. 80.65(d)(1);
    (ii) The recordkeeping requirements in Secs. 80.74(a), (b)(1) and 
(b)(3);
    (iii) The reporting requirements in Secs. 80.75(a), (m), and (n);
    (iv) The registration requirements in Sec. 80.76;

[[Page 24792]]

    (v) The product transfer document requirements in Secs. 80.77 (a) 
through (f), and (j);
    (vi) The prohibition in Secs. 80.78(a)(10), (b) and (c); and
    (vii) The independent audit requirements in Secs. 80.125 through 
80.127, 80.128 (a) through (c), and (g) through (i), and Sec. 80.130.
    (d) Designation, product transfer documents, and foreign refiner 
certification. (1) Any foreign refiner of a foreign refinery that has 
been assigned an individual baseline shall designate each batch of 
FRGAS as such at the time the gasoline is produced, in addition to the 
designations required in Sec. 80.65(d).
    (2) On each occasion when any person transfers custody or title to 
any FRGAS prior to its being imported into the United States, the 
following information shall be included as part of the product transfer 
document information in Secs. 80.77 and 106:
    (i) Identification of the gasoline as FRGAS; and
    (ii) The name and EPA refinery registration number of the refinery 
where the FRGAS was produced.
    (3) On each occasion when FRGAS is loaded onto a vessel or other 
transportation mode for transport to the United States, the foreign 
refiner shall prepare a certification for each batch of the FRGAS that 
meet the following requirements:
    (i) The certification shall include the following information:
    (A) The identification of the gasoline as FRGAS;
    (B) The volume of FRGAS being transported, in gallons;
    (C) In the case of conventional gasoline FRGAS, the exhaust toxics 
and NOx emissions performance in mg/mile;
    (D) A declaration that the FRGAS is being included in the 
compliance calculations under Sec. 80.101(g) for the refinery that 
produced the FRGAS; and
    (E) The name and EPA registration number of the refinery that 
produced the FRGAS;
    (ii) The certification shall be signed by the president or owner of 
the foreign refiner company, or by that person's immediate designee, 
with a declaration as to the truth and accuracy of the certification; 
and
    (iii) The certification shall be made part of the product transfer 
documents for the FRGAS.
    (e) Contracts for sale or transfer. Any foreign refiner shall 
include as part of each contract for sale or transfer of any FRGAS:
    (1) The following requirements:
    (i) Delivery of the FRGAS is restricted to the United States;
    (ii) The FRGAS may not be combined with any other gasoline, except 
that, subject to the segregation restrictions in Sec. 80.78(a), FRGAS 
may be combined with other FRGAS produced at the same refinery or at 
other refineries that are aggregated under Sec. 80.101(h); and
    (iii) Any subsequent transfers of custody or title to FRGAS must 
include these restrictions; and
    (2) Commercial penalties for any violations of the FRGAS 
requirements that are sufficiently large to ensure compliance with the 
requirements.
    (f) Load port independent sampling, testing and refinery 
identification. (1) On each occasion FRGAS is loaded onto a vessel for 
transport to the United States a foreign refiner shall have an 
independent third party:
    (i) Inspect the vessel prior to loading;
    (ii) Collect a representative sample of the FRGAS subsequent to 
loading on the vessel and prior to departure of the vessel from the 
port serving the foreign refinery;
    (iii) Analyze the sample for each property specified in 
Sec. 80.65(e)(1) using the methodologies specified in Sec. 80.46;
    (iv) Determine the volume of FRGAS loaded onto the vessel;
    (v) Review original documents that reflect movement and storage of 
the FRGAS from the refinery to the load port, and from this review 
determine:
    (A) The refinery at which the FRGAS was produced; and
    (B) That the FRGAS remained segregated from:
    (1) Non-FRGAS; or
    (2) Other FRGAS produced at a different refinery, except that FRGAS 
may be combined with other FRGAS produced at refineries that are 
aggregated under Sec. 80.101(h);
    (vi) Obtain the EPA-assigned registration number of the foreign 
refinery;
    (vii) Determine the name and country of registration of the ship 
used to transport the FRGAS to the United States; and
    (viii) Determine the date and time the ship departs the port 
serving the foreign refinery.
    (2) The requirements of paragraph (f)(1) of this section must be 
met separately for each quantity of FRGAS that is not homogenous with 
regards to properties specified in Sec. 80.65(e)(1).
    (3) The independent third party shall submit a report to the 
Administrator containing the information required under paragraph 
(f)(1) of this section, within thirty days following the date of the 
independent laboratory's inspection. This report shall include a 
description of the method used to determine the identity of the 
refinery at which the gasoline was produced, that the gasoline was not 
mixed with gasoline produced at any other refinery, and a description 
of the gasoline's movement and storage between production at the source 
refinery and ship loading.
    (4) A third person my be used to meet the requirements in this 
paragraph (f) only if:
    (i) The person is approved in advance by EPA, based on a 
demonstration of ability to perform the procedures required in this 
paragraph (f);
    (ii) The person is independent under the criteria specified in 
Sec. 80.65(f)(2)(iii); and
    (iii) The person signs a commitment that contains the provisions 
specified in paragraph (i) of this section with regard to activities, 
facilities and documents relevant to compliance with the requirements 
of this paragraph (f).
    (g) Comparison of load port and port of entry testing. (1) Any 
foreign refiner of CG FRGAS shall compare the results from the load 
port testing under paragraph (f)(1) of this section, with the port of 
entry testing as reported under paragraph (n)(4) of this section, and 
if the port of entry results differ by more than the amounts allowed 
under Sec. 80.65(e)(1) the foreign refiner shall adjust the foreign 
refinery's compliance calculations under Sec. 80.101(g) to reflect the 
port of entry results.
    (2) The foreign refiner shall compare the volume from the load port 
testing with the volume from the port of entry testing, and if these 
results, corrected for temperature and density, differ by 1% or more 
the foreign refiner shall:
    (i) In the case of reformulated gasoline or RBOB FRGAS, adjust the 
foreign refinery's compliance baseline calculations under 
Sec. 80.101(f) to reflect the port of entry volume; and
    (ii) In the case of conventional gasoline FRGAS adjust the foreign 
refinery's compliance calculations under Sec. 80.101(g) to reflect the 
port of entry volume, using the properties as determined at the foreign 
refinery.
    (h) Attest requirements. The following additional procedures shall 
be carried out by any foreign refiner of FRGAS as part of the attest 
engagement for each foreign refinery under subpart F of this part:
    (1) Obtain separate listings of all tenders of reformulated and 
conventional gasoline FRGAS that is loaded onto ships for transport to 
the United States. Agree the total volume of tenders from the listings 
to the gasoline inventory reconciliation analysis in Sec. 80.128(b), 
and to the volumes determined by the independent laboratory under 
paragraph (f)(1)(iv) of this section.
    (2) Report as a finding the name and country of registration of 
each ship, and

[[Page 24793]]

the volumes of FRGAS loaded onto each ship, identified in paragraph 
(h)(1) of this section.
    (3) Select a sample from the list of ships identified in paragraph 
(h)(1) of this section, in accordance with the guidelines in 
Sec. 80.127, and for each ship selected perform the following:
    (i) Obtain the report of the independent laboratory, under 
paragraph (f)(3) of this section, and of the United States importer 
under paragraph (n)(4) of this section.
    (A) Agree the information in these reports with regard to ship 
identification, gasoline volumes and test results.
    (B) Identify, and report as a finding, each occasion the load port 
and port of entry emissions and/or volume results differ by more than 
the amounts allowed in paragraph (g) of this section, and determine 
whether the foreign refiner adjusted its refinery calculations as 
required in paragraph (g) of this section.
    (ii) Obtain copies of the contracts for sale and transfer of the 
FRGAS, and determine whether the contract provisions required in 
paragraph (e) of this section are included.
    (iii) Obtain a commercial document of general circulation that 
lists vessel arrivals and departures, and that includes the port and 
date of departure of the ship, and the port of entry and date of 
arrival of the ship. Agree the ship's departure and arrival locations 
and dates from the independent laboratory and United States importer 
reports to the information contained in the commercial document.
    (iv) Obtain the documents used by the independent laboratory to 
determine transportation and storage of the FRGAS from the refinery to 
the load port, under paragraph (f)(1)(v) of this section. Obtain tank 
activity records for any storage tank where the FRGAS is stored, and 
pipeline activity records for any pipeline used to transport the FRGAS, 
prior to being loaded onto the ship. Use these records to determine 
whether the FRGAS was produced at the refinery that is the subject of 
the attest engagement, and whether the FRGAS was mixed with any non-
FRGAS gasoline or any FRGAS produced at a different refinery.
    (4) In order to complete the requirements of this paragraph (h) an 
auditor shall:
    (i) Be independent under the criteria specified in 
Sec. 80.65(f)(2)(iii);
    (ii) Be licensed as a Certified Public Accountant in the United 
States and a citizen of the United States, or be approved in advance by 
EPA based on a demonstration of ability to perform the procedures 
required in Secs. 80.125 through 80.130 and this paragraph (h); and
    (iii) Sign a commitment that contains the provisions specified in 
paragraph (i) of this section with regard to activities and documents 
relevant to compliance with the requirements of Secs. 80.125 through 
80.130 and this paragraph (h).
    (i) Foreign refiner commitments. Any foreign refiner shall commit 
to and comply with the provisions contained in this paragraph (i) as a 
condition to being assigned an individual refinery baseline.
    (1) Any United States Environmental Protection Agency inspector or 
auditor will be given full, complete and immediate access to conduct 
inspections and audits of the foreign refinery.
    (i) Inspections and audits may be either announced in advance by 
EPA, or unannounced.
    (ii) Access will be provided to any location where:
    (A) Gasoline is produced;
    (B) Documents related to refinery operations are kept;
    (C) Gasoline or blendstock samples are tested or stored; and
    (D) FRGAS is stored or transported between the foreign refinery and 
the United States, including storage tanks, ships and pipelines.
    (iii) Inspections and audits may be by EPA employees or contractors 
to EPA.
    (iv) Any documents requested that are related to matters covered by 
inspections and audits will be provided to an EPA inspector or auditor 
on request.
    (v) Inspections and audits by EPA may include review and copying of 
any documents related to:
    (A) Refinery baseline establishment, including the quantity and 
quality, and transfers of title or custody, of any gasoline or 
blendstocks, whether FRGAS or non-FRGAS, produced at the foreign 
refinery during the period January 1, 1990 through the date of the 
refinery baseline petition or through the date of the inspection or 
audit if no baseline petition has been submitted, and any work papers 
related to refinery baseline establishment;
    (B) The quality and quantity of FRGAS;
    (C) Transfers of title or custody to FRGAS;
    (D) Sampling and testing of FRGAS;
    (E) Worked performed or reports prepared by independent 
laboratories or by independent auditors under the requirements of this 
section, including work papers; and
    (F) Reports prepared for submission to EPA, and any work papers 
related to such reports.
    (vi) Inspections and audits by EPA may include taking samples of 
gasoline or blendstock, and interviewing employees.
    (vii) Any employee of the foreign refiner will be made available 
for interview by the EPA inspector or auditor, on request, within a 
reasonable time period.
    (viii) English language translations of any documents will be 
provided to an EPA inspector or auditor, on request, within 10 working 
days.
    (ix) English language interpreters will be provided to accompany 
EPA inspectors and auditors, on request.
    (2) An agent for service of process located in the District of 
Columbia will be named, and service on this agent constitutes service 
on the foreign refiner or any employee of the foreign refiner.
    (3) The forum for any civil or criminal enforcement action related 
to the provisions of this section for violations of the Clean Air Act 
or regulations promulgated thereunder shall be governed by the Clean 
Air Act, including the EPA administrative forum where allowed under the 
Clean Air Act.
    (4) United States substantive and procedural laws apply to any 
civil or criminal enforcement action against the foreign refiner or any 
employee of the foreign refiner related to the provisions of this 
section.
    (5) The foreign refiner, or its agents or employees, will not seek 
to detain or to impose civil or criminal remedies against EPA 
inspectors or auditors, whether EPA employees or EPA contractors, for 
actions performed within the scope of EPA employment related to the 
provisions of this section.
    (6) In the case of foreign refineries that are owned or operated by 
a foreign government, the foreign refiner will waive sovereign immunity 
with regard to prosecution by the United States of civil and criminal 
violations of Clean Air Act section 211(k) and the regulations 
promulgated thereunder at subparts D, E and F of this part and other 
relevant laws and regulations including but not limited to Clean Air 
Act sections 113, 114, 211(c) and (d), and Title 18 United States Code. 
This waiver of sovereign immunity also will apply to any employee or 
agent of a refinery owned or operated by the foreign government.
    (7) The commitment required by this paragraph (i) shall be signed 
by the owner or president of the foreign refiner business. In the case 
of foreign refineries that are state owned or operated, the commitment 
shall be signed by an official of the government at the cabinet 
secretary level or higher who has responsibility for the foreign 
refinery.

[[Page 24794]]

    (8) In any case where FRGAS produced at a foreign refinery is 
stored or transported by another company between the refinery and the 
ship that transports the FRGAS to the United States, the foreign 
refiner shall obtain from each such other company a commitment that 
meets the requirements specified in paragraphs (i)(1) through (7) of 
this section, and these commitments shall be included in the foreign 
refiner's baseline petition.
    (j) Bond posting. Any foreign refiner shall meet the requirements 
of this paragraph (j) as a condition to being assigned an individual 
refinery baseline.
    (1) The foreign refiner shall post a bond of the amount calculated 
using the following equation:

Bond = G x $ 0.01

where:
Bond = amount of the bond in U.S. dollars;
G = the largest volume of conventional gasoline produced at the 
foreign refinery and exported to the United States, in gallons, 
during the most recent of the following calendar years up to a 
maximum of five calendar years: the calendar year immediately 
preceding the date the baseline petition is submitted, the calendar 
year the baseline petition is submitted, and each succeeding 
calendar year.

    (2) Bonds shall be posted by:
    (i) Paying the amount of the bond to the Treasurer of the United 
States; or
    (ii) Obtaining a bond in the proper amount from a third party 
surety agent that would be payable to satisfy U.S. administrative or 
judicial judgments against the foreign refiner, provided EPA agrees in 
advance as to the third party and the nature of the surety agreement.
    (3) If the bond amount for a foreign refinery increases the foreign 
refiner shall increase the bond to cover the shortfall within 90 days 
of the date the bond amount changes. If the bond amount decreases, the 
foreign refiner may reduce the amount of the bond beginning 90 days 
after the date the bond amount changes.
    (4) Bonds posted under this paragraph (j) shall be used to satisfy:
    (i) Any judgment against the foreign refiner or against any 
employee or agent of the foreign refiner for violation of the Clean Air 
Act or regulations promulgated thereunder;
    (ii) Any judgment against any other party for a violation that is 
caused by the foreign refiner.
    (5) On any occasion a foreign refiner bond is used to satisfy any 
judgment, the foreign refiner shall increase the bond to cover the 
amount used within 90 days of the date the bond is used.
    (k) Blendstock tracking. For purposes of blendstock tracking by any 
foreign refiner under Sec. 80.102 by a foreign refiner with an 
individual refinery baseline, the foreign refiner may exclude from the 
calculations required in Sec. 80.102(d) the volume of applicable 
blendstocks for which the foreign refiner has sufficient evidence in 
the form of documentation that the blendstocks were used to produce 
gasoline used outside the United States.
    (l) English language reports. Any report or other document 
submitted to EPA by any foreign refiner shall be in English language, 
or shall include an English language translation.
    (m) Prohibitions. No person may combine FRGAS produced at a foreign 
refinery with any non-FRGAS produced at that foreign refinery, or with 
any gasoline or blendstock produced at any other refinery, prior to the 
FRGAS being imported into the United States.
    (n) United States importer requirements. Any United States importer 
shall meet the following requirements:
    (1) Each batch of imported gasoline shall be classified by the 
importer as being FRGAS, or as not being FRGAS.
    (2) Gasoline shall be classified as FRGAS where the product 
transfer documents include a foreign refiner FRGAS certification for 
the gasoline, as required in paragraph (d)(3) of this section, that was 
prepared by the foreign refiner of the FRGAS and that is supported by a 
report of an inspection of the gasoline at the foreign load port 
prepared by an independent third party as required in paragraph (f) of 
this section.
    (3) For each gasoline batch classified as FRGAS, any United States 
importer shall perform the following procedures:
    (i) In the case of both reformulated and conventional gasoline 
FRGAS, have an independent laboratory:
    (A) Determine the batch volume;
    (B) Use the foreign refiner's FRGAS certification to determine the 
name and EPA-assigned registration number of the foreign refinery that 
produced the FRGAS;
    (C) Determine the name and country of registration of the ship used 
to transport the FRGAS to the United States; and
    (D) Determine the date and time the ship arrives at the United 
States port of entry.
    (ii) In the case of conventional gasoline FRGAS, have an 
independent laboratory:
    (A) Collect a representative sample of the gasoline subsequent to 
the ship's arrival at the United States port of entry and prior to off 
loading any gasoline from the ship; and
    (B) Analyze the sample for each property specified in 
Sec. 80.65(e)(1) using the methodologies specified in Sec. 80.46.
    (4) Any importer shall submit a report to the Administrator, and to 
the foreign refiner, containing the information determined under 
paragraph (n)(3) of this section, within thirty days following the date 
any ship transporting FRGAS arrives at the United States port of entry.
    (5)(i) Any United States importer shall meet the requirements 
specified for conventional gasoline in Sec. 80.101 for any imported 
conventional gasoline that is not classified as FRGAS under paragraph 
(n)(2) of this section.
    (ii) The baseline applicable to a United States importer who has 
not been assigned an individual importer baseline under 
Sec. 80.91(b)(4) shall be the baseline specified in paragraph (o) of 
this section.
    (o) Importer baseline. (1) Each calendar year starting in 2000, the 
Administrator shall calculate the volume-weighted average for exhaust 
NOx under the Phase II Complex Model for conventional gasoline imported 
into the United States during the prior three calendar years, except as 
provided otherwise in this paragraph (o). The calculation shall be 
based on the reports submitted under this section and Sec. 80.105. The 
calculation shall consider:
    (i) Imported conventional gasoline that is not classified as FRGAS, 
and included in the conventional gasoline compliance calculations of 
U.S. importers for each year; and
    (ii) Imported conventional gasoline that is classified as FRGAS, 
and included in the conventional gasoline compliance calculations of a 
foreign refiner for each year.
    (2) In 2000 the calculation shall be for the 1998 and 1999 
averaging periods. The calculation in 2000 shall also include all 
conventional gasoline classified as FRGAS and included in the 
conventional gasoline compliance calculations of a foreign refiner for 
1997, and all conventional gasoline batches that are imported during 
1997 beginning on the date the first batch of FRGAS arrives at a United 
States port of entry.
    (3)(i) The Administrator shall determine whether the volume-
weighted average calculated in paragraph (o)(1) and (2) of this section 
is greater than the following value: Exhaust NOX-1465 mg/
mile.
    (ii) If the volume-weighted average for exhaust NOX is 
greater than 1465 mg/mile, the Administrator shall calculate an 
adjusted baseline for the exhaust

[[Page 24795]]

NOX according to the following equation:

ABi = Bi--(MYAi--Bi)

where:
ABi = Adjusted baseline;
I = Exhaust NOX;
Bi = Value in paragraph (o)(3)(i) of this section;
MYAi = Multi-year average.

    (4)(i) Notwithstanding the provisions of Sec. 80.91(b)(4)(iii), the 
baseline exhaust NOX emissions values applicable to any 
United States importer who has not been assigned an individual importer 
baseline under Sec. 80.91(b)(4) shall be the more stringent of the 
statutory baseline value for exhaust NOX under 
Sec. 80.91(c)(5), or the adjusted baseline value for exhaust NOx 
calculated under paragraph (o)(3) of this section.
    (ii) On or before June 1 of each calendar year, the Administrator 
shall publish a notice in the Federal Register providing the baseline 
that applies to importers under this paragraph (o). If the baseline is 
an adjusted baseline, it shall be effective for any conventional 
gasoline imported beginning 60 days following the publication of the 
notice. If the baseline is the statutory baseline, it shall be 
effective upon publication of the notice. A baseline shall remain in 
effect until the effective date of a subsequent change to the baseline 
pursuant to this paragraph (o).
    (p) Withdrawal or suspension of a foreign refinery's baseline EPA 
may withdraw or suspend a baseline that has been assigned to a foreign 
refinery where:
    (1) A foreign refiner fails to meet any requirement of this 
section;
    (2) A foreign government fails to allow EPA inspections as provided 
in paragraph (i)(1) of this section; or
    (3) A foreign refiner fails to pay a civil or criminal penalty that 
is not satisfied using the foreign refiner bond specified in paragraph 
(j) of this section.
    (q) Early use of a foreign refinery baseline. (1) A foreign refiner 
may begin using an individual refinery baseline before EPA has approved 
the baseline, provided that:
    (i) A baseline petition has been submitted as required in paragraph 
(b) of this section;
    (ii) EPA has made a provisional finding that the baseline petition 
is complete;
    (iii) The foreign refiner has made the commitments required in 
paragraph (i) of this section;
    (iv) The persons who will meet the independent third party and 
independent attest requirements for the foreign refinery have made the 
commitments required in paragraphs (f)(4)(iii) and (h)(4)(iii) of this 
section; and
    (v) The foreign refiner has met the bond requirements of paragraph 
(j) of this section.
    (2) In any case where a foreign refiner uses an individual refinery 
baseline before final approval under paragraph (q)(1) of this section, 
and the foreign refinery baseline values that ultimately are approved 
by EPA are more stringent than the early baseline values used by the 
foreign refiner, the foreign refiner shall recalculate its compliance, 
ab initio, using the baseline values approved by EPA, and the foreign 
refiner shall be liable for any resulting violation of the conventional 
gasoline requirements.

[FR Doc. 97-11629 Filed 5-5-97; 8:45 am]
BILLING CODE 6560-50-P