[Federal Register Volume 62, Number 167 (Thursday, August 28, 1997)]
[Rules and Regulations]
[Pages 45533-45568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-22803]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[FRL-5883-3]
RIN 2060-AH48


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

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: This final rule revises the requirements for imported 
conventional gasoline. The Agency has revised the rules for 
conventional gasoline (59 FR 7716, February 16, 1994) to allow a 
foreign refiner to 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 is required to meet the same requirements relating to 
the establishment and use of individual refinery baselines as are met 
by domestic refiners. This final action also includes additional 
requirements that address issues that are unique to refiners and 
refineries located outside the United States, namely those related to 
tracking the movement of gasoline from the refinery to the United 
States border, monitoring compliance with the requirements applicable 
to foreign refiners, and imposition of appropriate sanctions for 
violations. EPA will monitor the quality of imported conventional 
gasoline, and if it exceeds a specified benchmark, EPA will apply 
appropriate remedial action. Under this final action, the baseline for 
gasoline imported from refiners without an individual baseline would be 
adjusted to remedy the exceedance.
    EPA believes this final rulemaking is consistent with the Agency's 
commitment to fully protect public health and the environment, and with 
the U.S. commitment to comply with its obligations under the World 
Trade Organization agreement.

DATES: This final rule is effective August 27, 1997.

ADDRESSES: Materials relevant to the final rule have been placed in 
Public Docket A-97-26 at the address below. Additional materials can be 
found 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:

Availability on the TTNBSS

    Copies of this final rule are available electronically from the EPA 
Internet Web site and via dial-up modem on the Technology Transfer 
Network (TTN), which is an electronic bulletin board system (BBS) 
operated by EPA's Office of Air Quality Planning and Standards. Both 
services are free of charge, except for your existing cost of Internet 
connectivity or the cost of the phone call to TTN. Users are able to 
access and download files on their first call using a personal computer 
per the following information. The official Federal Register version is 
made available on the day of publication on the primary Internet sites 
listed below. The EPA Office of Mobile Sources also publishes these 
notices on the secondary Web site listed below and on the TTN BBS.

Internet (Web)
http://www.epa.gov/docs/fedrgstr/EPA-AIR/
(either select desired date or use Search feature)
http://www.epa.gov/OMSWWW/
(look in What's New or under the specific rulemaking topic)

    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--Mobile Sources Information
(Alerts display a chronological list of recent documents)
(K) Rulemaking and Reporting

    At this point, choose the topic (e.g, Fuels) and subtopic (e.g., 
Reformulated Gasoline) of the rulemaking, and the system will list all 
available files in the chosen category in date order with brief 
descriptions. To download a file, type the letter ``D'' and hit your 
Enter key. Then select a transfer protocol that is supported by the 
terminal software on your own computer, and pick the appropriate 
command on your own software to receive the file using that same 
protocol. After getting the files you want onto your computer, you can 
quit the TTN BBS with the ``G''oodbye command.
    Please note that due to differences between the software used to 
develop the document and the software into which the document may be 
downloaded, changes in format, page length, etc. may occur.

Regulated Entities

    Entities 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

[[Page 45534]]

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.
    The remainder of this final rulemaking is organized in the 
following sections:

I. Background
    A. Current Requirements for Imported Gasoline
    B. May 1994 Proposal
    C. The WTO Dispute Settlement Proceeding
    D. Invitation for Public Comment
    E. Requiring Individual Baselines for Foreign Refiners
    F. Summary of Comments from NPRM
II. Description of Final Rule
    A. Introduction
    B. Requirements for Foreign Refiners with Individual Refinery 
Baselines
    1. Establish Refinery Baselines
    2. Compliance with CG NOX and Exhaust Toxics 
Requirements
    3. Requirements for Tracking Refinery of Origin
    4. Measures Related to Monitoring Compliance and Enforcement
    C. Baseline Adjustment for Imported Gasoline that is Not FRGAS
    1. Introduction
    2. Monitoring
    3. An Appropriate Benchmark
    4. Remedial Action Upon an Exceedance
    5. Imported Gasoline Subject to the Remedial Action
    D. Requirements for U.S. Importers
    1. Imported CG FRGAS
    2. Imported CG that is not FRGAS
    3. Imported RFG
    E. Early Use of Individual Foreign Refinery Baselines
    F. Requirements for RFG Before 1998
III. Summary of Changes from Proposal
IV. Response to Comments
    A. Optional vs. Mandatory Baselines
    B. Establishment of Individual Baselines
    C. Liability: Party responsible for meeting the gasoline quality 
requirements for FRGAS
    D. Compliance Related Requirements
    1. Sovereign Immunity
    2. Agent for Service of Process
    3. Bond Requirement
    4. Foreign Refiner Commitments
    5. Gasoline Tracking Requirements
    6. Option to Classify Gasoline as Non-FRGAS
    7. Third Party Testing Requirements
    8. Diversion of FRGAS to Non-U.S. Markets
    9. Attest Requirements
    10. Imports from Canada by Truck
    E. Remedial Measures
    F. Compliance with WTO Obligations
V. Administrative Designation and Regulatory Analysis
    A. Public Participation
    B. Executive Order 12866
    C. Economic Impact and Impact on Small Entities
    D. Paperwork Reduction Act
    E. Unfunded Mandates
    F. Submission to Congress and the General Accounting Office
    G. Statutory Authority
Regulation of Fuels and Fuel Additives

I. Background

A. Current Requirements for Imported Gasoline

    On December 15, 1993, EPA issued 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's 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, 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 through the importer 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 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 7785-7788 (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

[[Page 45535]]

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 restrictive 
language in the legislation on EPA's appropriations related to the May 
1994 proposal. EPA took no further action on this proposal.

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 gasoline 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 potential environmental impact resulting from 
providing foreign refiners the choice of employing individual 
baselines. The 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, enforcement or conservation exceptions applied. The U.S. 
appealed, arguing that the measure is covered by the GATT conservation 
exception. The WTO Appellate Body recognized that the United States had 
legitimate concerns, and modified the findings of the dispute 
settlement panel accordingly, 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 compliance assurance 
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 there was no evidence 
demonstrating similar concern about the costs 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 published 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 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. Additional comments were received subsequent 
to the comment period. To review the comments submitted during the 
invitation for public comment see Air Docket A-96-33 or 62 FR 24778 
under Section D, Invitation for Public Comment.

E. Requiring Individual Baselines for Foreign Refiners

    In preparing the earlier proposal and this final rule 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 consideration of 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 final rule 
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. Use of individual baselines by foreign refiners would 
be mandatory, not optional. Under this approach, EPA would apply 
basically the same requirements that apply to domestic refiners to 
foreign refiners. For the reasons discussed in the proposal, and later 
in this notice, EPA is not adopting this approach. EPA is instead 
adopting the approach proposed, which allows foreign refiners to 
establish and use an IB but does not mandate it. EPA will monitor the 
emissions quality of imported gasoline and adjust the baselines for 
gasoline imported from refiners without an individual baseline if a 
specified benchmark is exceeded.
    The mandatory approach would require all 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 
NOX and exhaust toxics 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

[[Page 45536]]

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.5
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    \5\ These and many other elements of a mandatory IB approach 
would also apply where foreign refiners are provided an option to 
establish and use an IB. As discussed later, it is the application 
of these factors across all imported gasoline that leads to the 
concerns raised by DOE relating to the supply and price of gasoline 
in the U.S. market.
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    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 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 mandatory 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 effects 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 did 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 potential environmental 
impact. The Agency instead proposed the optional use of individual 
baselines, with specific provisions for monitoring gasoline quality and 
remedying any adverse environmental effects. EPA's rationale (including 
the Department of Energy's analysis) for selecting this option is 
further outlined below in Section IV. Response to Comments: Mandatory 
vs. Optional Baselines.

F. Summary of Comments from NPRM

    EPA received comments from nine associations representing various 
groups including domestic gasoline producers, domestic importers, and 
environmental organizations. Three domestic refiners individually 
submitted statements supporting the comments submitted by their 
representing associations. Three foreign refiners commented. One state 
environmental organization submitted favorable comments to the NPRM. 
EPA also received comments from the Commission of the European 
Communities.

[[Page 45537]]

    The issues addressed in the public comments include: the question 
of mandatory versus optional baselines; EPA's use of cost 
considerations in the final rule; the consideration of seasonal impacts 
to prevent additional competitive advantages for foreign refiners; 
whether or not the Agency has established appropriate and adequate 
monitoring, compliance and enforcement requirements; the requirement 
for a waiver of sovereign immunity; and the implementation of the 
remedial action. This is not intended to be an exhaustive list of 
comments. A complete set of comments is available from the Air Docket 
(A-97-26). The major issues and comments are addressed in the Response 
to Comment section of this final rule.

II. Description of Final Rule

A. Introduction

    Today's final action allows foreign refiners the option to 
establish and use IBs under the conventional gasoline program. Specific 
regulatory provisions will be implemented to ensure that the optional 
use of an IB will not lead to adverse environmental impacts. This 
involves monitoring the average quality of imported gasoline, and if a 
specified benchmark is exceeded, remedial action will be taken. The 
remedial action involves making the requirements for imported gasoline 
not subject to an IB more stringent. This will ensure the environmental 
neutrality of this approach.
    Under this final rule, the procedures and methods for setting an 
IB, as well as the tracking, segregation and other compliance related 
provisions described below will all apply. However, they will only 
apply where a foreign refiner chooses to apply for an IB.
    The volume of gasoline that can be imported under the IB for a 
foreign refinery is limited in the same manner as for domestic 
refiners, relative to a refinery's 1990 baseline volume. Since the 
foreign refiner seeks 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 
will continue to apply for all of the other gasoline imported into the 
U.S.
    There was some concern about the possible environmental impact of 
providing this option to foreign refiners. A foreign refiner may only 
have an economic incentive to seek an IB if it will 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 through the importer. As 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 
receive an IB, the specific emissions levels of the IBs assigned, and 
the volume of gasoline included in the IB. 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 than 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.
    EPA is addressing these potential environmental concerns in the 
final rule by: (1) Establishing a benchmark for the quality of imported 
gasoline that will 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 the benchmark is exceeded, 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. 
See 40 CFR 80.41 and 80.68.
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    The benchmark for imported gasoline quality is the volume-weighted 
average of the IBs for domestic refiners. EPA is finalizing a benchmark 
for NOX emissions performance set at the volume weighted 
average for domestic baselines. No benchmark is being set at this time 
for exhaust toxics emissions performance, as there does not appear to 
be the same potential for environmental degradation that there could be 
for NOX.
    EPA will 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 will 
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 exceeds the benchmark, NOX requirements 
for gasoline imported from refiners without an IB (currently set at the 
SB) will increase in stringency the following year by an amount 
equivalent to the exceedance. This will occur each time the annual 
monitoring indicates that the benchmark is exceeded. If the amount of 
an exceedance either increases or decreases, the amount of the remedy 
will be correspondingly adjusted on an annual basis. If the annual 
monitoring shows that imported gasoline does not exceed the benchmark, 
the compliance requirements will be reduced to the SB for the following 
year. The more stringent requirements will apply to all imported 
gasoline except for gasoline produced by foreign refiners with an IB.
    This approach meets the goals of environmental protection and 
compliance with international obligations, as announced in the June 
1996 Invitation for Public Comment, and avoids the potential supply, 
price and environmental consequences of the alternative approaches 
considered by EPA.
    The remainder of this section describes the contents of this final 
rule. The following sections describe the changes made from the 
proposal as well as the response to comments received by the Agency. 
The preamble to the proposal also provides additional information 
related to provisions that EPA is finalizing without change from the 
proposal.

B. Requirements for Foreign Refiners With Individual Refinery Baselines

1. Establish Refinery Baselines
    Under this final action, a foreign refiner has 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 
located in sections 80.90 through 80.93. These same procedures were 
used by domestic refiners to develop their IBs based on their overall 
gasoline quantity and quality for 1990.
    EPA is requiring that foreign refiners that elect to develop 
individual refinery baselines would also follow these procedures to 
determine the quality and quantity of gasoline they produced in 1990 
that was exported to the U.S. As is the case for domestic refiners, 
under section 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 baselines for foreign refineries are essentially the same as 
the baseline establishment requirements for domestic refineries. EPA is 
adopting additional requirements for foreign

[[Page 45538]]

refineries that address the unique circumstances associated with 
establishing and enforcing the establishment and use of an individual 
baseline by a foreign refiner.
    The procedures for developing individual refinery baselines, set 
forth in sections 80.90 through 80.93, are highlighted below and 
discussed with respect to foreign refineries.
     A foreign refinery's individual baseline (i.e., quality 
and quantity information) must 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) 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 section 80.91(d)(1)(i)(B) must be 
used in the development of the foreign refineries baseline.
     Baseline petitions must be submitted in the same manner as 
is required of domestic refiners under section 80.93. Baseline 
petitions must be submitted before January 1, 2002. EPA is requiring 
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.
     EPA is requiring that in order for a refinery to receive 
an approved baseline, the refinery must 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 section 80.93(b)(1)(i) foreign refiners are required 
to provide any additional information requested by EPA to support a 
baseline submittal or petition, as is required for domestic refiners.
     Under section 80.93(c) a separate baseline will 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 section 
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 section 80.101(h).
     All documentation included in a baseline submission or 
petition must be in the English language or include an English language 
translation.
    ii. EPA Action on Baseline Submissions: As for the domestic refiner 
baseline approval process, EPA will subject foreign refinery baseline 
submissions to an in-depth analysis and review. EPA also reserves 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 will assign an individual baseline that represents the 
quality and quantity of gasoline exported to the U.S. in 1990. EPA 
believes that 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. Further guidance on EPA's expectations for the petition 
submission and approval process is provided in the proposed rule at 62 
FR 24781 (May 6, 1997).
2. Compliance With CG NOX and Exhaust Toxics Requirements
    The gasoline produced at a foreign refinery with an individual 
refinery baseline that is imported into the United States is called 
``Foreign Refinery Gasoline,'' or ``FRGAS.'' Foreign refiners with 
individual baselines are required to designate all FRGAS into one of 
two categories: conventional gasoline FRGAS that is included in the 
foreign refiner's NOX and exhaust toxics compliance 
calculations, which is called ``certified FRGAS,'' and all other FRGAS, 
which is called ``non-certified FRGAS.'' The non-certified FRGAS 
category includes gasoline that meets the quality requirements for RFG, 
as well as gasoline that is not RFG quality and has not been included 
in the foreign refiner's NOX and exhaust toxics compliance 
calculations.
    Foreign refiners who obtain individual foreign refinery baselines 
will have to meet the NOX and exhaust toxics emissions 
performance requirements for all gasoline classified as certified 
FRGAS.7
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    \7\ Non-certified FRGAS will be regulated through the importer. 
If the importer classifies it as RFG, it will have to meet the RFG 
requirements. If the importer classifies it as CG, it will have to 
meet the importers compliance baseline for CG, which in almost all 
cases is the statutory baseline.
---------------------------------------------------------------------------

    In addition, foreign refiners with an individual refinery baseline 
will be required to meet all requirements used to demonstrate 
compliance with the CG emissions requirements. Certain adjustments to 
these provisions are specified in the regulations to apply them to 
foreign refiners. These are the same requirements that apply to 
domestic refiners, and include the following:
     To register with EPA, section 80.103.
     To designate each batch of FRGAS as certified or non-
certified, section 80.65(d).
     To determine the volume and properties of each certified 
FRGAS batch through sampling and testing, section 80.101(i).
     To determine the volume of each batch of non-certified 
FRGAS in order to complete the compliance baseline calculation in 
section 80.101(f).
     To prepare product transfer documents for FRGAS, sections 
80.77 and 80.106.
     To keep certain records for five years, sections 80.74 and 
80.104.
     To submit reports to EPA on each batch of FRGAS, on the 
volume of non-certified FRGAS, and on the annual average quality of 
certified FRGAS, sections 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., section 80.102.
     To have an independent audit performed of refinery 
operations each year to review certain activities related to the FRGAS 
requirements, sections 80.125 through 80.130. However, the audit 
procedures for non-certified FRGAS would be limited to the procedures 
that evaluate the quantity of non-certified FRGAS, and audits would not 
be required to include procedures intended to verify information about 
non-certified FRGAS that is unrelated to the compliance baseline 
calculation, such as the quality of non-certified FRGAS quality or VOC-
control designations.
    Under section 80.101(f) a compliance baseline for NOX 
and exhaust toxics compliance is calculated for each calendar year 
averaging period based on a refinery's 1990 baseline volume and 
baseline NOX and exhaust toxics values, and the total 
gasoline volume (CG and RFG) produced at the refinery and imported into 
the U.S. during the averaging period. As a result, a foreign refiner 
with an individual refinery baseline will be required to establish the 
volume of U.S. market gasoline that is non-certified FRGAS in order to 
calculate the refinery's compliance baseline for the NOX and 
exhaust toxics CG requirements (see footnotes at 62 FR 24782 for 
further clarification).

[[Page 45539]]

    Therefore, a foreign refiner with an individual refinery baseline 
will be required to designate each batch of U.S. market gasoline as 
certified FRGAS or non-certified FRGAS, to establish the volume and 
properties of gasoline designated as certified FRGAS, and to establish 
the volume of gasoline designated as non-certified FRGAS.
    All foreign refiners with individual refinery baselines will be 
required to submit annual reports to EPA that demonstrate the average 
NOX and exhaust toxics emissions for certified FRGAS meets 
the refinery's compliance baseline for the averaging period.
    Under today's final action, certified FRGAS will be treated 
basically under the same rules as gasoline produced for the U.S. market 
at a domestic refinery. The certified FRGAS will be subject to the same 
conventional gasoline requirements as the conventional gasoline 
produced by domestic refiners. During 1997, under section 80.101(b)(1) 
a refinery's annual average for sulfur, T-90, olefins and exhaust 
benzene emissions may not exceed its individual baseline for these fuel 
characteristics. Starting in 1998 a refinery's annual average 
conventional gasoline NOX and exhaust toxics emissions may 
not exceed its individual baseline for these fuel characteristics. In 
order to evaluate compliance, however, certified FRGAS must be 
designated as such at the point of production, and must be tracked to 
determine that it in fact is exported to the U.S.
    In order to determine compliance with the NOX and 
exhaust toxics requirements for certified FRGAS, the quality and 
quantity of each batch of certified FRGAS must be determined. The 
volume of non-certified FRGAS also will have to be determined, because 
the compliance baseline applicable to a refinery depends on the total 
volume of gasoline produced at a refinery and imported into the U.S. 
market, including both certified and non-certified FRGAS. To determine 
the quality and/or quantity of this gasoline, a foreign refiner will 
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.
    In the case of certified FRGAS the foreign refiner must include the 
gasoline in the refinery's NOX and exhaust toxics compliance 
calculations, and meet the refinery tracking requirements, described 
below. Gasoline that is not classified as FRGAS and is not imported 
into the U.S. must be excluded from the refinery's compliance 
calculations, and the refiner is not required to meet the refinery 
tracking requirements for this gasoline.
    However, the foreign refiner will continue to be required to 
include all non-certified FRGAS in the refinery's compliance baseline 
calculations and to meet the refinery tracking requirements for all 
non-certified FRGAS. This is necessary in order to prevent adverse 
environmental effects. As in the case of domestic refiners, all 
gasoline imported into the United States must be included in a 
refinery's compliance baseline calculation because a larger volume of 
non-certified FRGAS results in a more stringent compliance baseline 
applicable to the certified FRGAS.
3. Requirements for Tracking Refinery of Origin
    EPA is finalizing a series of requirements to accurately identify 
both certified and non-certified FRGAS gasoline upon its arrival into 
the U.S. There is the potential for adverse environmental results if a 
foreign refiner includes gasoline in its CG NOX and exhaust 
toxics compliance calculations that is not imported into the U.S. In 
addition, there is environmental risk if a foreign refiner fails to 
include in its compliance baseline calculations the volume of any 
gasoline that is imported into the U.S.
    i. Segregation of FRGAS: EPA is requiring that certified FRGAS must 
remain physically segregated from non-certified FRGAS and from 
certified FRGAS produced at another refinery, 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 (for certified 
FRGAS), or compliance baseline calculations (in the case of non-
certified FRGAS).
    This segregation requirement would not prohibit a foreign refiner 
from combining batches of certified FRGAS, or combining batches of non-
certified FRGAS, that are produced at a single refinery into larger 
volumes for shipment. In addition, where multiple refineries have been 
aggregated under Sec. 80.101(h), certified FRGAS produced at the 
aggregated refineries may be combined, and non-certified FRGAS produced 
at the aggregated refineries may be combined.
    ii. Foreign Refiner Certification of FRGAS: EPA is requiring that 
foreign refiners of FRGAS 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 must identify the 
gasoline as being FRGAS, whether the FRGAS is certified or non-
certified, the foreign refinery where the FRGAS was produced, and the 
volume of the FRGAS being transported. In the case of certified FRGAS 
the certification must also include the properties of the gasoline 
being transported and a declaration that the gasoline is being included 
in the NOX and exhaust toxics compliance calculations for 
the foreign refinery. A single declaration may apply to the entire 
contents of a vessel where the gasoline is only certified FRGAS or is 
only non-certified FRGAS.
    The foreign refiner certification must be supported by an 
inspection by an independent, EPA-approved third party such as an 
independent laboratory. The independent party must confirm the refinery 
of origin, guarantee that no prohibited mixing occurred, and determine 
the volume and properties of the certified FRGAS, and the volume of 
non-certified FRGAS.
    The independent party is required to prepare a report on these 
inspections that becomes a part of the foreign refiner's certification. 
The independent party also must submit an inspection report to EPA.
    iii. U.S. Importer Receipt of FRGAS: Under this final rule, the 
U.S. importer must classify certified-FRGAS as such if the gasoline is 
accompanied by a foreign refiner certification that is properly 
supported by an independent party's report, and if test results from 
the load port are consistent with test results from the U.S. port of 
entry.
    The regulations require the importer to test the FRGAS, and include 
criteria for comparing the load port and port of entry testing. The 
test results have to agree, for five specified parameters (sulfur, 
benzene, gravity, E200 and E300), within the reproducibility limits for 
the test procedures for these parameters. The two volume 
determinations, corrected for temperature, 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%.
    Importers are required to include in their NOX and 
exhaust toxics compliance calculations any FRGAS for which the importer 
does not obtain a certificate by the foreign refiner supported by a 
report prepared by an independent third party, or FRGAS where the load 
and entry port comparison is outside the range specified in the 
regulations.

[[Page 45540]]

    In the case of FRGAS 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 
range requirements, the gasoline must be imported as non-certified 
FRGAS.8 In addition, the foreign refiner is required to 
remove the volume and properties of the FRGAS from its NOX 
and exhaust toxics compliance calculations, because the gasoline now is 
classified as non-certified FRGAS. However, the foreign refiner must 
retain the volume of the FRGAS in its compliance baseline calculation, 
the same as any other non-certified FRGAS, unless the foreign refiner 
can demonstrate that the importer did not classify the gasoline or as 
RFG or use it to produce RFG.
---------------------------------------------------------------------------

    \8\ The importer may also treat as GTAB any gasoline classified 
as non-certified FRGAS.
---------------------------------------------------------------------------

    In a case of load port and port of entry test results that are 
outside the specified range for certified FRGAS, the regulations also 
allow the gasoline to retain this classification if the NOX 
and exhaust toxics emissions performance based upon port of entry test 
results is ``cleaner'' for both pollutants than the emissions 
performance based upon the load port test results.
    U.S. importers are required to report to EPA on each batch of FRGAS 
imported, identifying the foreign refinery, whether the FRGAS is 
certified or non-certified, the volume and properties of certified 
FRGAS, and the volume of non-certified FRGAS.9
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    \9\ Non-certified FRGAS also must be included in the U.S. 
importer's compliance calculations for RFG or conventional gasoline. 
The importer must meet all current requirements for such gasoline, 
such as sampling, testing and reporting.
---------------------------------------------------------------------------

    iv. Attest Engagement Requirements: Under today's final rule, 
foreign refiners of FRGAS must meet the independent attest engagement 
requirements in sections 80.125 through 80.130, the same as domestic 
refiners, although the attest requirements for non-certified FRGAS are 
limited to those related to the volume of non-certified FRGAS produced 
at a foreign refinery.10 EPA is adopting additional attest 
requirements that relate to the FRGAS requirements. These attest 
requirements supplement the requirements regarding an independent party 
determination of the refinery that produced FRGAS loaded onto a ship. 
The focus of the attest requirements will be on the foreign refinery 
operations, while the requirements for certification by an independent 
party focus on the transportation and storage of gasoline from the 
refinery to the point of ship loading.
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    \10\ ``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 sections 80.125 through 80.130 consist of specified 
attest procedures dealing with the Gasoline Rule and instructions 
for the conduct of these procedures.
---------------------------------------------------------------------------

    For further details on the procedures an auditor will be required 
to perform see 62 FR 24784 (May 6, 1997) ``Attest Engagement 
Requirements.''
    v. Requirements for Third Parties: EPA is requiring that FRGAS 
sampling, volume and fuel quality determinations and determinations of 
refinery of origin at the loading port will have to be performed by an 
independent party. The criteria for independence are the same criteria 
that apply for the independent sampling and testing requirement for 
domestic refiners and importers, and that are specified at section 
80.65(f)(2)(ii). In addition, persons performing this work must be EPA 
approved. EPA approval will be based on the ability to perform the 
required work as demonstrated through a petition process.
    Independent parties will 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.
    Third party sampling and testing is a necessary part of the foreign 
refiner FRGAS program. However, in response to comments EPA is 
modifying these requirements in several ways for this final rule, as 
discussed below.
4. Measures Related to Monitoring Compliance and Enforcement
    i. Introduction: The requirements for foreign refiners with 
individual refinery baselines must be subject to strong measures for 
monitoring compliance and enforcing violations, as are domestic 
refiners. However, there are a number of unique circumstances 
associated with monitoring compliance and enforcing requirements for 
foreign refiners. EPA is adopting a range of provisions designed to 
address these concerns in a comprehensive manner. These provisions will 
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 will constitute a deterrent to future violations.
    The purpose of the provisions is to ensure that EPA's compliance 
and enforcement activities with regard to foreign refiners will be on a 
par with those for domestic refiners, in order to assure achievement of 
the environmental objectives of the gasoline programs.
    ii. Inspections and audits: EPA intends 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 
will 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. As with domestic 
inspections and audits, some of the inspections and audits may be 
announced while some will be unannounced.
    With the exception of the limited waiver of sovereign immunity, all 
aspects of section (ii) inspections and audits (62 FR 24784-24785, May 
6, 1997) outlined in the proposal are adopted by today's action. For a 
detailed list of the inspection and audit requirements refer to that 
section of the proposed rule. EPA's response to comment and final 
action on the limited waiver of sovereign immunity is addressed below 
in section D.
    Where a foreign refiner fails to abide by the terms of the foreign 
refiner commitments, or a foreign government fails to allow entry for 
the purpose of EPA inspections and audits, EPA may withdraw or suspend 
the refiner's individual refinery baseline.
    iii. Administrative, 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 will be 
subject to civil, and in certain cases criminal, enforcement, and EPA 
is adopting requirements that will facilitate prosecution of such 
violations. These requirements consist of provisions relating to a 
waiver of sovereign immunity, and commitments the foreign refiner must 
include in a baseline petition submitted to EPA.
    Each foreign refiner seeking an individual refinery baseline must 
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. This agent for service need not be a general agent for 
service; the agent need only be authorized to accept service by EPA, or 
otherwise by the U.S., for enforcement actions related to these 
regulatory provisions. The agent for service must be located in the 
District of Columbia.
    Foreign refiners have to acknowledge that the forum for civil 
enforcement actions will be governed by Clean Air

[[Page 45541]]

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.
    Foreign refiners of FRGAS must acknowledge that civil and criminal 
enforcement actions will use the same U.S. civil and criminal 
substantive and procedural laws that apply in enforcement actions 
against domestic refiners. All of these requirements are finalized in 
today's rulemaking.
    iv. Sanctions for civil and criminal violations: The sanctions for 
civil and criminal violations committed by foreign refiners with 
individual refinery baselines or employees of such foreign refiners 
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.
    Foreign refiners seeking and then operating under an individual 
refinery baseline must post a bond with the U.S. Treasury that will be 
available to satisfy any civil penalty or criminal fine that is imposed 
against the refiner or its employees, but only with regards to 
enforcement of the regulatory provisions adopted today. The amount of 
this bond is $0.01 per gallon of certified FRGAS imported from the 
refiner into the U.S. per year, based on the maximum annual volume of 
certified FRGAS imports during the most recent five year period during 
which the foreign refiner exported certified FRGAS to the U.S. using an 
individual refinery baseline. However, the initial bond amount will be 
based on the volume of conventional gasoline or certified FRGAS 
produced at a foreign refinery that was imported into the U.S. during 
the year immediately preceding the year the baseline petition is 
submitted.11 The foreign refiner must submit with its 
baseline petition a bond to reflect this volume, and 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 certified FRGAS volume for an additional year until 
there is a five year history, at which time the certified FRGAS volume 
review would include only the most recent five years.
---------------------------------------------------------------------------

    \11\ 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 may 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. judicial judgments for civil or administrative 
penalties against the foreign refiner provided that EPA agrees in 
advance to the third party and the nature of the surety agreement. In 
addition, the bond requirement may be met by an alternative commitment 
that results in assets of an appropriate liquidity and value being 
readily available to the United States, provided that EPA agrees in 
advance to the alternative.
    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 could then 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.
    If a foreign refiner with an individual refinery baseline fails to 
meet any requirements, 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 may administratively withdraw 
or suspend its individual refinery baseline.
    Withdrawal or suspension of an individual refinery baseline may 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 will 
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 may be imposed for a limited time.

C. Baseline Adjustment for Imported Gasoline That Is Non-FRGAS or Non-
Certified FRGAS

1. Introduction
    Allowing foreign refiners to choose whether to establish an IB 
creates a potential for adverse environmental impact. This potential is 
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 approach 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 NOX and exhaust toxics 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 30. 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 final rule, importers will 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 will submit reports to EPA. In 
combination these reports will contain all of the information submitted 
for gasoline produced by refiners without an IB.
    These annual reports submitted by importers and foreign refiners 
provide EPA with batch by batch information for all CG imported during 
that year. From these, EPA will determine the volume weighted average 
quality for all imported CG. This will be a simple and straightforward 
way to monitor

[[Page 45542]]

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 foreign refiners using stricter criteria than that 
applied to domestic refiners, in the absence of evidence to support 
such an action.
    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 will use a three year average for 
comparison against the benchmark. This will be a rolling average; e.g. 
the average for years 1 through 3 will be compared to the benchmark one 
year, the next year the average for years 2 through 4 will be compared, 
and so on.
    EPA is setting this benchmark for NOX at the volume 
weighted baseline average for domestic refiners: 1465 mg/mile for 
NOX.12
---------------------------------------------------------------------------

    \12\ This value is based on the Phase 2 Complex Model, and will 
be used prior to and after 2000.
---------------------------------------------------------------------------

    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).\13\ 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.\14\ Further information is 
discussed in the response to comments section. EPA believes the present 
circumstances do not indicate that there is a risk of adverse 
environmental impact, and a benchmark and provisions for remedial 
action are not needed for exhaust toxics at this time. Instead, EPA 
will monitor the average quality of imported gasoline for exhaust 
toxics as for NOX, and if an adverse trend occurs EPA will 
develop a benchmark and remedial provisions analogous to that adopted 
for NOX.
---------------------------------------------------------------------------

    \13\ 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.
    \14\ See 59 FR 22809 (May 3, 1994).
---------------------------------------------------------------------------

    At the start of the program, the volume weighted average for 1998 
and 1999 will 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 still be 
fully accounted for, in the two year average including 1999. Since an 
IB might start to be used in 1997, EPA will include with the 1998 
imports all gasoline imported in 1997 after the date any gasoline 
subject to an IB is imported in 1997.
4. Remedial Action Upon an Exceedance
    If a volume weighted three year annual average for imported CG 
exceeds the benchmark for NOX then EPA will take remedial 
action. The remedial action will be an adjustment applied to the 
compliance baseline for CG not included in the CG compliance 
calculations of a foreign refiner with an IB. The adjustment to the 
baseline will equal the amount of the exceedance of the benchmark.
    This will be reevaluated each year by comparing the average for the 
three prior years to the benchmark. If there is no exceedance, then a 
prior adjustment will be terminated. If there is an exceedance, then a 
new adjustment will be imposed that equals the amount of the current 
exceedance. For example, if the three year annual average exceeds the 
NOX benchmark by 5 mg/mile, then the compliance baseline for 
NOX will be adjusted by 5 mg/mile. If there is no exceedance 
in the next years comparison, then the adjustment will be dropped.\15\
---------------------------------------------------------------------------

    \15\ For the initial years of the program, an exceedance for 
1998 and 1999 will lead to a remedial adjustment that equals the 
exceedance, but no more than 1% of the SB for NOX. 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.
---------------------------------------------------------------------------

5. Imported Gasoline Subject to the Remedial Action
    A foreign refiner using an IB will follow the same procedures as a 
domestic refiner--the quality of its CG will 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 has the potential to cause the 
average CG quality to be adversely affected when other refiners are 
subject to an IB. Since the foreign refiner with an IB would be acting 
no differently than domestic refiners with an IB, the remedial action 
will be applied to CG imported from refiners without an IB.

D. Requirements for U.S. Importers

    Under today's action U.S. importers must meet NOX and 
exhaust toxics requirements for all imported CG that is not designated 
as certified FRGAS, and must exclude from importer CG compliance 
calculations all CG that is designated as certified FRGAS. A mechanism 
is provided by which U.S. importers would demonstrate that imported CG 
is certified FRGAS. The baseline that will apply to U.S. importers of 
non-FRGAS and non-

[[Page 45543]]

certified FRGAS will be the statutory baseline or any adjusted baseline 
as discussed in section II.C above. EPA is not changing the current 
requirement that U.S. importers meet all requirements for imported RFG.
1. Imported Certified FRGAS
    Certified FRGAS must be excluded from the U.S. importer's CG 
compliance calculations. This prevents the double counting that would 
result if certified FRGAS were included in the CG compliance 
calculations of both the foreign refiner and the U.S. importer. 
However, the U.S. importer must determine the quality and quantity of 
certified FRGAS at the U.S. port of entry, which the importer then 
reports to the foreign refiner and to EPA in order to be compared with 
the foreign load port testing.
    A U.S. importer must classify an imported gasoline batch as 
certified FRGAS if the gasoline is accompanied by a certification 
prepared by the foreign refiner that identifies the gasoline as 
certified FRGAS to be included in the foreign refinery CG compliance 
calculations, and a report on the certified FRGAS batch prepared by an 
independent third party, and the load and entry port comparison is 
within the specified range. In this way the U.S. importer acts like a 
domestic distributor and would not be responsible for meeting the 
NOX and exhaust toxics requirements for this gasoline. The 
U.S. importer is not responsible for whether the foreign refiner meets 
the annual NOX and exhaust toxics requirements for certified 
FRGAS, including whether the foreign refiner properly calculates the 
refinery's compliance baseline each year.
    However, the U.S. importer is 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 certified FRGAS certification 
was not prepared by the named foreign refiner, for example if it is a 
forgery, the U.S. importer will be required to classify the gasoline as 
non-FRGAS and include the gasoline in the importer's CG compliance 
calculations. Similarly, if the certificate accompanying a batch of 
certified FRGAS names a foreign refinery that has not been assigned an 
individual baseline, the U.S. importer will be required to classify the 
gasoline as non-FRGAS and include the gasoline in the importer's CG 
compliance calculations. It is necessary to make U.S. importers 
responsible for accounting for imported CG in these situations in order 
to enable EPA to enforce the CG requirements effectively. EPA would 
have great difficulty enforcing requirements against a foreign party 
who may have created fraudulent FRGAS certification documents, other 
than a foreign refiner who has established an individual refinery 
baseline.
    EPA believes U.S. importers can easily protect themselves against 
this type of liability. EPA will publish on its computer bulletin board 
the identity of foreign refineries that have been assigned individual 
baselines, that may 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 certified FRGAS batch.
    The U.S. importer must use an independent third party to determine 
information about each certified FRGAS batch. The batch quality and 
quantity must be determined through sampling and testing prior to off 
loading the ship, and that will be compared with the quality and 
quantity determined at the load port after the ship was loaded. The 
independent party also must use the product transfer documents to 
determine the identity of the foreign refinery where the certified 
FRGAS was produced. The importer submits a report to the foreign 
refiner and to EPA containing the batch information.
    U.S. importers may not classify certified FRGAS as ``gasoline 
treated as blendstock,'' (GTAB), because to do so would result in the 
same CG being included in two compliance calculations.16 In 
addition, U.S. importers may not use GTAB procedures to convert 
certified FRGAS 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 in the refiner's CG 
compliance calculations to offset other dirty CG, and then convert this 
gasoline into RFG. The result of this would be degradation in the 
average quality of the refiner's CG. This same effect would be possible 
if importers could convert certified FRGAS into RFG.
---------------------------------------------------------------------------

    \16\ 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 Non-FRGAS or Non-Certified FRGAS
    U.S. importers must meet all current requirements for imported 
gasoline that is produced at a foreign refinery without an individual 
baseline (i.e., non-FRGAS), and for gasoline produced at a foreign 
refinery with an individual baseline where the gasoline is not included 
in the foreign refinery's NOX and exhaust toxics compliance 
calculations (i.e., non-certified FRGAS). If the importer classifies 
the gasoline as conventional, the importer must include the gasoline in 
its NOX and exhaust toxics compliance calculations. However, 
the baseline used by importers would be the baseline described in 
section II.C of this preamble. If the imported gasoline is classified 
as RFG, the importer must meet all RFG quality and other requirements 
for the gasoline.
    Importers are allowed to use the current GTAB procedures to reblend 
or reclassify imported non-FRGAS and non-certified FRGAS.
    In the case of non-FRGAS, importers have no requirements related to 
tracking the refinery of origin. In the case of non-certified FRGAS the 
importer must meet additional requirements related to tracking the 
refinery of origin. The importer must have an independent laboratory 
determine the volume of each non-certified FRGAS batch, and report this 
volume to the foreign refiner and to EPA to be compared with the load 
port volume. The volume of non-certified FRGAS 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.

E. Early Use of Individual Foreign Refinery Baselines

    A foreign refiner who submits a petition for an individual refinery 
baseline may 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 will be subject to the actual IB assigned 
by EPA.

[[Page 45544]]

    EPA will conduct a completeness evaluation as the first step in 
baseline review process, and will notify a foreign refiner of the 
results of the completeness review on request. However, the initial 
completeness review does not bar EPA from requiring a foreign refiner 
to submit additional information later in the baseline review process.
    The additional requirements a foreign refiner will 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 will have to be met are: (1) The 
commitments regarding EPA inspections and the forum for enforcement 
actions, and (2) the requirements related to posting of a bond.
    If these conditions are met, the foreign refiner may begin 
classifying gasoline as certified and non-certified FRGAS, and may use 
the individual refinery baseline to demonstrate compliance with the 
NOX and exhaust toxics requirements.17 However, a 
foreign refiner will be required to meet the NOX and exhaust 
toxics requirements for certified 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 NOX and 
exhaust toxics requirements will nevertheless be measured relative to 
the approved baseline values. If this evaluation results in a violation 
of the NOX and exhaust toxics requirements, the foreign 
refiner will be held liable.
---------------------------------------------------------------------------

    \17\ During 1997, under section 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 NOX and 
exhaust toxics emissions performance.
---------------------------------------------------------------------------

F. Requirements for RFG Before 1998

    The scope of this final rule is limited to requirements for 
conventional gasoline. 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. In the 
proposed rule EPA requested comments on whether the regulations should 
allow individual refinery baselines to be used for these RFG 
requirements if a foreign refiner obtains an individual baseline before 
January, 1998. The only comments on this issue stated that there would 
be insufficient time before January, 1998 to justify use of individual 
baselines for RFG and no commenters requested that this rule apply to 
RFG. This final rule is therefore limited to conventional gasoline.

III. Summary of Changes From Proposal

    The following list identifies aspects of the proposed rule (62 FR 
24776) that were modified in the final rule.
     The proposal would have required foreign refiners to 
submit baseline information on the foreign refinery's overall gasoline 
production for 1990. This requirement is deleted in the final rule. 
Baseline information must be submitted for the gasoline sent to the 
U.S. in 1990, however, EPA reserves the right to seek further 
information where appropriate.
     The proposal would have required that where a foreign 
refiner is owned or operated by a foreign government, the government 
would have to sign a waiver of sovereign immunity. The final rule 
instead includes a regulatory requirement that if a foreign refiner 
establishes and uses an individual baseline it will constitute a waiver 
of sovereign immunity for purposes of EPA or other U.S. enforcement 
actions based on violations of the requirements adopted today.
     The proposal would have required that the foreign refiner 
post a bond in order to receive an individual refinery baseline. In the 
final rule the bond requirement and bond amount are retained, however 
the foreign refiner many meet the bond requirement with other assets, 
subject to EPA approval.
     The proposal would have established various requirements 
relating to verifying the source of gasoline imported under an 
individual baseline--sampling and testing by independent third parties 
at the load port and discharge port, comparisons of the test results, 
and certifications as to identity and source of the gasoline. If the 
gasoline failed the load and entry port comparison it would still be 
included in the foreign refiner's compliance calculation. In addition, 
no gasoline classified by the foreign refiner as intended for the U.S. 
could be diverted to a non-U.S. market. Many of the details of those 
related provisions have been modified to increase the flexibility for 
importers and foreign refiners, to be consistent with the tracking 
purpose of the provisions, and to take into account any potential for 
adverse environmental impact.

IV. Response to Comments

A. Optional vs. Mandatory Baselines

1. EPA's Proposal
    EPA proposed that foreign refiners would be allowed to establish 
and use individual baselines, but it would not be mandatory. If a 
refiner did not establish and use an IB, the gasoline they export to 
the U.S. would be regulated through the importer, and subject to the 
importer's baseline. Specific regulatory provisions would be 
implemented to ensure that the option to use an individual baseline 
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 by adjusting the 
requirements applicable to imported gasoline.
    Under this approach, the volume of gasoline that could be imported 
under the individual baseline for a foreign refinery would be limited 
in the same manner as for domestic refiners, relative to a refinery's 
1990 baseline volume.
2. Comments: Optional Versus Mandatory Individual Baseline Approach
    Several parties from the domestic refining and distribution 
industry commented that EPA should not offer foreign refineries the 
opportunity to choose between either an individual baseline or the 
statutory baseline. The commenters suggested that offering the choice 
discriminates against domestic refiners who do not have the opportunity 
to choose, and offers the foreign refiners a competitive advantage.
    These commenters argued that foreign refiners already have a 
competitive advantage because they are subject to fewer environmental 
costs at their refineries relative to U.S. refiners, and they are not 
subject to U.S. RFG or anti-dumping regulations on the majority of 
their production which is not for the U.S. market. These commenters 
urge EPA to avoid any final regulation which would further upset the 
competitive balance and concluded that foreign refiners should be 
treated in the same manner as domestic refiners.
    These commenters argued that foreign refiners who would otherwise 
have individual baselines more stringent than the statutory baseline 
would not apply for an IB (their product would be regulated through the 
importer, who is subject to the statutory baseline), while those with 
baselines less stringent than the statutory baseline would choose to 
establish and use an individual baseline. The domestic industry also

[[Page 45545]]

noted that many U.S. refiners with baselines more stringent than 
average could significantly benefit if they were given the choice of 
choosing the statutory baseline.
    To avoid this perceived inequity, domestic refiners maintain that 
if all foreign refiners are not held to the statutory baseline, then 
they must be required all to establish an individual baseline for 
product shipped to the U.S. in 1990, or domestic refiners should be 
offered the same option to operate at the statutory baseline if they 
choose to do so.
    One commenter stated that EPA is obligated under the Clean Air Act 
to favor protecting the environment over energy and economic 
considerations. The commenter stated that in American Petroleum 
Institute v. EPA (52 F. 3d 113, 1120 (D.C. Cir. 1995), the court 
explicitly noted that these non-environmental factors are not to be 
used as an independent grant of authority for EPA rulemaking.
    The same commenter suggested that EPA and DOE concerns regarding 
price and supply impacts were an inappropriate foundation for this 
rulemaking. The commenter stated that the structure of the Clean Air 
Act, with its emphasis on protecting public health, meant that supply 
or price concerns cannot provide the foundation for this rule. The 
commenter concluded that EPA has an overriding obligation to consider 
air quality before any other factors, and that obligation should lead 
EPA to a decision to require mandatory baselines for all foreign 
refiners.
    Another commenter suggested that EPA's reliance on DOE's analysis 
was inadequate for selecting optional baselines over mandatory 
baselines. The commenter, an association representing certain domestic 
refiners, stated that they do not believe DOE or any other organization 
can credibly quantify the impact of foreign refiner baseline 
restrictions on the U.S. market just as DOE could not quantify the 
impact of baseline requirements on domestic refiners.
    Another association representing the domestic refining and 
distribution industry commented that despite DOE's concerns, a more 
serious threat to U.S. gasoline supply is adopting a rule which 
discriminates against domestic refiners. The commenter suggested that 
domestic refiners' business is extremely sensitive to unequal treatment 
in the international marketplace. The commenter suggested that during a 
short term supply emergency, EPA could establish a temporary waiver 
procedure to provide limited relief from baseline requirements. This 
commenter also suggested that any waiver should apply to all suppliers 
in an affected region and not be limited to foreign suppliers.
    Foreign refiners, domestic gasoline marketers and domestic 
importers and blenders and others commented that the optional 
individual baseline is appropriate.
3. EPA Response
Optional Baselines for Domestic Refiners
    EPA analyzed two approaches to establishing individual baselines 
for foreign refiners. One involved mandating that all foreign refiners 
obtain and use an IB in order to market conventional gasoline in the 
United States, the other approach provided this as an option but did 
not mandate it. For the reasons described in the proposal, and in this 
notice, EPA believes there are serious problems with the mandatory 
approach based on the risk that it could significantly disrupt the 
marketing of foreign conventional gasoline to the United States and 
therefore have significant impacts on the cost of gasoline. The 
proposal also discussed the potential for degradation in emissions 
quality of gasoline from the mandatory baseline approach. Because of 
this, EPA proposed and is adopting an optional approach.
    EPA does not agree that this discriminates against the domestic 
refining and distribution industry, or that domestic refiners should be 
provided the same option. While foreign refiners are provided a choice 
that domestic refiners are not provided, this is because the supply and 
price impacts from mandating the use of IBs for imported gasoline 
differ significantly from those for domestic gasoline. In addition, 
this choice can be provided to foreign refiners without adverse 
environmental impacts, through the use of the baseline adjustment 
mechanism to monitor and offset any potential degradation in the pool 
of imported gasoline. Providing the same choice to domestic refiners 
would very likely lead to a significant degradation of the much larger 
pool of domestically produced gasoline, that could only be remedied 
through an expensive and cost-ineffective adjustment mechanism.
    In establishing the rules for conventional and reformulated 
gasoline, EPA determined that domestic refiners are all able to 
establish individual baselines. Under section 211(k)(8) of the Act, EPA 
therefore requires that domestic refiners establish and use IBs. This 
is a cost-effective way to ensure that domestically produced 
conventional gasoline does not degrade in emissions related quality 
below 1990 levels. It has been successfully implemented without 
significant disruptions to the supply or price of conventional 
gasoline. Continuing this approach for domestic refiners does not 
present a risk of significantly disrupting the gasoline supply and 
price market. This would be a much less cost effective way to keep 
conventional gasoline quality at 1990 levels than mandating the use of 
IBs for domestic refiners.
    Providing domestic refiners the choice between use of an IB and use 
of the statutory baseline would likely lead, according to commenters, 
to many domestic refiners making this choice.\18\ EPA would have to 
establish a benchmark and adjustment mechanism, similar to that 
proposed for imported gasoline, to monitor for and offset any 
degradation of the gasoline pool resulting from providing such an 
option. Given the large volume of gasoline involved, which is much 
larger than the volume of imported gasoline at issue here, and the 
expectation that exercising such a choice to use the SB would be based 
on the economic value of producing gasoline designed to meet a less 
stringent baseline with the resulting bias for a dirtier gasoline pool, 
EPA would almost assuredly be called on to impose an across the board 
adjustment to baselines for domestic refiners to offset degradation of 
the gasoline pool from 1990 levels. This would result in the kind of 
``reformulation'' of conventional gasoline to stay at 1990 levels that 
the mandatory use of IBs was meant to avoid.
---------------------------------------------------------------------------

    \18\  Since domestic refiners have adequate data to establish an 
IB, this would not be consistent with the requirements of section 
211(k)(8).
---------------------------------------------------------------------------

    As compared to gasoline produced by domestic refiners, EPA has two 
potential parties whom it can regulate with respect to gasoline 
produced by foreign refiners. For imported gasoline EPA could regulate 
either the importer, or the foreign refiner. EPA therefore has 
discretion under section 211(k)(8) as to which party, and under what 
conditions, it imposes the requirements for conventional gasoline that 
is imported. For example, under the current regulations all foreign 
produced gasoline is regulated through the importer, and importers are 
not provided an option concerning establishment and use of an IB, while 
foreign refiners are not directly regulated.
    For the reasons and circumstances described in section I.E. and in 
the proposal, EPA has rejected the approach of mandating that all 
foreign refiners establish and use an IB in order to

[[Page 45546]]

market conventional gasoline in the U.S. EPA has instead determined 
that it is appropriate to continue regulating imported conventional 
gasoline through the importer in all cases except those where a foreign 
refiner has adequate data and chooses to establish and use an IB. The 
concerns on price and supply which lead to rejecting the mandatory 
approach for foreign refiners do not apply to domestic refiners, and 
therefore do not provide a basis for changing the mandatory approach 
currently applied for domestic refiners. In addition, providing this 
option to foreign refiners is less likely to lead to a degradation of 
the average qualities of imported gasoline than the much more likely 
degradation that would occur to the much larger pool of domestically 
produced gasoline if the same option were provided to domestic 
refiners.
    In sum, the mandatory use of IBs for domestic refiners has worked 
successfully, without significantly disrupting the supply and cost of 
conventional gasoline. Requiring the same approach for imported 
conventional gasoline, presents the risk of this kind of significant 
disruption. Providing domestic refiners with an option to establish and 
use IBs would very likely lead to a degradation in the emissions 
quality of conventional gasoline, over a very large percentage of the 
total volume of conventional gasoline. This degradation could be 
remedied by a baseline adjustment mechanism, however this would be a 
less-cost effective way to avoid such degradation than not providing 
such an option. Providing foreign refiners with the option to establish 
and use an IB presents a risk of environmental degradation, but this 
covers a much smaller pool of gasoline and it is unclear whether and to 
what extent there will in fact be a degradation in the pool of imported 
gasoline. If there is, it can be readily remedied consistent with the 
flexibility currently available to importers and foreign refiners to 
determine what gasoline is imported into the U.S., without the 
potential supply and price impacts from mandating the use of IBs for 
imported gasoline.
Consideration of Environmental Impact of Providing an Option for an 
Individual Baseline
    Several commenters suggested that the Agency's proposal put trade 
and economic considerations over its concern for protecting the 
environment. On the contrary, the Agency believes that this final rule 
is fully consistent with the Agency's commitment to fully protect 
public health and the environment.
    EPA considered two different approaches to the use of IBs by 
foreign refiners.19 It is reasonable for EPA to consider the 
cost impacts of the two approaches and adopt the one that avoids the 
risks attendant with seriously disrupting the importation of 
conventional gasoline into the U.S. In this case, the provisions 
adopted concerning the option to establish and use an individual 
baseline will fully protect the public health and environment, and 
achieve the Clean Air Act goals for the conventional gasoline program. 
This will be achieved without risking significant disruption to the 
supply or price of conventional gasoline.
---------------------------------------------------------------------------

    \19\ The potential for an adverse environmental impact from 
providing an option to foreign refiners, and EPA's mechanism to 
monitor for and fully offset any such adverse impact, is explained 
in detail in the proposal and elsewhere in this notice. The 
potential for an adverse environmental impact from the mandatory IB 
approach is described in the proposal at 62 FR 24779.
---------------------------------------------------------------------------

Impact of Mandatory Approach on Gasoline Supply/Price
    Commenters objected that EPA did not have an adequate basis to 
reject the mandatory baseline approach based on supply and cost 
considerations.
    Based on the information presented by DOE, EPA believes that 
requiring individual baselines for all foreign refiners presents too 
great a risk of adverse effects on gasoline supply and prices. To fully 
understand how mandatory baselines for imported conventional gasoline 
could impact the gasoline market it is first important to understand 
the role imports play in the domestic market. Foreign imports account 
for 6%-8% of total U.S. gasoline consumption. Almost all (over 95%) of 
imports come into Petroleum Administration for Defense Districts (PADD) 
I, the U.S. east coast, where they represent about 20% of total 
gasoline supply.
    Imported gasoline plays a significant role in the domestic gasoline 
market. Imported gasoline augments the supply of gasoline on the east 
coast of the United States, an area with an already large demand. 
During the summer of 1996, U.S. east coast and gulf coast refinery 
operating utilization rates were in excess of 96%. Only about 150 
thousand barrels a day of additional domestic gasoline production 
capacity was available. However, the market was demanding about 500 
thousand barrels a day of additional gasoline. Imported gasoline made 
up the gap with over two-thirds of the imports meeting a need that 
could not be served by U.S. refineries.20
---------------------------------------------------------------------------

    \20\ Analysis provided in comments submitted by the Department 
of Energy, July 23, 1997 in response to the May 6, 1997, NPRM.
---------------------------------------------------------------------------

    One commenter suggested that EPA's optional individual baseline 
approach discriminates against domestic refiners to such a degree that 
domestic refining capacity in the United States could contract as a 
result of this unequal treatment, which would have a more severe impact 
on the gasoline market in the United States. However, the current 
production rates of east coast and gulf coast refineries would indicate 
that this consequence is highly unlikely. It is clear that U.S. demand 
for gasoline will continue to increase at a rate surpassing U.S. 
production. The suggestion that domestic refineries will reduce their 
production in light of such a demand seems implausible.
    One commenter suggested that EPA establish a temporary waiver 
procedure to provide limited relief from baseline requirements during 
short-term supply emergencies. Although EPA arguably may have the 
authority to establish such a waiver provision, it would be an 
impracticable solution in this instance. It is clear from the DOE's 
analysis outlined below that the disruption mandatory baselines would 
cause to the sale and importation of opportunistic gasoline could leave 
the U.S. market with a constant risk of short term supply and price 
disruptions, and the temporary waiver provision could not be 
implemented in a time frame that would eliminate this risk. Moreover it 
would require the U.S. government to arbitrarily determine the 
appropriate market price of gasoline.
    Much of the gasoline imported into PADD I is shipped into the 
United States on an ad hoc basis. Currently gasoline is imported into 
the U.S. market from a free moving and fungible distribution system. 
This opportunistic sale of gasoline is an important element in the 
U.S., and particularly the east coast, gasoline supply system. The 
broad based use of tracking and monitoring restrictions which would be 
required by mandatory individual baselines would eliminate the 
flexibility necessary to quickly divert opportunistic gasoline to the 
U.S. should the market demand it. This would make it more likely that 
imported gasoline would not play the same role that it currently does 
in moderating price increases.
    The amount of opportunistic gasoline imported into the United 
States is not inconsequential. DOE's analysis indicates that in 1996, a 
total of 25

[[Page 45547]]

separate importers brought gasoline, of all types, to the U.S. east 
coast from about 40 refineries in 28 countries. Of this amount, over 
40% was imported as opportunistic gasoline. The ability to quickly draw 
gasoline supplies from various parts of the world to the U.S. market is 
important in moderating price swings and meeting consumer demand.
    While most imported gasoline enters the U.S. market on the east 
coast it impacts gasoline prices nationwide. Imported gasoline tends to 
moderate price increases by increasing the sources of gasoline to meet 
U.S. demand. DOE examined New York harbor, Chicago and Gulf Coast spot 
prices for conventional gasoline which showed highly correlated 
movements throughout 1996. The pipelines linkages between PADD III and 
PADDs I and II are the key mechanism for linking the prices.
    The DOE analysis concluded that a 1 cent per gallon change in New 
York spot prices, driven by a shortage of imports, could affect the 
over 4 million B/D of conventional gasoline being used in PADD's I, II 
and III. A 1 cent/gallon price change, lasting as little as one week 
(typical of the time required to get additional gasoline shipments to 
the U.S. east coast from Europe or from the gulf coast by water), could 
cost or save gasoline consumers over $10 million.21
---------------------------------------------------------------------------

    \21\ Comments from DOE on EPA's May 6, 1997 NPRM, page 2.
---------------------------------------------------------------------------

    While a number of factors are at work in market fluctuations it is 
clear that the volume of imported gasoline is price responsive. By 
rapidly providing additional supply, consumer demand is met without the 
large price increases that would be necessary to control gasoline 
demand.
    EPA disagrees with the comment that an option to establish an 
individual baseline should not be provided because it would give 
foreign refiners a competitive advantage over domestic refiners. 
Foreign refiners who establish an individual baseline will be subject 
to the same requirements as domestic refiners, with additional 
requirements dictated by their unique circumstances. Foreign refiners 
will be required to fulfill the additional burden of tracking and 
segregating their imported gasoline to ensure that the correct 
individual baseline is being used for the purposes of the compliance 
calculation.
    Gasoline from foreign refiners who do not establish an individual 
baseline would be subject, through the importer, to an adjustment to 
the importer baseline needed to offset any adverse environmental impact 
from a foreign refiner's choice not to seek an individual baseline.
    As described above, this option is provided to foreign refiners 
based on the significant difference in circumstances between applying 
the mandatory use of individual baselines to domestic or foreign 
refiners, and the significant difference in potential adverse impact on 
the environment and gasoline supply and prices.
Role of Consideration of Costs
    One commenter argued that EPA's obligation under the Clean Air Act 
to protect the environment take priority over costs and economic 
concerns in this rulemaking.
    EPA's authority to take costs and economic factors into 
consideration when establishing rules protective of the environment 
depends on the terms of the specific statutory provision at issue. As 
in prior rulemakings establishing the conventional gasoline program, 
EPA's authority is based on sections 211(k)(8) and 211(c)(1) of the 
Act. Each of these provisions gives EPA discretion to take cost and 
other relevant factors into consideration when establishing 
requirements that meet the air quality goals of the conventional 
gasoline program. In the prior rulemakings for the conventional 
gasoline program, EPA has taken these factors into consideration when 
establishing the requirements needed to meet the air quality 
requirements of this program. For example, EPA's CG requirements 
include the ability to obtain an adjustment to the IB under certain 
circumstances related to economics; establish testing, recordkeeping 
and reporting requirements which reasonably take into account the 
burden of the measures, and reflect the decision in the 1993 rulemaking 
to not establish specific emissions requirements for VOCs, CO, and non-
exhaust toxics, based in part on economic considerations. In this case 
it is also reasonable to consider adverse supply and cost impacts when 
determining the appropriate approach. The statutory provisions noted 
above provide EPA with the discretion to consider these factors.

B. Establishment of an Individual Baseline (IB)

1. Overview
    Comments were submitted on a number of issues with regard to 
establishment of individual baselines by foreign refiners. These issues 
included the proposed requirement to submit baseline information on the 
foreign refinery's overall gasoline production as well as the subset of 
gasoline which was sent to the U.S. in 1990; the proposed January 1, 
2002 deadline for submittal of foreign refinery baseline petitions; and 
foreign refinery aggregation for compliance purposes.
    In summary, EPA is not requiring foreign refiners to submit 
baseline information on the foreign refinery's overall gasoline 
production. EPA reserves the right to require such information in a 
specific case if it is needed to reasonably evaluate a baseline 
submission. EPA is retaining the proposed January 1, 2002 deadline for 
baseline petition submittals. In general, with regard to other baseline 
issues, such as aggregation, baseline volumes, and baseline review, 
audit and approval, EPA is maintaining the same requirements for 
foreign refiners as for domestic refiners, as proposed.
2. Use of Total 1990 Product Data
    EPA proposed that a foreign refinery would have to submit 
information regarding its total 1990 gasoline production as well as 
information regarding the subset of the refinery's gasoline production 
which was sent to the U.S. in 1990. EPA believed that information on 
the total refinery gasoline production would be useful in the 
calculation and verification of the quality of the subset of gasoline 
sent to the U.S. in 1990.
    Commenters indicated that requiring an individual baseline 
calculation for the total gasoline production was burdensome, costly, 
and, in general, of little additional value. Commenters indicated that 
the quality of the subset of gasoline sent to the U.S. in 1990 could be 
accurately determined without the additional information on the 
refinery's total gasoline production. One commenter also stated that 
EPA previously concluded that the overall quality from a foreign 
refinery might bear scant resemblance to the quality of the portion 
going to the U.S. market. This commenter also stated that requiring 
information on a foreign refiner's overall gasoline production is 
wholly unnecessary.
    In general, EPA agrees with the commenters that requiring 
information in all cases on the overall 1990 gasoline production of a 
foreign refinery may be costly and may provide little additional value. 
Thus, EPA will only require that a foreign refiner's baseline petition 
contain information relevant to the calculation of the baseline for the 
subset of gasoline sent to the U.S. in 1990. Nonetheless, the 
calculation of a refinery baseline per these regulations is complex, 
with wide variances in the types and amounts of data available on

[[Page 45548]]

the subset of 1990 gasoline which came to the U.S. As with domestic 
refiners, EPA reserves the right to request additional information to 
evaluate a petition for an IB, where such information is needed to 
reasonably determine an accurate IB. In specific cases this might 
include much or all of the information pertaining to the refinery's 
1990 total gasoline production.
3. January 2002 Deadline
    EPA proposed that baseline submissions would have to be submitted 
to the Agency by January 1, 2002. EPA proposed this date in order to 
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. Domestic 
refiners had approximately one year following issuance of the final 
regulations in December 1993 to prepare (including completion of 
sampling, testing and analysis) and submit their individual baselines 
to EPA prior to the start of the program on January 1, 1995.
    EPA received comments indicating that the proposed deadline was 
appropriate, and others indicating that such a deadline was 
unnecessary, and perhaps arbitrary. Commenters opposing a deadline 
thought that foreign refiners should be allowed to apply for an 
individual baseline when they desire to, for example, when export 
volumes to the U.S. increase and/or pricing conditions are favorable. 
One commenter questioned whether baseline petitions would be accepted 
prior to January 1, 2000, and suggested that EPA specify a reasonable 
period of time in which it will act on a baseline submission, as the 
commenter indicated EPA did with domestic refiners.
    EPA continues to believe that a deadline for the receipt of foreign 
refiner baselines is appropriate in order to avoid the increased 
uncertainty in determining an individual baseline too many years after 
the 1990 time period that an IB is based upon. A reasonable deadline 
such as January 1, 2002 provides foreign refiners several years to 
exercise the option provided here, and will assure that EPA has a 
reasonable factual basis to determine an accurate IB regarding 1990 
gasoline volume and quality. It will also maintain requirements similar 
to those imposed on domestic refiners. While a foreign refiner would 
not have the right under the regulations to seek an IB after January 1, 
2002, after this date a foreign refiner could still petition EPA to 
revise this rule and establish an IB, for example, where the refiner 
could demonstrate that it is able to establish an accurate and 
verifiable IB.
    Foreign refiners may submit a baseline petition to EPA at any time 
prior to January 1, 2002. However, if gasoline is imported using an IB 
while a petition for an IB is pending, the foreign refiner will be 
subject to the ultimate approved baseline, which may change 
significantly (to their benefit or detriment) from the original 
submission due to errors or omissions uncovered during EPA review. In 
general, baselines are reviewed in the order received, but a well 
prepared and ultimately correct baseline may be approved prior to a 
baseline submitted earlier which was less well prepared or incorrect.
    EPA is not establishing a specific time frame to act upon 
baselines, due to the many uncertainties, discussed above, regarding 
the completeness of the original submittals and the number of questions 
EPA may have for a refiner before determining that a submittal is 
complete, accurate, and appropriate for approval. The Agency's review 
of submissions by domestic refiners took between a few months and two 
years, depending on the quality and completeness of the original 
submission. EPA will review foreign refiner baseline submissions in an 
expeditious and timely manner but cannot specify a time frame in which 
a foreign refiner baseline will be acted upon. Foreign refiners can 
export conventional gasoline to the U.S. using an IB under the program 
requirements finalized today without an approved baseline. Foreign 
refiners should note that once a baseline petition is submitted and a 
refiner begins to use an IB, the refiner will be held to compliance 
with the ultimately approved baseline.
4. Aggregation
    As stated in the proposal, a foreign refiner who operates more than 
one refinery with an individual baseline would be able to aggregate the 
baselines of some or all of its refineries, as allowed for domestic 
refiners.
    Commenters said that allowing a foreign refiner to aggregate 
refineries with both unique individual baselines and statutory 
baselines gave additional flexibility to foreign refiners who would 
already have the option of having or not having an individual baseline. 
One commenter also stated that foreign refiners should be subject to 
the same one-time decision regarding aggregation as domestic refiners. 
Commenters also said that foreign refiners should not be allowed to 
game the system by electing either an individual baseline (for 
refineries dirtier than the statutory baseline) or the statutory 
baseline (for refineries cleaner than the statutory baseline) on a 
refinery-by-refinery basis for facilities owned by a single entity. 
These commenters claimed that allowing some individual baseline 
refineries and some statutory baseline refineries under a single owner 
would ``aggravate the competitive discrimination against domestic 
refiners.'' According to these commenters, all refineries owned by a 
single entity should all have either an individual baseline or all have 
the statutory baseline, and if a baseline for one of the refineries 
could not be established, then no individual baseline should be given 
to any of the refineries of a single entity.
    EPA did not propose that all or none of the refineries of a foreign 
refiner would have to have an individual baseline, because a central 
element of the proposal was to provide foreign refiners an option: 
either obtain an individual baseline and fulfill all of the 
requirements accompanying the use of an individual baseline by a 
foreign refinery, or continue with the current requirements with 
respect to gasoline produced for the U.S., subject to any remedial 
baseline adjustment.
    Many of the comments above focused on foreign refineries with 
statutory baselines. In fact, under today's rule, no foreign refinery 
which does not apply for an individual baseline will have the statutory 
baseline. Foreign refineries which apply for and receive an individual 
baseline will either have a unique individual baseline or will have the 
statutory baseline (with a zero baseline volume) e.g., where the 
refinery was not in operation in 1990 or produced no gasoline for the 
U.S. in 1990. All other foreign refineries will have no baseline, and 
their gasoline will be regulated through the importer's baseline, 
typically the statutory baseline. Thus, under this rule, it is possible 
that some refineries of a foreign refiner would have an approved 
individual baseline and some would have no baseline. An aggregate 
baseline (or baselines) of a foreign refiner could only be composed of 
the baselines of its facilities with approved individual baselines. 
Foreign refineries without an individual baseline cannot be included in 
an aggregate baseline.
    A foreign refiner may choose to obtain an individual baseline for 
one, some, all or none of its refineries. Limiting the option to cases 
where all of a refiner's refineries receive IBs is counter to the 
reasons for providing an option. For

[[Page 45549]]

example, it would lead to cases where a foreign refiner wanted to 
establish an IB for a refinery and had adequate data to do so, but was 
precluded from this because it could not establish an IB for a 
different refinery, or to situations where EPA or the foreign refiner 
would have to prove a negative in order to establish an IB, i.e., that 
no IB could be developed for one refinery as a condition of allowing an 
IB for a different refinery where the data was available. These results 
would be inconsistent with the general approach of giving foreign 
refiners an option to establish individual baselines where they want, 
and have adequate data to do so.
    In summary, the requirements for aggregating baselines for foreign 
refiners are the same as those for domestic refiners, namely, all 
facilities in an aggregate baseline must have an assigned individual 
baseline, either a unique individual baseline or the statutory 
baseline. Aggregate baselines may be composed of some or all of a 
refiner's refineries with assigned individual baselines, and a refiner 
may have more than one aggregate baseline. Each refinery, though, can 
only be part of one aggregation. As with domestic refiners, the 
decision to form an aggregate baseline is a one-time decision.
5. Baseline Volumes
    Several commenters indicated that foreign refiners should be 
subject to the same baseline volume constraints as domestic refiners, 
namely, that the individual baseline applies up to their baseline 
volume limit, and the statutory baseline applies to all volume in 
excess of the baseline volume per the calculation of compliance 
baseline values in 80.101(f), namely, a volume-weighted average of the 
individual baseline value and the corresponding statutory baseline 
value. EPA agrees. EPA proposed and is finalizing a requirement that 
foreign refiners would be subject to the same restrictions for 
individual baseline volumes as are domestic refiners, per 80.101(f).
    One commenter suggested, that where it is difficult to quantify 
volumes exported to the U.S. by a refiner, that Energy Information 
Administration (EIA) reported country totals be used to verify and cap 
quantities reported by foreign refiners. The commenter suggested that 
the sum of all baseline volumes reported to EPA from a country cannot 
exceed the total country volume reported by EIA in 1990. According to 
the commenter, this should be done on a seasonal basis to assure that 
complex model winter/summer differences are properly accounted for.
    EPA proposed and is finalizing that those foreign refiners which 
petition the Agency for an individual baseline will have to adequately 
account for the volumes of gasoline they sent to the U.S. in 1990. EPA 
agrees that EIA data would be a useful tool for checking that the sum 
of the baseline volumes of each facility did not exceed the 1990 
country levels reported in EIA.
16. Baseline Audits
    Several commenters indicated their concern that foreign refiners 
submitting baseline petitions should be subject to the same 
requirements with regard to review by an EPA-approved independent 
baseline auditor, and EPA audits and approval of baselines. EPA 
proposed and is finalizing requirements that all foreign refinery 
individual baseline petitions be reviewed by an EPA-approved 
independent baseline auditor. Once submitted to the Agency, they will 
undergo the same comprehensive and detailed review process used to 
evaluate baseline submissions by domestic refiners.
7. Miscellaneous
    Several commenters indicated that foreign refiners would have a 
competitive advantage vis-a-vis the proposed regulations in a number of 
areas, including the fact that they are not subject to conventional 
gasoline and other environmental requirements for all of the non-U.S. 
bound gasoline they produce. Commenters claimed that clean gasoline for 
the U.S. could be made less expensively because foreign refiners could 
``dump'' dirty components into the gasoline destined for their home 
markets and other non-U.S. markets which have fewer restrictions on 
gasoline quality than the U.S. One commenter suggested that a foreign 
refiner seeking an individual baseline should be required to 
demonstrate that it is not, in fact, dumping dirty components into 
gasoline sold in its home market.
    EPA acknowledges that foreign refiners may have additional 
flexibility, as indicated by commenters. However, as EPA has indicated 
previously, section 211(k) of the Clean Air Act is not aimed at 
regulating the quality of gasoline used in other countries, nor at 
regulating foreign refiners except with regard to the gasoline they 
send to the U.S.

C. Type of Requirement for FRGAS

1. Summer vs. Winter Averaging
    A few commenters suggested that foreign refiners with individual 
baselines would have additional flexibility over domestic refiners 
because of seasonal differences in the complex model. They stated that 
the same gasoline evaluated under the winter model produces 
significantly higher emissions than gasoline evaluated under the summer 
model, and because of this, foreign refiners could meet their emission 
requirements with poorer quality gasoline by increasing imports of 
summer gasoline (or importing a lower portion of winter gasoline). 
Commenters also stated that gasoline imports have traditionally been 
higher in the summer. According to commenters, domestic refiners are 
essentially limited to domestic markets and fixed seasonal demand, and 
do not have the opportunity to systematically control their summer/
winter production. Commenters suggested that EPA require foreign 
refiner compliance on a seasonal basis, or offer the seasonal basis 
option to domestic refiners. One commenter also suggested that the 
benchmark be based on the last 3 year running average of imported 
summer gasoline.
    Starting in 1998, compliance with IBs only applies to conventional 
gasoline for which only certain exhaust emissions are of concern. The 
winter complex model does produce higher exhaust emissions for a given 
fuel than the summer version of the model. However, EPA disagrees that 
foreign refiners could take advantage of this by systematically 
producing more summer than winter gasoline. First, U.S. gasoline demand 
increases nationwide during the summer. Domestic refiners produce more 
gasoline in the summer, and it would seem logical that imports would 
also increase during the summer. EPA agrees that domestic refiners are 
essentially limited to domestic markets, however, EPA believes that 
both foreign and domestic refiners are limited to the seasonal demand. 
It would not be prudent for a foreign or domestic refiner to market 
additional volumes of summer gasoline beyond what it could reasonably 
expect to be used, because of storage issues and the fact that, for 
foreign refiner's with an individual baseline, gasoline in excess of 
their baseline volume is evaluated at the statutory baseline, just as 
for domestic refiners.22
---------------------------------------------------------------------------

    \22\ On a related matter, EPA recently proposed a requirement 
that conventional gasoline will be classified as summer gasoline 
only where the gasoline both meets A federal RVP requirements under 
section 80.27, and is intended for use in an area subject to the RVP 
requirements during the period these requirements are in effect. If 
adopted this would limit inappropriate classification of winter 
gasoline as summer gasoline. If the agency adopts this proposal, all 
gasoline produced for use in the continental United States between 
May 1 and September 15 each year would be classified as summer 
gasoline. This proposal was created to reduce the amount of gasoline 
that was being accounted for as summer gasoline which really only 
had summer RVP but was intended for use outside the summer time 
period. (See 62 FR 37338).

---------------------------------------------------------------------------

[[Page 45550]]

    Providing different averaging periods for foreign and domestic 
refiners of CG would not be consistent with EPA's basic approach of 
applying the same requirements to foreign and domestic refiners except 
where clear and convincing reasons call for different requirements 
(such as providing an option to establish and use an IB to foreign 
refiners as compared to mandating an IB, imposing additional 
requirements related to tracking of gasoline and compliance assurance, 
and establishing a mechanism to offset any adverse environmental impact 
from providing the option to establish and use and IB). In addition, 
providing domestic but not foreign refiners with an option to average 
seasonally would clearly lead to adverse environmental impacts, as 
domestic refiners would choose the averaging period that required less 
control of gasoline quality. For these reasons EPA is not adopting the 
suggested approach.
2. Other
    One commenter suggested that foreign refiners have yet another 
advantage because they can blend components such as MTBE into their 
gasoline prior to entry into the U.S. at the tariff rate for motor 
fuels while domestic refiners must pay a significantly higher chemical 
duty on MTBE imported for gasoline blending. While the tariff situation 
described by the commenter could provide an advantage to foreign 
refiners, this tariff differential already exists, and is not a result 
of, nor will it necessarily be exacerbated by, today's rule.

D. Liability

1. Party Responsible for Meeting the Gasoline Quality Requirements for 
FRGAS
    a. EPA's Proposal: EPA proposed that a foreign refiner who obtains 
an individual refinery baseline would be responsible for meeting the 
NOX and exhaust toxics requirements for the conventional 
gasoline produced at the foreign refinery and imported into the United 
States. This is like the requirements that apply to a domestic refiner, 
who must meet the NOX and exhaust toxics and requirements 
for conventional gasoline produced at the domestic refinery and used in 
the United States. EPA also requested comments on an alternative 
option, where the U.S. importer would be responsible for meeting the 
NOX and exhaust toxics requirements for imported 
conventional gasoline produced by a foreign refiner with an individual 
refinery baseline, but using the baseline that applies to the foreign 
refinery.
    b. Comments: EPA received comments from two foreign refiners who 
supported the alternative option of making the U.S. importer 
responsible for meeting the conventional gasoline NOX and 
exhaust toxics requirements. EPA also received comments from a group of 
U.S. importers who opposed placing this responsibility on U.S. 
importers if the importer would have liability for violations that 
result if a foreign refiner specifies incorrect baseline values for 
specific FRGAS batches.
    One foreign refiner suggested an approach they believe would allow 
U.S. importers to meet the NOX and exhaust toxics 
requirements for imported FRGAS without risk of incorrect baseline 
values, by removing any uncertainty regarding the baseline values that 
apply to each individual batch of imported FRGAS. This foreign refiner 
suggested that for a foreign refiner with an individual baseline, the 
annual compliance baseline for an upcoming year would be established at 
the beginning of that year, using an assumption for the total volume of 
gasoline (conventional gasoline plus RFG) that will be produced and 
shipped to the U.S. during the upcoming year.23
---------------------------------------------------------------------------

    \23\ Under section 80.101(f) a compliance baseline for 
NOX and exhaust toxics compliance is calculated for each 
calendar year averaging period based on a refinery's 1990 baseline 
volume and baseline NOX and exhaust toxics values, and 
the total U.S. gasoline volume (conventional gasoline and RFG) 
produced at the refinery during the year. The compliance baseline 
equation caps use of a refinery's individual baseline values at the 
refinery's baseline volume, and any additional gasoline volume 
(conventional gasoline and RFG) for a year moves the refinery's 
compliance baseline values in the direction of the statutory 
baseline. Thus, a refinery's annual compliance baseline, and as a 
result the refinery's NOX and exhaust toxics requirements 
for the year, are not finally established until the end of the year 
when the refinery's total gasoline volume for the year is known.
    Section 80.101(b) requires use of compliance baselines only for 
the simple model requirements that apply before 1998. However, in 
another rulemaking EPA has proposed to require use of compliance 
baselines for the complex model requirements that apply beginning in 
1998. See 62 FR 37363 (July 11, 1997). EPA believes this proposed 
change will be final before the beginning of 1998. In any case, the 
same provision will apply to both domestic and foreign refiners.
---------------------------------------------------------------------------

    The foreign refiner suggested that this assumed volume would be the 
refinery's prior year volume or the refinery's volume projections for 
the upcoming year, and that EPA would approve each foreign refiner's 
volume assumption in advance of each year. In this way the foreign 
refiner and U.S. importers of that refiner's gasoline would have 
certainty at the beginning of each year of the compliance baseline that 
applies to gasoline produced at the foreign refinery during the year. 
This foreign refiner also suggested that if the refinery's actual 
gasoline volume during the year is different than the assumed volume a 
correction would be applied to the refinery's compliance baseline in a 
subsequent year.
    The foreign refiner stated that this approach, as compared to the 
approach where the foreign refiner would meet the NOX and 
exhaust toxics requirements, would be simpler, more feasible, and would 
require fewer resources to implement, largely because U.S. importers 
would be responsible for demonstrating compliance with the 
NOX and exhaust toxics requirements.
    Another foreign refiner commented that in a case where the gasoline 
produced by a foreign refiner with an individual refinery baseline is 
imported into the U.S. by a single importer, the U.S. importer could 
take all compliance responsibility for this gasoline.
    c. EPA's Response: EPA is finalizing this foreign refiner 
requirement as proposed for the following reasons.
    Requiring U.S. importers to meet the NOX and exhaust 
toxics requirements for FRGAS presents an inherent difficulty, in that 
the compliance baseline that applies to conventional gasoline is not 
known until the end of each year. Domestic refiners are able to operate 
with this uncertainty, because the refiner can update a refinery's 
projected compliance baseline throughout the year based on gasoline 
volumes, and the refiner has the ability to adjust conventional 
gasoline quality to meet these projections. In contrast, U.S. importers 
of FRGAS would have to rely on the foreign refiner to estimate the 
compliance baseline that applies to each FRGAS batch, and the U.S. 
importer would be liable if imported conventional gasoline quality 
failed to meet these projections. U.S. importers have commented that it 
is this uncertainty that most hampers their operations--that an 
importer could rely in good faith on the foreign refiner's compliance 
baseline estimate, yet the importer would be liable if the estimate 
ultimately is incorrect.

[[Page 45551]]

    While the alternative suggested by one foreign refiner (using EPA-
approved volume projections each year to specify a foreign refinery's 
compliance baseline at the beginning of the year) would remove this 
uncertainty, it has the disadvantage of constantly requiring 
corrections in a subsequent year. It is unlikely a foreign refiner's 
annual volume projections will ever exactly match the refinery's actual 
annual volume. As a result, if this approach were adopted EPA probably 
would be required to calculate and implement corrections each year for 
each foreign refinery with an individual baseline. In addition, these 
corrections could not be applied immediately, because a foreign 
refinery's annual volume will not be established until reports could be 
filed, and the correction calculated, which would necessarily occur in 
the subsequent year. As a result, it is likely there would be a one 
year lag in applying corrections, e.g., if a foreign refiner's volume 
projection for 1998 were incorrect the details of this error would not 
be known until some time in 1999, and the correction could not occur 
until 2000. It is preferable that NOX and exhaust toxics 
requirements be met each year without the expectation of constant 
subsequent correction, if other considerations are equal. This also 
avoids any risk of adverse environmental consequences that could result 
if the foreign refiner ceased supplying gasoline to the United States 
before the correction could be completed.
    In addition, domestic refiners do not have the option of using an 
incorrect compliance baseline each year and correcting for the error in 
a subsequent year, and there are no compelling reasons to treat foreign 
refiners differently in this regard.
    EPA agrees that, in general, it is easier to monitor and enforce 
requirements that apply to parties present in the United States such as 
U.S. importers, as compared to parties located outside the United 
States such as foreign refiners. However, even if EPA were to adopt the 
suggested approach of requiring U.S. importers to meet the 
NOX and exhaust toxics requirements for FRGAS, foreign 
refiners of FRGAS would continue to have significant responsibilities 
under the regulations that EPA would monitor and enforce. The foreign 
refiner would have to establish individual refinery baselines; submit 
supported volume projections to EPA; and meet a range of requirements 
associated with establishing the refinery's actual volume of FRGAS each 
year, including designation of FRGAS, load port sampling and testing, 
record keeping and reporting, and attest requirements. EPA would have 
to monitor compliance with these requirements even if U.S. importers 
met the NOX and exhaust toxics requirements.
    EPA disagrees with the comment by one foreign refiner that the U.S. 
importer could be responsible for meeting all requirements associated 
with FRGAS where a foreign refiner's FRGAS is imported by a single U.S. 
importer. A foreign refinery's annual compliance baseline is based on 
the refinery's volume of conventional gasoline and RFG FRGAS, and this 
volume can most properly be established using information available 
only at the foreign refinery. As a result, regardless of the 
responsibilities assumed by the U.S. importer the foreign refiner still 
must, inter alia, keep records, file reports, commission an attest 
engagement, and agree to allow EPA inspections and audits.
    On balance, EPA believes the proposed approach of requiring foreign 
refiners of FRGAS to meet the NOX and exhaust toxics 
requirements is the best approach in that it does not impose 
unwarranted uncertainties on importers, avoids the uncertainty of 
subsequent corrections on a yearly basis, and is consistent with the 
requirements on domestic refiners.
2. Sovereign Immunity and Agent for Service of Process
    a. EPA's Proposal: EPA proposed that where a foreign refiner is 
owned or operated by a foreign government, the government would have to 
issue a waiver of sovereign immunity before the refiner could obtain an 
individual refinery baseline. As proposed, this waiver would have to be 
signed by an official of the foreign government at the cabinet 
secretary level or higher who has responsibility for the foreign 
refinery, and would have to specify the waiver would apply in any case 
of prosecution by the United States for civil or criminal violations 
related to FRGAS requirements including requirements in relevant Clean 
Air Act sections and Title 18 United States Code.
    b. Comments: EPA received comments addressing the sovereign 
immunity waiver proposal from several foreign government-owned refiners 
and from a domestic association that represents independent gasoline 
marketers. In addition, EPA received comments from associations 
representing domestic refiners that generally addressed EPA's proposed 
enforcement requirements without specifically discussing the proposed 
sovereign immunity waiver requirement.
    The foreign government-owned refiners and the association of 
domestic marketers commented that the proposed waiver of sovereign 
immunity is unnecessary. One of these foreign refiners commented that 
in the antitrust context the U.S. Department of Justice has taken the 
position that foreign government-owned corporations operating in the 
commercial marketplace are subject to U.S. antitrust laws to the same 
extent as foreign private-owned firms. This commenter concluded that 
waivers of sovereign immunity are unnecessary to enforce the antitrust 
laws, and that this same conclusion also should apply to enforcement 
under the Clean Air Act.
    Two other foreign refiners referred to 28 U.S.C. 1605(a)(2) of the 
Foreign Sovereign Immunities Act (FSIA), which provides that a foreign 
sovereign is not entitled to immunity in an action based on certain 
``commercial activity.'' These commenters further stated or implied 
that a foreign refiner, by engaging in the production and sale of 
gasoline for export to the U.S., would be covered by the provisions of 
this section and, hence, would not be entitled to sovereign immunity 
under the FSIA with respect to matters covered by this regulation. 
These commenters concluded, as a result, that the proposed sovereign 
immunity waiver requirement is unnecessary. One foreign refiner 
commenter said the proposed sovereign immunity waiver requirement is 
particularly objectionable if the waiver must be signed by a cabinet 
secretary.
    One foreign refiner said the proposed scope of the waiver is too 
broad, because EPA had proposed that the waiver would need to apply to 
all provisions of Title 18, United States Code. This foreign refiner 
said, in addition, that sovereign immunity cannot be a condition for 
according national treatment under Article III of GATT 1994.
    The association of domestic marketers commented that the proposed 
requirement to waive sovereign immunity is inflammatory, and that other 
proposed enforcement mechanisms are sufficient for appropriate EPA 
enforcement, including the possibility of revoking an individual 
refinery baseline, and the required foreign refiner commitments 
regarding EPA inspections and audits, naming an agent for service, and 
bond posting.
    The associations representing domestic refiners did not 
specifically address the proposed sovereign immunity waiver 
requirement, but did support EPA's proposed enforcement

[[Page 45552]]

requirements in general. In addition, one of these associations 
commented that EPA also should require there be an extradition treaty 
in place with a foreign government before allowing a refiner in that 
country to obtain an individual refinery baseline. This commenter 
stated that in the absence of an extradition treaty there could not be 
adequate enforcement of criminal violations.
    c. EPA's Response: EPA continues to believe that to provide 
adequate enforcement mechanisms related to the establishment and use of 
individual baselines by foreign refiners, the issue of sovereign 
immunity needs to be addressed for foreign government-owned refiners. 
Therefore, EPA has retained a specific provision in the final rule 
addressing sovereign immunity. However, the form of this sovereign 
immunity provision is being revised based on EPA's evaluation of the 
comments and prior U.S. administrative practice in this area.
    Under the FSIA a foreign refiner who obtains an individual refinery 
baseline from EPA, exports FRGAS to the United States, and violates 
requirements applicable to the foreign refiner under this rule has 
engaged in the kind of activity that falls within an exception to 
sovereign immunity under 28 U.S.C. 1605(a)(2), (commonly referred to as 
the ``commercial activity'' exception) as asserted by the commenters. 
However, EPA is aware of no judicial precedent directly addressing 
these issues in the context of a regulatory enforcement action by an 
agency of the United States. As a result, a degree of uncertainty 
remains on the issue of whether United States courts would rule in all 
cases that a foreign refiner who obtains and uses an individual 
refinery baseline automatically is ineligible to claim sovereign 
immunity in the context of an EPA enforcement action for violations of 
the FRGAS requirements.
    Under 28 U.S.C. 1605(a)(1) the issue of sovereign immunity can be 
resolved where the foreign government waives sovereign immunity. EPA 
has evaluated and adopted an approach to a sovereign immunity waiver 
that provides EPA with the ability to effectively enforce the 
requirements applicable to a foreign refiner, in combination with other 
provisions adopted today. This is similar to the approach used by the 
U.S. Department of Transportation in the context of economic licenses 
issued to foreign air carriers that are necessary for those carriers to 
conduct commercial operations in foreign air transportation to and from 
the United States. The DOT approach does not require an official of the 
foreign government to sign a separate document waiving sovereign 
immunity. Rather, DOT licenses for foreign air carriers, whether 
government or privately owned, include a condition that states, in 
essence, that operation under the license by a foreign air carrier 
constitutes a waiver of sovereign immunity under the FSIA.24
---------------------------------------------------------------------------

    \24\ The Department of Transportation's Conditions of Authority 
that applies to foreign air carriers includes the following 
provision:
    In the conduct of the operations authorized, the holder shall:
    *    *    *    *    *
    (7) Agree that operations under this authority constitute a 
waiver of sovereign immunity, for purposes of 28 U.S.C. 1605(a), but 
only with respect to those actions or proceedings instituted against 
it in any court or other tribunal in the United States that are: (a) 
based on its operations in international air transportation that, 
according to the contract of carriage, include a point in the United 
States as a point of origin, point of destination, or agreed 
stopping place
    *    *    *    *    *
    DOT Order 87-8-8 (issued July 31, 1987).
---------------------------------------------------------------------------

    DOT has included this type of waiver of sovereign immunity clause 
in its foreign air carrier licenses for several decades, and sovereign 
immunity has not been raised as an issue in DOT enforcement of its 
requirements against foreign government-owned air carriers. Foreign 
government-owned air carriers have willingly operated under this waiver 
of sovereign immunity license term, indicating that this approach for 
addressing the issue of sovereign immunity has been acceptable to all 
foreign governments concerned.
    Based on the success of this administrative approach by another 
U.S. agency, EPA is including a similar provision in the foreign 
refiner final rule that is like the DOT approach, but uses regulatory 
language that is somewhat different from the language used by DOT. The 
regulatory language used by EPA acts to preclude a defense of sovereign 
immunity for purposes of the FSIA as well as for any enforcement 
actions that may be taken which may not be subject to the provisions of 
the FSIA. The sole purpose and effect of the regulatory language is 
limited to precluding the use of sovereign immunity as a defense to an 
otherwise valid EPA or other U.S. enforcement action based on a 
violation of the requirements that apply to a foreign refiner as a 
result of obtaining and using an individual refinery baseline.
    Under this regulatory provision, when a foreign government-owned 
refiner submits a petition to EPA for an individual refinery baseline, 
the baseline submission constitutes a waiver of sovereign immunity for 
purposes of 28 U.S.C. 1605(a)(1) of the FSIA, e.g., for an enforcement 
action based on incorrect or fraudulent submissions. In addition, when 
a foreign government-owned refiner operates under an individual 
refinery baseline by supplying FRGAS to the U.S., this constitutes an 
additional waiver of sovereign immunity under the FSIA, e.g., for 
enforcement actions based on failure to comply with the exhaust toxics 
or NOX emissions requirements, failure to submit reports, or 
failure to provide access to inspectors. This waiver of sovereign 
immunity would also apply for any enforcement action not otherwise 
subject to the FSIA.
    If a foreign government-owned refiner states that it reserves the 
right to or will assert a sovereign immunity defense in the context of 
any EPA enforcement action for violations of the requirements under 
these regulations, or in fact raises such a claim, then EPA may, in 
addition to other remedies in law, take action to deny or withdraw all 
individual refinery baselines that have been issued to the foreign 
refiner.
3. Agent for Service of Process
    a. EPA Proposal: EPA proposed that in order to obtain an individual 
refinery baseline a foreign refiner would be required to name an agent 
for service of process located in Washington, D.C.
    b. Comments: One foreign government-owned refiner objected to the 
proposed requirement to name an agent for service of process located in 
Washington, D.C. as being unnecessary for a foreign government-owned 
refiner. This commenter stated that the FSIA specifies procedures for 
achieving service of process that do not involve a named agent. In 
addition, the commenter said the requirement for an agent for service 
of process should be limited to service of process in EPA enforcement 
actions and should not cover service of process in non-related actions, 
such as private commercial claims raised by other parties.
    c. EPA's Response: EPA remains convinced that the final rule should 
include a provision as proposed for all foreign refiners acting under 
an individual baseline, including foreign refiners that are foreign 
government-owned, to name an agent for service of process in 
Washington, D.C. While it is true the FSIA includes procedures for 
service of process on foreign government-owned firms, the FSIA 
procedures are cumbersome at best.25 In

[[Page 45553]]

addition, 28 U.S.C. 1608(b)(1) of the FSIA states that service of 
process on an agency or instrumentality of a foreign government may be 
by delivery of a copy of the summons and complaint in accordance with 
any ``special arrangement'' for service between the plaintiff and the 
agency or instrumentality of the foreign government. EPA believes a 
foreign government-owned refiner naming an agent for service of 
process, as proposed, would constitute a ``special arrangement'' for 
service under 28 U.S.C. 1608(b)(1), and service on such an agent by EPA 
would resolve any question regarding whether service has been 
accomplished.
---------------------------------------------------------------------------

    \25\ For example, 28 U.S.C. 1608(b)(2) provides that service on 
an agency or instrumentality of a foreign state must be accomplished 
by delivery of copies of the summons and complaint to an officer, 
general agent, or other agent authorized by appointment or law to 
receive service of process in the United States, or in accordance 
with applicable international conventions on service of judicial 
documents; and section 1608(b)(3) provides that if service cannot be 
made under section 1608(b)(2), by delivering copies of the summons 
and complaint, with translations into the official language of the 
foreign state, if reasonably calculated to give actual notice, as 
directed by an authority of the foreign state or political 
subdivision in response to a letter rogatory, by return receipt mail 
from the clerk of the court to the agency or instrumentality to be 
served, or as directed by the court consistent with the law of the 
foreign state.
---------------------------------------------------------------------------

    Commenters have not described any reason why it would be difficult 
or expensive for a foreign government-owned refiner to name an agent 
for service of process in Washington, D.C., but only that there is an 
alternative under the FSIA. EPA believes that, on balance, it is more 
appropriate to require all foreign refiners seeking an individual 
refinery baseline, including foreign government-owned refiners, to name 
an agent for service, instead of relying on the alternative under 28 
U.S.C. 1608(b) (2) and (3) of the FSIA. It will reduce the 
administrative burden on EPA and will not add any significant burden on 
the foreign refiner.
    Finally, EPA agrees that the agent for service of process need not 
be authorized to receive process from parties other than EPA or others 
in the United States government, or for enforcement actions other than 
those that result from a foreign refiner having petitioned for and used 
an individual refinery baseline.
4. Bond Requirement
    a. EPA Proposal: EPA proposed that a foreign refiner would be 
required to post a bond in order to receive an individual refinery 
baseline. The amount proposed for this bond would be calculated by 
multiplying the annual volume of conventional gasoline exported to the 
U.S. by the foreign refiner, in gallons, times $0.01. The bond amount 
that applies each year would be calculated using the annual volume for 
the single year that had the greatest volume among the immediately 
preceding five years. EPA also proposed that the bond requirement could 
be met if a bond is obtained from a third party surety agent, provided 
that EPA approves the surety agreement.
    b. Comments: EPA received comments on the bond proposal from two 
foreign refiners who opposed requiring bonds or believed them to be 
unnecessary, and from an association of domestic refiners who supported 
the bond proposal.
    One foreign refiner commented that although it could accept a bond 
requirement, such a requirement is not necessary. This commenter also 
stated that the amount proposed for the bond is too large, and that the 
bond amount required for any particular foreign refiner should be 
reduced over time based on the refiner's compliance record. This 
commenter stated that bonds need not be for the full amount of any 
possible liability, because a lesser, but significant, bond amount 
would create an incentive for good conduct, which serves one purpose of 
a bond. However, this commenter did not suggest any alternative bond 
amount.
    The other foreign refiner, who also objected to the proposed bond 
requirement, interpreted the proposal as requiring that bond amounts be 
calculated based on the cumulative volume of FRGAS exported to the U.S. 
by a refiner over the prior five years, and stated that the bond amount 
that would result raises questions under Article II and Article III of 
the GATT. This commenter also stated it is aware of no surety agent who 
would issue a bond to cover judgments against a foreign refiner for 
Clean Air Act violations. Further, this commenter stated that EPA 
should rely on penalties other than bonds, such as imposing a sanction 
of prohibiting the sale in the U.S. of gasoline produced by a foreign 
refiner who has violated the Clean Air Act.
    The association representing certain domestic refiners commented in 
support of the bond proposal, stating that posting of bonds by foreign 
refiners is critical for effective enforcement.
    c. EPA's Response: A bond requirement was proposed because of 
concern that collecting a judgment against a refiner located outside 
the United States for an enforcement action related to the requirements 
of this rule is more difficult than collecting a judgment against a 
domestic refiner. None of the comments refuted this basic concern. The 
bond requirement has the effect of enabling EPA to collect penalties 
against foreign refiners in a straightforward manner, analogous to 
penalty collections against domestic refiners.
    The bond amount EPA proposed, annual conventional gasoline gallons 
times $0.01, was based on an estimate of the penalty that could result 
if a foreign refiner violated the exhaust toxics or NOX 
requirements. These requirements are met based on average conventional 
gasoline quality over a calendar year averaging period, and penalty 
amounts are calculated, in part, based on the volume of gasoline in 
violation. As a result, it is appropriate to use a foreign refiners's 
annual conventional gasoline volume as the yardstick for calculating 
bond amounts. Penalty amounts also are based on the amount the exhaust 
toxics and/or NOX requirements are exceeded, and for 
egregious violations penalty amounts may well exceed $0.01 per gallon. 
As a result, the proposed penalty amount does not cover the maximum 
possible penalty. Nevertheless, EPA believes the proposed amount is 
appropriate because it ensures that a penalty up to this amount may be 
collected, which constitutes a significant incentive for a foreign 
refiner to avoid violations.
    The comments of one foreign refiner, that bond amounts would be 
calculated using the foreign refiner's five year cumulative gasoline 
volume, were based on an apparent misunderstanding of the bond 
proposal. EPA intends that bond amounts be calculated using the annual 
conventional gasoline volume for a single year, that year which has the 
highest volume for the preceding five years. EPA is slightly revising 
the language in the bond provision to make this intent clear. The bond 
amount applicable each year is calculated using the single year, among 
the past five years, when the largest volume of conventional gasoline 
was exported to the U.S.
    EPA's review indicates that these concerns appear to be unfounded. 
Surety agents will be available to issue bonds to cover judgments for 
violations of the FRGAS requirements. Representatives of two national 
associations of surety agents, the Surety Association of America and 
the American Surety Association, told EPA there is nothing inherent in 
the FRGAS requirements that would prevent surety agents from writing 
bonds for foreign refiners as contemplated. The representatives said 
the proposed FRGAS bond requirement is analogous to the bonds required 
by the U.S. Customs Service, which routinely are issued by third party 
surety agents. These representatives concluded that foreign refiners 
can locate third party surety agents who would issue bonds to

[[Page 45554]]

meet the FRGAS requirement, and that the annual fee probably would be 
between one-half and two percent of the bond amount depending on 
company-specific factors such as the general business strength and 
reputation of the foreign refiner and the type and amount of collateral 
offered.
    However, EPA now believes it is possible for a foreign refiner to 
meet the purpose and intent of the bond requirement through means other 
than posting the requisite bond amount with the Treasurer of the United 
States or a bond issued by a third party surety. For example, if a 
foreign refiner owns assets that are located in the United States it 
may be possible for the foreign refiner to pledge these assets in a way 
that would be equivalent to posting a cash bond. As a result, EPA has 
modified the bond requirement to allow a foreign refiner to petition 
EPA to be allowed to satisfy the bond requirement through an 
alternative means. EPA will rule on any such petition based on whether 
there is certainty as to the ready availability of liquid assets, or 
easily liquidated assets, that are equal in value to the bond 
requirement.
    For the foregoing reasons, EPA is finalizing the proposed bond 
requirement modified to allow petitions for alternative bonding 
mechanisms.
    EPA has included in the final rule a provision that specifies that 
a foreign refiner's bond may only be used to satisfy judgments against 
the foreign refiner that result from violations of the FRGAS 
requirements.
    EPA also is adopting a requirement that the bond may be used to 
satisfy judgments that result from violations by the foreign refiner 
for causing another person to violate the regulations.26 For 
example, the regulations include a prohibition against combining 
certified FRGAS with non-certified FRGAS that applies to any person. If 
a foreign refiner causes a third party to violate this prohibition, 
this would be a violation by the foreign refiner, and the bond could be 
used to satisfy a judgment resulting from this violation.
---------------------------------------------------------------------------

    \26\ EPA also has included language in Section 80.94(n) that 
prohibits foreign refiners from causing violations by other parties.
---------------------------------------------------------------------------

    EPA intends to reevaluate the amount required for bonds after the 
FRGAS program has been in place for approximately two years. Based on 
EPA's experience in implementing and enforcing the FRGAS program up to 
that time EPA will evaluate whether it should revise the regulations to 
allow a foreign refiner to submit a petition to EPA to reduce the 
required bond amount, based on factors such as its history of 
compliance and the strength of quality assurance programs in place at 
the refinery to ensure violations will not occur. EPA invites all 
parties to consider any modifications of the bond requirement they 
believe would be appropriate based on their experience with the FRGAS 
program, and to submit these suggestions to EPA at that time.
5. Foreign Refiner Commitments
    a. EPA's Proposal: EPA proposed that a foreign refiner would have 
to submit as part of their baseline petition a commitment to allow EPA 
inspections and audits related to the FRGAS requirements, and its 
acceptance of United States courts or administrative tribunals acting 
under United States law as the forum for any enforcement action, in 
order to receive an individual refinery baseline. EPA also proposed 
that this commitment would have to be signed by the owner or president 
of the foreign refiner business, or by the relevant government official 
in the case of government-owned foreign refiners.
    EPA proposed that the scope of EPA inspections and audits may 
include information related to baseline establishment, the quality and 
quantity of FRGAS, transfers of FRGAS, sampling and testing of FRGAS, 
and reports submitted to EPA.
    b. Comments: EPA received a comment from a foreign refiner on the 
proposed commitments related to allowing EPA inspections and audits. 
This commenter stated that while it is willing to allow EPA inspections 
and audits, these should relate solely to establishment and use of an 
individual refinery baseline. EPA also received a comment from a 
domestic environmental non-governmental organization, expressing the 
view that the proposed foreign refiner commitments will be less 
effective than the authorities available in the United States for 
ensuring EPA's ability to conduct an effective enforcement program.
    c. EPA's Response: EPA agrees the scope of any EPA inspection or 
audit to which a foreign refiner would consent would be limited to 
matters relevant to compliance with the FRGAS requirements. The 
commitment requirement is limited in this manner.
    The scope of EPA audits of a foreign refiner clearly could include 
a review of all information related to baseline establishment, and the 
quality and quantity of all gasoline identified by the foreign refiner 
as FRGAS. However, EPA auditors also must be able to verify that 
gasoline and blendstock not identified as FRGAS by the foreign refiner 
in fact went to non-U.S. markets. If a foreign refiner were able to 
exclude from its compliance baseline calculations the volume of any 
gasoline or blendstock delivered to the U.S., the compliance baseline 
values would be inappropriately lenient. This concern is discussed more 
fully, below. EPA auditors must be able to review documents and other 
information related to gasoline not classified as FRGAS by the foreign 
refiner in order to verify this gasoline was used in non-U.S. markets 
and, hence, to guard against this possible form of cheating. As a 
result, the effective scope of EPA audits must include all gasoline and 
blendstock produced at a foreign refinery with an individual baseline, 
and not just the gasoline classified by the foreign refiner as FRGAS.
    The final regulations are being revised to clarify that the foreign 
refiner commitment must be to allow EPA inspections and audits with 
this scope.
    EPA generally agrees that the required foreign refiner commitments 
do not give EPA enforcement authorities that are exactly equivalent in 
all respects to the authorities available in the United States, such as 
the availability of search warrants, injunctions, and subpoenas. 
However, EPA believes the proposed commitments, when honored by the 
foreign refiner, will give EPA the ability to effectively enforce the 
requirements, as is done domestically. In addition, EPA has the 
recourse of withdrawing the individual refinery baseline of any foreign 
refiner who fails to honor these commitments.
6. Gasoline Tracking Requirements
    a. EPA's Proposal: EPA proposed a series of requirements intended 
to allow EPA to ensure that gasoline, identified on arrival in the U.S. 
as FRGAS that was produced at a specific foreign refinery, in fact was 
produced at that foreign refinery. These proposed requirements include 
the following.
     Foreign refiners with individual baselines would designate 
all gasoline to be imported into the United States as FRGAS when 
produced.
     A foreign refinery's certified FRGAS would remain 
segregated from its non-certified FRGAS, and from gasoline produced at 
a different foreign refinery until entry into the U.S., except that 
FRGAS produced at refineries that have been aggregated could be 
combined.
     An independent third party would sample each certified 
FRGAS batch subsequent to loading onboard a vessel, and test for all 
complex model parameters.
     An independent third party would review gasoline transfer 
documents to verify the gasoline loaded onboard a

[[Page 45555]]

vessel was produced at the foreign refinery.
     The foreign refiner would prepare a certification to 
accompany the vessel identifying the gasoline as FRGAS, which would 
include a report prepared by the independent third party.
     U.S. importers would sample and test certified FRGAS on 
arrival at the U.S. port of entry. The foreign refiner would compare 
the volume and property results from the port of entry testing, with 
the volume and property results from the load port testing. If the test 
results differ by more than the ranges allowed in section 80.65(e)(1), 
or if the volume measurements differ by more than one percent, the 
foreign refiner would have to adjust its compliance calculations to 
reflect the discrepancy.
     The U.S. importer would treat the gasoline as certified 
FRGAS if it received the proper certification and third party report, 
and the load port and port of entry test results are consistent.
    b. Comments and EPA's Responses:
(1) Option to Classify Gasoline as Non-FRGAS
(a) Comment
    One foreign refiner and a group of independent U.S. importers 
commented that foreign refiners with individual refinery baselines 
should have the option of designating gasoline for the U.S. market as 
FRGAS or as non-FRGAS.27 The conventional gasoline 
designated as FRGAS would be subject to the foreign refiner's 
individual baseline, and the conventional gasoline designated as non-
FRGAS would be treated as any other gasoline regulated through the U.S. 
importer, subject to the assigned statutory baseline.
---------------------------------------------------------------------------

    \27\ EPA proposed to define ``FRGAS'' as 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.
---------------------------------------------------------------------------

    The U.S. importers stated that this flexibility is desirable in 
order to increase the volume of imported conventional gasoline that 
could be classified as ``gasoline treated as blendstock,'' or 
GTAB.28 Non-FRGAS then could be blended with other GTAB or 
blendstocks where desired, and classified by the importer either as 
conventional or reformulated gasoline. The importer then would account 
for it in its compliance calculations.
---------------------------------------------------------------------------

    \28\ See description of GTAB, above.
---------------------------------------------------------------------------

(b) EPA's Response
    In the case of non-certified FRGAS produced by a foreign refiner 
with an individual baseline, it is important that the volume of all 
such gasoline be included in the compliance baseline calculation of the 
foreign refiner for conventional gasoline. Even though a refinery's 
annual compliance baseline applies only to the NOX and 
exhaust toxics requirements for conventional gasoline, the equation 
used to calculate the compliance baseline includes the volume of all 
gasoline produced at a refinery that is used in the United States 
including RFG.29 If a foreign refiner were allowed to 
exclude the volume of non-certified FRGAS from compliance baseline 
calculations, the compliance baseline would be less stringent than if 
the volume of all certified and non-certified FRGAS were included.
---------------------------------------------------------------------------

    \29\ The compliance baseline equation at section 80.101(f) 
requires a refiner to include the volumes of all gasoline used in 
the U.S., including conventional gasoline, RFG, RFG blendstock for 
oxygenate blending (RBOB), and California gasoline under section 
80.81. In addition, where a refiner is required to include 
blendstocks in its compliance calculations under section 80.102 the 
volume of blendstocks also would be included in compliance baseline 
calculations. These requirements apply equally to domestic and to 
foreign refiners.
---------------------------------------------------------------------------

    The effect of the compliance baseline equation, in the case of a 
refiner whose overall gasoline volume exceeds its individual baseline 
volume, is to move the NOX and exhaust toxics compliance 
baseline in the direction of the statutory baseline values. EPA assumes 
that any foreign refiner who obtains an individual refinery baseline 
will likely have an individual baseline value for at least one complex 
model requirement (NOX or exhaust toxics emissions 
performance) that is less stringent than the statutory baseline values. 
Hence, the effect of the compliance baseline equation for such a 
refiner is more stringent for the NOX or exhaust toxics, or 
for both requirements, and the magnitude of this effect increases as 
the volume of the refinery's U.S. export-gasoline increases.
    In the case of conventional gasoline produced by a foreign refiner 
with an individual baseline, the reason given by commenters for 
allowing the foreign refiner to classify this gasoline as non-FRGAS is 
to give additional flexibility to the U.S. importer. This flexibility 
results from the option of classifying imported conventional gasoline 
as GTAB, which under the proposal would only be available if the 
imported conventional gasoline is non-FRGAS.30 This 
flexibility is lost if conventional gasoline was classified as 
conventional FRGAS because it would have been previously certified by 
the foreign refiner and included in the foreign refiner's compliance 
calculations.
---------------------------------------------------------------------------

    \30\ In the case of conventional gasoline classified by the 
importer as GTAB, the importer is able to add blendstocks to the 
gasoline if the gasoline is ``cleaner'' than required, or to 
reclassify the gasoline as RFG.
---------------------------------------------------------------------------

    EPA is concerned that if foreign refiners had the option of 
classifying conventional gasoline as FRGAS or as non-FRGAS, a foreign 
refiner could classify very ``clean'' conventional gasoline as non-
FRGAS, including gasoline that in fact meets the quality requirements 
for reformulated gasoline. This ``clean'' conventional gasoline then 
could be classified as GTAB by the U.S. importer and reclassified as 
reformulated gasoline. In this way a foreign refiner could avoid 
including all RFG in its compliance baseline calculations, which would 
result in adverse environmental consequences.
    However, this result would not be possible if the foreign refiner 
includes in its compliance baseline calculations all gasoline imported 
into the United States (i.e., all FRGAS), whether or not the gasoline 
is included in the foreign refiner's NOX and exhaust toxics 
compliance calculations.
    Assuming the foreign refiners counts the volume in its compliance 
baseline equation, there is no adverse environmental consequence if the 
importer can treat the foreign refiner's gasoline, whether RFG or CG, 
as GTAB. If the gasoline is treated as GTAB, it will be imported 
subject to the requirements applicable to the importer for either RFG 
or CG, depending on how the importer classifies the gasoline. In both 
cases the importer would include the gasoline in it's compliance 
calculations, and the importer's compliance requirement would in all 
cases be more stringent than the CG compliance baseline for the foreign 
refiner.
    As a result the final rules establish two categories of FRGAS--
``certified FRGAS'' and ``non-certified FRGAS.'' The foreign refiner 
designates all gasoline that it produces and that is sent to the US as 
FRGAS, and FRGAS is further classified as either certified or non-
certified FRGAS. The foreign refiner can include gasoline of any 
quality in the non-certified FRGAS category, including gasoline that 
meets the quality requirements for RFG or CG.
    Gasoline classified as certified FRGAS will be subject to the 
compliance baseline for NOX and exhaust toxics applicable 
for the foreign refiner. The volume of all FRGAS, certified and non-
certified, must be included in the foreign refiner's compliance 
baseline calculation.
    The importer may not include certified FRGAS in the importer's 
NOX and exhaust toxics compliance calculations. However, 
importers must meet requirements for all non-certified FRGAS the same 
as for non-FRGAS, i.e.,

[[Page 45556]]

non-certified FRGAS must be classified by the importer as CG or RFG and 
meet the applicable quality requirements, or must be classified as GTAB 
and subsequently meet the CG or RFG requirements. The importer may 
treat any non-certified FRGAS as GTAB.31
---------------------------------------------------------------------------

    \31\ In another rulemaking EPA has proposed giving refiners and 
importers additional flexibility for reclassifying previously 
certified gasoline, called the PCG option. See 62 FR 37349 (July 11, 
1997). The proposed PCG option would allow a refiner or importer to 
reclassify previously certified conventional gasoline as RFG, 
provided the refiner or importer replaces the reclassified 
conventional gasoline during the same averaging period. EPA believes 
the PCG option, if adopted, would give U.S. importers flexibility 
regarding conventional gasoline classified by the foreign refiner as 
certified FRGAS.
---------------------------------------------------------------------------

    As described above, there will be no adverse environmental impact 
from this. It will also increase flexibility under the regulations for 
both importers and foreign refiners.
    To implement this change, EPA is revising the regulations so that 
the appropriate classification, tracking, record-keeping and reporting 
occurs for non-certified FRGAS. To accomplish this, the provisions 
proposed for ``RFG FRGAS'' would basically be applied for all non-
certified FRGAS, whether RFG or CG.
    In addition, EPA is adopting an additional flexibility regarding 
FRGAS classification that was not proposed. A foreign refiner who has 
obtained an individual refinery baseline may elect each calendar year 
to not participate in the FRGAS program at all, provided notice is 
provided to EPA before the beginning of the calendar year. If such a 
foreign refiner gives timely non-participation notice to EPA, the 
foreign refiner could not classify any gasoline, conventional gasoline 
or RFG, as FRGAS during the calendar year, and the individual refinery 
baseline would have no effect for that year. In this situation the 
foreign refiner would not have to meet the gasoline tracking 
requirements during the year (designation, independent sampling and 
testing, attest engagements, etc.), and the refiner would not have to 
submit reports to EPA. However, such a non-participating foreign 
refiner would remain subject to EPA audits and enforcement that focus 
on prior years when the refiner did participate in the FRGAS program. 
As a result, enforcement-related requirements, such as the refiner 
commitments and bond, would remain in effect during any period of non-
participation.
    A foreign refiner who has elected the non-participation status 
could begin participating again at the beginning of any subsequent year 
by giving notice to EPA before the beginning of the year when 
participation is to begin.
    Also, where a foreign refiner operates multiple refineries with 
individual baselines that have been aggregated under section 80.101(h), 
the foreign refiner is required to make the same FRGAS election for all 
refineries in the aggregation. This consistency requirement for 
aggregated refineries is similar to the requirement that aggregation 
decisions cannot be modified from year-to-year, that applies to 
domestic and foreign refiners. If a foreign refiner of aggregated 
refineries could elect non-participation FRGAS status for only one 
refinery in the aggregation while electing for the remaining refineries 
to participate in the FRGAS program, this would have the effect of 
changing the aggregation for the participating refinery or refineries.
    EPA believes the additional flexibility of allowing an annual FRGAS 
election is appropriate because there would be no adverse environmental 
effect if a foreign refiner with a relatively ``dirty'' individual 
baseline elected to not use that baseline. In that case, the 
conventional gasoline would be regulated through the importer, who is 
subject to the statutory baseline.
    As a result, EPA is finalizing the regulations to require a foreign 
refiner with an individual refinery baseline to classify all gasoline 
exported to the United States as FRGAS, or, at the foreign refiner's 
election, to classify no gasoline as FRGAS. A foreign refiner with an 
individual refinery baseline would not be allowed to classify part of 
its gasoline as FRGAS and part as non-FRGAS during a calendar year.
    EPA also is including a provision in the final rule to specifically 
prohibit a foreign refiner with an individual baseline from failing to 
include in the refinery compliance baseline calculations all gasoline 
produced at the foreign refinery that is used in the U.S., and 
including any blendstock produced at the foreign refinery that is used 
to produce RFG used in the U.S. If EPA discovers that a foreign refiner 
with an individual baseline has produced gasoline that was used in the 
U.S., but that was not included in the refinery's compliance baseline 
calculations, this would be a violation of the prohibition. In 
addition, this also would result in a recalculation of the refinery's 
compliance baseline for the relevant year, ab initio, which could 
result in the foreign refiner violating the revised NOX and 
exhaust toxics requirements for that year. It would be no defense if 
the gasoline or blendstock had been transferred to a third party who 
was responsible for exporting the gasoline or blendstock to the U.S., 
even if the foreign refiner had no actual knowledge of the subsequent 
U.S. export or if the foreign refiner had a good faith belief the 
gasoline or blendstocks would be used only in non-U.S. markets.
    This is similar to the requirement at section 80.67(h)(3) that 
prohibits domestic refiners from using improperly created oxygen or 
benzene credits regardless of any good faith belief the credits were 
valid, and if invalid credits are used results in EPA recalculating the 
refiner's compliance calculations, ab initio, with the invalid credits 
being removed.
    As a result, EPA believes it would be prudent for foreign refiners 
of FRGAS to take appropriate commercial steps to ensure they are 
informed if gasoline or blendstock transferred to third parties 
ultimately is exported to the U.S. If a foreign refiner fails to take 
reasonable steps in this regard, and EPA determines that the refiner's 
gasoline or blendstock is exported to the U.S. by a third party without 
being included in the refiner's compliance baseline calculations, EPA 
will consider this an aggravating factor in determining the amount of 
any penalty imposed against the foreign refiner for the violation.
(2) Third Party Testing Requirements
(a) Comments
    EPA received several comments related to the proposed third party 
testing requirements and the comparison of load port test results with 
port of entry test results. One foreign refiner and an association of 
domestic gasoline marketers commented that load port testing is not 
necessary, and the foreign refiner stated their comment is based on the 
view that EPA should require U.S. importers to meet NOX and 
exhaust toxics requirements based on testing only at the U.S. port of 
entry and EPA audits of refinery records.
    A number of comments were related to factors intended to reduce the 
costs associated with third party testing. Two foreign refiners 
commented that if third party testing is required, the load port 
testing requirement should require analysis only of vessel composite 
samples instead of separate analyses for each vessel compartment. One 
foreign refiner commented that the parameters required to be analyzed 
should be limited to gravity, T50, T90, benzene and sulfur, or in the 
alternative, for NOX and exhaust toxics emissions 
performance. Two foreign refiners commented that the third party tester 
should not be required to use an independent laboratory, and instead 
should be allowed to observe the testing

[[Page 45557]]

in the foreign refiner's laboratory or use the foreign refiner's 
laboratory equipment, because at present there are no independent 
laboratory facilities located near their foreign refineries.
    Two foreign refiners commented that comparisons of load port 
testing with port of entry testing should be on the basis of ASTM 
reproducibility,32 instead of the comparison criteria 
proposed by EPA.
---------------------------------------------------------------------------

    \32\ The American Society of Testing and Materials, ASTM, is a 
non-governmental body that describes test methods, including test 
methods for gasoline parameters, that are generally recognized as 
industry-standard test methods. ASTM includes precision measures for 
each test method in the form of repeatability and reproducibility 
statistics. In general, repeatability reflects intra-laboratory 
variability, while reproducibility reflects inter-laboratory 
variability.
---------------------------------------------------------------------------

    One foreign refiner also commented that in the case of inconsistent 
load port--port of entry test results, the U.S. importer should be 
responsible for meeting the NOX and exhaust toxics 
requirements for the gasoline.
    An association of domestic refiners commented that the proposed 
requirements for third party testing are necessary for an effective 
enforcement program.
(b) EPA's Response
    EPA continues to believe third party sampling and testing is a 
necessary part of the foreign refiner FRGAS program. However, in 
response to comments EPA is modifying these requirements in several 
ways in the final rule.
    The primary purpose served by the third party sampling and testing 
requirements is to provide information useful in evaluating whether any 
event has occurred since the gasoline was loaded into the vessel that 
would cast doubt on the identification of the source refinery of FRGAS. 
The NOX and exhaust toxics requirements are met on the basis 
of sampling and testing conducted by the foreign refiner at the foreign 
refinery (not necessarily at the load port), and is largely unrelated 
to the third party load port sampling and testing. The tracking purpose 
of the third party testing requirements provides the focus for 
evaluating the comments received on this issue.
    In the case of gasoline classified as non-certified FRGAS, EPA now 
believes that no third party load port sampling or testing to determine 
gasoline properties is necessary. There is no adverse environmental 
effect if a foreign refiner includes FRGAS in its compliance baseline 
calculations even if this gasoline was produced by a different refiner. 
As a result, there is little need for third party testing intended to 
verify gasoline was produced at the specified foreign refinery, and, 
hence, EPA is dropping the requirement for third parties to determine 
properties of non-certified FRGAS. However, EPA has retained the 
requirement for third party determination of volume for non-certified 
FRGAS, because the volume of all FRGAS is important to the accuracy of 
the compliance baseline calculation.
    In addition, the foreign refiner is required to prepare a 
certification to accompany shipments of non-certified FRGAS that 
identify the foreign refinery and the volume, supported by the report 
of the independent third party. The requirement also remains that the 
U.S. importer must report the volume of non-certified FRGAS to EPA and 
to the foreign refiner. EPA intends to monitor the volumes of non-
certified FRGAS used by foreign refiners in their compliance baseline 
calculations. If EPA discovers that the volume of non-certified FRGAS 
included in a foreign refiner's compliance baseline calculation is 
incorrect (for example, discovers this violation during an audit of the 
foreign refinery), EPA will recalculate the refinery's compliance 
baseline and evaluate the refinery's compliance with the NOX 
and exhaust toxics requirements on this basis.
    In the case of gasoline classified as certified FRGAS, EPA believes 
third party testing is needed in order to verify the imported gasoline 
was produced at the named foreign refinery and subsequent to loading 
was not mixed with gasoline from a different foreign refinery. Only 
conventional gasoline that is produced at the foreign refinery with an 
individual baseline is entitled to use that baseline, and it would be 
inappropriate for the foreign refiner or anyone else to substitute 
conventional gasoline produced at another refinery.33 
However, the purpose of third party sampling and testing of certified 
FRGAS is limited to identifying the source refinery. As a result, and 
in response to comments received, EPA has revised the parameters that 
must be tested by the third party, the manner in which the third party 
may determine the property values, and the criteria that are used to 
compare load port and port of entry test results to more reasonably 
reflect the purpose of this sampling and testing.
---------------------------------------------------------------------------

    \33\ As discussed elsewhere in this preamble, foreign refiners 
of FRGAS who have aggregated refineries may mix or substitute 
gasoline produced at any refinery within the aggregation.
---------------------------------------------------------------------------

    The purpose of comparing load port and port of entry test results 
is to verify the gasoline on board a vessel on arrival at the U.S. port 
of entry is the same gasoline that was loaded by the refiner at the 
load port, i.e., to verify that the vessel has not stopped en route to 
the U.S. to discharge or take on gasoline. EPA had proposed that this 
comparison must be of all complex model parameters.34 A 
foreign refiner commented that a comparison based on test results for a 
subset of the complex model parameters would also meet the purpose of 
this provision, i.e., test results for sulfur, benzene, T50, T90, and 
gravity. EPA agrees the vessel tracking purpose is served by comparing 
results for the suggested parameters, although the distillation terms 
E200 and E300 that are used in the complex model are being substituted 
for the distillation terms T50 and T90 recommended by the commenter. It 
is highly likely the gasoline on board a vessel has not been altered if 
the values for these five parameters plus the gasoline volume are 
unchanged.
---------------------------------------------------------------------------

    \34\ The parameters that are used in the complex model are 
sulfur, aromatics, olefins, benzene, oxygenate, distillation (E200 
and E300), and gravity. See 40 CFR 80.65(e)(2)(i).
---------------------------------------------------------------------------

    However, it nevertheless is necessary for the foreign refiner to 
have the third party determine values for all complex model parameters 
for certified FRGAS loaded onto the vessel, so the foreign refiner can 
correct its NOX compliance and exhaust toxics calculations 
in the event the results from load port and port of entry testing are 
inconsistent, or the vessel is diverted to a non-U.S. market, as 
discussed below. The additional parameters that must be established for 
the vessel are aromatics, olefins, oxygenate and RVP. These additional 
parameters may be established by the third party testing the ship 
composite sample for them. In addition, if a vessel is loaded from 
shore tanks containing gasoline that has been tested for the additional 
parameters and the volume from each shore tank that was loaded is 
known, the third party may calculate the additional parameter values 
for the gasoline that was loaded onto the vessel.
    Thus, the load port testing must be for all complex model 
parameters, but the comparison of load port and port of entry samples 
must be only for the subset of parameters.
    EPA also now believes the appropriate basis for comparison of load 
port and port of entry testing is ASTM reproducibility, as recommended 
in the comments. EPA proposed requiring these comparisons be based on 
the ranges specified at 40 CFR 80.65(e)(2)(i). However, these proposed 
ranges currently are used under the regulations to compare a refiner's 
internal test results for RFG with the test results obtained by the 
refiner's independent

[[Page 45558]]

laboratory. The purpose is to verify the actual quality of the 
gasoline, not the source refinery. A relatively high degree of 
correlation in test results would be expected between a refiner and the 
single independent laboratory selected and used by the refiner on an 
ongoing basis. In contrast, a foreign refiner's load port test results 
for FRGAS normally will be compared with port of entry testing 
conducted by multiple importers, where unusually high correlation in 
test results would not be expected. EPA believes ASTM reproducibility 
is an appropriate correlation criteria in this situation in light of 
the tracking purpose of load port and port of entry test comparisons. 
ASTM reproducibility for most parameters is calculated using the test 
result obtained in each test, and the reproducibility value that must 
be used for each load port-port of entry comparison must be calculated 
using the port of entry test result.35 The final regulations 
are being revised accordingly.
---------------------------------------------------------------------------

    \35\ For example, under the ASTM test for benzene, ASTM D 3606-
92, reproducibility is calculated as 0.28 times the measured value. 
If the benzene tests for a particular vessel are 2.50 vol% from the 
load port composite sample, and 1.80 vol% from the port of entry 
composite sample, the reproducibility calculated as 1.80 vol% 
 0.50 vol% based on the 1.80 vol% port of entry result, 
i.e., the load port result would be consistent with the port of 
entry result if it is between 1.30 vol% and 2.30 vol%. In this 
example the benzene test results are inconsistent because the load 
port result is larger than 2.30 vol%.
---------------------------------------------------------------------------

    Also in light of the limited purpose of load port testing, EPA now 
believes this testing need not be conducted in an independent 
laboratory. This is in contrast to independent sampling and testing of 
RFG, which must be conducted at an independent laboratory. EPA believes 
the purpose of load port testing may be achieved if the independent 
chemist observes the foreign refiner chemist conduct the required tests 
or if the independent chemist uses the foreign refiner's laboratory 
equipment. In addition, load port testing of certified FRGAS could be 
conducted by the independent third party at an independent laboratory. 
The final regulations are being revised accordingly.
    EPA proposed that load port testing would be conducted separately 
for each quantity of gasoline that is not homogeneous with regard to 
the properties being tested, i.e., that separate testing would be 
conducted for each batch.36 Commenters stated that EPA 
instead should allow parties to conduct load port-port of entry test 
comparisons on the basis of vessel composite samples. Based on the 
tracking purpose of load port-port of entry test comparisons, EPA 
agrees with the commenters' suggestion. The point of comparing load 
port with port of entry test results is to establish that a vessel has 
not stopped en route to the United States to add new gasoline. The 
gasoline quality and quantity changes that would result from such a 
mid-journey stop would be revealed by comparing the analysis results of 
vessel composite samples, and EPA now believes there is no need to 
require separate comparisons for each gasoline batch being transported 
on a vessel.
---------------------------------------------------------------------------

    \36\ 40 CFR 80.2(gg) defines an RFG batch as a quantity that is 
homogeneous with regard to the RFG parameters. In another 
rulemaking, EPA has proposed that this definition also would apply 
to conventional gasoline. See 62 FR 37339 (July 11, 1997).
---------------------------------------------------------------------------

    EPA proposed that if port of entry test results for certified FRGAS 
differ from load port test results by more than the specified ranges, 
the foreign refiner would be required to correct its compliance 
calculations to reflect the port of entry results. Foreign refiners 
objected, stating they sell their gasoline ``free on board'' (FOB) the 
foreign load port, and, hence, have no control and are not responsible 
for what happens to it afterwards.
    EPA now believes the proposed approach is not the most appropriate 
consequence when port of entry test results are inconsistent with load 
port test results. Instead, EPA believes the U.S. importer should 
simply treat the gasoline as non-certified FRGAS. In the case of 
inconsistent results from load port and port of entry testing, the 
implication is the gasoline was not produced by the foreign refiner or 
has been mixed with gasoline not produced by the foreign refiner, and 
is not entitled to the foreign refinery's individual baseline. In 
addition, the U.S. importer must inform the foreign refiner of the 
inconsistent results, and the foreign refiner must adjust its 
compliance calculations to remove the qualities and volume of the 
conventional gasoline from the refinery NOX and exhaust 
toxics compliance calculations.
    However, the foreign refiner may not remove the volume from its 
compliance baseline calculations. This is necessary in order to prevent 
the adverse impacts, described above, that could occur if foreign 
refiners of FRGAS or their importers have the option of classifying 
conventional gasoline as ``non-FRGAS.'' Requiring the named foreign 
refiner to retain the volume of the non-certified FRGAS in its 
compliance baseline calculations even where load port and port of entry 
test results are inconsistent removes any incentive for the foreign 
refiner or its U.S. importer to manipulate test results in order to 
make them inconsistent, and in this way to ship to the United States 
gasoline that could be treated as ``non-FRGAS.''
    EPA is providing an exception to this requirement. In the case of 
test results outside the specified ranges the foreign refiner need not 
retain the volume of the gasoline in its compliance baseline 
calculations, where the foreign refiner can demonstrate that the U.S. 
importer does not classify the imported gasoline as reformulated 
gasoline, or use the imported gasoline to produce reformulated gasoline 
through the GTAB protocol. This exception is appropriate because the 
potential for adverse environmental effects only exists where the 
gasoline is used as reformulated gasoline in the U.S.37 EPA 
intends to review compliance with this exception when it conducts 
audits of foreign refiners and U.S. importers. If EPA discovers that a 
foreign refiner excluded the volume of certified FRGAS from its 
compliance baseline calculations based on inconsistent load port--port 
of entry testing, but the gasoline was classified as reformulated 
gasoline by the U.S. importer, the foreign refiner's compliance 
baseline calculation will be adjusted, ab initio, which could result in 
a violation of the NOX and exhaust toxics requirements by 
the foreign refiner. This would be true in a case where only a portion 
of the gasoline at issue has been classified as reformulated gasoline 
using the GTAB protocol. Moreover, the foreign refiner could not avoid 
this result even if it had a good faith belief the U.S. importer would 
not use the gasoline at issue to produce reformulated gasoline. The 
burden is on the foreign refiner to demonstrate that the gasoline was 
not classified as reformulated.
---------------------------------------------------------------------------

    \37\ If the gasoline is included in the importer's CG compliance 
calculations, it will be subject to the statutory baseline, which is 
more stringent than the applicable compliance baseline where the 
foreign refiner includes the volume in its compliance baseline 
equation.
---------------------------------------------------------------------------

    EPA is adopting an additional basis for retaining the certified 
FRGAS classification of conventional gasoline, even if the load port 
and port of entry test results are outside the specified ranges. This 
is based on a comparison of the NOX and exhaust toxics 
emissions performance of the FRGAS calculated using load port test 
results, with the emissions performance calculated using port of entry 
test results. If the port of entry emissions performance for both 
NOX and exhaust toxics, in milligrams per mile, is smaller 
than the load port emissions performance (i.e., cleaner),

[[Page 45559]]

the gasoline remains classified as certified FRGAS regardless of the 
parameter test results comparisons. This exception is appropriate 
because there is no adverse environmental effect if the quality of the 
conventional gasoline improves in terms of NOX and exhaust 
toxics emissions performance. However, this exception would not apply 
if EPA is able to establish that the vessel in fact stopped en route to 
the United States and took on additional gasoline produced at a 
different foreign refinery.
7. Diversion of FRGAS to Non-U.S. Markets
    a. EPA Proposal: EPA proposed that all gasoline produced at a 
foreign refinery with an individual baseline that is exported to the 
U.S. must be classified as FRGAS. However, EPA left open and requested 
comment on the issue of whether the regulations should allow FRGAS to 
be diverted to a non-U.S. market after production, for example, whether 
a vessel containing FRGAS could be diverted to a non-U.S. market.
    b. Comments: EPA received comments from two foreign refiners and an 
association representing domestic marketers that recommended foreign 
refiners be given the option of diverting FRGAS to non-U.S. markets. 
The two foreign refiners stated that foreign refiners could implement 
commercial procedures that would allow them to know when FRGAS has been 
diverted to a non-U.S. market, and the foreign refiner could correct 
their compliance calculations accordingly.
    c. EPA's Response: EPA now agrees that foreign refiners of FRGAS 
should be allowed to divert certified and non-certified FRGAS to non-
U.S. markets, provided the foreign refiner corrects its compliance 
baseline calculations, and in the case of certified FRGAS its 
NOX and exhaust toxics compliance calculations, to reflect 
the diversion. In the case of diverted certified FRGAS, the foreign 
refiner must use the load port test results, and the load port volume, 
as the basis for correcting the NOX and exhaust toxics 
compliance calculations. A foreign refiner may treat FRGAS as having 
been diverted only if the foreign refiner is able to demonstrate the 
gasoline in fact was used outside the U.S. This demonstration must be 
in the form of documents obtained from the recipient of the gasoline 
that certify where the gasoline will be used, and that the gasoline 
will not be imported into the United States. Provisions have been 
included in the final rule to reflect these requirements.
8. Attest Requirements
    a. EPA Proposal: Under the Gasoline Rule foreign refiners of FRGAS, 
like domestic refiners, are required to commission an attest engagement 
each year.38 EPA proposed additional attest procedures 
dealing with the FRGAS requirements, that would have to be completed by 
foreign refiners of FRGAS.
---------------------------------------------------------------------------

    \38\ ``Attest engagement'' is a term of art used by auditors to 
describe the conduct of audit procedures that have been agreed upon 
in advance by the auditor and the subject of the audit--the auditor 
attests to the conduct and results of the specified audit, or 
attest, procedures completed during the attest engagement. The 
requirements in sections 80.125 through 80.130 consist of specified 
attest procedures dealing with the Gasoline Rule and instructions 
for the conduct of these procedures.
---------------------------------------------------------------------------

    b. Comments: EPA received comments on the proposed FRGAS attest 
procedures from a domestic firm of Certified Public Accountants. These 
comments included specific suggestions regarding the wording used in 
certain proposed FRGAS attest provisions.
    c. EPA's Response: EPA has modified the attest procedures to 
address the comments received. In particular, EPA has included 
additional details in the attest procedure that requires the auditor to 
determine whether FRGAS was produced at the foreign refinery in 
question, and whether FRGAS was produced at any non-FRGAS or FRGAS 
produced at a different refinery.
9. Truck Imports
    a. EPA Proposal: EPA did not distinguish gasoline that is imported 
into the U.S. by truck, from gasoline that is transported by vessel, in 
the foreign refiner proposed rule. However, in implementing the current 
regulations EPA has allowed an additional option for meeting the 
conventional gasoline requirements where the gasoline is imported into 
the U.S. by truck, because of the costs associated with every-batch 
sampling that is required for imported gasoline. Under this option 
truck importers are allowed to demonstrate compliance with the 
conventional gasoline requirements based on the quality of gasoline at 
the terminal located outside the U.S. where the trucks are loaded. This 
quality must meet the statutory baseline on an every-gallon basis, and 
not an annual average basis. The foreign terminal operator provides the 
U.S. importer with documents for each truck loaded at the terminal, 
that demonstrate the gasoline meets these quality requirements. These 
documents must be based on complete sampling and testing by the foreign 
terminal operator. In addition, the U.S. importer must conduct a 
program of periodic quality assurance testing of the gasoline dispensed 
at the foreign terminal to verify the accuracy of the foreign refiner's 
documents. This option was allowed in guidance issued by EPA in 
Reformulated Gasoline and Anti-Dumping Questions and Answers (October 
29, 1994), and has been proposed for inclusion in the Gasoline Rule in 
another rulemaking, 62 FR 37367 (July 11, 1997).
    b. Comments: EPA received comments from a coalition of companies 
who import gasoline into the United States by truck. These commenters 
stated that EPA should structure the foreign refiner requirements in a 
manner that allows truck importers to continue using the testing option 
described above.
    In particular, these commenters expressed the view that the foreign 
refiner FRGAS requirements would affect truck importers only if an 
individual refinery baseline is sought by the foreign refiner supplying 
gasoline to the terminal used by truck importers. If an individual 
refinery baseline is obtained by such a foreign refiner, the commenters 
suggested the foreign refinery should be considered analogous to the 
load port, and the truck loading terminal should be considered 
analogous to the U.S. port of entry. In this way the gasoline dispensed 
at the truck loading terminal would have no additional testing 
requirements that would be met by the U.S. importer.
    c. EPA's Response: Where the foreign refiner has not obtained an 
individual refinery baseline the testing option available to truck 
importers, described above, is unaffected by the foreign refiner 
requirements being promulgated. However, if conventional gasoline 
imported by a truck importer is produced at a foreign refinery with an 
individual baseline the current importer testing option is not 
available. This is true because the truck testing option does not allow 
any gasoline to meet NOX and exhaust toxics quality 
requirements other than statutory baseline-based requirements.
    EPA believes it may be possible to modify the testing option 
available to truck importers for application with gasoline produced at 
a foreign refinery with an individual refinery baseline. However, this 
is not the most appropriate rulemaking for such a modification. As 
described above, EPA has proposed in a separate rulemaking to include 
this truck importer testing option in the regulations, which EPA hopes 
to complete by the end of December 1997. EPA believes it would be most 
appropriate to address all issues related to testing by truck importers 
in that separate rulemaking, including

[[Page 45560]]

where the foreign refiner has obtained an individual refinery baseline. 
In the meantime, if EPA receives an individual refinery baseline 
petition from a foreign refiner that supplies truck importers, EPA will 
attempt to address the issue of the truck testing option through 
modifying the Question and Answer guidance.

E. Remedial Measures

1. EPA's Proposal
    Allowing foreign refiners to choose whether to establish an 
individual baseline 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.
    EPA would monitor the entire pool of imported gasoline, and 
determine the volume weighted average quality of the gasoline. This 
average would be compared to a benchmark. The purpose of the benchmark 
is to reasonably determine when allowing foreign refiners the option to 
use or not use an IB has caused degradation of the quality of imported 
gasoline from the 1990 quality of imported gasoline. The best measure 
of this, given the absence of actual data on the average quality of 
gasoline imported in 1990, would be the volume weighted average 
baseline for domestic refiners.
    Since the use of a benchmark is designed to detect a multi-year 
trend stemming from providing foreign refiners the option to use or not 
use an IB, as compared to short term changes in gasoline quality 
attributable to the many other factors that can affect the quality of 
imported gasoline on a year to year basis, EPA proposed to use a three 
year rolling average of the quality of imported gasoline. Thus each 
year the average quality of the imported CG for the prior three years 
would be compared to the benchmark.
    If the benchmark was exceeded, EPA would take remedial action by 
adjusting the requirement applicable to imported CG that is not subject 
to an IB. The adjustment would be equal to the amount of the 
exceedance. The existence and level of the adjustment would be 
evaluated each year by comparing the benchmark to the most recent 3 
year average. The adjusted requirement would apply to CG imported from 
refiners without an IB.
    Under the proposal, a benchmark would be set for NOX 
emissions but not for exhaust toxics, as the evidence prior to the 
proposal indicated that there would not likely be an adverse impact on 
toxics from allowing the option to use an IB. Instead, EPA would 
monitor the quality of imported CG for toxics, and if an adverse trend 
were to occur EPA would develop at that time an appropriate benchmark 
and adjustment mechanism, analogous to that proposed for 
NOX.
2. Comments
    Comments were received from various associations and members of the 
refining and distribution industry, importers, gasoline marketers, 
foreign refiners, a state environmental office and an environmental 
group. Several of the commenters supported the proposed approach in 
general, suggesting changes to specific parts of the proposal. One 
commenter suggested extending the approach to include all imported and 
domestic conventional gasoline, using this mechanism to improve the 
average quality of fuel in areas with poor fuel quality. One commenter 
from the gasoline refining and distribution industry opposed the 
general approach of the proposal arguing that the after-the-fact 
approach of the proposal was inappropriate as it would allow air 
quality to degrade before remedial action was taken.
    Several commenters suggested changes to the benchmark. One 
commenter suggested that a three year running average of the quality of 
domestic CG would be a better way to ensure that imported gasoline was 
no dirtier than domestic gasoline on average. Another commenter 
suggested that a benchmark based on a one year average instead of a 
three year average would be more protective of air quality and 
therefore more appropriate. Another commenter suggested using the 
statutory baseline as the benchmark instead of the volume weighted 
average of domestic refiner IBs. One commenter suggested that remedial 
action should be triggered when the benchmark was exceeded by an amount 
reflecting the reproducibility of the test results for NOX 
emissions. Finally, one commenter suggested using a national average as 
the benchmark, done by individual metropolitan areas.
    While one commenter supported limiting the benchmark to 
NOX, two commenters recommended adding a benchmark for 
toxics. One commenter questioned EPA's lack of a benchmark for toxics, 
given the difficulty in analyzing import data and enforcing 
requirements against foreign refiners and the importance of the toxics 
reductions from the RFG and CG programs. Another commenter suggested 
monitoring exhaust toxics as well as NOX as domestic 
refiners are subject to requirements for both, the prior history of the 
toxics qualities of imported CG does not assure the quality of future 
imports of CG, and the additional monitoring and reporting would not 
impose significant effort for either EPA or the affected industry. This 
commenter also expressed the view that gasoline produced outside the 
U.S. would be likely to have higher toxics on average than that 
produced in the U.S., based on the on-going phase out of lead, the 
summer to winter ratio of imports, and the results of a 1993 National 
Petroleum Council study on gasoline quality. In addition, EPA was 
cautioned to exclude data from the U.S. Virgin Islands in determining 
the toxics qualities of imported CG.
    One commenter objected that the adjustment mechanism did not comply 
with the legal requirements spelled out by the WTO Appellate Body and 
Panel, in that it could lead to subjecting imported gasoline to 
stricter requirements than identical domestic gasoline. The commenter 
argues that even though domestic refiners were required to use an IB, 
there could still be changes in the average quality of domestic 
gasoline yet no adjustment mechanism was employed in that case.
3. EPA's Response
    For the reasons decribed below, EPA is finalizing these provisions 
as proposed.
    The ``after-the-fact'' approach of these provisions is based on 
EPA's inability to accurately quantify ahead of time the actual adverse 
impact, if any, from allowing foreign refiners the option to use or not 
use an IB. EPA does believe providing such an option clearly creates 
the potential for such an adverse impact, but the size and amount of 
the impact is difficult to quantify with any degree of certainty ahead 
of time, as well as whether or not it will occur. It would depend on a 
variety of factors, some of which would change from year to year--the 
number of foreign refiners that receive an IB, the actual IBs assigned 
to them, the volume of gasoline included in the IB, the source and 
amount of CG and RFG imported each year, and the extent, if any, to 
which foreign refiners whose 1990 exports to the U.S. were cleaner on 
average than the SB would now ship gasoline that is dirtier than what 
they exported to the U.S. in 1990.
    No commenter disputed the above, or suggested a way for EPA to 
fairly quantify ahead of time the potential risk of an adverse 
environmental impact. Given this uncertainty, EPA continues to believe 
that the better course is to monitor imported CG, measure it against a 
benchmark designed to reflect a multi-

[[Page 45561]]

year trend in gasoline quality, and if the benchmark is exceeded adjust 
the gasoline quality requirement for imported CG by an amount that 
offsets this adverse impact. EPA also does not believe it is 
appropriate to extend this monitoring and adjustment approach to 
include all CG, both domestic and imported. All domestic refiners and 
blenders of CG have been assigned an IB, and do not have the option to 
choose between the SB and an IB. As a result, for domestic refiners 
there is not the same ability to choose a less stringent requirement, 
based on economic reasons, with the resulting potential for an adverse 
environmental impact, as there is for foreign refiners. Therefore, 
there is not the same need to protect against such an adverse impact 
for domestically produced gasoline.
    EPA proposed a three year rolling average in the comparison to the 
benchmark as it is a better mechanism to detect a multi-year trend. A 
one year average was rejected in the proposal as it might only reflect 
the year to year volatility in the source and quantities of imported CG 
which occur for a variety of reasons independent of the option to use 
an IB. The commenter suggesting the use of a one year average did not 
provide any evidence to rebut this view, but argued instead that a one 
year average would be more protective of air quality. EPA is finalizing 
the three year rolling average as it is a better mechanism to determine 
when air quality has been adversely impacted from providing the option 
to use an IB, and therefore needs to be protected by an adjustment.
    EPA proposed comparing the average quality of imported CG to the 
volume weighted average of the IBs for domestic refiners. This reflects 
the central purpose of the CG program as applied to imported gasoline--
to avoid degradation in the quality of imported gasoline from the 
quality of gasoline imported in 1990. As noted in the proposal, we do 
not have actual data on the quality of gasoline imported in 1990 and it 
is not unreasonable to assume that the average quality of imported 
gasoline was generally equivalent to the volume weighted average of IBs 
for domestic refiners, absent evidence to the contrary. The proposed 
benchmark is based on this view, and no commenter contested these 
assumptions or presented evidence to the contrary. One commenter 
suggested comparing imported CG to the average quality of CG currently 
produced by domestic refiners, another suggested using a national 
average done by metropolitan area, and another suggested comparing it 
to the SB. EPA is not adopting these methods because each of them is a 
less direct way to meet the purpose identified above. These 
alternatives would be a less certain way to meet the objectives as they 
are less directly related to the quality of gasoline imported in 1990.
    EPA disagrees with the suggestion that the remedial action should 
be triggered when the benchmark is exceeded by an amount reflecting the 
reproducibility of the test results for NOX emissions. The 
reproducibility of test results addresses comparisons of individual 
test results conducted for example in different labs. It is not 
relevant when comparing averages that are based on numerous data 
points. A multi-year rolling average is an adequate benchmark to 
determine the existence of an adverse trend, and an additional element 
for reproducibility of individual test results is not needed.
    EPA's proposal to establish a benchmark for NOX at this 
time but not for exhaust toxics was based on a review of the annual 
reports submitted by importers for calendar year 1995. Those reports 
showed that the average level of exhaust toxics for gasoline imported 
in 1995 was significantly cleaner than either the statutory baseline or 
the volume weighted average of individual baselines for domestic 
refiners. In addition, information previously submitted by one foreign 
refiner indicated that the IB they would seek would be cleaner than the 
SB for exhaust toxics. Based on this, EPA did not believe there was 
enough indication that there would be an adverse impact on toxics to 
warrant establishing a benchmark and adjustment mechanism at this time. 
Instead, EPA would monitor the toxics qualities of imported gasoline 
and adopt a benchmark and adjustment mechanism in the future if 
appropriate.
    None of the commenters provided information or reasons that warrant 
a different conclusion. The claim that data on imported gasoline is 
hard to analyze is unfounded, as it is relatively easy to determine the 
volume weighted average quality of imported gasoline from the batch 
reports submitted by importers. The same information will still be 
available under the regulations finalized today; the fact that some of 
the information may now be submitted by foreign refiners does not 
change the availability and quality of the data submitted. Since the 
regulatory changes adopted today will only affect conventional 
gasoline, there will be no impact at all on the important toxics 
reductions obtained in the RFG program. The fact that domestic refiners 
are subject to requirements for both NOX and exhaust toxics 
is not a reason to set a benchmark for toxics now, as both importers 
and foreign refiners with an approved IB will also be subject to 
requirements for NOX and exhaust toxics. While the prior 
history of the toxics quality of imported gasoline does not assure that 
the future quality will be the same, it does indicate that it is much 
less likely that a toxics problem will develop from allowing foreign 
refiners to use an IB. Since the proposal was published, EPA has been 
able to evaluate the batch reports submitted by importers for calendar 
year 1996. The results follow the same pattern as in 1995--the average 
toxics quality of imported gasoline is significantly cleaner than 
either the SB or the volume weighted average of the IBs for domestic 
refiners. Data from the Virgin Islands was not included in either the 
1995 or 1996 calculations, as this is not considered imported gasoline 
for purposes of the CG or RFG regulations. Data on the actual toxics 
quality of imported gasoline in 1995 and 1996 provides concrete 
evidence for evaluating the risk of an adverse impact on toxics from 
allowing foreign refiners an option to use IBs. This data is more 
probative on this issue than the potential but unspecified impacts of 
lead-phase down on foreign produced gasoline and the overall quality of 
gasoline produced overseas in 1993, which would be dominated by 
gasoline produced and used overseas as compared to gasoline exported to 
the U.S. EPA is therefore not adopting a benchmark for exhaust toxics 
at this time, and instead will continue to monitor the average toxics 
quality of imported gasoline and will take appropriate action to adopt 
a benchmark and adjustment mechanism for exhaust toxics if 
circumstances develop which warrant such action.

F. Compliance With WTO Obligations

    Some commenters claimed that certain provisions related to 
enforcing compliance with the requirements for establishment and use of 
an individual baseline, and the mechanism for remedial measures, were 
not consistent with the obligations of the United States under the 
World Trade Organization agreement.
    This rule meets the commitment of the United States to comply with 
its obligations under the World Trade Organization agreement with 
respect to this matter. This rule provides all foreign refiners with 
the opportunity to apply for and use an individual baseline. To the 
limited extent that foreign refiners with individual baselines are to 
be subject to different

[[Page 45562]]

requirements than domestic refiners, great care has been taken to 
ensure that these requirements are limited to those that are essential 
to address issues that are unique to refiners exporting gasoline to the 
United States.

V. Administrative Designation and Regulatory Analysis

A. Public Participation

    The agency held a public hearing on May 20, 1997, to hear comments 
on the Notice of Proposed Rulemaking (62 FR 24776) published on May 6, 
1997. Comments were provided at the hearing by the National Petroleum 
Refiner's Association and the Independent Refiners Coalition. EPA 
reviewed and considered written comments on the proposal submitted by 
the same groups as well as written comments from various other 
commenters. These comments have been presented and addressed in the 
preamble above. (See Response to Comments, Section IV) All comments 
received by the Agency are located in the EPA Air Docket A-97-26.

B. 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 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.

C. Economic Impact and Impact on Small Entities

    EPA has determined that this final rule will 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 rule and would be 
small entities. In addition, today's action will not significantly 
change the requirements applicable to importers of gasoline produced by 
foreign refineries. A regulatory flexibility analysis has therefore not 
been prepared.
    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 
final 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 will not, 
however, have a significant impact on the importer, as the importer 
will 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 final rule will 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 will 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 will tend to eliminate any impact on 
the importer. The impact of today's final rule will 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.

D. The Paperwork Reduction Act

    The information collection requirements in this final rule have 
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. The information requirements are not effective until OMB approves 
them.
    This final rule will allow foreign refiners to establish individual 
baselines to demonstrate compliance with the Agency's gasoline rule. 
The information collected will 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.
    Estimated labor and cost burdens for this rule are:
    No. Of Respondents, 32.
    Total Annual Response, 90.
    Average labor burden per response, 2.1 hours.
    Average cost burden per response, $1,408.
    Total annual hours requested, 192 hours.
    Total annual capital costs, $126,700.00.

Capital cost are those cost associated with testing of gasoline by 
independent laboratories.
    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

[[Page 45563]]

EPA's regulations are listed in 40 CFR Part 9 and 48 CFR Chapter 15.
    Send comments on the Agency's 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 collection techniques to the Director, OPPE Regulatory 
Information Division, U.S. Environmental Protection Agency (2137), 401 
M Street, SW., 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.

E. 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. The rule imposes no enforceable duty 
on any State, local or tribal governments or the private sector.

F. Submission to Congress and the General Accounting Office

    Under 5 U.S.C. 801(a)(1)(A) as added by the Small Business 
Regulatory Enforcement Fairness Act of 1996, EPA submitted a report 
containing this rule and other required information to the U.S. Senate, 
the U.S. House of Representatives and the Comptroller General of the 
General Accounting Office prior to publication of the rule in today's 
Federal Register. This rule is not a major rule as defined by 5 U.S.C. 
804(2).

G. 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: August 19, 1997.
Carol M. Browner,
Administrator.
    40 CFR Part 80 is 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 added to subpart E to read as follows:


Sec. 80.94  Requirements for gasoline produced at foreign refineries.

    (a) Definitions. (1) A foreign refinery is a refinery that is 
located outside the United States, including 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 is a person who meets the definition of 
refiner under Sec. 80.2(i) for foreign refinery.
    (3) FRGAS means gasoline produced at a foreign refinery that has 
been assigned an individual refinery baseline and that is imported into 
the United States.
    (4) Non-FRGAS means gasoline that is produced at a foreign refinery 
that has not been assigned an individual refinery baseline, gasoline 
produced at a foreign refinery with an individual refinery baseline 
that is not imported into the United States, and gasoline produced at a 
foreign refinery with an individual baseline during a year when the 
foreign refiner has opted to not participate in the FRGAS program under 
paragraph (c)(3) of this section.
    (5) Certified FRGAS means FRGAS the foreign refiner intends to 
include in the foreign refinery's NOX and exhaust toxics 
compliance calculations under Sec. 80.101(g), and does include in these 
compliance calculations when reported to EPA.
    (6) Non-certified FRGAS means FRGAS that is not certified FRGAS.
    (b) Baseline establishment. Any foreign refiner may submit to EPA a 
petition for an individual refinery baseline, under Secs. 80.90 through 
80.93.
    (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 imported into 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) of this section 
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 either certified FRGAS or as non-

[[Page 45564]]

certified FRGAS, except as provided in paragraph (c)(3) of this 
section.
    (1)(i) In the case of certified FRGAS, the foreign refiner shall 
meet all requirements that apply to refiners under 40 CFR part 80, 
subparts D, E and F.
    (ii) If the foreign refinery baseline is assigned, or a foreign 
refiner begins early use of a refinery baseline under paragraph (r) 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) x V1990

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, whichever is later
V1990 = Foreign refinery's 1990 baseline volume.

    (2) In the case of non-certified FRGAS, the foreign refiner shall 
meet the following requirements, except the foreign refiner shall 
substitute the name ``non-certified FRGAS'' for the names 
``reformulated gasoline'' or ``RBOB'' wherever they appear in the 
following requirements:
    (i) The designation requirements in Sec. 80.65(d)(1);
    (ii) The recordkeeping requirements in Sec. 80.74 (a), and (b)(3);
    (iii) The reporting requirements in Sec. 80.75 (a), (m), and (n);
    (iv) The registration requirements in Sec. 80.76;
    (v) The product transfer document requirements in Sec. 80.77 (a) 
through (f), and (j);
    (vi) The prohibition in Sec. 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 80.130.
    (3)(i) Any foreign refiner that has been assigned an individual 
baseline for a foreign refinery under paragraph (b) of this section may 
elect to classify no gasoline imported into the United States as FRGAS, 
provided the foreign refiner notifies EPA of the election no later than 
November 1 of the prior calendar year.
    (ii) An election under paragraph (c)(3)(i) of this section shall:
    (A) Be for an entire calendar year averaging period and apply to 
all gasoline produced during the calendar year at the foreign refinery 
that is imported into the United States; and
    (B) Remain in effect for each succeeding calendar year averaging 
period, unless and until the foreign refiner notifies EPA of a 
termination of the election. The change in election shall take effect 
at the beginning of the next calendar year.
    (iii) A foreign refiner who has aggregated refineries under 
Sec. 80.101(h) shall make the same election under paragraph (c)(3)(i) 
of this section for all refineries in the aggregation.
    (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, unless the foreign 
refiner has elected to classify no gasoline exported to the United 
States as FRGAS under paragraph (c)(3)(i) of this section.
    (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 80.106:
    (i) Identification of the gasoline as certified FRGAS or as non-
certified 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 
meets the following requirements:
    (i) The certification shall include the report of the independent 
third party under paragraph (f) of this section, and the following 
additional information:
    (A) The name and EPA registration number of the refinery that 
produced the FRGAS;
    (B) The identification of the gasoline as certified FRGAS or non-
certified FRGAS;
    (C) The volume of FRGAS being transported, in gallons;
    (D) A declaration that the FRGAS is being included in the 
compliance baseline calculations under Sec. 80.101(f) for the refinery 
that produced the FRGAS; and
    (E) In the case of certified FRGAS:
    (1) The values for each parameter required to calculate 
NOX and exhaust toxics emissions performance as determined 
under paragraph (f) of this section; and
    (2) A declaration that the FRGAS is being included in the 
compliance calculations under Sec. 80.101(g) for the refinery that 
produced the FRGAS.
    (ii) The certification shall be made part of the product transfer 
documents for the FRGAS.
    (e) Transfers of FRGAS to non-United States markets. The foreign 
refiner is responsible to ensure that all gasoline classified as FRGAS 
is imported into the United States. A foreign refiner may remove the 
FRGAS classification, and the gasoline need not be imported into the 
United States, but only if:
    (1)(i) The foreign refiner excludes:
    (A) The volume of gasoline from the refinery's compliance baseline 
calculations under Sec. 80.101(h); and
    (B) In the case of certified FRGAS, the volume and parameter values 
of the gasoline from the compliance calculations under Sec. 80.101(g);
    (ii) The exclusions under paragraph (e)(1)(i) of this section shall 
be on the basis of the parameter and volumes determined under paragraph 
(f) of this section; and
    (2) The foreign refiner obtains sufficient evidence in the form of 
documentation that the gasoline was not imported into the United 
States.
    (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 and determine the volume of 
any tank bottoms;
    (ii) Determine the volume of FRGAS loaded onto the vessel 
(exclusive of any tank bottoms present before vessel loading);
    (iii) Obtain the EPA-assigned registration number of the foreign 
refinery;
    (iv) Determine the name and country of registration of the vessel 
used to transport the FRGAS to the United States; and
    (v) Determine the date and time the vessel departs the port serving 
the foreign refinery.
    (2) On each occasion certified FRGAS is loaded onto a vessel for 
transport to the United States a foreign refiner shall have an 
independent third party:
    (i) Collect a representative sample of the certified FRGAS from 
each vessel compartment subsequent to loading on the vessel and prior 
to departure of the vessel from the port serving the foreign refinery;
    (ii) Prepare a volume-weighted vessel composite sample from the 
compartment samples, and determine the values for sulfur, benzene, 
gravity, E200 and E300 using the methodologies specified in Sec. 80.46, 
by:
    (A) The third party analyzing the sample; or

[[Page 45565]]

    (B) The third party observing the foreign refiner analyze the 
sample;
    (iii) Determine the values for aromatics, olefins, RVP and each 
oxygenate specified in Sec. 80.65(e)(2) for the gasoline loaded onto 
the vessel, by:
    (A) Completing the analysis procedures under paragraph (f)(2)(ii) 
of this section for the additional parameters; or
    (B) Obtaining from the foreign refiner the test results of samples 
collected from each shore tank containing gasoline that was loaded onto 
the vessel, and calculating the parameter values for the gasoline 
loaded onto the vessel from the tank parameter values and the gasoline 
volume from each such shore tank that was loaded;
    (iv) Review original documents that reflect movement and storage of 
the certified 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 and non-certified FRGAS; and
    (2) Other certified FRGAS produced at a different refinery, except 
that certified FRGAS may be combined with other certified FRGAS 
produced at refineries that are aggregated under Sec. 80.101(h);
    (3) The independent third party shall submit a report:
    (i) To the foreign refiner containing the information required 
under paragraphs (f) (1) and (2) of this section, to accompany the 
product transfer documents for the vessel; and
    (ii) To the Administrator containing the information required under 
paragraphs (f) (1) and (2) of this section, within thirty days 
following the date of the independent third party'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 remained segregated as specified in paragraph (n)(1) of this 
section, and a description of the gasoline's movement and storage 
between production at the source refinery and vessel loading.
    (4) A person may be used to meet the third party 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)(i) Any 
foreign refiner and any United States importer of certified FRGAS shall 
compare the results from the load port testing under paragraph (f) of 
this section, with the port of entry testing as reported under 
paragraph (o) of this section, for the volume of gasoline, for the 
parameter values for sulfur, benzene, gravity, E200 and E300, and for 
the NOX and exhaust toxics emissions performance; except 
that
    (ii) Where a vessel transporting certified FRGAS off loads this 
gasoline at more than one United States port of entry, and the 
conditions of paragraph (g)(2)(i) of this section are not met at the 
first United States port of entry, the requirements of paragraph (g)(1) 
and (g)(2) of this section do not apply at subsequent ports of entry if 
the United States importer obtains a certification from the vessel 
owner or his immediate designee that the vessel has not loaded any 
gasoline or blendstock between the first United States port of entry 
and the subsequent port of entry.
    (2)(i) The requirements of paragraph (g)(2)(ii) apply if:
    (A)(1) The temperature-corrected volumes determined at the port of 
entry and at the load port differ by more than one percent; or
    (2) For any parameter specified in paragraph (f)(2)(ii) of this 
section, the values determined at the port of entry and at the load 
port differ by more than the reproducibility amount specified for the 
port of entry test result by the American Society of Testing and 
Materials (ASTM); unless
    (B) The NOX and exhaust toxics emissions performance, in 
grams per mile, calculated using the port of entry test results, are 
each equal to or less than the NOX and exhaust toxics 
emissions performance calculated using the load port test results;
    (ii) The United States importer and the foreign refiner shall treat 
the gasoline as non-certified FRGAS, and the foreign refiner shall:
    (A) Exclude the gasoline volume and properties from its 
conventional gasoline NOX and exhaust toxics compliance 
calculations under Sec. 80.101(g); and
    (B) Include the gasoline volume in its compliance baseline 
calculation under Sec. 80.101(f), unless the foreign refiner 
establishes that the United States importer classified the gasoline 
only as conventional gasoline and not as reformulated gasoline.
    (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 40 CFR part 80, subpart F.
    (1) Include in the inventory reconciliation analysis under 
Sec. 80.128(b) and the tender analysis under Sec. 80.128(c) non-FRGAS 
in addition to the gasoline types listed in Sec. 80.128 (b) and (c).
    (2) Obtain separate listings of all tenders of certified FRGAS, and 
of non-certified FRGAS. 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 third party under 
paragraph (f)(1) of this section.
    (3) For each tender under paragraph (h)(2) of this section where 
the gasoline is loaded onto a marine vessel, report as a finding the 
name and country of registration of each vessel, and the volumes of 
FRGAS loaded onto each vessel.
    (4) Select a sample from the list of vessels identified in 
paragraph (h)(3) of this section used to transport certified FRGAS, in 
accordance with the guidelines in Sec. 80.127, and for each vessel 
selected perform the following:
    (i) Obtain the report of the independent third party, under 
paragraph (f) of this section, and of the United States importer under 
paragraph (o) of this section.
    (A) Agree the information in these reports with regard to vessel 
identification, gasoline volumes and test results.
    (B) Identify, and report as a finding, each occasion the load port 
and port of entry parameter and 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 the documents used by the independent third party to 
determine transportation and storage of the certified FRGAS from the 
refinery to the load port, under paragraph (f) of this section. Obtain 
tank activity records for any storage tank where the certified FRGAS is 
stored, and pipeline activity records for any pipeline used to 
transport the certified FRGAS, prior to being loaded onto the vessel. 
Use these records to determine whether the certified FRGAS was produced 
at the refinery that is the subject of the attest engagement, and 
whether the certified FRGAS was mixed with any non-certified FRGAS, 
non-FRGAS, or any certified FRGAS produced at a different

[[Page 45566]]

refinery that was not aggregated under Sec. 80.101(h).
    (5)(i) Select a sample from the list of vessels identified in 
paragraph (h)(3) of this section used to transport certified and non-
certified FRGAS, in accordance with the guidelines in Sec. 80.127, and 
for each vessel selected perform the following:
    (ii) Obtain a commercial document of general circulation that lists 
vessel arrivals and departures, and that includes the port and date of 
departure of the vessel, and the port of entry and date of arrival of 
the vessel. Agree the vessel's departure and arrival locations and 
dates from the independent third party and United States importer 
reports to the information contained in the commercial document.
    (6) Obtain separate listings of all tenders of non-FRGAS, and 
perform the following:
    (i) Agree the total volume of tenders from the listings to the 
gasoline inventory reconciliation analysis in Sec. 80.128(b).
    (ii) Obtain a separate listing of the tenders under paragraph 
(h)(6) of this section where the gasoline is loaded onto a marine 
vessel. Select a sample from this listing in accordance with the 
guidelines in Sec. 80.127, and obtain a commercial document of general 
circulation that lists vessel arrivals and departures, and that 
includes the port and date of departure and the ports and dates where 
the gasoline was off loaded for the selected vessels. Determine and 
report as a finding the country where the gasoline was off loaded for 
each vessel selected.
    (7) In order to complete the requirements of this paragraph (h) an 
auditor shall:
    (i) Be independent of the foreign refiner;
    (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, vessels 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 volume and 
parameters, 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 a baseline petition has not been approved, and any work papers 
related to refinery baseline establishment;
    (B) The parameters and volume of FRGAS;
    (C) The proper classification of gasoline as being FRGAS or as not 
being FRGAS, or as certified FRGAS or as non-certified FRGAS;
    (D) Transfers of title or custody to FRGAS;
    (E) Sampling and testing of FRGAS;
    (F) Work performed and reports prepared by independent third 
parties and by independent auditors under the requirements of this 
section, including work papers; and
    (G) 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 officer, or employee of the foreign 
refiner for any action by EPA or otherwise by the United States related 
to the requirements of 40 CFR part 80, subparts D, E and F.
    (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 shall 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) Submitting a petition for an individual refinery baseline, 
producing and exporting gasoline under an individual refinery baseline, 
and all other actions to comply with the requirements of 40 CFR part 
80, subparts D, E and F relating to the establishment and use of an 
individual refinery baseline constitute actions or activities covered 
by and within the meaning of 28 U.S.C. 1605(a)(2), but solely with 
respect to actions instituted against the foreign refiner, its agents, 
officers, and employees in any court or other tribunal in the United 
States for conduct that violates the requirements applicable to the 
foreign refiner under 40 CFR part 80, subparts D, E and F, including 
such conduct that violates Title 18 U.S.C. section 1001, Clean Air Act 
section 113(c)(2), or other applicable provisions of the Clean Air Act.
    (6) The foreign refiner, or its agents, officers, 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.
    (7) The commitment required by this paragraph (i) shall be signed 
by the owner or president of the foreign refiner business.
    (8) In any case where FRGAS produced at a foreign refinery is 
stored or transported by another company between the refinery and the 
vessel that transports the FRGAS to the United States, the foreign 
refiner shall obtain from each such other company a commitment that 
meets the

[[Page 45567]]

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) Sovereign immunity. By submitting a petition for an individual 
foreign refinery baseline under this section, or by producing and 
exporting gasoline to the United States under an individual refinery 
baseline under this section, the foreign refiner, its agents, officers, 
and employees, without exception, become subject to the full operation 
of the administrative and judicial enforcement powers and provisions of 
the United States without limitation based on sovereign immunity, with 
respect to actions instituted against the foreign refiner, its agents, 
officers, and employees in any court or other tribunal in the United 
States for conduct that violates the requirements applicable to the 
foreign refiner under 40 CFR part 80, subparts D, E and F, including 
such conduct that violates Title 18 U.S.C. section 1001, Clean Air Act 
section 113(c)(2), or other applicable provisions of the Clean Air Act.
    (k) Bond posting. Any foreign refiner shall meet the requirements 
of this paragraph (k) 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 a single 
calendar year among 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;
    (ii) Obtaining a bond in the proper amount from a third party 
surety agent that is payable to satisfy United States judicial 
judgments against the foreign refiner, provided EPA agrees in advance 
as to the third party and the nature of the surety agreement; or
    (iii) An alternative commitment that results in assets of an 
appropriate liquidity and value being readily available to the United 
States, provided EPA agrees in advance as to the alternative 
commitment.
    (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 (k) shall be used to satisfy 
any judicial judgment that results from an administrative or judicial 
enforcement action for conduct in violation of 40 CFR part 80, subparts 
D, E and F, including such conduct that violates Title 18 U.S.C. 
section 1001, Clean Air Act section 113(c)(2), or other applicable 
provisions of the Clean Air Act.
    (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.
    (l) 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.
    (m) English language reports. Any report or other document 
submitted to EPA by any foreign refiner shall be in the English 
language, or shall include an English language translation.
    (n) Prohibitions. (1) No person may combine certified FRGAS with 
any non-certified FRGAS or non-FRGAS, and no person may combine 
certified FRGAS with any certified FRGAS produced at a different 
refinery that is not aggregated under Sec. 80.101(h), except as 
provided in paragraph (e) of this section.
    (2) No foreign refiner or other person may cause another person to 
commit an action prohibited in paragraph (n)(1) of this section, or 
that otherwise violates the requirements of this section.
    (o) 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 non-FRGAS, and each batch classified as 
FRGAS shall be further classified as certified FRGAS or as non-
certified FRGAS.
    (2) Gasoline shall be classified as certified FRGAS or as non-
certified FRGAS according to the designation by the foreign refiner if 
this designation is supported by product transfer documents prepared by 
the foreign refiner as required in paragraph (d) of this section, 
unless the gasoline is classified as non-certified FRGAS under 
paragraph (g) 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 certified and non-certified FRGAS, have an 
independent third party:
    (A) Determine the volume of gasoline in the vessel;
    (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 vessel 
used to transport the FRGAS to the United States; and
    (D) Determine the date and time the vessel arrives at the United 
States port of entry.
    (ii) In the case of certified FRGAS, have an independent third 
party:
    (A) Collect a representative sample from each vessel compartment 
subsequent to the vessel's arrival at the United States port of entry 
and prior to off loading any gasoline from the vessel;
    (B) Prepare a volume-weighted vessel composite sample from the 
compartment samples; and
    (C) Determine the values for sulfur, benzene, gravity, E200 and 
E300 using the methodologies specified in Sec. 80.46, by:
    (1) The third party analyzing the sample; or
    (2) The third party observing the importer analyze the sample
    (4) Any importer shall submit reports within thirty days following 
the date any vessel transporting FRGAS arrives at the United States 
port of entry:
    (i) To the Administrator containing the information determined 
under paragraph (o)(3) of this section; and
    (ii) To the foreign refiner containing the information determined 
under paragraph (o)(3)(ii) of this section.
    (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 certified FRGAS under 
paragraph (o)(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 (p) of 
this section.
    (p) Importer Baseline. (1) Each calendar year starting in 2000, the 
Administrator shall calculate the

[[Page 45568]]

volume weighted average NOX emissions of imported 
conventional gasoline for a multi-year period (MYANOx). This 
calculation:
    (i) Shall use the Phase II Complex Model;
    (ii) Shall include all conventional gasoline in the following 
categories:
    (A) Imported conventional gasoline that is classified as 
conventional gasoline, and included in the conventional gasoline 
compliance calculations of importers for each year; and
    (B) Imported conventional gasoline that is classified as certified 
FRGAS, and included in the conventional gasoline compliance 
calculations of foreign refiners for each year;
    (iii)(A) In 2000 only, shall be for the 1998 and 1999 averaging 
periods and also shall 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 
not classified as FRGAS that are imported during 1997 beginning on the 
date the first batch of FRGAS arrives at a United States port of entry; 
and
    (B) Starting in 2001, shall include imported conventional gasoline 
during the prior three calendar year averaging periods.
    (2)(i) If the volume-weighted average NOX emissions 
(MYANOx), calculated in paragraph (p)(1) of this section, is 
greater than 1,465 mg/mile, the Administrator shall calculate an 
adjusted baseline for NOX according to the following 
equation:

ABNOx = 1,465 mg/mile - (MYANOx - 1,465 mg/mile)

where:

ABNOx = Adjusted NOX baseline, in mg/mile
MYANOx = Multi-year average NOX emissions, in mg/
mile

    (ii) For the 1998 and 1999 multi-year averaging period only the 
value of ABNOx shall not be larger than 1,480 mg/mile 
regardless of the calculation under paragraph (p)(2)(i) of this 
section.
    (3)(i) Notwithstanding the provisions of Sec. 80.91(b)(4)(iii), the 
baseline 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 NOX under Sec. 80.91(c)(5), or 
the adjusted NOX baseline calculated in paragraph (p)(2) of 
this section.
    (ii) On or before June 1 of each calendar year, the Administrator 
shall announce the NOX baseline that applies to importers 
under this paragraph (p). If the baseline is an adjusted baseline, it 
shall be effective for any conventional gasoline imported beginning 60 
days following the Administrator's announcement. If the baseline is the 
statutory baseline, it shall be effective upon announcement. A baseline 
shall remain in effect until the effective date of a subsequent change 
to the baseline pursuant to this paragraph (p).
    (q) 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;
    (3) A foreign refiner asserts a claim of, or a right to claim, 
sovereign immunity in an action to enforce the requirements in 40 CFR 
part 80, subparts D, E and F; or
    (4) A foreign refiner fails to pay a civil or criminal penalty that 
is not satisfied using the foreign refiner bond specified in paragraph 
(k) of this section.
    (r) 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)(3)(iii) and (h)(7)(iii) of this 
section; and
    (v) The foreign refiner has met the bond requirements of paragraph 
(k) of this section.
    (2) In any case where a foreign refiner uses an individual refinery 
baseline before final approval under paragraph (r)(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.
    (s) Additional requirements for petitions, reports and 
certificates. Any petition for a refinery baseline under paragraph (b) 
of this section, any report or other submission required by paragraphs 
(c), (f)(2), or (i) of this section, and any certification under 
paragraph (d)(3) or (g)(1)(ii) of this section shall be:
    (1) Submitted in accordance with procedures specified by the 
Administrator, including use of any forms that may specified by the 
Administrator.
    (2) Be signed by the president or owner of the foreign refiner 
company, or in the case of (g)(1)(ii) the vessel owner, or by that 
person's immediate designee, and shall contain the following 
declaration:

    I hereby certify: (1) that I have actual authority to sign on 
behalf of and to bind [insert name of foreign refiner or vessel 
owner] with regard to all statements contained herein; (2) that I am 
aware that the information contained herein is being certified, or 
submitted to the United States Environmental Protection Agency, 
under the requirements of 40 CFR part 80, subparts D, E and F and 
that the information is material for determining compliance under 
these regulations; and (3) that I have read and understand the 
information being certified or submitted, and this information is 
true, complete and correct to the best of my knowledge and belief 
after I have taken reasonable and appropriate steps to verify the 
accuracy thereof.
    I affirm that I have read and understand that the provisions of 
40 CFR part 80, subparts D, E and F, including 40 CFR 80.94 (i), (j) 
and (k), apply to [insert name of foreign refiner or vessel owner]. 
Pursuant to Clean Air Act section 113(c) and Title 18, United States 
Code, section 1001, the penalty for furnishing false, incomplete or 
misleading information in this certification or submission is a fine 
of up to $10,000, and/or imprisonment for up to five years.

[FR Doc. 97-22803 Filed 8-27-97; 8:45 am]
BILLING CODE 6560-50-P