[Federal Register Volume 70, Number 124 (Wednesday, June 29, 2005)]
[Rules and Regulations]
[Pages 37266-37269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-12811]


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DEPARTMENT OF AGRICULTURE

Forest Service

36 CFR Part 223

RIN 0596-AC29


Sale and Disposal of National Forest System Timber; Timber Sale 
Contracts; Indices To Determine Market-Related Contract Term Additions

AGENCY: Forest Service, USDA.

ACTION: Interim final rule; request for comments.

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SUMMARY: This interim final rule amends the current regulation by 
requiring the use of three alternative Producer Price Indices (PPI) 
from the Bureau of Labor Statistics in lieu of the four PPI that the 
Forest Service has monitored for use in timber sale contract market-
related contract term additions. After December 2003, the Bureau of 
Labor Statistics discontinued providing three of the four PPI that the 
Forest Service has monitored and changed the reference number for the 
fourth PPI. The Forest Service is issuing an interim final rule 
implementing the use of the three alternative PPI, prior to

[[Page 37267]]

publishing a final rule. By using the three alternative PPI, the Forest 
Service will be able to continue providing market-related contract term 
additions during drastic reductions in wood products market prices.

DATES: This interim final rule is effective June 29, 2005. Comments 
must be received in writing on or before August 29, 2005.

ADDRESSES: Send written comments by mail to USDA Forest Service, 
Director Forest Management, 1400 Independence Avenue, SW., Mail Stop 
1103, Washington, DC 20250-0003; via e-mail to: [email protected]; or via 
facsimile to (202) 205-1045. Comments may also be submitted via the 
World Wide Web Internet Web site at: http://www.regulations.gov. All 
comments, including names and addresses when provided, are placed in 
the record and are available for public inspection and copying. 
Information pertaining to the indices is available for public review on 
the Forest Service World Wide Web/Internet site at: http://www.fs.fed.us/forestmanagement/infocenter/index.shtml. Alternatively, 
these can be viewed in the office of the Director of Forest Management, 
Third Floor, Southwest Wing, Yates Building, 201 14th Street, SW., 
Washington, DC. Visitors are encouraged to call ahead to (202) 205-1496 
to facilitate entry into the building.

FOR FURTHER INFORMATION CONTACT: Don Benner, Forest Management Staff, 
at (202) 205-0855, or Richard Fitzgerald, Forest Management Staff, 
(202) 205-1753.

SUPPLEMENTARY INFORMATION:

Background

    Experience indicates that substantial lumber market declines that 
would warrant a market-related contract term addition generally 
coincide with substantial economic distress in the wood products 
industry. Such economic distress broadly affects community stability, 
the ability of the wood products industry to supply construction lumber 
and other wood products from domestic sources, and threatens the 
existence of wood manufacturing plants needed to meet future demands 
for wood products.
    The softwood lumber market decline in 1980-1982 resulted in large 
numbers of defaults on timber sale contracts. The market-related 
contract term addition policy was developed in order to establish 
procedures under the Federal Timber Contract Payment Modification Act 
or ``Buyout Act'' for extending contract termination dates in response 
to severely declining wood products markets. The Buyout Act was 
considered an extraordinary measure to respond to a crisis, but also 
recognized the need to prevent such a crisis from occurring in the 
future. Accordingly, on December 7, 1990, the Department published a 
final rule (55 FR 50643) to establish procedures at 36 CFR 223.52 for 
extending contract termination dates to avoid another crisis like the 
crisis which occurred in the early 1980s due to severe adverse 
conditions in the wood products markets. The rule provides that if the 
Chief finds that adverse wood products market conditions have resulted 
in a drastic reduction in wood product prices and the purchaser of a 
qualifying contract makes a written request, additional time may be 
added to the contract term.
    A finding that a drastic reduction in wood product prices has 
occurred constitutes a finding that the substantial overriding public 
interest justifies extension of certain timber sale contracts, in 
accordance with the National Forest Management Act of 1976 (16 U.S.C. 
72a(c)) and existing regulations at 36 CFR 223.115(b).
    Since adoption of the rule, a drastic reduction in wood product 
prices has occurred in 1991, 1995, 1998, and 2000. As a result, the 
Forest Service notified purchasers and, upon the purchasers' written 
request, added an additional year to timber sale contract terms for 
qualifying contracts.
    The rule required the use of various wood product Producer Price 
Indices (PPI), prepared by the Department of Labor, Bureau of Labor 
Statistics (BLS), to determine whether a drastic reduction in wood 
product prices has occurred.
    Appearing before the House Appropriations Subcommittee on Interior 
and Related Agencies, on April 28, 1992 (Testimony Report number, T-
RCED-92-58), the General Accountability Office (GAO) testified that in 
implementing the regulation in 1991, the Forest Service used a formula 
with inappropriate data to reach a determination that prices for wood 
products from the Pacific Northwest had drastically declined. 
Specifically, GAO testified that the Forest Service used a formula 
developed with price data that were not adjusted to account for 
seasonal fluctuations. GAO noted that if the Forest Service had used 
the BLS' seasonally adjusted price data, the formula would not have 
indicated a drastic price reduction and would not have triggered 
contract extensions on the west side of the Pacific Northwest.
    GAO further testified that the BLS advises use of seasonally 
adjusted data are designed to eliminate the effects of normal market 
fluctuations that occur at about the same time, and in about the same 
magnitude, each year, such as price movements resulting from normal 
weather patterns and regular production and marketing cycles. GAO 
recommended that the Secretary of Agriculture direct the Chief of the 
Forest Service to stop using the BLS' unadjusted indices in reaching 
determinations that wood product prices have drastically declined.
    The Secretary of Agriculture agreed to re-examine the use of the 
BLS' unadjusted PPI to determine whether wood product prices showed a 
drastic decline. Subsequently, the Forest Service concurred that 
seasonally adjusted PPI, adjusted to a constant dollar base, could be 
used to determine whether a drastic reduction in wood product prices 
has occurred and, therefore, whether a market-related contract term 
addition should be granted. However, after December 1994, the BLS 
stopped applying seasonal adjustments to the monitored PPI, since they 
found insufficient statistical evidence to demonstrate a need to 
continue adjusting these indices.
    The initial PPI from the BLS used by the Forest Service were from 
the commodity series and included lumber indices for Douglas Fir, 
Dressed (081101); Southern Pine, Dressed (081102); Other Species, 
Dressed (081103); and Hardwood Lumber (0812). However, on May 1, 1998, 
the Department published a final rule (63 FR 24110) requiring the use 
of Industry Series PPI from the BLS, rather than the previously 
required indices in the commodity series. In addition to changing the 
index series, the final rule made a number of other technical changes. 
The Industry Series PPI used were Western Softwood (SIC 24214), Eastern 
Softwood (SIC 24213), and Hardwood Lumber (SIC 24211), which were 
considered more representative of the sawmill industry than the prior 
indices in the commodity series. The Forest Service also added the 
Industry Series Wood Chips (SIC 24215) PPI to measure market changes in 
the price of chips and to address the volatility of the wood chip 
market. In order to increase the utilization of small diameter 
material, many contracts include or consist primarily of chipable 
material.
    However, after December 2003, the BLS discontinued publishing the 
following three lumber PPI: Western Softwood Lumber (SIC 24214), 
Eastern Softwood Lumber (SIC 24213), and Hardwood Lumber (SIC 24211), 
which were used by the Forest Service. The BLS also changed the Wood 
Chips PPI number from SIC 24215 to NAICS

[[Page 37268]]

3211135. In lieu of the three discontinued PPI, the Forest Service 
plans to use, effective retroactively to January, 2004, the following 
two lumber PPI: Softwood Lumber (0811) and Hardwood Lumber (0812). The 
Forest Service will continue to use the Wood Chips PPI ( reference 
number NAICS 3211135).
    A review of other readily available indices, such as Random Lengths 
indices and Western Wood Products Association indices, representing the 
same wood product markets shows that indices comparable to these PPI do 
not exist. Some regional indices are available; however, the timing, 
frequency, and procedure for collection of information for these 
indices varies. Some index services or associations use previous month 
invoice prices that are provided by their members, while other services 
use current month negotiated bid prices or sale prices. Wood product 
price indices, prepared nationally and consistently, are not available.
    The BLS discontinued publishing seasonally adjusted versions of the 
Softwood Lumber (0811) and Hardwood Lumber (0812) PPI after December 
2003. None of the three indices to be implemented in this interim final 
rule are seasonally adjusted. Each PPI is adjusted to a constant dollar 
base by dividing it by the PPI for All Commodities (00000000) to 
eliminate changes due to inflation and deflation.
    A drastic reduction in wood product prices has occurred when, for 2 
or more consecutive quarters after contract award, the applicable 
adjusted PPI is less than 85 percent of the average of such adjusted 
indices for the 4 highest of the 8 calendar quarters immediately prior 
to the qualifying quarter.
    Forest supervisors determine which of the PPI that the Forest 
Service monitors is used for each contract. The selected PPI is 
representative of the predominant species and product, by volume, 
included in the contract.

Good Cause Statement

    The Forest Service is issuing this interim final rule implementing 
the use of three alternative PPI to be able to continue providing 
contract term additions due to drastic reductions in wood products 
markets, prior to publishing a final rule. By using the three 
alternative PPI, the Forest Service will be able to continue providing 
market-related contract term additions during drastic reductions in 
wood products market prices.

Regulatory Certifications

Regulatory Impact

    This interim final rule has been reviewed under USDA procedures and 
Executive Order 12866 on Regulatory Planning and Review. OMB has 
determined that this is not a significant rule. This rule will not have 
an annual effect of $100 million or more on the economy nor adversely 
affect productivity, competition, jobs, the environment, public health 
or safety, nor State or local governments. This rule will not interfere 
with an action taken or planned by another agency nor raise new legal 
or policy issues. In short, little or no effect on the national economy 
will result from this rule change. This action consists of 
administrative changes to regulations affecting timber sale contract 
length. The PPI selected reflect the cyclic nature of wood products 
markets and help the agency determine whether a drastic decline has 
occurred in these particular markets.
    Finally, this action will not alter the budgetary impact of 
entitlements, grants, user fees, or loan programs or the rights and 
obligations of recipients of such programs. Accordingly, this interim 
final rule is not subject to OMB review under Executive Order 12866.
    Moreover, this interim final rule has been considered in light of 
the Regulatory Flexibility Act (5 U.S.C. 610 et seq.), and it is hereby 
certified that this action will not have a significant economic impact 
on a substantial number of small entities as defined by that act. 
Failure to adopt the PPI selected for measuring drastic reductions in 
wood product prices may result in both small purchasers and large 
purchasers not getting additional time to complete their contracts. 
Modifications to timber sale contract price indices have the intended 
effect of allowing purchasers additional time to complete contracts 
when severe adverse conditions have occurred in the wood products 
markets.

Unfunded Mandates Reform

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

Environmental Impact

    This interim final rule deals with business practices related to 
timber sale contracts and, as such, has no direct effect on the amount, 
location, or manner of timber offered for purchase. Section 31.1b of 
Forest Service Handbook 1909.15 (57 FR 43180; September 18, 1992) 
excludes from documentation in an environmental assessment or impact 
statement ``rules, regulations, or policies to establish Service-wide 
administrative procedures, program processes, or instructions.'' The 
Department's preliminary assessment is that this rule falls within this 
category of actions and that no extraordinary circumstances exist which 
would require preparation of an environmental assessment or 
environmental impact statement. A final determination will be made upon 
adoption of the final rule.

Controlling Paperwork Burdens on the Public

    This interim final rule does not contain any recordkeeping or 
reporting requirements or other information collection requirements as 
defined in 5 CFR 1320 and, therefore, imposes no paperwork burden on 
the public. Accordingly, the review provisions of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501, et seq.) and implementing 
regulations at 5 CFR part 1320 do not apply.

Comments Invited

    The Forest Service invites comments on this interim final rule 
implementing the use of selected Commodity and Industry Series PPI from 
the BLS to apply market-related contract term additions to timber sale 
contracts. Comments received will be considered in the development of 
the final rule, which will be published in the Federal Register.

List of Subjects in 36 CFR Part 223

    Administrative practice and procedure, Exports, Forests and forest 
products, Government contracts, National forests, Reporting and 
recordkeeping requirements.


0
Therefore, for the reasons set forth in the preamble, part 223 of title 
36 of the Code of Federal Regulations is amended as follows:

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

0
1. The authority citation for part 223 continues to read as follows:

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


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0
2. Amend Sec.  223.52 by revising paragraph (b)(1)(i) to read as 
follows:


Sec.  223.52  Market-related contract term additions.

* * * * *
    (b)* * *
    (1)* * *
    (i) The Forest Service shall monitor and use only the following 
indices:

------------------------------------------------------------------------
      BLS producer price index            Index  series       Index code
------------------------------------------------------------------------
Hardwood Lumber.....................  Commodity............         0812
Softwood Lumber.....................  Commodity............         0811
Wood Chips..........................  Industry.............      3211135
------------------------------------------------------------------------

* * * * *

    Dated: June 17, 2005.
Mark Rey,
Under Secretary, Natural Resources and Environment.
[FR Doc. 05-12811 Filed 6-28-05; 8:45 am]
BILLING CODE 3410-11-P