[Federal Register Volume 82, Number 206 (Thursday, October 26, 2017)]
[Rules and Regulations]
[Pages 49485-49492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23094]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 82, No. 206 / Thursday, October 26, 2017 /
Rules and Regulations
[[Page 49485]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 1217
[Document Number AMS-SC-16-0066]
Softwood Lumber Research, Promotion, Consumer Education and
Industry Information Order; De Minimis Quantity Exemption Threshold
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This rule establishes a de minimis quantity exemption
threshold under the U.S. Department of Agriculture's (USDA)
Agricultural Marketing Service (AMS) regulations regarding a national
research and promotion program for softwood lumber. In response to a
2016 federal district court decision, the U.S. Department of
Agriculture (USDA) conducted a new analysis to determine a reasonable
and appropriate de minimis threshold. Based on that analysis, this rule
establishes the de minimis quantity threshold at 15 million board feet
(mmbf) and entities manufacturing (and domestically shipping) or
importing less than 15 mmbf per year will be exempt from paying
assessments under the regulations.
DATES: Effective Date: November 27, 2017.
FOR FURTHER INFORMATION CONTACT: Maureen T. Pello, Marketing
Specialist, Promotion and Economics Division, Specialty Crops Program,
AMS, USDA, P.O. Box 831, Beavercreek, Oregon, 97004; telephone: (503)
632-8848; facsimile (503) 632-8852; or electronic mail:
[email protected].
SUPPLEMENTARY INFORMATION: This rule, affecting 7 CFR part 1217, is
authorized under the Commodity Promotion, Research and Information Act
of 1996 (1996 Act) (7 U.S.C. 7411-7425).
Executive Order 12866 and Executive Order 13563
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, reducing costs, harmonizing rules and promoting flexibility.
This action falls within a category of regulatory actions that the
Office of Management and Budget (OMB) exempted from Executive Order
12866 review. Additionally, because this rule does not meet the
definition of a significant regulatory action it does not trigger the
requirements contained in Executive Order 13771. See OMB's Memorandum
titled ``Interim Guidance Implementing Section 2 of the Executive Order
of January 30, 2017, titled `Reducing Regulation and Controlling
Regulatory Costs' '' (February 2, 2017).
Executive Order 13175
This action has been reviewed in accordance with the requirements
of Executive Order 13175, Consultation and Coordination with Indian
Tribal Governments. The review reveals that this rule will not have
substantial and direct effects on Tribal governments and will not have
significant Tribal implications.
Executive Order 12988
This rule has been reviewed under Executive Order 12988, Civil
Justice Reform. It is not intended to have retroactive effect. Section
524 of the 1996 Act (7 U.S.C. 7423) provides that it shall not affect
or preempt any other Federal or State law authorizing promotion or
research relating to an agricultural commodity.
Under section 519 of the 1996 Act (7 U.S.C. 7418), a person subject
to an order may file a written petition with USDA stating that an
order, any provision of an order, or any obligation imposed in
connection with an order, is not established in accordance with the
law, and request a modification of an order or an exemption from an
order. Any petition filed challenging an order, any provision of an
order, or any obligation imposed in connection with an order, shall be
filed within two years after the effective date of an order, provision,
or obligation subject to challenge in the petition. The petitioner will
have the opportunity for a hearing on the petition. Thereafter, USDA
will issue a ruling on the petition. The 1996 Act provides that the
district court of the United States for any district in which the
petitioner resides or conducts business shall have the jurisdiction to
review a final ruling on the petition, if the petitioner files a
complaint for that purpose not later than 20 days after the date of the
entry of USDA's final ruling.
Background
This rule establishes a de minimis quantity exemption threshold
under the Softwood Lumber Research, Promotion, Consumer Education and
Industry Information Order (Order), codified at 7 CFR part 1217. This
part is administered by the Softwood Lumber Board (Board) with
oversight by USDA's Agricultural Marketing Service (AMS). In Resolute
Forest Products Inc., v. USDA, et al. (Resolute), the court found that,
on the basis of the estimates and information submitted by the
government to the court for review, the selection of 15 mmbf as the de
minimis quantity (to be exempted) under part 1217 was arbitrary and
capricious and that part 1217 was therefore promulgated unlawfully. The
court did not vacate (or terminate) part 1217; the court remanded the
matter to USDA and program requirements remain in effect.
To address the court's decision, USDA conducted a new analysis to
determine a reasonable and appropriate de minimis quantity exemption.
USDA analyzed various thresholds of exemption: 10, 15, 20, 25, and 30
mmbf. USDA also considered proposing no de minimis exemption. USDA's
analysis of the data resulted in a determination that a de minimis
level of 15 mmbf is reasonable and appropriate. The analysis was
published in a proposed rule on May 30, 2017 (82 FR 24583). This final
rule establishes the de minimis quantity threshold under part 1217 at
15 mmbf.
Authority in the 1996 Act
The 1996 Act authorizes USDA to establish agricultural commodity
research and promotion orders which may include a combination of
promotion, research, industry
[[Page 49486]]
information, and consumer information activities funded by mandatory
assessments. These programs are designed to maintain and expand markets
and uses for agricultural commodities. As defined under section
513(1)(D) of the 1996 Act, agricultural commodities include the
products of forestry, which includes softwood lumber.
The 1996 Act provides for a number of optional provisions that
allow the tailoring of orders for different commodities. Section 516 of
the 1996 Act provides permissive terms for orders. Section 516 states
that an order may include an exemption of de minimis quantities of an
agricultural commodity. Further, section 516(g) of the 1996 Act
provides authority for other action that is consistent with the purpose
of the statute and necessary to administer a program.
Overview of the Softwood Lumber Program
The softwood lumber program took effect in August 2011 (76 FR
46185) and assessment collection began in January 2012. Under part
1217, assessments are collected from domestic (U.S.) manufacturers and
importers and are used by the Board for projects that promote market
growth for softwood lumber products used in single and multi-family
dwellings as well as commercial construction. The Board is composed of
19 industry members (domestic manufacturers and importers) who are
appointed by the Secretary of Agriculture. The purpose of the program
is to strengthen the position of softwood lumber in the marketplace,
maintain and expand markets for softwood lumber, and develop new uses
for softwood lumber within the United States.
Relevant Order Provisions
Domestic Manufacturers
The term `domestic manufacturer' is defined in Sec. 1217.8 to mean
any person who is a first handler engaged in the manufacturing, sale
and shipment of softwood lumber in the United States during a fiscal
period and who owns, or shares in the ownership and risk of loss of
manufacturing of softwood lumber or a person who is engaged in the
business of manufacturing, or causes to be manufactured, sold and
shipped such softwood lumber in the United States beyond personal use.
The term does not include persons who re-manufacture softwood lumber
that has already been subject to assessment. The term `manufacture' is
defined in Sec. 1217.13 to mean the process of transforming (or
turning) softwood logs into softwood lumber.
Domestic manufacturers are essentially sawmills that turn softwood
logs into lumber. A domestic manufacturer may be a company that is a
single sawmill, or it may be a company that is composed of multiple
sawmills.
Importers
The term `importer' is defined in Sec. 1217.11 to mean any person
who imports softwood lumber from outside the United States for sale in
the United States as a principal or as an agent, broker, or consignee
of any person who manufactures softwood lumber outside the United
States for sale in the United States, and who is listed in the import
records as the importer of record for such softwood lumber. Import
records are maintained by the U.S. Customs and Border Protection
(Customs or CBP). Both domestic manufacturers and importers may be
referred to in this rulemaking as ``entities.''
Expenses and Assessments
Pursuant to Sec. 1217.50, the Board is authorized to incur
expenses for research and promotion projects as well as administration.
The Board's expenses are paid by assessments upon domestic
manufacturers and importers. Pursuant to Sec. 1217.52(b), and subject
to the exemptions specified in Sec. 1217.53, each domestic
manufacturer and importer must pay an assessment to the Board at the
rate of $0.35 per thousand board feet of softwood lumber, except that
no entity has to pay an assessment on the first 15 mmbf of softwood
lumber otherwise subject to assessment in a fiscal year. Domestic
manufacturers pay assessments based on the volume of softwood lumber
shipped within the United States and importers pay assessments based on
the volume of softwood lumber imported to the United States. Pursuant
to paragraphs (d) and (j) in Sec. 1217.52, respectively, domestic
manufacturers and importers who pay their assessments to the Board must
do so no later than the 30th calendar day of the month following the
end of the quarter in which the softwood lumber was shipped or
imported.
Exemptions
Section 1217.53 prescribes exemptions from assessment. Pursuant to
paragraph (a) of that section, the original de minimis quantity
exemption threshold under part 1217 was 15 mmbf. Thus, U.S.
manufacturers and importers that domestically ship and/or import less
than 15 mmbf feet annually have been exempt from paying assessments.
Domestic manufacturers and importers that ship or import less than the
de minimis quantity of softwood lumber must apply to the Board each
year for a certificate of exemption and provide documentation as
appropriate to support their request.
Pursuant to paragraph (b) of Sec. 1217.53, domestic manufacturers
and importers that ship or import 15 mmbf or more annually do not pay
assessments on their first 15 mmbf domestically shipped or imported.
This exemption is intended for the purpose of creating an equality
amongst those within the industry with regard to the program's
assessment. Just as those that manufacture or import under 15 mmbf do
not have to pay assessments, those at or above this level may reduce
their assessable volume by 15 mmbf.\1\ For example, an entity that
ships or imports 20 mmbf annually only has to pay assessments on 5 mmbf
of softwood lumber. This exemption creates fairness; it levels the
playing field because all entities, regardless of size, do not have to
pay assessments on their first 15 mmbf shipped or imported. For
purposes of this document, this exemption is referred to as the
``equity exemption.'' Pursuant to paragraphs (c) and (d) of Sec.
1217.53, respectively, exports of softwood lumber from the United
States and organic softwood lumber are also exempt from assessment.
---------------------------------------------------------------------------
\1\ USDA notes that the de minimis level and the equity
exemption are purposefully aligned and any change in the de minimis
would result in a corresponding modification to the equity
exemption.
---------------------------------------------------------------------------
Reports and Records
Pursuant to Sec. 1217.70, domestic manufacturers and importers who
pay their assessments directly to the Board must submit with their
payment a report that specifies the quantity of softwood lumber
domestically shipped or imported. Pursuant to Sec. 1217.71, all
domestic manufacturers and importers must maintain books and records
necessary to verify reports for a period of 2 years beyond the fiscal
year to which they apply, including those exempt. These records must be
made available during normal business hours for inspection by Board
staff or USDA.
Other Relevant Order Provisions
The original 15 mmbf quantity exemption threshold is referenced in
other Order provisions. Section 1217.40 specifies that the Board is
composed of domestic manufacturers and importers who domestically ship
or import 15 mmbf or more of softwood lumber annually. Section 1217.41
specifies that
[[Page 49487]]
persons interested in serving on the Board must also domestically ship
or import 15 mmbf or more softwood lumber annually. Finally, Sec.
1217.101 regarding referendum procedures specifies that eligible
domestic manufacturers and importers that can vote in referenda must
domestically ship or import 15 mmbf or more of softwood lumber
annually.
Initial Referendum and Summary of Board Activities
The softwood lumber program was implemented after notice and
comment rulemaking and a May 2011 referendum demonstrating strong
support for the program. Pursuant to Sec. 1217.81(a), the program had
to pass by a majority of those voting in the referendum who also
represented a majority of the volume voted. Sixty-seven percent of the
entities who voted, who together represented 80 percent of the volume,
in the referendum favored implementation of the program. Entities that
domestically shipped or imported 15 mmbf or more of softwood lumber
annually were eligible to vote in the referendum. As previously
mentioned, the program took effect in August 2011 and assessment
collection began in January 2012.
The softwood lumber program has continued to operate at the 15 mmbf
exemption threshold since its inception. During these years, the Board
has funded a variety of activities designed to increase the demand for
softwood lumber. The Board funded a U.S. Tall Wood Building Prize
Competition that is helping to showcase the benefits of building tall
structures with wood. The Board also funds research on wood standards;
a communications program, which includes continuing education courses
for architects and engineers; and a construction and design program
that provides technical support to architects and structural engineers
about using wood.
Summary of USDA's Analysis of the De Minimis Quantity Under the
Softwood Lumber Program
The Secretary has authority under section 516 of the 1996 Act to
exempt any de minimis quantity of an agricultural commodity otherwise
covered by an order: ``An order issued under this subchapter may
contain . . . authority for the Secretary to exempt from the order any
de minimis quantity of an agricultural commodity otherwise covered by
the order. . . .'' 7 U.S.C. 7415(a). A de minimis quantity exemption
allows an industry to exempt from assessment small entities that could
be unduly burdened from an order's requirements (i.e., assessment and
quarterly reporting obligations). Because the 1996 Act does not
prescribe the methodology or formula for computing a de minimis
quantity, the Secretary has discretion to determine a reasonable and
appropriate quantity and establish this level through notice and
comment rulemaking. Pursuant to section 525 of the 1996 Act, 7 U.S.C.
7424, the Secretary may issue such regulations as may be necessary to
carry out an order.
In evaluating the merits of a de minimis quantity for the softwood
lumber program, USDA considered several factors. These factors include:
an estimate of the total quantity of softwood lumber covered under part
1217 (quantity assessed and quantity exempted); available funding to
support a viable program; free rider implications; and the impact of
program requirements on entities (above and below a de minimis
threshold). USDA reviewed such factors in light of all available data
and information to determine whether a de minimis quantity is
reasonable. USDA balanced the multiple factors to assess whether one
exemption threshold would work better than another when the factors are
considered collectively. The analysis was based on the current
assessment rate of $0.35 per thousand board feet.\2\
---------------------------------------------------------------------------
\2\ If the assessment rate changes significantly, USDA could
revisit the de minimis threshold.
---------------------------------------------------------------------------
The following tables are republished from USDA's analysis of the de
minimis quantity under the softwood lumber program contained in the May
2017 proposed rule (82 FR 24583).
Table 1 shows the estimate of the supply of U.S. softwood lumber
used in the analysis, accounting for both U.S. shipments and imports.
U.S. shipments were estimated using capacity\3\ data from Forest
Economic Advisors (FEA). Total imports was estimated using data from
CBP.
---------------------------------------------------------------------------
\3\ A sawmill's operating capacity is the total amount of
softwood lumber that it could manufacture (or produce) if fully
utilizing all of its resources (such as labor and equipment).
Table 1--Supply of Softwood Lumber in the U.S. (MMBF)
------------------------------------------------------------------------
Shipments \1\ Imports \2\ Supply \3\
------------------------------------------------------------------------
28,754........................................ 12,495 41,249
------------------------------------------------------------------------
\1\ FEA; \2\ CBP; \3\ The sum of U.S. Shipments and Imports.
Table 2 shows assessable volume and revenue at exemption levels of
30, 25, 20, 15 and 10 mmbf, as well as with no exemptions. The table
accounts for both the de minimis and equity exemptions under part 1217,
and an assessment rate of $0.35 per thousand board feet.
Table 2--Assessable Volume and Assessment Revenue at Exemption Levels (MMBF) \1\
----------------------------------------------------------------------------------------------------------------
De minimis and Assessment
Volume equal to or greater than De minimis equity revenue ($)
exemption only exemptions \2\
----------------------------------------------------------------------------------------------------------------
30.............................................................. 37,965 32,805 $11,481,698
25.............................................................. 38,319 33,694 11,792,941
20.............................................................. 38,990 34,690 12,141,349
15.............................................................. 39,679 35,854 12,548,792
10.............................................................. 40,013 37,183 13,014,059
No exemptions................................................... 41,249 41,249 14,437,099
----------------------------------------------------------------------------------------------------------------
\1\ 2015 data from FEA and CBP were used to construct this table.
\2\ The product of total assessable volume, accounting for both de minimis and equity exemptions, and the
assessment rate of $0.35 per thousand board feet.
[[Page 49488]]
Table 3 is the inverse of Table 2 in that it shows exempt volume at
de minimis and equity exemptions of 30, 25, 20, 15 and 10 mmbf.
Table 3--Exempt Volume at Exemption Levels (MMBF) \1\
----------------------------------------------------------------------------------------------------------------
De minimis exemption only De minimis and equity
-------------------------------- exemptions
Volume less than -------------------------------
Volume % Exempt \2\ Volume % Exempt \2\
----------------------------------------------------------------------------------------------------------------
30.............................................. 3,284 8 8,444 20
25.............................................. 2,930 7 7,555 18
20.............................................. 2,259 5 6,559 16
15.............................................. 1,570 4 5,395 13
10.............................................. 1,236 3 4,066 10
----------------------------------------------------------------------------------------------------------------
\1\ 2015 data from FEA and CBP were used to construct this table.
\2\ The quotient of total exempt volume and total 2015 U.S. supply (the sum of U.S. shipments and U.S. imports)
of 41,249 MMBF.
Table 4 shows the number of entities (domestic manufacturers and
importers) that would be assessed and the number of entities that would
be exempt at the exemption thresholds of 30, 25, 20, 15 and 10 mmbf.
Table 4--Assessed and Exempt Entities at Exemption Levels (MMBF) \1\
----------------------------------------------------------------------------------------------------------------
Assessed Exempt
---------------------------------------------------------------
Volume (MMBF) Number of Number of
entities % Assessed \2\ entities % Exempt \2\
----------------------------------------------------------------------------------------------------------------
30.............................................. 172 16 882 84
25.............................................. 185 18 869 82
20.............................................. 215 20 839 80
15.............................................. 255 24 799 76
10.............................................. 283 26 771 73
None............................................ 1,054 100 .............. 0
----------------------------------------------------------------------------------------------------------------
\1\ 2015 data from FEA and CBP were used to construct this table.
\2\ The quotient of No. of Entities and total domestic manufacturers and importers recorded in the industry
(1,054) in 2015.
Based on its analysis, USDA determined the following: Exemption
thresholds of 10 to 15 mmbf would exempt 10 to 13 percent of the total
volume of softwood lumber (taking into account both the de minimis and
equity exemptions). This is close to the range exempt under other
research and promotion programs. While all of the exemption thresholds
analyzed would generate sufficient revenue for a viable program, the
additional revenue that could be collected if the de minimis level were
reduced much lower than 15 mmbf would likely not be worth the
additional costs. At this threshold, free rider implications would be
minimal because only 4 percent of the volume of softwood lumber would
be exempted as de minimis. Applying both the de minimis and equity
exemptions at 15 mmbf would allow the program to assess almost 90
percent of the total volume of softwood lumber.
Further, the program functioned successfully in 2015 with
assessment revenue of $12.905 million with de minimis and equity
exemptions of 15 mmbf. The Board has conducted activities at this level
of funding that have helped build demand for softwood lumber, including
a prize competition for tall wood buildings, research on wood
standards, and an education program for architects and engineers on
building with wood. An independent evaluation completed in 2016
concluded that activities of the Board increased sales of softwood
lumber between 2011 and 2015 by 1.683 bbf or $596 million. This equates
to a return on investment of $15.55 of additional sales for every $1
spent on promotion by the Board.\4\
---------------------------------------------------------------------------
\4\ Prime Consulting, Softwood Lumber Board, Comprehensive
Program ROI, 2012-2015, February 2016.
---------------------------------------------------------------------------
Therefore, when considering all of the factors collectively, USDA
concludes that 15 mmbf is a reasonable and most appropriate de minimis
quantity under part 1217.\5\ Accordingly, this rule establishes the de
minimis quantity threshold under part 1217 at 15 mmbf. Thus, no
amendment to part 1217 is necessary.
---------------------------------------------------------------------------
\5\ As stated previously, the de minimis level and the equity
exemption are purposefully aligned, and therefore this conclusion
accounts for the equity exemption at 15 mmbf.
---------------------------------------------------------------------------
Final Regulatory Flexibility Act Analysis
In accordance with the Regulatory Flexibility Act (RFA) (5 U.S.C.
601-612), AMS is required to examine the impact of this final rule on
small entities as defined by the Small Business Administration (SBA).
The classification of a business as small, as defined by the SBA,
varies by industry. If a business is defined as ``small'' by SBA size
standards, then it is ``eligible for government programs and
preferences reserved for `small business' concerns.'' \6\ Accordingly,
AMS has considered the economic impact of this action on such entities.
---------------------------------------------------------------------------
\6\ https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/small-business-size-regulations.
---------------------------------------------------------------------------
The purpose of the RFA is to fit regulatory actions to the scale of
businesses subject to such actions so that small businesses will not be
disproportionately burdened. The SBA defines, in 13 CFR part 121, small
agricultural producers as those having annual receipts of no more than
$750,000 and small agricultural service firms (domestic manufacturers
and importers) as those having annual receipts of no more than $7.5
million.\7\
---------------------------------------------------------------------------
\7\ SBA does have a small business size standard for
``Sawmills'' of 500 employees (see https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf). Based on USDA's
understanding of the lumber industry, using this criteria would be
impractical as sawmills often use contractors rather than employees
to operate and, therefore, many mills would fall under this criteria
while being, in reality, a large business. Therefore, USDA used
agricultural service firm as a more appropriate criteria for this
analysis.
---------------------------------------------------------------------------
[[Page 49489]]
Using an average price of $330 per thousand board feet,\8\ a
domestic manufacturer or importer who ships less than about 23 mmbf per
year would be considered a small entity for purposes of the RFA. As
shown in Table 4, there were 1,054 domestic manufacturers and importers
of softwood lumber based on 2015 data. Of these, 864 entities shipped
or imported less than 23 mmbf and would be considered to be small
entities under the SBA definition. Thus, based on the $7.5 million
threshold, the majority of domestic manufacturers and importers of
softwood lumber would be considered small entities for purposes of the
RFA.
---------------------------------------------------------------------------
\8\ Random Lengths Publications, Inc.; www.randomlengths.com.
---------------------------------------------------------------------------
This action establishes a de minimis quantity exemption threshold
under part 1217. Part 1217 is administered by the Board with oversight
by USDA. In response to a federal district court decision in Resolute,
USDA conducted a new analysis to determine a reasonable and appropriate
de minimis threshold. Based on this analysis, this final rule
establishes the de minimis quantity threshold at 15 mmbf and entities
manufacturing (and domestically shipping) or importing less than 15
mmbf per year would be exempt from paying assessments under part 1217.
Authority for this action is provided in sections 516(a)(2), 516(g) and
525 of the 1996 Act.
Regarding the economic impact of the de minimis exemption, the
exemption allows the Board to exempt from assessment small entities
that would be unduly burdened by the program's obligations. At the 15
mmbf exemption threshold, small manufacturers and importers that
domestically ship or import less than 15 mmbf of softwood lumber will
not have to pay assessments under the program.
Additionally, larger manufacturers and importers will not have to
pay assessments on the first 15 mmbf of softwood lumber domestically
shipped or imported each year. This exemption is intended for the
purpose of equity, whereby all entities who must pay assessments may
reduce their assessable volume by 15 mmbf. This exemption benefits
smaller manufacturers and importers whose annual shipments or imports
are above the de minimis threshold of 15 mmbf. With this exemption, an
entity that ships or imports a quantity of softwood lumber equal to the
RFA-small business definition of 23 mmbf, would only pay assessments on
no more than 8 mmbf of softwood lumber.
To calculate the impact of the assessment rate on the revenue of an
assessment payer, the assessment rate is divided by an average price.
Using an average 2015 price of $330 per thousand board feet, the
assessment rate as a percentage of price could range from 0.106 percent
at the current assessment rate to 0.151 percent at the maximum
assessment rate. This analysis helps identify the impact of the
assessment rate on the revenues of assessment payers. At the current
assessment rate of $0.35 per thousand board feet to the maximum
assessment rate of $0.50 per thousand board feet, assessment payers
would owe between 0.106 percent and 0.151 percent of their revenues,
respectively.
In its analysis of alternatives, USDA evaluated five different
exemption thresholds--30, 25, 20, 15 and 10 mmbf using 2015 data--
accounting for both the de minimis and equity exemptions, as well as
having no exemptions under the program. USDA evaluated these
alternatives based on the following factors: an estimate of quantity of
softwood lumber covered under the program (quantity assessed and
quantity exempted); available funding to support a viable program; free
rider implications; and the impact of program requirements on entities
(above and below a de minimis threshold). USDA conducted a balancing
test among these factors to assess whether one exemption threshold
works better than another when the factors are considered collectively.
In reviewing the quantity of assessable versus exempt softwood
lumber at the alternative exemption thresholds, USDA found that at an
exemption threshold of 30 mmbf, a total of 32.805 bbf would be assessed
with 3.284 bbf, or 8 percent, exempt as de minimis, plus an additional
5.16 bbf exempt as equity for 20 percent of total volume exempt; at 25
mmbf, a total of 33.694 bbf would be assessed with 2.93 bbf, or 7
percent, exempt as de minimis, plus an additional 4.625 bbf exempt as
equity for 18 percent total volume exempt; at a threshold of 20 mmbf, a
total of 34.69 bbf would be assessed with 2.259 bbf, or 5 percent,
exempt as de minimis, plus an additional 4.3 bbf exempt as equity for
16 percent total volume exempt; at a threshold of 15 mmbf, a total of
35.854 bbf would be assessed with 1.57 bbf, or 4 percent, exempt as de
minimis, plus an additional 3.825 bbf exempt as equity for 13 percent
total volume exempt; at a threshold of 10 mmbf, a total of 37.183 bbf
would be assessed, with 1.236 bbf, or 3 percent, exempt as de minimis,
plus an additional 2.83 bbf exempt as equity for 10 percent total
volume exempt; and with no exemptions, a total of 41.249 bbf would be
assessed. In reviewing the total volume exempt under the softwood
lumber program (taking into account both the de minimis and equity
exemptions), thresholds of 10 to 15 mmbf exempt between 10 and 13
percent of the volume, which is close to the range exempt under other
programs.
In reviewing available funding to support a viable program at the
alternative exemption thresholds, at an exemption threshold of 30 mmbf,
estimated assessment revenue is $11.482 million; at 25 mmbf, estimated
assessment revenue is $11.793 million (an additional $311,243); at a
threshold of 20 mmbf, estimated assessment revenue is $12.141 million
(an additional $348,408); at a threshold of 15 mmbf, estimated
assessment revenue is $12.549 million (an additional $407,444); at a
threshold of 10 mmbf, estimated assessment revenue is $13.014 million
(an additional $465,267); and with no exemptions, estimated assessment
revenue is $14.437 million (an additional $1.423 million).
Assessment revenue under the current softwood lumber program has
ranged from about $10.638 million in 2012 to $12.905 million in 2015.
At this level of revenue, the current program has seen success. The
revenues reviewed at the different exemption thresholds are comparable
to these levels or higher. Thus, all of the exemption thresholds
analyzed would generate sufficient revenue for a viable program.
Regarding free riders, USDA notes that the key to assessing the
free rider implications of a de minimis quantity is not the number of
entities exempt under a program but rather the volume of product
exempt. This is because assessments are based on volume shipped or
imported and not on the number of entities; assessments are not paid by
entities on a pro rata basis. In evaluating free rider implications at
the alternative exemption thresholds, at an exemption threshold of 30
mmbf, 84 percent of the number of entities (or 882) would be exempt but
only 8 percent of the volume would be exempt as de minimis; at a
threshold of 25 mmbf, 82 percent of the number of entities (or 869)
would be exempt, but only 7 percent of the volume would be exempt as de
minimis; at a threshold of 20 mmbf, 80 percent of the number of
entities (or 839) would be exempt, but
[[Page 49490]]
only 5 percent of the volume would be exempt as de minimis; at a
threshold of 15 mmbf, 76 percent of the number of entities (or 799)
would be exempt, but only 4 percent of the volume would be exempt as de
minimis; and at a threshold of 10 mmbf, 73 percent of the number of
entities (or 771) would be exempt, but only 3 percent of the volume
would be exempt as de minimis.
In evaluating the impact of the program's requirements at the
alternative exemption thresholds, entities that ship or import at or
above the de minimis threshold must pay assessments to the Board.
Assessment payers must also submit a report to the Board each quarter
of the volume of softwood lumber shipped or imported for the respective
quarter. Entities that ship or import below the de minimis threshold
must apply to the Board each year for a certificate of exemption and
provide documentation as appropriate to support their request. The
reporting and recordkeeping requirements are detailed in the section
below titled Paperwork Reduction Act.
At an exemption threshold of 30 mmbf, 172 entities would pay
assessments and 882 would be exempt; at 25 mmbf, 185 entities would pay
assessments and 869 would be exempt; at 20 mmbf, 215 entities would pay
assessments and 839 would be exempt; at 15 mmbf, 255 entities would pay
assessments and 799 would be exempt; at 10 mmbf, 283 entities would pay
assessments and 771 would be exempt. Thus, as the exemption threshold
is reduced, more entities would be subject to the assessment and
quarterly reporting obligation under part 1217.
Further, in considering program compliance costs, USDA estimates
the cost of an on-site audit of a single entity at $5,000 or more.
Thus, the cost to pursue a compliance case against an entity that
shipped less than 10 mmbf, 9 mmbf for example, would outweigh the
revenue that would be collected from that entity of $3,150. Similarly,
the assessment revenue that would be collected from an entity that
shipped less than 15 mmbf, 12 mmbf for example, would amount to $4,200.
The benefit of assessing smaller manufacturers, $3,150 at 9 mmbf and
$4,200 at 12 mmbf, does not outweigh the cost of pursuing compliance
cases against them at $5,000 per entity. The point at which the
assessment revenue that would be collected from an entity outweighs the
estimated cost of $5,000 to pursue a compliance case is an entity with
volume equal to or greater than 14.3 mmbf.\9\ This level is close to 15
mmbf. By this analysis, the selection of 15 mmbf as the de minimis
quantity is reasonable.
---------------------------------------------------------------------------
\9\ This figure is computed by dividing the estimated cost to
pursue a compliance case against an entity of $5,000 by the
assessment rate of $0.35 per thousand board feet.
---------------------------------------------------------------------------
Analysis of the 23 mmbf-RFA small business threshold as a
reasonable option for de minimis shows that 190 entities would be
subject to assessment and 864 entities would be exempt. In terms of
volume, 38.44 bbf would be assessed, or 93 percent of total volume, and
2.809 bbf would be exempt, or 7 percent of total volume.
Based upon the analysis contained herein, any of the exemption
thresholds reviewed would be reasonable because they would exempt from
3 to 8 percent of the volume of softwood lumber as de minimis. However,
when the total volume exempt under the softwood lumber program is
considered (taking into account both the de minimis and equity
exemptions), thresholds of 10 to 15 mmbf exempt between 10 and 13
percent of the volume, which is close to the range exempt under other
programs. While all of the exemption thresholds analyzed would generate
sufficient revenue for a viable program, the additional revenue that
could be collected if the de minimis level were reduced much lower than
15 mmbf would likely not be worth the additional costs. The softwood
lumber program operated successfully since its inception at an
exemption threshold of 15 mmbf.\10\
---------------------------------------------------------------------------
\10\ An independent evaluation of the softwood lumber program
showed that the activities of the Board increased sales of softwood
lumber between 2011 and 2015 by 1.683 bbf or $596 million. This
equates to a return on investment of $15.55 of additional sales for
every $1 spent on promotion by the Board. By this metric, part 1217
to date has been effective. USDA therefore finds that 15 mmbf is a
reasonable exemption level for de minimis.
---------------------------------------------------------------------------
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35), the information collection and recordkeeping requirements
imposed by part 1217 have been approved previously under OMB control
number 0581-0093. This rule imposes no additional reporting and
recordkeeping burden on domestic manufacturer and importers of softwood
lumber. The reporting requirements pertaining to this rule are
described in the following paragraphs.
As previously mentioned, pursuant to Sec. 1217.53(a), domestic
manufacturers and importers who domestically ship or import less than
the de minimis threshold must apply to the Board each year for a
certificate of exemption and provide documentation as appropriate to
support their request. The reporting burden for this collection of
information is estimated to average 0.25 hours per domestic
manufacturer or importer per report, or 0.25 hours per year (1 request
per year per exempt entity). This computes to a total annual burden of
199.75 hours (0.25 hours times 799 exempt entities at the 15 mmbf de
minimis exemption threshold from Table 4).
Further, pursuant to Sec. 1217.70, domestic manufacturers and
importers that ship or import at or over the de minimis exemption level
and pay their assessments directly to the Board must submit a shipment/
import report for each quarter when assessments are due. The reporting
burden for this collection of information is estimated to average 0.5
hours per domestic manufacturer or importer per report, or 2 hours per
year (4 reports per year times 0.5 hours per report). This computes to
a total annual burden of 510 hours (255 assessed entities (from Table
4--No. of Assessed Entities at 15 mmbf) at 2 hours each equals 510
hours).
All domestic manufacturers and importers must also maintain records
sufficient to verify their reports. The recordkeeping burden for
keeping this information is estimated to average 0.5 hours per record
keeper maintaining such records, or 527 hours (1,054 total entities
assessed (from Table 4--No. of Assessed Entities at no exemption) times
0.5 hours).
As with all Federal promotion programs, reports and forms are
periodically reviewed to reduce information requirements and
duplication by industry and public sector agencies. Finally, USDA has
not identified any relevant Federal rules that duplicate, overlap, or
conflict with this rule.
USDA is committed to complying with the E-Government Act, to
promote the use of the internet and other information technologies to
provide increased opportunities for citizen access to Government
information and services, and for other purposes.
Regarding outreach efforts, USDA initiated this action in response
to a May 2016 federal court decision in Resolute. This rule establishes
the de minimis quantity exemption under part 1217.
A proposed rule concerning this action was published in the Federal
Register on May 30, 2017 (82 FR 24583). The Board distributed copies of
the proposed rule via email to domestic manufacturers and importers.
The proposal was also made available through the internet by USDA and
the
[[Page 49491]]
Office of the Federal Register. A 60-day comment period ending July 31,
2017, was provided to allow interested persons to submit comments.
Analysis of Comments
Thirty-three comments were received in response to the proposed
rule. Of those 33 comments, one was outside the scope of the rulemaking
and the remaining 32 supported the 15 mmbf exemption threshold. The
following is an analysis of those 32 comments.
Several commenters reiterated the data presented in the proposed
rule. They cited Table 3 which shows that, at the 15 mmbf threshold,
entities that pay into the program account for 96 percent of the U.S.
softwood lumber market volume. Thus, free rider concerns are minimal.
Reducing the exemption level by a third (down to 10 mmbf) would only
increase that number to 97 percent of the U.S. market and would not be
worth the additional effort. There are a large number of small
manufacturers and importers who account for a small percentage of the
softwood lumber shipped in the United States. The commenters opined
that the cost of collecting an assessment from such a large number of
entities outweighs the revenue that could be collected from such a
small amount of volume. They agreed that Board staff time would be
better spent on promotion activities than trying to collect a small
amount of revenue from several small entities.
One commenter opined that the methodology used by USDA to determine
the de minimis threshold was comprehensive and explored tradeoffs
involved in setting a threshold below which it is counterproductive to
the collection of assessments to further the program. The commenter
stated that ``. . . USDA dealt with a large amount of data on imports
that it appropriately scrubbed to exclude obvious errors and
outliers.'' Within the populations of domestic manufacturers and
importers categorized based on volume, USDA conducted a series of
``what if'' analyses to determine the impact of various de minimis
levels on revenue in terms of ``. . . administrative costs, the
compliance burden on respondents and the potential for ``free rider''
benefits.'' The commenter also observed that USDA compared the results
to other federal promotion programs authorized under the 1996 Act and
overseen by USDA where it found that 8 of 10 programs exempt a de
minimis quantity from assessment, and that half of those programs
exempt between 3 and 11 percent of the total quantity covered by the
program as de minimis. Among the range of alternatives that USDA
analyzed, the 10 and 15 mmbf thresholds came closest to this range. The
commenter stated that USDA also compared the benefits derived from
these thresholds with the likely compliance costs incurred, which USDA
estimated at $5,000 per entity. The point at which revenues collected
from entities that would fall below the compliance cost was found to be
at 14.3 mmbf, which is closest to the 15 mmbf threshold. The
combination of these results led USDA to conclude that 15 mmbf is the
most appropriate benchmark between volumes assessed and not assessed.
The commenter concluded that, ``. . . while there is no special formula
for computing a de minimis threshold . . . ,'' the commenter believes
that USDA selected a reasonable exemption amount based on the
industry's structure and the program's benefits and costs.
Six commenters opined that the 15 mmbf threshold appropriately
separates the high production manufacturers from small entities that
manufacture specialty products and sell into mostly local and niche
markets. They agreed that specialty products do not benefit as much
from a national promotion program, and that growth in market share
benefits entities that manufacture larger volumes to a greater degree
than those that fall below the 15 mmbf threshold.
Several commenters expressed concern with the administrative burden
that complying with a mandatory promotion program could place on small
entities below the 15 mmbf threshold. One commenter stated that, on a
per board foot ratio, the costs to participate in the program are lower
for larger entities than smaller entities. Many small entities still
record their shipments by hand. Larger entities, on the other hand, can
afford to invest in automated computer reporting systems and can have
personnel dedicated to efficiently analyzing their reporting. Thus, the
administrative costs for smaller entities to participate in the program
are higher than the costs for larger entities.
Two commenters also referenced the part's 8 percent cap on
administrative expenses. They opined that the revenue gained from
collecting assessments from numerous small entities would not be
sufficient to justify the additional costs and administrative
complexities.
Three commenters expressed support for the equity exemption. They
opined that the equity exemption makes the program fair for everyone.
One commenter opined that the equity exemption mitigates the free rider
problem because larger entities do not have to pay assessments on their
first 15 mmbf shipped. Without the equity exemption, assessment payers
would pay more, thereby increasing the free rider impact.\11\
---------------------------------------------------------------------------
\11\ For example, as explained in the May 2017 proposed rule, if
the thresholds for de minimis and equity exemptions were 10 mmbf,
Company A that ships 8 mmbf annually would pay no assessments, and
Company B that ships 30 mmbf annually would have to pay assessments
on 20 mmbf of softwood lumber. At an assessment rate of $0.35 per
thousand board feet, this would compute to $7,000 in assessments.
Without the equity exemption, Company A would still pay no
assessments but Company B would have to pay assessments on 30 mmbf.
This would compute to $10,500 in assessments, which is an additional
burden of $3,500. Thus, the equity exemption reduces the burden of
free riders on entities funding the program. It creates fairness
because it exempts from assessment an equal volume from all
entities, regardless of their size.
---------------------------------------------------------------------------
Two commenters discussed the efforts of the Blue Ribbon Commission
(BRC), the proponent group, in promulgating the program. They stated
that the BRC surveyed the industry on issues related to the program,
including the de minimis exemption threshold. They stated that the BRC
sought a level that would generate maximum revenue for the program
while being mindful of the cost of administering the program and
collecting assessments. The BRC's survey found that 15 mmbf was the
appropriate level that was broadly accepted by the industry.
Several commenters also expressed their overall support for the
softwood lumber program. They agreed that the program provides a
strong, unified voice for the industry. One commenter stated that the
program has contributed significantly to strengthening the position of
softwood lumber in the market place as well as expanding and developing
new markets for softwood lumber. The commenters also agreed that
funding for the program has been appropriate since assessment
collection began in 2012. None of the commenters supported increasing
the exemption threshold thereby reducing funding for the program.
No changes have been made to the proposed rule based on the
comments received.
After consideration of all relevant matters presented, including
the available information and comments received, it is hereby found
that this rule, is consistent with and will effectuate the purposes of
the 1996 Act.
List of Subjects in 7 CFR Part 1217
Administrative practice and procedure, Advertising, Consumer
information, Marketing agreements, Promotion, Reporting and
recordkeeping requirements, Softwood lumber.
[[Page 49492]]
The authority citation for 7 CFR part 1217 continues to read as
follows:
Authority: 7 U.S.C. 7411-7425; 7 U.S.C. 7401.
Dated: October 19, 2017.
Bruce Summers,
Acting Administrator.
[FR Doc. 2017-23094 Filed 10-25-17; 8:45 am]
BILLING CODE 3410-02-P