Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45533

the issue of the scope of the exemption

for rules of ‘‘particular applicability.’’

H. Paperwork Reduction Act

This rule does not contain any

information collection requirements

which require OMB approval under the

Paperwork Reduction Act (44 U.S.C.

3501 et seq.).

J. Judicial Review

Under CAA section 307(b)(1), a

petition to review today’s action may be

filed in the Court of Appeals for the

appropriate circuit by October 27, 1997.

Filing a petition for reconsideration by

the Administrator of this final rule does

not affect the finality of this rule for the

purposes of judicial review nor does it

extend the time within which a petition

for judicial review may be filed, and

shall not postpone the effectiveness of

such rule or action. This action may not

be challenged later in proceedings to

enforce its requirements. See section

307(b)(2) of the Act.

Dated: August 20, 1997.

Felicia Marcus,

Regional Administrator.

[FR Doc. 97–22948 Filed 8–27–97; 8:45 am]

BILLING CODE 6560–50–P

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.

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 (PHι 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:

Category Examples of regulated entities

Industry ..................... Foreign Refiners, Importers.

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
45534 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

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 § 80.45(b)(2), and the

combined summer and winter, or annual, statutory

baseline gasoline properties in § 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.

2Only one importer had the Method 1 data

necessary to establish an individual baseline.

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 NonFRGAS

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 post1990 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 baselinesetting 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).

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
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45535

3 Individual refinery baselines are used to set

certain content requirements for RFG only through

1997. See 40 CFR 80.41.

4The 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.

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.

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

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
45536 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

5These 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.

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

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.
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45537

6EPA has adopted an analogous approach in the

RFG program. See 40 CFR 80.41 and 80.68.

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

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
45538 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

7Non-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.

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

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 noncertified 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).
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 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 noncertified 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 noncertified 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

§ 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.
45540 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

8The importer may also treat as GTAB any

gasoline classified as non-certified FRGAS.

9Non-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.

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.

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 noncertified 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 noncertified FRGAS. However, the foreign

refiner must retain the volume of the

FRGAS in its compliance baseline

calculation, the same as any other noncertified FRGAS, unless the foreign

refiner can demonstrate that the

importer did not classify the gasoline or

as RFG or use it to produce RFG.

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

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.

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
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45541

11A 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.

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.

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 NonCertified 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
45542 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

12This value is based on the Phase 2 Complex

Model, and will be used prior to and after 2000.

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.

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

15For 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.

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

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.

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

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-
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45543

16EPA 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.

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 nonFRGAS 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 nonFRGAS 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.

2. Imported Non-FRGAS or NonCertified 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., nonFRGAS), 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 noncertified 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.
45544 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

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.

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.

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 antidumping 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
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45545

18 Since domestic refiners have adequate data to

establish an IB, this would not be consistent with

the requirements of section 211(k)(8).

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 nonenvironmental 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 costineffective 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.

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
45546 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

19The 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.

20Analysis provided in comments submitted by

the Department of Energy, July 23, 1997 in response

to the May 6, 1997, NPRM.

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.

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 twothirds of the imports meeting a need

that could not be served by U.S.

refineries.20

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
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45547

21Comments from DOE on EPA’s May 6, 1997

NPRM, page 2.

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

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
45548 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

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
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45549

22On 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

Continued

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 volumeweighted 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 nonU.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
45550 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

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).

23Under 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.

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

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.
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 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
45552 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

24The 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).

25For 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

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 governmentowned 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

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 governmentowned, 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
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45553

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.

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.

Commenters have not described any

reason why it would be difficult or

expensive for a foreign governmentowned 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
45554 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

26EPA also has included language in Section

80.94(n) that prohibits foreign refiners from causing

violations by other parties.

meet the FRGAS requirement, and that

the annual fee probably would be

between one-half and two percent of the

bond amount depending on companyspecific 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.

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 nonU.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 noncertified 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
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45555

27EPA 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.

28See description of GTAB, above.

29The 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.

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.

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 NonFRGAS

(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 nonFRGAS.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.

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.

(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 noncertified FRGAS were included.

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. exportgasoline 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 nonFRGAS 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.

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 noncertified, 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.,
45556 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

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.

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

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 nonparticipation 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 nonparticipating 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 nonFRGAS 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
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45557

32The 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 interlaboratory variability.

33As 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.

34The 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).

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.

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 noncertified 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 noncertified 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 noncertified 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.

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.

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
45558 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

35For 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%.

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).

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.

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.

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 midjourney 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.

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.

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),
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45559

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.

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 nonU.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 noncertified 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.

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 everygallon 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 AntiDumping 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
45560 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

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 afterthe-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-
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 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
45562 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

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
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 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 costeffective 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:

§ 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

§ 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

§ 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 §§ 80.90 through 80.93.

(1) The provisions for baselines as

specified in §§ 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-
45564 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

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 § 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

§ 80.65(d)(1);

(ii) The recordkeeping requirements

in § 80.74 (a), and (b)(3);

(iii) The reporting requirements in

§ 80.75 (a), (m), and (n);

(iv) The registration requirements in

§ 80.76;

(v) The product transfer document

requirements in § 80.77 (a) through (f),

and (j);

(vi) The prohibition in § 80.78(a)(10),

(b) and (c); and

(vii) The independent audit

requirements in §§ 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 § 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 §§ 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 § 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 § 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 § 80.101(h); and

(B) In the case of certified FRGAS, the

volume and parameter values of the

gasoline from the compliance

calculations under § 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 § 80.46, by:

(A) The third party analyzing the

sample; or
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 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 § 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 § 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 § 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

§ 80.101(g); and

(B) Include the gasoline volume in its

compliance baseline calculation under

§ 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 § 80.128(b)

and the tender analysis under

§ 80.128(c) non-FRGAS in addition to

the gasoline types listed in § 80.128 (b)

and (c).

(2) Obtain separate listings of all

tenders of certified FRGAS, and of noncertified FRGAS. Agree the total volume

of tenders from the listings to the

gasoline inventory reconciliation

analysis in § 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 § 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 noncertified FRGAS, non-FRGAS, or any

certified FRGAS produced at a different
45566 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

refinery that was not aggregated under

§ 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 § 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

§ 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 § 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 §§ 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 §§ 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
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 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×$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 § 80.102 by a foreign

refiner with an individual refinery

baseline, the foreign refiner may

exclude from the calculations required

in § 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 noncertified 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 § 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 § 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 § 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 § 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
45568 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

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 § 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 § 80.91(b)(4) shall be the

more stringent of the statutory baseline

value for NOX under § 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

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 268 and 271

[FRL–5884–2]

RIN 2050–AD38

Second Emergency Revision of the

Land Disposal Restrictions (LDR)

Treatment Standards for Listed

Hazardous Wastes From Carbamate

Production

AGENCY: Environmental Protection

Agency (EPA, the Agency).

ACTION: Immediate final rule.

SUMMARY: This second emergency

revision extends the time that the

alternative carbamate treatment