[Federal Register Volume 63, Number 84 (Friday, May 1, 1998)]
[Rules and Regulations]
[Pages 24110-24114]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11626]


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DEPARTMENT OF AGRICULTURE

Forest Service

36 CFR Part 223

RIN 0596-AB41


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

AGENCY: Forest Service, USDA.

ACTION: Final rule.

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SUMMARY: This final rule amends current regulations providing for 
Market-Related Contract Term Additions, by requiring the use of 
Industry Series Producer Price Indices from the Bureau of Labor 
Statistics, rather than the previously required indices in the 
Commodity Series. Use of a different Producer Price Index series 
requires a concomitant change in procedures for determining when 
market-related contract term additions

[[Page 24111]]

are needed. In addition to changing the index series, the final rule 
makes a number of technical changes. The intended affect is to grant 
timber sale contract term additions based on market criteria that are 
more representative than those currently used.

DATES: This rule is effective June 1, 1998.

FOR FURTHER INFORMATION CONTACT:
Rex Baumback, Timber Management Staff, MAIL STOP 1105, Forest Service, 
USDA, P.O. Box 96090, Washington, DC 20090-1105, (202) 205-0855.

SUPPLEMENTARY INFORMATION:

Background

    Experience indicates that the lumber market declines that would 
justify a market-related timber sale contract term addition generally 
coincide with substantial economic dislocation in the wood products 
industry. Such economic distress broadly affects community stability, 
the ability of the wood products industry to supply construction lumber 
and other wood products from domestic sources, and threatens the 
existence of wood manufacturing plants needed to meet future demands 
for wood products. Accordingly, on December 7, 1990, the Department 
published a final rule (55 FR 50643) to establish procedures at 36 CFR 
223.52 for extending contract termination dates to prevent contract 
default or severe financial loss to the purchaser in response to 
adverse conditions in the lumber markets. The rule, which has remained 
in effect until now, provides that if there is a drastic decline in 
wood product prices a market-related contract term addition would be 
triggered.
    The rule also requires the use of various wood product Producer 
Price Indices, prepared by the Department of Labor, Bureau of Labor 
Statistics (BLS), to determine whether a drastic reduction in wood 
product prices has occurred. Since adoption of the rule, a drastic 
reduction occurred for Douglas-fir, Dressed Index, during the first 
quarter of 1991 and, most recently, in the second quarter of 1995. As a 
result, the Forest Service notified purchasers and, upon the 
purchasers' written request, added an additional year to timber sale 
contract terms for qualifying contracts.
    In order to address timber sale purchaser concerns and technical 
issues related to implementation of this regulation, the Forest Service 
proposed a revision to this rule and requested public comment on 
October 21, 1996 (61 FR 54589). The deadline for receiving comments was 
January 21, 1997.

Response to Comments Received

    Nineteen respondents provided responses to the proposed rule. 
Comments were received from 14 timber sale purchasers, four timber 
industry associations, and one consulting forester. A summary of the 
comments and the Department's response to them follow.

General Comments

    Comment. One respondent requested that efforts to implement changes 
to Market-Related Contract Term Additions (MRCTA) be delayed until a 
formal revision of the timber sale contract could be completed.
    Response. The Department realizes that it would be desirable to 
consider all possible contract changes at one time. However, while a 
comprehensive revision of the timber sale contract is being considered, 
the timeframe for the completion of this revision is undetermined. 
Furthermore, there will always be a need for periodic revisions of 
portions of the timber sale contract to meet new situations. The 
revision of MRCTA procedures will allow the timber sale contract to be 
more responsive to changing economic conditions; therefore, the 
Department sees no benefit to delaying amendment of the MRCTA 
regulations.
    Comment. One respondent expressed a need for a procedure to address 
a slow lumber market decline, as well as a rapid lumber market decline.
    Response. Major softwood lumber market declines during the past 50 
years have occurred within a period of 30 months or less. Both the 
current MRCTA procedures and this final rule evaluate the significance 
of market changes over a period of 27 months. Data indicate that nearly 
50 percent of the total volume sold is contained in contracts shorter 
than 3 years in length and nearly 80 percent of all timber sale 
contracts are shorter than 3 years in length. Average contract length 
has been declining steadily in recent years. A lumber market decline 
over a period of more than 30 months is unlikely, based on historic 
trends, and most contracts would not be adversely affected if such a 
lumber market decline were to occur. Thus, the Department does not 
agree that there is a need to establish a new procedure to address the 
unlikely possibility of a slow lumber market decline.

Availability of MRCTA

    Section 223.52(a) of the proposed rule provided that contracts that 
contain periodic payment requirements will contain a MRCTA provision.
    Comment. Thirteen respondents stated that since lumber markets are 
so volatile, MRCTA should be available for all timber sales over 1 year 
in length or for any sale that is extended beyond 1 year in length for 
reasons beyond the control of the purchaser.
    Response. It appears that some of these respondents misinterpreted 
the proposed rule by concluding that MRCTA would apply only to 
contracts over 2 years in length. Both the current procedure and the 
proposed rule provide for MRCTA for any contract that contains periodic 
payment provisions. Periodic payment provisions are included in 
contracts that are longer than one full normal operating season. Under 
current procedures, when contracts are awarded during the normal 
operating season, the length of the contract could exceed 1 year and 
not include MRCTA provisions. The Department agrees to change 
procedures and include MRCTA procedures in timber sale contracts that 
exceed 1 year in length, regardless of whether or not the contract 
contains periodic payment provisions, except as provided in 
Sec. 223.52(a)(3), harvesting rapidly deteriorating timber.
    However, the Department does not agree with the request to modify 
timber sale contracts to include MRCTA if those contracts are extended 
beyond 1 year in length for reasons beyond the control of the 
purchaser. Since contracts currently contain provisions for 
compensating purchasers if their contracts are suspended, providing for 
MRCTA for the few contracts that may be extended beyond 1 year is an 
additional unnecessary compensation.

Selection of Index

    Section 223.52(a)(2) of the proposed rule provided that the Forest 
Supervisor would select the price index for contracts. This paragraph 
in the proposed rule also provides that only one price index may be 
used in contracts.
    Comment. Fourteen respondents remarked that purchasers should be 
allowed to choose the price index when the contract is awarded, based 
on their assessment of the lumber market and their intended use of the 
wood from that sale. Some of these respondents said they were concerned 
about the burden of the Forest Supervisor in choosing an index.
    Eight respondents said that if purchasers choose the index, the 
contract could be modified later to change the index if the sale was

[[Page 24112]]

extended beyond 4 years or was transferred to another party.
    Response. The index is based on the species and products being 
sold. It is not a burden on the Forest Supervisor to choose the index, 
nor are there valid reasons to change the index after the sale is bid. 
Therefore, the Department declines to change this section of the 
regulation, based on this comment.
    Comment. Seventeen respondents proposed using the Wood Chip Index 
with all qualifying sales, since all sales have a significant chip 
component and many sales have a mixture of sawtimber and chipable 
material. Therefore, contract relief would be granted if either the 
lumber or the wood chip index showed a drastic decline in market price.
    Response. The Department thinks that the volume of chip by-products 
produced with a sawlog timber sale is not enough to justify the MRCTA 
extension, based solely on a drastic decline in the Wood Chip Index. 
Further, it is the Department's view that inclusion of more than one 
index in a given timber sale would not meet the ``substantial 
overriding public interest'' standard required by the National Forest 
Management Act (16 U.S.C. 472a(c)). Substantial overriding public 
interest has been determined to exist when the criteria in the 
regulation have been met. When the criteria in the regulation have been 
met, there is a disruption of the economy that may result in loss of 
industry and jobs. If more than one index is used for granting 
extensions on timber sale contracts, it is unlikely that this criteria 
for substantial overriding public interest would be met.

Harvesting Objective

    Section 223.52(a)(3)(i) of the proposed rule provided that MRCTA 
will not be used in timber sales with a primary objective of harvesting 
damaged, dead, or dying timber.
    Comment. Nine respondents said that only those sales with 
accelerated harvest provisions should be exempt from MRCTA and, once 
the accelerated harvest is completed, the contract should be modified 
to include MRCTA. These respondents pointed out that many sales 
containing damaged, dead, or dying timber or salvage are not in need of 
urgent harvest because the material is not deteriorating rapidly.
    Response. The Department agrees that some sales containing damaged, 
dead, or dying timber or salvage are not in need of urgent harvest 
because the material is not deteriorating rapidly. Therefore, this 
paragraph has been modified in the final rule to preclude use of MRCTA 
only when the sale is subject to rapid deterioration. Furthermore, an 
additional paragraph has been added to state that completion dates 
specified in such contracts will not be extended, based on MRCTA. 
Completion dates specified in timber sale contracts usually provide for 
shorter time periods for the rapid harvest of deteriorating timber or 
specific timeframes when road construction is required.

Stumpage Rate Adjustment

    Section 223.52(a)(3)(ii) of the proposed rule provided that 
contracts that contain stumpage rate adjustment provisions will not 
include MRCTA provisions.
    Comment. Seventeen respondents indicated that MRCTA and stumpage 
rate adjustment provisions fulfill separate and distinct functions in 
the timber sale contract and that both are needed.
    Response. Market-related contract term addition provides additional 
time during a significant lumber market decline for purchasers to 
perform contracts and to avoid a situation requiring administrative 
intervention. Thus, the MRCTA procedure allows time for the market to 
improve and provides an opportunity to harvest a mixture of high and 
low priced sales. Conversely, the stumpage rate adjustment provisions 
allow the Government and purchaser to share the risk and reward of 
market fluctuations, protecting the agency's ability to provide an even 
flow of products in both good and bad markets. The stumpage rate 
adjustment procedure provides assistance by allowing a reduced price 
during lumber market declines. Stumpage rate adjustment and market-
related contract term addition respond to different problems associated 
with lumber market declines and both procedures serve useful functions. 
Therefore, this paragraph is eliminated from the regulation.

Price Indices

    Section 223.52(b)(1)(i) of the proposed rule provided that Bureau 
of Labor Statistics Producer Price Indices for Hardwood Lumber, Eastern 
Softwood Lumber, Western Softwood Lumber, and Wood Chips be used in 
MRCTA provisions.
    Comment. Eight respondents expressed a need for a separate index 
for western hardwood sales.
    Response. There is no index available that represents only western 
hardwood lumber, since the amount of hardwood lumber produced in the 
West is too small to provide a meaningful index. The amount of hardwood 
harvested from Forest Service land in the West is also very small. In 
addition, the available Hardwood Index is representative of most 
hardwood markets, including those in the West; therefore, no change is 
being made from the list of indices from what was proposed.
    Comment. Eight respondents stated that the Wood Chip Index is based 
primarily on data on eastern markets (60 percent). They desired more 
data on western wood chip markets in this index in order to reflect 
market conditions as closely as possible.
    Response. Data available for the producer price wood chip index is 
limited. Using the two lower level indices for short tons (eastern wood 
chips) and standard units (western wood chips) would weaken the 
reliability of both indices. Analysis has indicated little difference 
between the two indices in their ability to identify a severe chip 
market decline; therefore, the Department will continue using only one 
national Wood Chip Index in MRCTA.

Use of Preliminary Indices

    Section 223.52(b)(1)(ii) of the proposed rule provided that 
preliminary index values will be revised when final index values are 
available, but that the identification of qualifying quarters will not 
be changed, based on the final index values.
    Comment. Eight respondents indicated that to simplify recordkeeping 
and reduce the chance of error, the Forest Service should utilize 
preliminary indices and not revise indices when final data becomes 
available.
    Response. The Department believes that the best available data 
should be used for determining qualifying quarters for MRCTA and that 
the chance of an undetected clerical error is slight. Therefore, 
preliminary indices must be updated as final data becomes available. 
However, as stated in Sec. 223.52(b)(1)(ii) of the final rule, the 
determination of qualifying quarters, although based partially on 
preliminary data, will not be revised when final data becomes 
available.

Significant Market Decline

    Section 223.52(b)(2) of the proposed rule provided that a 
significant market decline has occurred when, for 2 or more consecutive 
quarters, the index is 15 percent below the average index for the four 
highest of the previous 8 quarters. On average, this criteria indicates 
an approximate 25 percent decline in price over a 2-year period.

[[Page 24113]]

    Comment. Five respondents stated that the preamble of the proposed 
rule makes an arbitrary, subjective, and unsupported claim that a 
significant lumber market decline is defined as a 25 percent decline 
over a 2-year period. These respondents proposed that the procedures be 
adjusted to ensure that a market similar to the 1991 lumber market 
decline trigger an MRCTA for all indices.
    Response. Between June 1989 and December 1990, the inflation 
adjusted Softwood Lumber Index declined 16 percent, while the Douglas 
Fir Dressed lumber index declined 25 percent. Indices, based on a 
single species, are more volatile. One of the objectives of this MRCTA 
regulation is to base the drastic wood price determination on indices 
that are broader-based than a single species. The Department is 
satisfied with how indices are triggered using the new procedures and 
no change from the proposed MRCTA triggering procedures is being made.

Normal Operating Season

    Section 223.52(c)(1) of the proposed rule provided that, after the 
first year of contract time is granted, additional time will be added 
during the ``normal operating season.''
    Comment. Sixteen respondents stated that the term ``normal 
operating season'' should be redefined for this regulation, so that it 
includes only time periods which actually allow operations to occur. If 
the definition of normal operating season is not changed, these 
respondents suggested that additional time could be added day-for-day 
to the contract during periods when there are no restrictions on 
logging.
    Response. The purpose of a normal operating season is to identify a 
period of time where additional contract operating time can be granted 
when the timber sale purchaser is delayed by weather or other reasons. 
The normal operating season should identify periods of time when the 
weather is likely to allow logging and operations are not restricted 
for other reasons. The Department does not believe that a different 
definition of normal operating season or new criteria for additional 
contract time is needed for the purposes of this rule.

Conclusion

    The MRCTA rule provides additional contract time on timber sale 
contracts when severe market declines occur. This final rule revises 
the current rule to use indices that are more representative of the 
lumber market and to make technical improvements to procedures.

Regulatory Impact

    This final rule has been reviewed under USDA procedures and 
Executive Order 12866 on Regulatory Planning and Review. It has been 
determined that this is not a significant rule. This rule will not have 
an annual effect of $100 million or more on the economy nor adversely 
affect productivity, competition, jobs, the environment, public health 
or safety, nor State or local governments. This rule will not interfere 
with an action taken or planned by another agency nor raise new legal 
or policy issues. In short, little or no effect on the national economy 
will result from this final rule. This action consists of 
administrative changes to regulations affecting timber sale contract 
length. The Producer Price Indices selected and revised procedures 
better reflect the cyclical nature of lumber markets and help the 
agency determine whether a drastic downturn has actually occurred in 
these particular markets. Finally, this action will not alter the 
budgetary impact of entitlements, grants, user fees, or loan programs 
or the rights and obligations of recipients of such programs. 
Accordingly, this final rule is not subject to OMB review under 
Executive Order 12866.
    Moreover, this final rule has been considered in light of the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.), and it is hereby 
certified that this action will not have a significant economic impact 
on a substantial number of small entities as defined by that Act. 
Failure to adopt these improved procedures for measuring drastic 
decline in wood product prices will subject both small purchasers and 
large purchasers to increased risk of default in those situations where 
current indices are not as valid as indicators of price decline as 
those in this final rule. Modifications to timber sale contracts have 
the intended effect of allowing purchasers of timber sales to complete 
timber sales when adverse conditions have occurred in the lumber market 
and when no other means of granting additional contract time are 
available.

Unfunded Mandates Reform

    Pursuant to Title II of the Unfunded Mandates Reform Act of 1995 (2 
U.S.C. 1531-1538), which the President signed into law on March 22, 
1995, the Department has assessed the effects of this rule on State, 
local, and tribal governments and the private sector. This rule does 
not compel the expenditure of $100 million or more by any State, local, 
or tribal governments or anyone in the private sector. Therefore, a 
statement under section 202 of the Act is not required.

Environmental Impact

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

No Takings Implications

    This rule has been analyzed in accordance with the principles and 
criteria contained in Executive Order 12630, and it has been determined 
that the rule does not pose the risk of a taking of Constitutionally-
protected private property. There are no Constitutionally-protected 
private property rights to be affected, since the contract provisions 
that implement this rule will only be used in new contracts or with 
contract modifications that are made at the request of the timber sale 
purchaser.

Civil Justice Reform Act

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This final rule (1) preempts all State and local 
laws and regulations that are in conflict or which would impede its 
full implementation; (2) has no retroactive effect; and (3) does not 
require administrative proceedings before parties may file suit in 
court challenging its provisions.

Controlling Paperwork Burdens on the Public

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

List of Subjects in 36 CFR Part 223

    Administrative practice and procedure, Exports, Forests and forest

[[Page 24114]]

products, Government contracts, National forests, Reporting 
requirements, Timber sales.

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

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

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

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

    2. Revise Sec. 223.52 to read as follows:


Sec. 223.52  Market-related contract term additions.

    (a) Contract provision. (1) Except as provided in paragraph (a)(3) 
of this section, each timber sale contract exceeding 1 year in length 
shall contain a provision for the addition of time to the contract 
term, under the following conditions:
    (i) The Chief of the Forest Service has determined that adverse 
wood products market conditions have resulted in a drastic reduction in 
wood product prices applicable to the sale; and
    (ii) The purchaser makes a written request for additional time to 
perform the contract.
    (2) The contract term addition provision of the contract must 
specify the index to be applied to each sale. The Forest Supervisor 
shall determine, and select from paragraph (b) of this section, the 
index to be used for each sale based on the species and product 
characteristics, by volume, being harvested on the sale. The index 
specified shall represent more than one-half of the advertised volume.
    (3) A market-related contract term addition provision shall not be 
included in contracts where the sale has a primary objective of 
harvesting timber subject to rapid deterioration.
    (b) Determination of drastic wood product price reductions. (1) The 
Forest Service shall monitor and use Producer Price Indices, as 
prepared by the Department of Labor, Bureau of Labor Statistics (BLS), 
adjusted to a constant dollar base, to determine if market-related 
contract term additions are warranted.
    (i) The Forest Service shall monitor and use only the following 
indices:

------------------------------------------------------------------------
                                                               Industry 
                  BLS producer price index                       code   
------------------------------------------------------------------------
Hardwood Lumber............................................      2421# 1
Eastern Softwood Lumber....................................      2421# 3
Western Softwood Lumber....................................      2421# 4
Wood Chips.................................................      2421# 5
------------------------------------------------------------------------

    (ii) Preliminary index values will be revised when final index 
values become available, however, determination of a qualifying quarter 
will not be revised when final index values become available.
    (2) The Chief of the Forest Service shall determine that a drastic 
reduction in wood product prices has occurred when, for 2 or more 
consecutive quarters, the applicable adjusted price index is less than 
85 percent of the average of such adjusted index for the 4 highest of 
the 8 calendar quarters immediately prior to the qualifying quarter. A 
qualifying quarter is a quarter where the applicable adjusted index is 
more than 15 percent below the average of such index for the 4 highest 
of the previous 8 calendar quarters. Qualifying quarter determinations 
will be made using the Producer Price Indices for the months of March, 
June, September, and December.
    (3) A determination, made pursuant to paragraph (b)(2) of this 
section, that a drastic reduction in wood product prices has occurred, 
shall constitute a finding that the substantial overriding public 
interest justifies the contract term addition.
    (c) Granting market-related contract term additions. When the Chief 
of the Forest Service determines, pursuant to this section, that a 
drastic reduction in wood product prices has occurred, the Forest 
Service is to notify affected timber sale purchasers. For any contract 
which has been awarded and has not been terminated, the Forest Service, 
upon a purchaser's written request, will add 1 year to the contract's 
terms, except as provided in paragraphs (c)(1) through (4) of this 
section. This 1-year addition includes time outside of the normal 
operating season.
    (1) Additional contract time may not be granted for those portions 
of the contract which have a required completion date or for those 
portions of the contract where the Forest Service determines that the 
timber is in need of urgent removal or that timber deterioration or 
resource damage will result from delay.
    (2) For each additional consecutive quarter, in which a contract 
qualifies for a market-related contract term addition, the Forest 
Service will, upon the purchaser's written request, add an additional 3 
months during the normal operating season to the contract.
    (3) No more than twice the original contract length or 3 years, 
whichever is less, shall be added to a contract's term by market-
related contract term addition.
    (4) In no event shall a revised contract term exceed 10 years as a 
result of market-related contract term additions.
    (d) Recalculation of periodic payments. Where a contract is 
lengthened as a result of market conditions, any subsequent periodic 
payment dates shall be delayed 1 month for each month added to the 
contract's term.

    Dated: April 27, 1998.
Brian Eliot Burke,
Deputy Under Secretary, Natural Resources and Environment.
[FR Doc. 98-11626 Filed 4-30-98; 8:45 am]
BILLING CODE 3410-11-M