Softwood Lumber Research, Promotion, Consumer Education and Industry Information Order; De Minimis Quantity Exemption Threshold, 24583-24595 [2017-10997]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 82, Number 102 (Tuesday, May 30, 2017)]
[Proposed Rules]
[Pages 24583-24595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-10997]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 1217

[Document Number AMS-SC-16-0066]


Softwood Lumber Research, Promotion, Consumer Education and 
Industry Information Order; De Minimis Quantity Exemption Threshold

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: This action proposes to establish a de minimis quantity 
exemption threshold under the Softwood Lumber Research, Promotion, 
Consumer Education and Industry Information Order (Order). The Order is

[[Page 24584]]

administered by the Softwood Lumber Board (Board) with oversight by the 
U.S. Department of Agriculture (USDA). In response to a 2016 federal 
district court decision, USDA conducted a new analysis to determine a 
reasonable and appropriate de minimis threshold. Based on that analysis 
contained herein, this proposal would establish the de minimis quantity 
threshold at 15 million board feet (mmbf) and entities manufacturing 
(and domestically shipping) or importing less than 15 mmbf per year 
would be exempt from paying assessments under the Order.

DATES: Comments must be received by July 31, 2017.

ADDRESSES: Interested persons are invited to submit written comments 
concerning this proposal. Comments may be submitted on the Internet at: 
https://www.regulations.gov or to the Promotion and Economics Division, 
Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW., Room 
1406-S, Stop 0244, Washington, DC 20250-0244; facsimile: (202) 205-
2800. All comments should reference the document number and the date 
and page number of this issue of the Federal Register and will be made 
available for public inspection, including name and address, if 
provided, in the above office during regular business hours or it can 
be viewed at https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Maureen T. Pello, Marketing 
Specialist, Promotion and Economics Division, Specialty Crops Program, 
AMS, USDA, P.O. Box 831, Beavercreek, Oregon, 97004; telephone: (503) 
632-8848; facsimile (503) 632-8852; or electronic mail: 
Maureen.Pello@ams.usda.gov.

SUPPLEMENTARY INFORMATION: This proposal is issued under the Order (7 
CFR part 1217). The Order is authorized under the Commodity Promotion, 
Research and Information Act of 1996 (1996 Act) (7 U.S.C. 7411-7425).

Executive Order 12866 and Executive Order 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules and promoting flexibility. 
This action falls within a category of regulatory actions that the 
Office of Management and Budget (OMB) exempted from Executive Order 
12866 review. Additionally, because this rule does not meet the 
definition of a significant regulatory action it does not trigger the 
requirements contained in Executive Order 13771. See OMB's Memorandum 
titled ``Interim Guidance Implementing Section 2 of the Executive Order 
of January 30, 2017 titled `Reducing Regulation and Controlling 
Regulatory Costs' '' (February 2, 2017).

Executive Order 13175

    This action has been reviewed in accordance with the requirements 
of Executive Order 13175, Consultation and Coordination with Indian 
Tribal Governments. The review reveals that this proposal would not 
have substantial and direct effects on Tribal governments and would not 
have significant Tribal implications.

Executive Order 12988

    This proposal has been reviewed under Executive Order 12988, Civil 
Justice Reform. It is not intended to have retroactive effect. Section 
524 of the 1996 Act (7 U.S.C. 7423) provides that it shall not affect 
or preempt any other Federal or State law authorizing promotion or 
research relating to an agricultural commodity.
    Under section 519 of the 1996 Act (7 U.S.C. 7418), a person subject 
to an order may file a written petition with USDA stating that an 
order, any provision of an order, or any obligation imposed in 
connection with an order, is not established in accordance with the 
law, and request a modification of an order or an exemption from an 
order. Any petition filed challenging an order, any provision of an 
order, or any obligation imposed in connection with an order, shall be 
filed within two years after the effective date of an order, provision, 
or obligation subject to challenge in the petition. The petitioner will 
have the opportunity for a hearing on the petition. Thereafter, USDA 
will issue a ruling on the petition. The 1996 Act provides that the 
district court of the United States for any district in which the 
petitioner resides or conducts business shall have the jurisdiction to 
review a final ruling on the petition, if the petitioner files a 
complaint for that purpose not later than 20 days after the date of the 
entry of USDA's final ruling.

Background

    This proposed rule would establish a de minimis quantity exemption 
threshold under the Order. The Order, codified at 7 CFR part 1217, is 
administered by the Board with oversight by USDA's Agricultural 
Marketing Service (AMS). In Resolute Forest Products Inc., v. USDA, et 
al. (Resolute), the court found that, on the basis of the estimates and 
information submitted by the government to the court for review, the 
selection of 15 mmbf as the de minimis quantity (to be exempted) under 
the Order was arbitrary and capricious and that the Order was therefore 
promulgated unlawfully. The court did not vacate (or terminate) the 
Order; the court remanded the matter to USDA and program requirements 
remain in effect.
    To address the court's decision, USDA conducted a new analysis to 
determine a reasonable and appropriate de minimis quantity exemption. 
USDA analyzed various thresholds of exemption: 10, 15, 20, 25, and 30 
mmbf. USDA also considered proposing no de minimis exemption. USDA's 
analysis of the data resulted in a determination that a de minimis 
level of 15 mmbf is reasonable and appropriate. Therefore, this 
proposal would establish the de minimis quantity threshold under the 
Order at 15 mmbf.

Authority in the 1996 Act

    The 1996 Act authorizes USDA to establish agricultural commodity 
research and promotion orders which may include a combination of 
promotion, research, industry information, and consumer information 
activities funded by mandatory assessments. These programs are designed 
to maintain and expand markets and uses for agricultural commodities. 
As defined under section 513(1)(D) of the 1996 Act, agricultural 
commodities include the products of forestry, which includes softwood 
lumber.
    The 1996 Act provides for a number of optional provisions that 
allow the tailoring of orders for different commodities. Section 516 of 
the 1996 Act provides permissive terms for orders. Section 516 states 
that an order may include an exemption of de minimis quantities of an 
agricultural commodity. Further, section 516(g) of the 1996 Act 
provides authority for other action that is consistent with the purpose 
of the statute and necessary to administer a program.

Overview of the Softwood Lumber Program

    The softwood lumber program took effect in August 2011 (76 FR 
46185) and assessment collection began in January 2012. Under the 
Order, assessments are collected from domestic (U.S.) manufacturers and 
importers and are used by the Board for projects that promote market 
growth for softwood

[[Page 24585]]

lumber products used in single and multi-family dwellings as well as 
commercial construction. The Board is composed of 19 industry members 
(domestic manufacturers and importers) who are appointed by the 
Secretary of Agriculture. The purpose of the program is to strengthen 
the position of softwood lumber in the marketplace, maintain and expand 
markets for softwood lumber, and develop new uses for softwood lumber 
within the United States.

Relevant Order Provisions

Domestic Manufacturers

    The term `domestic manufacturer' is defined in section 1217.8 of 
the Order to mean any person who is a first handler engaged in the 
manufacturing, sale and shipment of softwood lumber in the United 
States during a fiscal period and who owns, or shares in the ownership 
and risk of loss of manufacturing of softwood lumber or a person who is 
engaged in the business of manufacturing, or causes to be manufactured, 
sold and shipped such softwood lumber in the United States beyond 
personal use. The term does not include persons who re-manufacture 
softwood lumber that has already been subject to assessment. The term 
`manufacture' is defined in section 1217.13 of the Order to mean the 
process of transforming (or turning) softwood logs into softwood 
lumber.
    Domestic manufacturers are essentially sawmills that turn softwood 
logs into lumber. A domestic manufacturer may be a company that is a 
single sawmill, or it may be a company that is composed of multiple 
sawmills.

Importers

    The term `importer' is defined in section 1217.11 of the Order to 
mean any person who imports softwood lumber from outside the United 
States for sale in the United States as a principal or as an agent, 
broker, or consignee of any person who manufactures softwood lumber 
outside the United States for sale in the United States, and who is 
listed in the import records as the importer of record for such 
softwood lumber. Import records are maintained by the U.S. Customs and 
Border Protection (Customs or CBP). Both domestic manufacturers and 
importers may be referred to in this rulemaking as ``entities.''

Expenses and Assessments

    Pursuant to section 1217.50 of the Order, the Board is authorized 
to incur expenses for research and promotion projects as well as 
administration. The Board's expenses are paid by assessments upon 
domestic manufacturers and importers. Pursuant to section 1217.52(b), 
and subject to the exemptions specified in section 1217.53 of the 
Order, each domestic manufacturer and importer must pay an assessment 
to the Board at the rate of $0.35 per thousand board feet of softwood 
lumber, except that no entity has to pay an assessment on the first 15 
mmbf of softwood lumber otherwise subject to assessment in a fiscal 
year. Domestic manufacturers pay assessments based on the volume of 
softwood lumber shipped within the United States and importers pay 
assessments based on the volume of softwood lumber imported to the 
United States. Pursuant to paragraphs (d) and (j) in section 1217.52, 
respectively, domestic manufacturers and importers who pay their 
assessments to the Board must do so no later than the 30th calendar day 
of the month following the end of the quarter in which the softwood 
lumber was shipped or imported.

Exemptions

    Section 1217.53 of the Order prescribes exemptions from assessment. 
Pursuant to paragraph (a) of that section, the original de minimis 
quantity exemption threshold under the Order was 15 mmbf. Thus, U.S. 
manufacturers and importers that domestically ship and/or import less 
than 15 mmbf feet annually have been exempt from paying assessments. 
Domestic manufacturers and importers that ship or import less than the 
de minimis quantity of softwood lumber must apply to the Board each 
year for a certificate of exemption and provide documentation as 
appropriate to support their request.
    Pursuant to paragraph (b) of section 1217.53 of the Order, domestic 
manufacturers and importers that ship or import 15 mmbf or more 
annually do not pay assessments on their first 15 mmbf domestically 
shipped or imported. This exemption is intended for the purpose of 
creating an equality amongst those within the industry with regard to 
the program's assessment. Just as those that manufacture or import 
under 15 mmbf do not have to pay assessments, those at or above this 
level may reduce their assessable volume by 15 mmbf.\1\ For example, an 
entity that ships or imports 20 mmbf annually only has to pay 
assessments on 5 mmbf of softwood lumber. This exemption creates 
fairness; it levels the playing field because all entities, regardless 
of size, do not have to pay assessments on their first 15 mmbf shipped 
or imported. For purposes of this document, this exemption is referred 
to as the ``equity exemption.'' Pursuant to paragraphs (c) and (d) of 
section 1217.53, respectively, exports of softwood lumber from the 
United States and organic softwood lumber are also exempt from 
assessment.
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    \1\ USDA notes that the de minimis level and the equity 
exemption are purposefully aligned and any change in the de minimis 
would result in a corresponding modification to the equity 
exemption.
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Reports and Records

    Pursuant to section 1217.70 of the Order, domestic manufacturers 
and importers who pay their assessments directly to the Board must 
submit with their payment a report that specifies the quantity of 
softwood lumber domestically shipped or imported. Pursuant to section 
1217.71 of the Order, all domestic manufacturers and importers must 
maintain books and records necessary to verify reports for a period of 
2 years beyond the fiscal year to which they apply, including those 
exempt. These records must be made available during normal business 
hours for inspection by Board staff or USDA.

Other Relevant Order Provisions

    The original 15 mmbf quantity exemption threshold is referenced in 
other Order provisions. Section 1217.40 specifies that the Board is 
composed of domestic manufacturers and importers who domestically ship 
or import 15 mmbf or more of softwood lumber annually. Section 1217.41 
of the Order specifies that persons interested in serving on the Board 
must also domestically ship or import 15 mmbf or more softwood lumber 
annually. Finally, section 1217.101 of the Order regarding referendum 
procedures specifies that eligible domestic manufacturers and importers 
that can vote in referenda must domestically ship or import 15 mmbf or 
more of softwood lumber annually.

Initial Referendum and Summary of Board Activities

    The softwood lumber program was implemented after notice and 
comment rulemaking and a May 2011 referendum demonstrating strong 
support for the program. Pursuant to section 1217.81(a) of the Order, 
the program had to pass by a majority of those voting in the referendum 
who also represented a majority of the volume voted. Sixty-seven 
percent of the entities who voted, who together represented 80 percent 
of the volume, in the referendum favored implementation of the program. 
Entities that domestically shipped or imported

[[Page 24586]]

15 mmbf or more of softwood lumber annually were eligible to vote in 
the referendum. As previously mentioned, the program took effect in 
August 2011 and assessment collection began in January 2012.
    The softwood lumber program has continued to operate at the 15 mmbf 
exemption threshold since its inception. During these years, the Board 
has funded a variety of activities designed to increase the demand for 
softwood lumber. The Board funded a U.S. Tall Wood Building Prize 
Competition that is helping to showcase the benefits of building tall 
structures with wood. The Board also funds research on wood standards; 
a communications program, which includes continuing education courses 
for architects and engineers; and a construction and design program 
that provides technical support to architects and structural engineers 
about using wood.

Analysis of the De Minimis Quantity Under the Softwood Lumber Program

    The Secretary has authority under section 516 of the 1996 Act to 
exempt any de minimis quantity of an agricultural commodity otherwise 
covered by an order: ``An order issued under this subchapter may 
contain . . . authority for the Secretary to exempt from the order any 
de minimis quantity of an agricultural commodity otherwise covered by 
the order . . . .'' 7 U.S.C. 7415(a). A de minimis quantity exemption 
allows an industry to exempt from assessment small entities that could 
be unduly burdened from an order's requirements (i.e., assessment and 
quarterly reporting obligations). Because the 1996 Act does not 
prescribe the methodology or formula for computing a de minimis 
quantity, the Secretary has discretion to determine a reasonable and 
appropriate quantity and establish this level through notice and 
comment rulemaking. Pursuant to section 525 of the 1996 Act, 7 U.S.C. 
7424, the Secretary may issue such regulations as may be necessary to 
carry out an order.
    In evaluating the merits of a de minimis quantity for the softwood 
lumber program, USDA considered several factors. These factors include: 
An estimate of the total quantity of softwood lumber covered under the 
Order (quantity assessed and quantity exempted); available funding to 
support a viable program; free rider implications; and the impact of 
program requirements on entities (above and below a de minimis 
threshold). USDA reviewed such factors in light of all available data 
and information to determine whether a de minimis quantity is 
reasonable. USDA balances the multiple factors to assess whether one 
exemption threshold would work better than another when the factors are 
considered collectively. The analysis contained herein is based on the 
current assessment rate of $0.35 per thousand board feet.\2\
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    \2\ If the assessment rate changes significantly, USDA could 
revisit the de minimis threshold.
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Estimate of Total Quantity of Commodity Covered Under the Order

    The first factor considered to determine a de minimis quantity that 
would be reasonable for the softwood lumber program was an examination 
of how much of the product covered by the program would be assessed 
versus how much of the product would be exempted. Issues of fairness 
and potential issues related to free riders may also be of concern. The 
lower the de minimis threshold, the greater the number of entities that 
would be subject to assessment under the program. At some point, a de 
minimis threshold can be ``too low'' whereby the assessment revenue 
that would be collected from very small entities is not worth the 
administration and compliance costs of including them under the order. 
Conversely, a higher de minimis quantity results in fewer entities 
being subject to assessment under the order. This means that a greater 
number of entities would benefit from the activities of the program 
without paying assessment as the de minimis level increases. USDA's 
goal is to identify a level that reasonably balances these competing 
issues.
    To evaluate the first factor, USDA estimated the quantity of 
softwood lumber that would be assessed versus the quantity that would 
be exempt under a program with de minimis exemptions at different 
levels: 10, 15, 20, 25, and 30 mmbf. USDA also estimated the quantity 
of softwood lumber assessed if there were no de minimis exemption. To 
accomplish this, USDA first estimated the volume of softwood lumber 
domestically shipped by domestic manufacturers and the volume imported 
by importers.

Volume of Domestic Softwood Lumber

    To estimate the volume of domestic softwood lumber, USDA utilized 
data from Forest Economic Advisors, LLC (FEA), which publishes data on 
aggregate softwood lumber shipments in the U.S. (for the industry as a 
whole) and operating capacity by individual sawmill. A sawmill is a 
business operation that converts raw forest products into lumber. A 
domestic manufacturer can be composed of one sawmill or multiple 
sawmills. A sawmill's operating capacity is the total amount of 
softwood lumber that it could manufacture (or produce) if it fully 
utilized all of its resources (such as labor and equipment).
    FEA is a U.S.-based company that studies market trends in the 
forest products industry in North America.\3\ In the absence of a 
government data source, USDA identified FEA as a reputable source in 
the softwood lumber industry with data depicting a reliable and 
accurate representation of U.S. sawmills and domestic manufacturers.\4\ 
Among the credentials of FEA are reviews of U.S. Forest Service 
publications, and citations in trade journals such as Canadian Journal 
of Forest Research; Biomass and Bioenergy; Forest Policy and Economics; 
and Forest Products Journal.
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    \3\ https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapid=106682714.
    \4\ The final rule (76 FR 46185; August 2, 2011) utilized data 
from the USDA-Forest Service document ``Profile 2009: Softwood 
Sawmills in the United States and Canada.'' There have been no 
recent updates to this publication; therefore, USDA has instead 
utilized data from FEA to conduct this analysis.
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    To USDA's knowledge, there is no one, complete source of individual 
shipment data for domestic manufacturers of softwood lumber. While the 
Board has shipment data for domestic manufacturers that pay assessments 
(ship 15 mmbf or more annually), it does not have shipment data for 
exempt manufacturers. Thus, USDA used FEA data to estimate individual 
shipments for each manufacturer. USDA requests comments specifically on 
whether there are other reliable sources that the agency should 
consider in its analysis of domestic manufacturing. All data in this 
analysis is for the year 2015, which is the most recent year for which 
complete data is available.
    Using FEA data to estimate shipments of softwood lumber by domestic 
manufacturers, USDA found that domestic shipments totaled 28.754 
billion board feet (bbf) in 2015.\5\ According to FEA, the total number 
of domestic manufacturers was 343, which encompassed 509 total sawmills 
in the U.S. Estimated shipments by domestic manufacturer were 
calculated by applying an operating rate of 76 percent to the 
capacities of each sawmill listed in FEA data. The domestic 
manufacturers that owned each sawmill were also identified in the FEA 
data. This allowed USDA to assign the estimated shipments of each 
sawmill to

[[Page 24587]]

the domestic manufacturer that owned the sawmill.
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    \5\ https://www.getfea.com/data-center.
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    To calculate the sawmill operating rate, USDA divided total 
shipments in the U.S.\6\ by total capacity of U.S. sawmills, according 
to data published by FEA (see Equation 1 below).
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    \6\ Total shipments in the U.S. includes domestic production for 
export markets.
[GRAPHIC] [TIFF OMITTED] TP30MY17.000

USDA recognizes that some sawmills may operate at a lower or higher 
rate than 76 percent; this rate is meant to serve as a midpoint to 
estimate the individual shipments of domestic manufacturers.
    Total U.S. softwood lumber shipments in Equation 1 above differs 
from the total estimated shipments noted previously and shown later in 
Table 1. The reason for this is that the figure for total U.S. 
shipments in Equation 1 represents aggregate shipments for all sawmills 
in the U.S. in 2015. The figure shown in Table 1 is the sum of 
estimated shipments using the 76 percent sawmill operating rate. In 
order to estimate shipments by domestic manufacturer, USDA applied the 
sawmill operating rate, as determined in Equation 1, to the capacities 
of each sawmill listed in FEA data. The sum of these estimated 
shipments is 28.754 bbf. The difference between estimated total 
shipments (28.754 bbf) and actual total shipments (31.702 bbf) of 
softwood lumber in 2015 is about 9 percent. This difference represents 
the actual capacities of some sawmills being larger than the estimated 
sawmill operating rate of 76 percent.

Volume of Imported Softwood Lumber

    Pursuant to section 1217.52(g) of the Order, imports of softwood 
lumber are subject to the same assessment as domestic product. Section 
1217.52(h) of the Order specifies the categories of softwood lumber 
that are assessed under the program as identified via the Harmonized 
Tariff Schedule (HTS) code. Imported commodities are assigned codes via 
the HTS with the first numbers denoting the heading, which is a broad 
description of the commodity, and the subsequent numbers denoting the 
subheadings, which specify the commodity in greater detail. A list of 
softwood lumber products subject to assessment and their HTS headings 
and subheadings are listed below.\7\
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    \7\ Harmonized Tariff Schedule of the United States (2015): 
Chapter 44: Wood and Articles of Wood; Wood Charcoal.
[GRAPHIC] [TIFF OMITTED] TP30MY17.001

    To estimate imports of softwood lumber into the U.S. for 2015, USDA 
utilized data collected by CBP via the agency's Automated Commercial 
Environment (ACE) database. CBP disseminates the statistical trade data 
that it collects to the U.S. Census Bureau (Census), which then 
aggregates the data and supplies it to USDA's Foreign Agricultural 
Service (FAS) for publication on FAS' Global Agricultural Trade System 
(GATS).\8\ The data collected by CBP is extensive but may be subject to 
nonsampling error.\9\
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    \8\ https://apps.fas.usda.gov/gats/.
    \9\ The source for this citation is https://www.census.gov/foreign-trade/guide/sec2.html#source. Census states the following on 
its Web site: ``Import and export data are a complete enumeration of 
documents collected by U.S. Customs and Border Protection and are 
not subject to sampling errors. However, while quality assurance 
procedures are performed at every stage of collection, processing, 
and tabulation, the data are still subject to several types of 
nonsampling errors. The most significant of these include reporting 
errors, undocumented shipments, timeliness, data capture errors, 
transiting goods, and underestimation of low-valued transactions.''

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[[Page 24588]]

    For the purpose of this analysis, USDA excluded from the CBP data 
imports with country of origin listed as the U.S. because such 
information would already be represented in the domestic shipment data 
previously discussed. USDA also summed import volumes for entities 
listed as separate companies, but which are one and the same. In 
addition, USDA excluded the Customs entries for which the computed 
price (the quotient of value and quantity) of the commodity was less 
than the lowest reported monthly price for the year 2015, according to 
FEA data.\10\ The lowest monthly price for a softwood lumber product 
recorded by FEA was $203 per thousand board feet in December of 2015. 
USDA excluded any Customs entry with a computed price of less than $203 
per thousand board feet to help eliminate potential data issues 
associated with misplaced decimal points.\11\ This resulted in a 
reduction of 17,026 entries and 3.417 bbf in volume from the original 
data set that had a total of 247,049 entries and total volume of 15.912 
bbf.
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    \10\ Customs data includes quantity of the imported product and 
its total value. By dividing value by quantity, USDA finds a price 
per thousand board feet of every import entry, referred to above as 
a ``computed price.'' Finding the price for every entry allows USDA 
a way to find entries whose quantities may have been entered 
incorrectly.
    \11\ A misplaced decimal point in the quantity imported could 
cause the quantity of an import to be much larger than its 
associated value would warrant. A larger quantity relative to its 
value would result in a price that is much lower than expected, 
given other prices in the data. This low price would indicate that 
the quantity figure may have been entered incorrectly. For this 
reason, USDA found the minimum per thousand board foot price 
according to FEA data and removed the entries whose computed price 
was lower.
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    Using this modified CBP data, USDA estimated the total volume of 
softwood lumber imports for 2015 at 12.495 bbf, which aligns more 
closely to import figures published on FAS' GATS (13.809 bbf) and used 
by FEA (13.963 bbf) for 2015. Using the 12.495 bbf figure, USDA's 
estimate of assessment revenue for 2015 at the 15 mmbf exemption 
threshold was within 3 percent of what the Board recorded for 
assessment revenue in 2015. (This is explained in detail later in this 
document.) If USDA used the 15.912 bbf figure instead, USDA's estimates 
for 2015 assessment revenue and the number of assessed entities would 
be inflated. Thus, USDA used the modified CBP figure of 12.495 bbf in 
its analysis as a reasonable estimate of 2015 softwood lumber imports.
    The import statistics that result from aggregation by Census cover 
``goods valued at more than $2,000 per commodity shipped by individuals 
and organizations (including importers and customs brokers) into the 
U.S. from other countries.'' \12\ For this reason, the total import 
volume of softwood lumber that results from using the ACE portal 
through CBP differs from that of using GATS through FAS and Census.
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    \12\ https://www.census.gov/foreign-trade/about/#importstatistics.
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    Similar to the import statistics described above, the aggregated 
export statistics cover ``goods valued at more than $2,500 per 
commodity shipped by individuals and organizations (including 
exporters, freight forwarders, and carriers) from the U.S. to other 
countries.'' \13\ In conducting this analysis, USDA relied on aggregate 
U.S. export data published by FAS via GATS.\14\ Pursuant to section 
1217.53(c) of the Order, U.S. exports of softwood lumber are not 
subject to assessment. While it is possible to subtract exports in 
aggregate from total U.S. supply in order to find U.S. utilization and 
total volume assessed under no de minimis threshold, USDA cannot deduct 
export volume by entity because the data is not publically available. 
This means that estimates of assessed volume may be slightly inflated; 
however, the impact would not be significant as total exports of 
softwood lumber products in 2015 amounted to 1.562 bbf, which is less 
than 4 percent of total U.S. supply.
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    \13\ https://www.census.gov/foreign-trade/about/#exportstatistics.
    \14\ USDA does not currently have access to CBP U.S. export data 
with volume and value detailed by exporting entity.
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Quantity Assessed and Quantity Exempt

    Table 1 shows total U.S. supply of softwood lumber, which is the 
sum of domestic shipments and imports in 2015. As mentioned previously, 
shipments per entity were estimated using the sawmill operating rate 
shown in Equation 1. Total shipments in Table 1 represent the sum of 
shipments by entity. Imports in Table 1 are the sum of the imported 
commodities assigned the formerly described HTS codes. Summing domestic 
shipments and imported products of softwood lumber results in a U.S. 
total supply of 41.249 bbf.
[GRAPHIC] [TIFF OMITTED] TP30MY17.002

    Using 2015 FEA sawmill capacity data and the estimated operating 
rate of 76 percent, Figure 1 below shows the number of softwood lumber 
manufacturers in the U.S. in 2015 by estimated shipments. As stated 
previously, USDA calculated estimated shipments by applying the 
estimated industry-wide 76 percent operating rate to the sawmill 
capacity of each manufacturer.

[[Page 24589]]

[GRAPHIC] [TIFF OMITTED] TP30MY17.003

As the graph shows, there were 165 manufacturers with estimated 
shipments of less than 15 mmbf in the U.S. in 2015, almost half of the 
344 total U.S. manufacturers. Of these, 150 manufacturers had shipments 
of less than 10 mmbf according to USDA's analysis of FEA data.\15\ The 
scale on the x-axis of the graph begins with a range of 15 mmbf. The 
ranges then double each time, with the next covering a range of 30 
mmbf, then 60, 120, 240, 480, 960, and 1,920 mmbf for the last six 
ranges. There were a large number of manufacturers with relatively 
small estimated shipments. For example, as the data in Figure 1 show, 
there were 248 U.S. manufacturers that shipped of less than 45 mmbf in 
2015, which is more than 72 percent of the total number of U.S. 
manufacturers. Furthermore, of these, almost 67 percent shipped less 
than 15 mmbf of softwood lumber.
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    \15\ https://www.getfea.com/data-center.
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    USDA considered the impacts of five different de minimis thresholds 
on the softwood lumber industry and program operations, as well as the 
impact of having no de minimis exemption. An analysis of these 
different de minimis exemption levels follows in Tables 2 and 3 in this 
section, and in Table 4 in the section of this document titled Free 
Rider Implications.
[GRAPHIC] [TIFF OMITTED] TP30MY17.004

    Table 2 shows assessable volume and revenue at exemption levels of 
30, 25, 20, 15 and 10 mmbf, as well as with no exemptions. The table 
accounts for both the de minimis and equity exemptions under the Order, 
and an assessment rate of $0.35 per thousand board feet.
    With de minimis and equity exemptions of 30 mmbf, total assessable 
volume would be 32.805 bbf which would provide $11.482 million in 
assessment revenue. At exemptions of 25 mmbf, total assessable volume 
would increase by 0.889 bbf, providing an additional $311,243 in 
assessment

[[Page 24590]]

revenue. At exemptions of 20 mmbf, total assessable volume would 
increase by 0.996 bbf, providing an additional $348,408 in assessment 
revenue. At exemptions of 15 mmbf, total assessable volume would 
increase by 1.164 bbf, providing an additional $407,444 in assessment 
revenue. At exemptions of 10 mmbf, total assessable volume would 
increase by 1.329 bbf, providing an additional $465,267 in assessment 
revenue.
    Thus, for all exemption levels considered, assessable volume ranged 
between almost 33 bbf and a little more than 37 bbf. Assessment revenue 
ranged between nearly $11.5 million and about $13 million. From its 
inception in 2012, the softwood lumber program has operated with 
assessment revenue ranging from $10.638 million in 2012 \16\ to $12.905 
million in 2015.\17\ These revenue figures represent the total 
assessments collected from domestic entities and importers with the 15 
mmbf de minimis exemption and the 15 mmbf equity exemption in place. 
The range of actual assessment revenue received by the Board from 2012 
to 2015 at de minimis and equity exemptions of 15 mmbf is similar to 
the estimates of assessment revenue collected at de minimis and equity 
exemptions of 30, 25, 20, 15, and 10 shown in Table 2. This is 
discussed further in the section titled Funding for a Viable Program. 
With no exemptions, total assessable volume would increase to 41.249 
bbf, providing an additional $1.423 million in assessment income 
($14.437 million total).
---------------------------------------------------------------------------

    \16\ Softwood Lumber Board, Financial Statements and 
Supplementary Information for the Year Ending December 31, 2012; 
Councilor Buchanan Mitchell, CPAs and Business Advisors; May 30, 
2013; p. 12.
    \17\ Letter from E. Albert Weber, CPA, Partner, RSM US LLC, 
dated February 22, 2017.
---------------------------------------------------------------------------

    Table 3 below is the inverse of Table 2 in that it shows exempt 
volume at de minimis and equity exemptions of 30, 25, 20, 15 and 10 
mmbf.
[GRAPHIC] [TIFF OMITTED] TP30MY17.005

    At an exemption level of 30 mmbf, 8 percent of the softwood lumber 
volume would be exempt as de minimis and 20 percent would be exempt in 
total (de minimis and equity exemptions); at an exemption of 25 mmbf, 7 
percent would be exempt as de minimis and 18 percent would be exempt in 
total; at an exemption of 20 mmbf, 5 percent would be exempt as de 
minimis and 16 percent would be exempt in total; at an exemption of 15 
mmbf, 4 percent would be exempt as de minimis and 13 percent would be 
exempt in total; and at an exemption of 10 mmbf, 3 percent would be 
exempt as de minimis and 10 percent would be exempt in total. Thus, the 
differences in the percent of softwood lumber exempt as de minimis at 
these different exemption thresholds ranges from 3 to 8 percent, and 
the percent exempt in total ranges from 10 to 20 percent. The percent 
of volume assessed, taking into account the de minimis and equity 
exemptions, ranges from 80 to 90 percent at the different exemption 
thresholds.
    In its analysis, USDA reviewed other programs with de minimis 
exemptions operating under the 1996 Act. There are ten programs, 
including softwood lumber, that are authorized under the 1996 Act. 
Eight of these ten programs exempt a de minimis quantity from 
assessment, with half currently exempting between 3 and 11 percent of 
total quantity covered by the program as de minimis. Thus, there is a 
demonstrated history of de minimis exemptions working in other 
industries. In reviewing the total volume exempt under the softwood 
lumber program (taking into account both the de minimis and equity 
exemptions), the exemption threshold of 10 mmbf would exempt 10 percent 
of total volume, which is comparable to other programs and the 
exemption threshold of 15 mmbf would exempt 13 percent which is not 
much higher than other programs. The higher exemption thresholds of 20 
to 30 mmbf exempt a higher total volume when compared with other 
programs.\18\
---------------------------------------------------------------------------

    \18\ USDA's review of other programs with a de minimis exemption 
was done only for the purpose of comparison, and not to imply that a 
de minimis exemption must be within a certain range. The 1996 Act 
specifies no methodology or formula for computing a de minimis 
threshold. A de minimis threshold must be appropriate for a 
respective industry.
---------------------------------------------------------------------------

Funding for a Viable Program

    The second factor used in evaluating a de minimis threshold for the 
softwood lumber program is the available funding to support a viable 
program. As shown in Table 2, assessment revenue would range from 
$11.482 million at an exemption threshold of 30 mmbf to $14.437 million 
with no exemption (a total difference of about $3 million). Lowering 
the exemption threshold creates more revenue for program activities 
because a greater volume of softwood lumber is subject to assessment. 
As stated previously, assessment revenue under the current softwood 
lumber program has ranged from about $10.638 million in 2012 to $12.905 
million in 2015. At this level of revenue, the current program has seen 
success, funding various programs to increase the use of softwood 
lumber in the built environment. The revenues estimated in Table 2 are 
comparable to these levels or higher. Thus, all of the exemption 
thresholds analyzed would generate sufficient revenue for a viable 
program.

[[Page 24591]]

Free Rider Implications

    Another factor used by USDA in determining a reasonable de minimis 
quantity for the softwood lumber program is consideration of free rider 
implications. Under a national research and promotion program, free 
riders are entities that benefit from the research and promotion 
activities of the program without paying assessments. Under this 
definition, free riders are the entities whose shipment or import 
volume is below the de minimis level and are exempt from paying 
assessments into the program.
    Table 4 below shows the number of entities (domestic manufacturers 
and importers) that would be assessed and exempt at the exemption 
thresholds of 30, 25, 20, 15 and 10 mmbf.
[GRAPHIC] [TIFF OMITTED] TP30MY17.006

    At an exemption level of 30 mmbf, 16 percent of domestic 
manufacturers and importers would pay assessments while 84 percent 
would be exempt; at 25 mmbf, 18 percent of entities would pay 
assessments while 82 percent would be exempt; at 20 mmbf, 20 percent 
would pay assessments while 80 percent would be exempt; at 15 mmbf, 24 
percent would pay assessments, while 76 percent would be exempt; at 10 
mmbf, 27 percent would be pay assessments while 73 percent would be 
exempt. With no exemption, all 1,054 entities, regardless of size, 
would pay assessments.
    This analysis shows that a small portion of softwood lumber 
manufacturers and importers ship or import the majority of the volume 
of softwood lumber in the industry. Most domestic manufacturers and 
importers ship or import relatively small volumes of product.
    The key to assessing the free rider implications of a de minimis 
quantity is not the number of entities exempt under a program (as shown 
in Table 4), but rather the volume of product exempt (as shown in Table 
3). This is because the statute authorizes the exemption of a quantity 
of a commodity, not a number of entities. Assessments are based on 
volume shipped or imported and not on the number of entities; 
assessments are not paid by entities on a pro rata basis. At the 30 
mmbf exemption level, 84 percent of the number of entities would be 
exempt, but only 8 percent of the volume would be exempt as de minimis. 
At the 25 mmbf exemption level, 82 percent of the number of entities 
would be exempt, but only 7 percent of the volume would be exempt as de 
minimis. At the 20 mmbf exemption level, 80 percent of the number of 
entities would be exempt, but only 5 percent of the volume would be 
exempt as de minimis. At the 15 mmbf exemption level, 76 percent of the 
number of entities would be exempt, but only 4 percent of the volume 
would be exempt as de minimis. At the 10 mmbf exemption level, 73 
percent of the number of entities would be exempt, but only 3 percent 
of the volume would be exempt as de minimis. With no de minimis, all 
1,054 entities would pay assessment on all 41.249 bbf volume of 
softwood lumber.
    The equity exemption would reduce the impact of free riders on the 
program because it reduces the assessment burden on assessment payers. 
Without this exemption, assessment payers would pay more, thereby 
increasing the free rider impact. For example, if the thresholds for de 
minimis and equity exemptions were 10 mmbf, Company A that ships 8 mmbf 
annually would pay no assessments, and Company B that ships 30 mmbf 
annually would have to pay assessments on 20 mmbf of softwood lumber. 
At an assessment rate of $0.35 per thousand board feet, this would 
compute to $7,000 in assessments. Without the equity exemption, Company 
A would still pay no assessments but Company B would have to pay 
assessments on 30 mmbf. This would compute to $10,500 in assessments, 
which is an additional burden of $3,500. Thus, the equity exemption 
reduces the burden of free riders on entities funding the program. It 
creates fairness because it exempts from assessment an equal volume 
from all entities, regardless of their size.
    Thus, based upon this analysis of free rider implications, any of 
the exemption thresholds reviewed would be reasonable because they 
would exempt from 3 to 8 percent of the volume of softwood lumber as de 
minimis. The equity exemption helps to reduce the free rider impact on 
the program by reducing the assessment burden equally on assessment 
payers.
    Further, generic promotion, research and information activities for 
agricultural commodities play a unique role in advancing the demand for 
such commodities, since such activities increase the total market for a 
product to the benefit of consumers and all producers. These generic 
activities can be of particular benefit to small producers who lack the 
resources or market power to advertise on their own. As contemplated by 
the 1996 Act, generic activities increase the general market demand for 
an agricultural commodity. For small manufacturers and importers, the 
benefit of increased market demand for softwood lumber would only be as 
great as their production capacities. Therefore, while generic 
promotion activities are of

[[Page 24592]]

particular benefit to small manufacturers and importers, increased 
demand will also disproportionately benefit large manufacturers and 
importers as they will have greater resources (production capacity) to 
take full advantage of that increased demand.

Impact of Program Requirements

    The fourth factor analyzed by USDA in determining a reasonable de 
minimis quantity for this program is consideration of the impact of 
program requirements on entities covered under a research and promotion 
program. As previously mentioned, the softwood lumber Order prescribes 
assessment and reporting obligations for domestic manufacturers and 
importers of softwood lumber. Entities that domestically ship or import 
at or above the de minimis threshold must pay assessments to the Board. 
The current assessment rate is $0.35 per thousand board feet; it can be 
increased to a maximum rate of $0.50 per thousand board feet by notice 
and comment rulemaking.
    To calculate the impact of the assessment rate on the revenue of an 
assessment payer, the assessment rate is divided by an average price. 
Using an average 2015 price of $330 per thousand board feet,\19\ the 
assessment rate as a percentage of price could range from 0.106 percent 
at the current assessment rate to 0.151 percent at the maximum 
assessment rate. This analysis helps identify the impact of the 
assessment rate on the revenues of assessment payers. At the current 
assessment rate of $0.35 per thousand board feet to the maximum 
assessment rate of $0.50 per thousand board feet, assessment payers 
would owe between 0.106 percent and 0.151 percent of their revenues, 
respectively.
---------------------------------------------------------------------------

    \19\ Random Lengths Publications, Inc.; www.randomlengths.com.
---------------------------------------------------------------------------

    Entities that pay assessments must also submit a report to the 
Board each quarter of the volume of softwood lumber shipped or imported 
for the respective quarter. Further, entities that ship or import less 
than the de minimis threshold must apply to the Board each year for a 
certificate of exemption and provide documentation as appropriate to 
support their request. The reporting and record keeping burdens are 
detailed later in this document in the section titled Paperwork 
Reduction Act.
    Additionally, the Board has implemented a process under the Order 
to help ensure compliance with Order provisions. Board staff reviews 
and analyzes Customs data provided by USDA to verify import 
assessments.\20\ For domestic manufacturers, the Board conducts 
periodic mail audits whereby manufacturers must submit documents to 
Board staff to verify assessments paid. Entities that ship or import 
less softwood lumber than the de minimis threshold and have received a 
certificate of exemption from the Board are relieved of this audit 
burden.
---------------------------------------------------------------------------

    \20\ Pursuant to a Memorandum of Understanding between USDA and 
Customs, USDA provides Board staff raw, unmodified Customs data. 
Board staff identifies the data for each importing entity that 
should pay assessments, makes modifications as appropriate, and 
compares that volume with the volume for which the importer paid 
assessments.
---------------------------------------------------------------------------

    As shown in Table 4, at an exemption threshold of 30 mmbf, 172 
entities would pay assessments and 882 would be exempt; at 25 mmbf, 13 
additional entities would pay assessments and the number of exempt 
entities would be reduced by 13; at 20 mmbf, 30 additional entities 
would pay assessments and the number of exempt entities would be 
reduced by 30; at 15 mmbf, an additional 40 entities would pay 
assessments and the number of exempt entities would be reduced by 40; 
at 10 mmbf, an additional 28 entities would pay assessments and the 
number of exempt entities would be reduced by 28. Thus, as the 
exemption threshold is reduced, more entities would be subject to the 
Order's assessment and quarterly reporting obligation, and the Board's 
mail audit program. Conversely, as the exemption threshold increases, 
fewer entities would have to pay assessments, submit quarterly reports, 
and participate in the Board's audit program.
    Further, a de minimis quantity exemption helps to reduce compliance 
costs under a research and promotion program. Compliance costs are an 
administrative cost to the Board, and section 1217.50(h) of the 
softwood lumber Order limits the Board's administrative expenses to 8 
percent of the assessment and other income received by and available to 
the Board for a fiscal year. According to the Board, for 2015, 
compliance costs totaled $226,240 which computes to less than 2 percent 
of the Board's assessment revenue. These compliance costs are routine 
and include the amount of time the Board spends tracking and verifying 
assessments paid as well as educating industry members on program 
obligations. The costs of pursuing a compliance case against an entity 
that owes assessments to the Board varies depending upon the complexity 
of the case.
    Under the softwood lumber program, the de minimis threshold exempts 
the small manufacturer that, according to FEA, typically sells into 
markets that are specialized or very local. Based on its knowledge of 
other research and promotion programs, USDA estimates the current cost 
of an on-site audit of a single entity at $5,000 or more, depending 
upon travel and time involved. Thus, the cost to pursue a compliance 
case against an entity that shipped less than 10 mmbf, 9 mmbf for 
example, would outweigh the revenue that would be collected from that 
entity of $3,150.\21\ The point at which the assessment revenue that 
would be collected from an entity outweighs the estimated cost of 
$5,000 to pursue a compliance case is an entity with volume equal to or 
greater than 14.3 mmbf.\22\ This level is close to 15 mmbf. As can be 
determined from the data in Table 2, the total additional revenue that 
would be collected from exempt entities that ship or import less than 
the 15 mmbf de minimis would be $1.888 million. The compliance costs to 
pursue these additional payments, however, would be more than double 
the sum of additional assessment revenue that would be collected.
---------------------------------------------------------------------------

    \21\ This figure is computed by multiplying the assessment rate 
of $0.35 per thousand board feet by 9 mmbf.
    \22\ This figure is computed by dividing the estimated cost to 
pursue a compliance case against an entity of $5,000 by the 
assessment rate of $0.35 per thousand board feet.
---------------------------------------------------------------------------

USDA's Proposed 15 MMBF De Minimis Exemption Threshold

    Because no de minimis quantity is specified in the 1996 Act, it is 
within the Secretary's discretion to determine an appropriate level for 
each program. There is no formula or economic framework that points to 
a single de minimis threshold. Thus, USDA considers a range of 
quantities that could be de minimis. Table 3, for example, shows a 
range of volumes from 10 to 30 mmbf that could be considered de minimis 
under the softwood lumber Order because they only exempt 3 to 8 percent 
of the total volume, respectively, as de minimis. USDA evaluated these 
volumes using four factors--an estimate of the quantity assessed versus 
the quantity exempted; funding to support a viable program; free rider 
implications; and the impact of program requirements. USDA's goal is to 
identify a de minimis quantity that reasonably balances these factors, 
and to assess whether one exemption threshold would work better than 
another when the factors are considered collectively.
    Based on the analysis contained herein, USDA has determined the 
following. Exemption thresholds of 10 to 15 mmbf would exempt 10 to 13

[[Page 24593]]

percent of the total volume of softwood lumber (taking into account 
both the de minimis and equity exemptions). This is close to the range 
exempt under other research and promotion programs. While all of the 
exemption thresholds analyzed would generate sufficient revenue for a 
viable program, the additional revenue that could be collected if the 
de minimis level were reduced much lower than 15 mmbf would likely not 
be worth the additional costs. At this threshold, free rider 
implications would be minimal because only 4 percent of the volume of 
softwood lumber would be exempted as de minimis. Applying both the de 
minimis and equity exemptions at 15 mmbf would allow the program to 
assess almost 90 percent of the total volume of softwood lumber.
    Further, the program functioned successfully in 2015 with 
assessment revenue of $12.905 million with de minimis and equity 
exemptions of 15 mmbf. The Board has conducted activities at this level 
of funding that have helped build demand for softwood lumber, including 
a prize competition for tall wood buildings, research on wood 
standards, and an education program for architects and engineers on 
building with wood. An independent evaluation completed in 2016 
concluded that activities of the Board increased sales of softwood 
lumber between 2011 and 2015 by 1.683 bbf or $596 million. This equates 
to a return on investment of $15.55 of additional sales for every $1 
spent on promotion by the Board.\23\
---------------------------------------------------------------------------

    \23\ Prime Consulting, Softwood Lumber Board, Comprehensive 
Program ROI, 2012-2015, February 2016.
---------------------------------------------------------------------------

    Therefore, when considering all of the factors collectively, USDA 
has determined that a de minimis quantity of 15 mmbf would work better 
than the other thresholds reviewed. USDA concludes that 15 mmbf is a 
reasonable de minimis quantity under the softwood lumber Order. 
Accordingly, this proposed rule would establish the de minimis quantity 
threshold under the Order at 15 mmbf. Thus, USDA is not proposing any 
amendment to part 1217.

Initial Regulatory Flexibility Act Analysis

    In accordance with the Regulatory Flexibility Act (RFA) (5 U.S.C. 
601-612), AMS is required to examine the impact of this proposed rule 
on small entities as defined by the Small Business Administration 
(SBA). The classification of a business as small, as defined by the 
SBA, varies by industry. If a business is defined as ``small'' by SBA 
size standards, then it is ``eligible for government programs and 
preferences reserved for `small business' concerns.'' \24\ Accordingly, 
AMS has considered the economic impact of this action on such entities.
---------------------------------------------------------------------------

    \24\ https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/small-business-size-regulations.
---------------------------------------------------------------------------

    The purpose of the RFA is to fit regulatory actions to the scale of 
businesses subject to such actions so that small businesses will not be 
disproportionately burdened. The SBA defines, in 13 CFR part 121, small 
agricultural producers as those having annual receipts of no more than 
$750,000 and small agricultural service firms (domestic manufacturers 
and importers) as those having annual receipts of no more than $7.5 
million.\25\
---------------------------------------------------------------------------

    \25\ SBA does have a small business size standard for 
``Sawmills'' of 500 employees (see https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf). Based on USDA's 
understanding of the lumber industry, using this criteria would be 
impractical as sawmills often use contractors rather than employees 
to operate and, therefore, many mills would fall under this criteria 
while being, in reality, a large business. Therefore, USDA used 
agricultural service firm as a more appropriate criteria for this 
analysis.
---------------------------------------------------------------------------

    Using an average price of $330 per thousand board feet, a domestic 
manufacturer or importer who ships less than about 23 mmbf per year 
would be considered a small entity for purposes of the RFA. As shown in 
Table 4, there were 1,054 domestic manufacturers and importers of 
softwood lumber based on 2015 data. Of these, 864 entities shipped or 
imported less than 23 mmbf and would be considered to be small entities 
under the SBA definition. Thus, based on the $7.5 million threshold, 
the majority of domestic manufacturers and importers of softwood lumber 
would be considered small entities for purposes of the RFA.
    This action proposes to establish a de minimis quantity exemption 
threshold under the Order. The Order is administered by the Board with 
oversight by USDA. In response to a federal district court decision in 
Resolute, USDA conducted a new analysis to determine a reasonable and 
appropriate de minimis threshold. Based on this analysis, this proposal 
would establish the de minimis quantity threshold at 15 mmbf and 
entities manufacturing (and domestically shipping) or importing less 
than 15 mmbf per year would be exempt from paying assessments under the 
Order. Authority for this action is provided in sections 516(a)(2), 
516(g) and 525 of the 1996 Act.
    Regarding the economic impact of the de minimis exemption, the 
exemption allows the Board to exempt from assessment small entities 
that would be unduly burdened from the program's obligations. At the 
proposed exemption threshold, small manufacturers and importers that 
domestically ship or import less than 15 mmbf of softwood lumber would 
not have to pay assessments under the program.
    Additionally, larger manufacturers and importers would not have to 
pay assessments on the first 15 mmbf of softwood lumber domestically 
shipped or imported each year. This exemption is intended for the 
purpose of equity, whereby all entities who must pay assessments may 
reduce their assessable volume by 15 mmbf. This exemption benefits 
smaller manufacturers and importers whose annual shipments or imports 
are above the de minimis threshold of 15 mmbf. With this exemption, an 
entity that ships or imports a quantity of softwood lumber equal to the 
RFA-small business definition of 23 mmbf, for example, would only pay 
assessments on no more than 8 mmbf of softwood lumber.
    As previously stated, to calculate the impact of the assessment 
rate on the revenue of an assessment payer, the assessment rate is 
divided by an average price. Using an average 2015 price of $330 per 
thousand board feet, the assessment rate as a percentage of price could 
range from 0.106 percent at the current assessment rate to 0.151 
percent at the maximum assessment rate. This analysis helps identify 
the impact of the assessment rate on the revenues of assessment payers. 
At the current assessment rate of $0.35 per thousand board feet to the 
maximum assessment rate of $0.50 per thousand board feet, assessment 
payers would owe between 0.106 percent and 0.151 percent of their 
revenues, respectively.
    In its analysis of alternatives, USDA evaluated five different 
exemption thresholds--30, 25, 20, 15 and 10 mmbf using 2015 data--
accounting for both the de minimis and equity exemptions, as well as 
having no exemptions under the program. USDA evaluated these 
alternatives based on the following factors: An estimate of quantity of 
softwood lumber covered under the program (quantity assessed and 
quantity exempted); available funding to support a viable program; free 
rider implications; and the impact of program requirements on entities 
(above and below a de minimis threshold). USDA conducted a balancing 
test among these factors to assess whether one exemption threshold 
works better than another when the factors are considered collectively.

[[Page 24594]]

    In reviewing the quantity of assessable versus exempt softwood 
lumber at the alternative exemption thresholds, USDA found that at an 
exemption threshold of 30 mmbf, a total of 32.805 bbf would be assessed 
with 3.284 bbf, or 8 percent, exempt as de minimis, plus an additional 
5.16 bbf exempt as equity for 20 percent of total volume exempt; at 25 
mmbf, a total of 33.694 bbf would be assessed with 2.93 bbf, or 7 
percent, exempt as de minimis, plus an additional 4.625 bbf exempt as 
equity for 18 percent total volume exempt; at a threshold of 20 mmbf, a 
total of 34.69 bbf would be assessed with 2.259 bbf, or 5 percent, 
exempt as de minimis, plus an additional 4.3 bbf exempt as equity for 
16 percent total volume exempt; at a threshold of 15 mmbf, a total of 
35.854 bbf would be assessed with 1.57 bbf, or 4 percent, exempt as de 
minimis, plus an additional 3.825 bbf exempt as equity for 13 percent 
total volume exempt; at a threshold of 10 mmbf, a total of 37.183 bbf 
would be assessed, with 1.236 bbf, or 3 percent, exempt as de minimis, 
plus an additional 2.83 bbf exempt as equity for 10 percent total 
volume exempt; and with no exemptions, a total of 41.249 bbf would be 
assessed. In reviewing the total volume exempt under the softwood 
lumber program (taking into account both the de minimis and equity 
exemptions), thresholds of 10 to 15 mmbf exempt between 10 and 13 
percent of the volume, which is close to the range exempt under other 
programs.
    In reviewing available funding to support a viable program at the 
alternative exemption thresholds, at an exemption threshold of 30 mmbf, 
estimated assessment revenue is $11.482 million; at 25 mmbf, estimated 
assessment revenue is $11.793 million (an additional $311,243); at a 
threshold of 20 mmbf, estimated assessment revenue is $12.141 million 
(an additional $348,408); at a threshold of 15 mmbf, estimated 
assessment revenue is $12.549 million (an additional $407,444); at a 
threshold of 10 mmbf, estimated assessment revenue is $13.014 million 
(an additional $465,267); and with no exemptions, estimated assessment 
revenue is $14.437 million (an additional $1.423 million).
    Assessment revenue under the current softwood lumber program has 
ranged from about $10.638 million in 2012 to $12.905 million in 2015. 
At this level of revenue, the current program has seen success. The 
revenues reviewed at the different exemption thresholds are comparable 
to these levels or higher. Thus, all of the exemption thresholds 
analyzed would generate sufficient revenue for a viable program.
    Regarding free riders, USDA notes that the key to assessing the 
free rider implications of a de minimis quantity is not the number of 
entities exempt under a program but rather the volume of product 
exempt. This is because assessments are based on volume shipped or 
imported and not on the number of entities; assessments are not paid by 
entities on a pro rata basis. In evaluating free rider implications at 
the alternative exemption thresholds, at an exemption threshold of 30 
mmbf, 84 percent of the number of entities (or 882) would be exempt but 
only 8 percent of the volume would be exempt as de minimis; at a 
threshold of 25 mmbf, 82 percent of the number of entities (or 869) 
would be exempt, but only 7 percent of the volume would be exempt as de 
minimis; at a threshold of 20 mmbf, 80 percent of the number of 
entities (or 839) would be exempt, but only 5 percent of the volume 
would be exempt as de minimis; at a threshold of 15 mmbf, 76 percent of 
the number of entities (or 799) would be exempt, but only 4 percent of 
the volume would be exempt as de minimis; and at a threshold of 10 
mmbf, 73 percent of the number of entities (or 771) would be exempt, 
but only 3 percent of the volume would be exempt as de minimis.
    In evaluating the impact of the program's requirements at the 
alternative exemption thresholds, entities that ship or import at or 
above the de minimis threshold must pay assessments to the Board. 
Assessment payers must also submit a report to the Board each quarter 
of the volume of softwood lumber shipped or imported for the respective 
quarter. Entities that ship or import below the de minimis threshold 
must apply to the Board each year for a certificate of exemption and 
provide documentation as appropriate to support their request. The 
reporting and recordkeeping requirements are detailed in the section 
below titled Paperwork Reduction Act.
    At an exemption threshold of 30 mmbf, 172 entities would pay 
assessments and 882 would be exempt; at 25 mmbf, 185 entities would pay 
assessments and 869 would be exempt; at 20 mmbf, 215 entities would pay 
assessments and 839 would be exempt; at 15 mmbf, 255 entities would pay 
assessments and 799 would be exempt; at 10 mmbf, 283 entities would pay 
assessments and 771 would be exempt. Thus, as the exemption threshold 
is reduced, more entities would be subject to the Order's assessment 
and quarterly reporting obligation.
    Further, in considering program compliance costs, USDA estimates 
the cost of an on-site audit of a single entity at $5,000 or more. 
Thus, the cost to pursue a compliance case against an entity that 
shipped less than 10 mmbf, 9 mmbf for example, would outweigh the 
revenue that would be collected from that entity of $3,150. Similarly, 
the assessment revenue that would be collected from an entity that 
shipped less than 15 mmbf, 12 mmbf for example, would amount to $4,200. 
The benefit of assessing smaller manufacturers, $3,150 at 9 mmbf and 
$4,200 at 12 mmbf, does not outweigh the cost of pursuing compliance 
cases against them at $5,000 per entity. The point at which the 
assessment revenue that would be collected from an entity outweighs the 
estimated cost of $5,000 to pursue a compliance case is an entity with 
volume equal to or greater than 14.3 mmbf.\26\ This level is close to 
15 mmbf. By this analysis, the selection of 15 mmbf as the de minimis 
quantity is reasonable.
---------------------------------------------------------------------------

    \26\ This figure is computed by dividing the estimated cost to 
pursue a compliance case against an entity of $5,000 by the 
assessment rate of $0.35 per thousand board feet.
---------------------------------------------------------------------------

    Analysis of the 23 mmbf-RFA small business threshold as a 
reasonable option for de minimis shows that 190 entities would be 
subject to assessment and 864 entities would be exempt. In terms of 
volume, 38.44 bbf would be assessed, or 93 percent of total volume, and 
2.809 bbf would be exempt, or 7 percent of total volume.
    Based upon the analysis contained herein, any of the exemption 
threshold reviewed would be reasonable because they would exempt from 3 
to 8 percent of the volume of softwood lumber as de minimis. However, 
when the total volume exempt under the softwood lumber program is 
considered (taking into account both the de minimis and equity 
exemptions), thresholds of 10 to 15 mmbf exempt between 10 and 13 
percent of the volume, which is close to the range exempt under other 
programs. While all of the exemption thresholds would generate 
sufficient revenue for a viable program, the additional revenue that 
could be collected if the de minimis level were reduced much lower than 
15 mmbf would likely not be worth the additional costs. The softwood 
lumber program operated successfully since its inception at an 
exemption threshold of 15 mmbf.\27\
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    \27\ An independent evaluation of the softwood lumber program 
showed that the activities of the Board increased sales of softwood 
lumber between 2011 and 2015 by 1.683 bbf or $596 million. This 
equates to a return on investment of $15.55 of additional sales for 
every $1 spent on promotion by the Board. By this metric, the Order 
to-date has been effective. USDA therefore finds that 15 mmbf is a 
reasonable exemption level for de minimis.

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[[Page 24595]]

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35), the information collection and recordkeeping requirements 
imposed by the Order have been approved previously under OMB control 
number 0581-0093. This proposal imposes no additional reporting and 
recordkeeping burden on domestic manufacturer and importers of softwood 
lumber. The reporting requirements pertaining to this proposed rule are 
described in the following paragraphs.
    As previously mentioned, pursuant to section 1217.53(a) of the 
Order, domestic manufacturers and importers who domestically ship or 
import less than the de minimis threshold must apply to the Board each 
year for a certificate of exemption and provide documentation as 
appropriate to support their request. The reporting burden for this 
collection of information is estimated to average 0.25 hours per 
domestic manufacturer or importer per report, or 0.25 hours per year (1 
request per year per exempt entity). This computes to a total annual 
burden of 199.75 hours (0.25 hours times 799 exempt entities at the 15 
mmbf de minimis exemption threshold from Table 4).
    Further, pursuant to section 1217.70 of the Order, domestic 
manufacturers and importers that ship or import at or over the de 
minimis exemption level and pay their assessments directly to the Board 
must submit a shipment/import report for each quarter when assessments 
are due. The reporting burden for this collection of information is 
estimated to average 0.5 hours per domestic manufacturer or importer 
per report, or 2 hours per year (4 reports per year times 0.5 hours per 
report). This computes to a total annual burden of 510 hours (255 
assessed entities (from Table 4--No. of Assessed Entities at 15 mmbf) 
at 2 hours each equals 510 hours).
    All domestic manufacturers and importers must also maintain records 
sufficient to verify their reports. The recordkeeping burden for 
keeping this information is estimated to average 0.5 hours per record 
keeper maintaining such records, or 527 hours (1,054 total entities 
assessed (from Table 4--No. of Assessed Entities at no exemption) times 
0.5 hours).
    As with all Federal promotion programs, reports and forms are 
periodically reviewed to reduce information requirements and 
duplication by industry and public sector agencies. Finally, USDA has 
not identified any relevant Federal rules that duplicate, overlap, or 
conflict with this proposed rule.
    USDA is committed to complying with the E-Government Act, to 
promote the use of the internet and other information technologies to 
provide increased opportunities for citizen access to Government 
information and services, and for other purposes.
    Regarding outreach efforts, USDA initiated this action in response 
to a May 2016 federal court decision in Resolute. USDA proposes to 
establish the de minimis quantity exemption under the softwood lumber 
Order as contained herein.
    We have performed this initial RFA analysis regarding the impact of 
the proposed action on small entities and we invite comments concerning 
the potential effects of this action.
    USDA has determined that this proposed rule is consistent with and 
would effectuate the purposes of the 1996 Act.
    A 60-day comment period is provided to allow interested persons to 
respond to this proposed rule. All written comments received in 
response to this proposed rule by the date specified will be 
considered.

List of Subjects in 7 CFR Part 1217

    Administrative practice and procedure, Advertising, Consumer 
information, Marketing agreements, Promotion, Reporting and 
recordkeeping requirements, Softwood lumber.

    The authority citation for 7 CFR part 1217 continues to read as 
follows:

    Authority: 7 U.S.C. 7411-7425; 7 U.S.C. 7401.

    Dated: May 23, 2017.
Bruce Summers,
Acting Administrator.
[FR Doc. 2017-10997 Filed 5-26-17; 8:45 am]
BILLING CODE 3410-02-P