AGENCY:

Agricultural Marketing Service.

ACTION:

Final rule.

SUMMARY:

This rule changes the membership, nominations, procedures, and continuance referenda period for the Softwood Lumber Board (Board) established under the Softwood Lumber Research, Promotion, Consumer Education and Industry Information Order (Order). The Board administers the Order with oversight by the U.S. Department of Agriculture (USDA). This action will also make administrative changes to other provisions of the Order.

DATES:

Effective Date: October 25, 2019.

FOR FURTHER INFORMATION CONTACT:

Andrea Ricci, Marketing Specialist, Promotion and Economics Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW, Room 1406-S, Washington, DC 20250; telephone: (202) 572-1442; facsimile (202) 205-2800; or electronic mail: Andrea.Ricci@usda.gov.

SUPPLEMENTARY INFORMATION:

This rule affecting 7 CFR part 1217 (the Softwood Lumber Research, Promotion, Consumer Education and Industry Information (Order)) is authorized under the Commodity Promotion, Research, and Information Act of 1996 (1996 Act) (7 U.S.C. 7411-7425).

Executive Orders 12866, 13563, and 13771

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 regulation would not have substantial and direct effects on Tribal governments and would not have significant Tribal implications.

Executive Order 12988

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have retroactive effect. Section 524 of the 1996 Act (7 U.S.C. 7423) provides that it shall not affect or preempt any other Federal or State law authorizing promotion or research relating to an agricultural commodity.

Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), the Office of Information and Regulatory Affairs designated this rule as not a major rule, as defined by 5 U.S.C. 804(2).

Under section 519 of the 1996 Act (7 U.S.C. 7418), a person subject to an order may file a written petition with USDA stating that an order, any provision of an order, or any obligation imposed in connection with an order, is not established in accordance with the law, and request a modification of an order or an exemption from an order. Any petition filed challenging an order, any provision of an order, or any obligation imposed in connection with an order, shall be filed within two years after the effective date of an order, provision, or obligation subject to challenge in the petition. The petitioner will have the opportunity for a hearing on the petition. Thereafter, USDA will issue a ruling on the petition. The 1996 Act provides that the district court of the United States for any district in which the petitioner resides or conducts business shall have the jurisdiction to review a final ruling on the petition, if the petitioner files a complaint for that purpose not later than 20 days after the date of the entry of USDA's final ruling.

Background

This rule changes the Board's membership, nominations, procedures, and continuance referenda period under the Order. The Board administers the Order with oversight by USDA. Under the Order, assessments are collected from manufacturers and importers and used for projects to promote softwood lumber within the United States. This rule reduces the number of Board members from 19 to 14, revises the nomination procedures, and revises the quorum and voting procedures. This rule also revises the time frame for periodic continuance referenda from five to seven years. Finally, this rule makes clarifying and conforming changes to other provisions of the Order. All of these changes will help facilitate program operations and were recommended to the Secretary by the Board at its November 28, 2018 meeting.

Board Membership and Geographical Distribution

Pursuant to § 1217.40(b), the Board is composed of 18 or 19 members, depending upon whether an additional importer member is appointed to the Board. Seats on the Board are apportioned based on the volume of softwood lumber manufactured and shipped within the United States by domestic manufacturers and the volume of softwood lumber imported into the United States. Seats are also apportioned based on size of operation within each geographic region as specified herein. Large manufacturers are those who account for the top two-thirds of the total annual volume of assessable softwood lumber and small manufacturers are those who account for the remaining one-third of the total annual volume of assessable softwood lumber, based on a three-year average.

Table 1 shows the current structure of the Board. Of the 19 total Board seats, 12 are held by domestic manufacturers and seven are held by importers, six of whom are Canadian. Of the 12 domestic manufacturers, six represent the U.S. South (two large and four small), five represent the U.S. West (four large and one small), and one represents the Northeast and Lake States. Of the six Canadian importers, four represent Canada West (three large and one small) and two represent Canada East (one large and one small). An additional importer member may be appointed to represent all other importing countries other than Canada.

Section 1217.40(c)(1) requires that, in each five-year period, the Board review, based on a three-year average, the geographical distribution of the volume of softwood lumber manufactured and shipped within the United States by domestic manufacturers and the volume of softwood lumber imported into the United States. Section 1217.40(c)(2) requires that the Board also review, based on a three-year average, the distribution of the size of operations within each region. Section 1217.40(c)(3) specifies that, if warranted, the Board may recommend to the Secretary the reapportionment of its membership to reflect changes in the geographical distribution of the volume of softwood lumber manufactured and shipped within the United States by domestic manufacturers and the volume of softwood lumber imported into the United States. The number of Board members may also be changed. Any changes in Board composition shall be implemented by the Secretary through rulemaking.

Pursuant to § 1217.40, the Board evaluated the geographic distribution of softwood lumber by region, based on a three-year average (2015-2017). The Board utilized data from Forest Economic Advisors ^[1] to evaluate the regional distribution of assessable softwood lumber. The results of this evaluation are shown in Table 2. Based on a three-year average (2015-2017), the volume of assessed softwood lumber was largest in the U.S. South and U.S. West regions, at 36 percent and 30 percent, respectively, of the total assessed volume over all regions. Canada West followed with 20 percent of the total assessed volume. In these three regions, assessed volume by large entities made up the majority of assessed regional volume. In all other regions, assessed volume by small entities was either equal to or greater than the assessed volume by large entities.

From this evaluation, the Board recommended revising the Board membership from 19 current seats to 14 seats for the 2021 term of office, of which six members must represent large manufacturers or importers, four must represent small manufacturers or importers, and four may represent any size manufacturers or importers. Of the four representing any size manufacturer or importer, at least two of these members must represent small manufacturers or importers. The Board recommended adding more flexibility to the Order in terms of certain seats being open to representatives of any size manufacturer or importer. This will allow the Board to better adjust in the future to shifts in the size of operations within a region.

The Board also took into consideration the consolidation in the softwood lumber industry since the inception of the Order. The Board has indicated that the number of companies eligible to be represented on the Board has declined. According to the Board, there were about 290 entities eligible to be represented on the Board in 2013, and about 210 entities in 2018. The Board has faced challenges securing enough nominees for membership on the Board. This compelled the Board to consider a reduction in Board membership.

The Board seats are revised as follows: Ten domestic manufacturers seats, of which five members must be from the U.S. South Region (two large, two small, and one manufacturer of any size), four members must be from the U.S. West Region (two large, one small, and one manufacturer of any size), and one member from the Northeast and Lake States Region. Importers will have four seats on the Board (two large, one small, and one importer of any size) with a minimum of two from Canada West Region, a minimum of one from Canada East Region and the remaining member may be from Canada West, Canada East or offshore Regions. Table 3 illustrates this categorization of seats in the revised Board structure.

As the Board conducted the evaluation pursuant to § 1217.40, it also made a recommendation to align § 1217.40(a) and (c)(1) and (3) with section 515(b)(3) of the 1996 Act. (7 U.S.C. 7414(b)(3)). Section 1217.40(a) clarifies that the Board shall be apportioned based on the volume of softwood lumber production that is manufactured and shipped within the United States by domestic manufacturers. Section 1217.40(c)(1) and (3), respectively, specify that the Board shall review, based on a three-year average, the geographical distribution of the volume of softwood lumber produced and shipped within the United States by domestic manufacturers, and that the Board shall make recommendations to revise its structure based on this review.

Additionally, the Board recommended that U.S. Board members reside in the region they represent. This will ensure that entities from outside the U.S. that own softwood lumber entities within the U.S. could represent a U.S. region on the Board only if the individual seeking nomination resides in the respective region. The Board will review the USDA Advisory Committee on Research and Promotion Background Information Form AD-755 to determine in which Region each nominee resides.

According to the Board, this action should make the reduced number of seats easier to fill and reflect the current distribution of the industry.

The Board recommended a transitional approach to reduce the Board from 19 members to 14 members over a three-year period. The 2019 Board currently has 19 members. The 2020 Board will have 16 members consisting of five domestic manufacturer members representing the U.S. South Region (two large and three small), five representing the U.S. West Region (four large and one small) and one representing the Northeast and Lake States. Of the five Canadian importers (three large and two small), there will be three from the Canada West Region and two from the Canada East Region. The non-Canadian importer seat will not be filled in 2020 (when the current member reaches tenure).

The 2021 Board will have 14 members consisting of five domestic manufacturer members representing the U.S. South Region (two large, two small and one manufacturer of any size), four members representing the U.S. West Region (two large, one small and one manufacturer of any size) and one representing the Northeast and Lake States. Of the four Canadian importers (two large, one small and one importer of any size), there will be two from the Canada West Region and one from the Canada East Region. The remaining member may be from Canada West, Canada East or offshore Regions.

Nomination Procedures

Section 1217.41 establishes the procedures for the conduct of nominations to obtain Board nominees for appointment by the Secretary. The Board recommended to remove the procedures in § 1217.41(a) regarding the initial nominations to select the nominees for the initial Board in 2011. Section 1217.41(b) establishes an election process for nominations. In order to secure more nominees for Board seats, the Board recommended removing the election process from its nomination procedures.

The nomination procedure provides that the Board conduct outreach and solicit nominees who are interested in serving on the Board. A nominee could seek nomination to the Board for all seats for which he or she is qualified. The Board will evaluate all nominees and submit one recommended candidate for each open seat and one additional nominee for each open seat to the Secretary for consideration. Other qualified persons interested in serving in the open seats but not recommended by the Board will be designated as other nominees for consideration by the Secretary. From the nominations made, the Secretary would appoint members of the Board.

Finally, the Board recommended a clarification to § 1217.41(b)(7) that specifies no two members shall be employed by a single corporation, company, partnership, or any other legal entity, includes subsidiaries and affiliates thereof. Section 1217.41 will be revised accordingly.

Quorum and Voting Procedures

Section 1217.44 specifies the quorum and voting procedures for the Board based on the current 19 Board members. The Board's recommendation is to revise these provisions from specific number requirements needed for a quorum and for votes to a general term “majority” that could apply to any size Board. Thus, the Board recommended these conforming changes to complement the reduction in Board membership. Section 1217.44 will be revised accordingly.

Continuance Referenda Period

Section 1217.81(b) specifies that the Secretary conduct a referendum of the industry for the purpose of ascertaining whether manufacturers for the U.S. market favor the continuation of the Order. The first continuance referendum was held in 2018, and 78 percent of the voters representing 94 percent of the volume voted supported continuance of the Order. The Board recommended that the period between referenda be extended from five to seven years for the purpose of efficiency. The Board would incur costs associated with referenda once every seven years rather than every five years. The Order would still permit referenda to be held at the request of the Board; at the request of 10 percent or more of the number of persons eligible to vote in a referendum; and at any time as determined by the Secretary, pursuant to § 1217.81(b)(3), (4) and (5), respectively. Section 1217.81(b) will be revised accordingly.

This rule also makes minor changes to §§ 1217.52(h) and 1217.101(l), by updating the Harmonized Tariff Schedule (HTS) number codes. The HTS number codes are periodically updated by the United States Internal Trade Commission. Finally, this rule changes the OMB control number assigned to the previously approved information collection referenced in §§ 1217.88 and 1217.108 from 0581-0264 to 0581-0093, the correct control number assigned by OMB.

Final Regulatory Flexibility Act Analysis

In accordance with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), AMS is required to examine the impact of the rule on small entities. Accordingly, AMS has considered the economic impact of this action on such entities.

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 Small Business Administration (SBA) defines, in 13 CFR part 121, small agricultural service firms (domestic manufacturers and importers) as those having annual receipts of no more than $7.5 million.^[2] The Random Lengths yearly average framing lumber composite price was $460 per thousand board feet in 2018.^[3] Dividing the $7.5 million threshold that defines an agricultural service firm as small by this price results in a maximum threshold of 16.3 million board feet (mmbf) of softwood lumber per year that a domestic manufacturer or importer may ship to be considered a small entity for purposes of the RFA. Table 4 shows the number of entities and the amount of volume they represent that may be categorized as small or large based on the SBA definition.

As shown in Table 4, there were a total of 1,383 domestic manufacturers and importers of softwood lumber based on 2018 data. Of these, 931 entities, or 67 percent, shipped or imported less than 16.3 mmbf and would be small entities under the SBA definition. These 931 entities domestically manufactured or imported 2.07 billion board feet (bbf) in 2018, less than 3 percent of total volume. The reduction in Board seats and other administrative changes will not disproportionately burden small domestic manufacturers and importers of softwood lumber.

This rule revises the Board's membership, nominations, procedure, and continuance referenda period provisions under the Order. Section 1217.40 is revised to reduce the number of Board members from 19 to 14 and reflects the diversity of the industry in terms of geographical distribution and size of operation. An additional change to this section requires that U.S. Board members reside in the region they represent. Section 1217.41 is revised by eliminating the election process in the nomination procedures. In § 1217.44 the quorum and voting procedures for the Board are revised to complement the reduction in Board membership. Section 1217.81 is revised to instruct that subsequent continuance referenda to be conducted every seven years rather than five. These changes were recommended by the Board and are authorized under §§ 1217.40(c)(3), 1217.41(b)(8), 1217.46(b), and 1217.87 of the Order and section 515(b)(3) of the 1996 Act.

Regarding the economic impact of this rule on affected entities, these changes are administrative in nature and would have no economic impact on entities covered under the program. These changes will help in securing nominees to fill seats on the Board, address the concerns of the softwood lumber industry not securing enough nominees to be submitted to the Secretary for selection, make conforming changes necessary to complement the reduction in Board membership, and improve efficiency regarding continuance referenda.

The Board's Industry Relations and Governance Committee (Committee) reviewed various alternatives to the Board's current 19-member make-up. The Committee considered a 12 and 13-member Board. The committee also considered maintaining the status quo at 19 members. Regarding the referenda period, one option the Board considered was to maintain the status quo. However, the Board recommended changing the period from five to seven years to improve the operating efficiency of the Board.

Reporting and Recordkeeping Requirements

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the Order's information collection and recordkeeping requirements have been approved previously under OMB control number 0581-0093. This rule does not result in a change to the information collection and recordkeeping requirements previously approved and does not impose additional reporting requirements or recordkeeping burden on domestic manufacturers and importers of softwood lumber.

As with all Federal promotion programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public-sector agencies. USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

Regarding outreach efforts, the actions were discussed by the Board's Industry Relations and Governance Committee at meetings on May 30, 2018, August 15, 2018, and October 26, 2018. The full Board discussed outreach efforts at meetings on May 31, 2018, August 15, 2018. The Board then made its recommendation to the Secretary on November 28, 2018. All of the Board's meetings, including meetings held via teleconference, are open to the public and interested persons are invited to participate and express their views.

A proposed rule concerning this action was published in the Federal Register on June 26, 2019 (84 FR 30040). A 30-day comment period ending July 26, 2019, was provided to allow interested persons to submit comments.

Analysis of Comments

Fifteen comments were received in response to the proposed rule. Thirteen comments supported all the Board recommended changes. Two comments were considered outside the scope of this action. In summary, most commenters agreed that reducing the size of the Board is appropriate due to industry consolidation, resulting in fewer individuals eligible to serve. One commenter noted that the reduced size would allow the Board to administer the program more efficiently and would help streamline business operations. In addition, one commenter supported the proposed approach to the geographic distribution, stating that it allows for fair and appropriate representation of all segments of the industry. Thirteen commenters supported the proposed change to the nomination procedures noting that allowing the Board to conduct outreach and recommend nominees to the Secretary is a more acceptable process for the industry. Lastly, the commenters agreed that extending the period between conducting continuance referenda from five to seven years was in the best interest of the program. It not only reduces the cost to the industry and provides a more efficient process, but it allows the Board to focus on its program areas of research and promotion of softwood lumber.

After consideration of all relevant material presented, including the information and recommendations submitted by the Board, the comments received, and other available information, it is hereby found that this rule, as hereinafter set forth, is consistent with and will effectuate the purposes of the 1996 Act.

List of Subjects in 7 CFR Part 1217

• Administrative practice and procedure
• Advertising
• Consumer information
• Marketing agreements
• Reporting and recordkeeping requirements
• Softwood Lumber promotion

For the reasons set forth in the preamble, 7 CFR part 1217 is amended as follows:

PART 1217—SOFTWOOD LUMBER RESEARCH, PROMOTION, CONSUMER EDUCATION AND INDUSTRY INFORMATION ORDER

1. 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.

2. Revise § 1217.40 to read as follows:

3. Revise § 1217.41 to read as follows:

4. Revise § 1217.44 to read as follows:

5. Revise § 1217.52(h) to read as follows:

6. In § 1217.81, revise paragraphs (b)(1) and (2) to read as follows:

7. Revise § 1217.88 to read as follows:

8. Revise § 1217.101(l) to read as follows:

9. Revise § 1217.108 to read as follows:

Footnotes