(Cite as: 48 FR 10395, *10412) (b) Describe an area of land as a pulpwood area; (c) Require its holder to construct, expand or continue a timber processing facility in accordance with his application. 6. A woodlot license shall: (a) Be for a term not exceeding 15 years, with an "evergreen replacement" at 5-year intervals with satisfactory performance; (b) Describe a woodlot license area determined by the regional manager or district manager to be composed of private land and not more than 400 hectares of Crown land; (c) Give to its holder the exclusive right to harvest timber on the Crown land for its term subject to five-year cut control provisions (determined by the Forest Service); (d) Require its holder to pay to the Crown stumpage in respect of timber harvested from land and a bonus bid, if any, in the amount tendered; (e) Provide for cutting permits to be issued to its holder to authorize timber to be harvested from specific areas in the woodlot license area. Woodlot licenses account for 0.7 percent of the Province's total annual allowable cut; however, there have been no woodlot licenses offered to date. 7. A timber license shall: (a) Describe an area of Crown land over which it is to apply; (b) Be for a term that expires with the tree farm license (when in a tree farm (Cite as: 48 FR 10395, *10412) license area), and for terms based on a required schedule for the continued orderly logging of all the timber licenses held by the licensee (when not in a tree farm license area); (c) Grant to its holder the exclusive right during its term to harvest all merchantable timber in the area of Crown land; (d) Where the timber license is in a tree farm license area, require its holder to harvest timber in accordance with the tree farm license and the management and working plan approved under it; (e) Where a timber license is not in a tree farm license area, require its holder to submit an operating plan prepared by a professional forester which is used by the Forest Service to determine the annual allowable cut; (f) Provide for cutting permits to be issued by the Crown to its holder authorizing timber to be harvested from specific areas of land described in the timber license; (g) Require its holder to pay to the Crown stumpage or royalty; *10413 (Cite as: 48 FR 10395, *10413) (h) Requires its holder to carry out reforestation or other treatment for the re-establishment of the forest on the land described in the timber license. Timber licenses comprise approximately five percent of harvest but are not subject to any allowable cut restrictions. There have been no new timber licenses offered, and the Forest Act does not provide for any to be offered in (Cite as: 48 FR 10395, *10413) the future. Stumpage prices for all forest tenure agreements in British Columbia are established when an authority to cut has been issued. Prices are determined by using historical operating and milling costs trended to the mid-point of the appraisal period and the average market values in force at the time of appraisal. The stumpage price is subject to monthly adjustments based on selling price fluctuations and an annual reappraisal. Licensees pay at the adjusted rate in effect for each species during the month the timber was scaled. Charges due are payable upon receipt, with interest due after 30 days, at prime plus one percent. The Ministry of Forests of the British Columbia provincial government is responsible for fee collection. Because of the type and quality of trees in British Columbia, there are two appraisal systems in operation. The coastal appraisal system emphasizes quality and the interior appraisal system emphasizes quantity. Stumpage prices are established by appraisal to an "average efficient operator." The costs, harvesting methods or equipment and milling practices or equipment of the purchaser or expected purchaser are not considered in the appraisal. All Crown timber in British Columbia is sold without regard as to intended use or category of purchaser. A. Coastal British Columbia Appraisal System. (Cite as: 48 FR 10395, *10413) Sales Value of End Products Coastal appraisals are based on log prices and exclude manufacturing costs. Three-month rolling average prices for each species are established monthly by log grades from a monthly survey of domestic log sales representing arm's length transactions. "These prices apply in the appraisal on a graded basis relating to the cutting permit cruise log grade percent distribution." Operating Costs Logging costs account for all costs of development, harvesting, transportation, contractural obligations, administration and tenure agreement responsibilities. The "average efficient operator" concept is used by the Ministry for appraisal purposes. Costs are derived from industry experience (as determined from annual surveys) to estimate what costs would be incurred by an efficient operator in harvesting timber and the expected recovery value of that timber in terms of revenue. In the appraisal, logs are assumed to be transported to the point which would result in the highest total stampage price, no consideration is given to the location of the purchaser's mill. Minimum Stumpage Prices (Cite as: 48 FR 10395, *10413) This is the lowest price at which the government would sell its timber resource. The minimum rate is used whenever the appraised rate falls below the minimum rate, and their is no compensation provision. "Timber quality is determined at the time of the timber cruise, by a determination of percentage of log grades for each species." Log quality influences the logging cost estimate in the appraisal. B. Interior British Columbia Appraisal System. Sales Value of End Products In the interior, the appraisal assumes the end value to be lumber and by- product pulp chips. Three-month rolling averages are established monthly from lumber sales in the five interior selling price zones, based on sales f.o.b. mill, consummated in each of these zones. Approximately 80 mills report monthly lumber sales transactions which are audited by the Ministry of Forests. These prices are single averages for each of the species by zone. The same method is used to derive a separate set of prices for stud-only- producing mills. Stud producers, generally working in small timber, have their sales appraised using stud prices and stud manufacturing costs. Lumber selling prices are in dollars per thousand board feet and standing (Cite as: 48 FR 10395, *10413) timber is cruised (measured) for appraisal purposes in cubic meters. A "lumber recovery factor" is used to convert cubic measures of timber into the value of the end product. By-product pulp chip prices are set around Canadian $10 per bone-dry unit. The government contends that the introduction of an actual chip value would not have a significant effect on stumpage fees. Stud producers and small operators (those having annual production less than 3775 cubic meters) are separately classed. Although the appraisal system is identical in structure for all categories, product prices, operating practices and costs which are pertinent to these groups are taken into consideration in the appraisal. Operating Costs The same method is used as in the coastal appraisal system, supra. Milling Costs Manufacturing costs are required for interior appraisals, where lumber and by- product chips are the appraisal products, rather than logs, as is the case on the coast. The manufacturing costs are obtained from an annual survey of about 55 sawmills deemed to represent the efficient segment of the industry. (Cite as: 48 FR 10395, *10413) Separate zonal milling costs have been established for the Prince George- Quesnel area, Ft. Nelson area, two isolated milling centers north of Ft. Saint James, and the remainder of the interior of the Province. A second survey is made for stud-producing mills. Minimum Stumpage Prices Interior statutory minimum stumpage rates are established for each species at three percent of the selling price of lumber and by-product pulp chips (on a sale-by-sale basis). The statutory minimum rate may be reduced to 0.75 percent for salvage timber. Timber is cruised and classified according to species, size, and visual defect. Stumpage prices change by two methods: A. Stumpage Price Adjustment Method. The stumpage price of any species will change at the beginning of each month: provided the selling price of lumber (interior) of that species departs Canadian $5.00 per 1000 board feet or more from the selling price last used to determine the existing stumpage price; or whenever the selling price of logs (coast) of that species departs by Canadian $1.00 per cubic meter or more from the selling price last used to determine the existing stumpage price. The (Cite as: 48 FR 10395, *10413) entire difference in the selling price is used in the recalculation of the stumpage price adjustment. B. Annual Stumpage Price Reappraisal. A full reappraisal, allowing for changes to product prices, logging costs, milling costs and profit ratio, is made annually at the anniversary date of the contract or cutting permit. Again, the entire difference in the selling price is used in the recalculation of the stumpage price adjustment. Manitoba Background Manitoba is a farm-oriented province with its timber resources in the north. *10414 (Cite as: 48 FR 10395, *10414) Most of its timber (89 percent) is not very large (10'' in diameter). Forest harvesting operations are small and include a fair proportion of part-time operators. Stumpage Rights and Payments Prior to 1965 timber rights were allocated through a competitive process, by auction or sealed tender, for one to five years. In 1965 the Timber Quota (Cite as: 48 FR 10395, *10414) System was introduced. This system provided long-term (15 years) fixed allocations to then established operators at set (regulation) stumpage rates. Surplus timber was advertised and sold competitively. The Timber Quota System was revised in 1980 to continue for another ten years. Stumpage rates were increased and set to be revised annually thereafter according to the national forest product price indices for lumber and paper and pulp companies, weighted as they are produced in Manitoba. Uncommitted surplus timber is either offered for sale at established stumpage rates plus a lump sum bid, or available for development and allocation on a negotiable basis for companies with sufficent capital to undertake the commitments involved. Cutting rights for Manitoba Crown timber are allocated by the Forestry Branch and are classfied as "major" or "minor." "Minor" allocations are based on volume and area where mature timber is ready for harvest. They run for a 10- year period, renewable depending on performance of the licensee. Prices are based on regulation rates (mentioned above), reviewed and indexed annually to reflect product price increases. Prices also reflect location of timber relative to mill and distance of mill from market. For "major" licenses an initial rate is negotiated at the start of the contract (contracts run for 20 years with a renew option). The initial rate takes into account geography, timber supply and demand, and basic (regulation) (Cite as: 48 FR 10395, *10414) stumpage rates. Prices are adjusted according to dates and indices specified in each contract. New Brunswick Background The three categories of ownership of timberland in New Brunswick are: the province (Crownlands 48.5 percent), the "forest industry" (industrial holdings 21.0 percent), and individual (non-industrial 30.5 percent). The products under investigation are all manufactured from the primary product, softwood logs. Over half of these logs have come from the private sector during the past five years. The actual breakdown is: Crownlands, 46.6 percent; company-owned lands, 30.4 percent; and private lands, 23.0 percent. New Brunswick has no surplus timber to allocate to new plants or for expansion. The current annual supply of softwood species is 7.6 million cubic meters. This accounts for 80 percent of the industrial timber requirement for softwood species. Of the 7.6 million cubic meters harvested, only 5.5 million cubic meters are reforested naturally. The deficiency is made up by silviculture inputs. The province has undergone a major restructuring of its forest management (Cite as: 48 FR 10395, *10414) policy. The change was instituted in early 1982 (no specific date given). The purpose of the change was to effect the organizational structure of the licensing system. The previous 85 licensees were divided into 6 licensees and 79 sub-licensees, and were issued 10 licenses and 105 sub-licenses, respectively. Stumpgage Allocation under Old System Stumpgage rights were allocated by area-based licenses under the old system. The issuance varied from 1 to 50 years and 250 to 450,000 hectares. The licenses were renewable upon satisfactory review. The differences in the licenses were a result of fluctuating supply and applicant's demand. The licensee was responsible for operational costs including operational cruising, inventories, and some management planning. The province retained overall responsibility for forest management including silviculture, reforestation and fire protection. Areas of dual responsibility were road construction and pest control. Stumpage Allocation under New System Under the new system there is a license and sub-license classification. The (Cite as: 48 FR 10395, *10414) license is area-based and conveys responsibility for many of the duties previously carried out by the province. The sub-license is volume-based, and is issued to parties either not wanting to or incapable of carrying out the forest management duties. The license is a 25-year renewable license with 5-year reviews. The licensee must submit a 25-year forest management plan and is responsible for the forest management. This includes: road construction and maintenance planning; inventory and records; specified silviculture; boundary lines maintenance; management activities including sub-license obligations; fire protection of harvest operation; submission of management plans for private lands; and payment of stumpage royalties. The sub-license is issued for 5 years and is renewable depending upon satisfactory performance. The sub-licensee must submit a 10-year operating plan and must maintain and operate a processing plant as specified in the plan. Other responsibilities include submission of a plan for private lands, cooperation with the licensee and payment for his services, and payment of royalty on stumpage harvested. Newfoundland Background (Cite as: 48 FR 10395, *10414) The sawmill industry in Newfoundland is very small and the great majority of sawmills are not mechanized. Newfoundland's only lumber exports are approximately 1 MMfbm/yr. of dunnage, which is rough sawn softwood lumber used for blocking (i.e., as packing material) in shipments of rolls of newsprint. This production is only about 0.19 percent of the total harvest or 2 percent of the total lumber production. Stumpage Rights and Payments Stumpage rights are allocated on the basis of an annual permit, which is renewable. A sawmill permit costs Canadian $20, and a cutting permit costs Canadian $10. A sawmill applies to the Province for stumpage rights, specifying the volume and location of timber required (in accordance with established regulations). Rights are granted depending on availability of timber and previous performance of the applicant. Anyone is eligible to apply. Stumpage fees are paid to the Department of Forest Resources and Lands on the basis of harvested volume, currently Canadian $7 per thousand board feet. The price is set legislatively and, as of January 1983, is indexed annually to the implicit price index of government goods and services and selling price index of lumber. The price is lower in designated salvage areas, or higher where (Cite as: 48 FR 10395, *10414) government-built roads are used for harvesting sawlogs (see below). No stumpage is sold through competitive sale. The government assumes responsibility for the construction of main roads, as well as for forest management, silviculture, fire and disease protection, etc. The roads become public upon completion with unrestricted access. Where these roads are used for harvesting sawlogs, the stumpage rate is 40 percent higher than in areas where the operator provides his own access. *10415 (Cite as: 48 FR 10395, *10415) Stumpage and tensive rights differ for pulpwood, but the same formula is used for setting stumpage rates for bott pulpwood and lumber. Nova Scotia Background Nova Scotia is the second smallest province in Canada. About 25 percent of all forested area is Crown land. Average annual harvest for the province over the last five years has been slightly in excess of 3.3 million cubic meters of softwood timber. The sawmilling industry is of the small local variety. About 73 percent of the annual harvest is used in the production of pulp and paper; 27 percent is used for sawlogs. Most of the province's very limited exports of softwood lumber go to Europe, (Cite as: 48 FR 10395, *10415) with only one to two percent of total production being exported to the U.S. Nova Scotia does not export shakes, shingles, or fence. Stumpage Rights and Payments Crown timber is allocated to pulp and paper companies by means of long-term licenses (40+ years). One of the pulp and paper companies holding a license also operates a sawmill and produces softwood sawlogs. In 1981 approximately 37 percent of softwood sawlogs produced from Crown lands originated under this particular pulp and paper license agreement. (No agreements of this type have been negotiated in the past ten years.) Under such agreements the mills have the right to standing timber within certain defined areas, with annual allowable harvest set by the provincial government. The province is responsible for fire prevention and fighting as well as insect and disease protection. However, each pulp and paper company is responsible for silviculture, regeneration and reforestation, and the building of roads. Stumpage rates are negotiated between the province and the company for each license. By and large, rates for the pulp and paper companies are lower (than for sawmills) in exchange for the companies' long-term commitments to bear the costs of forest management, roads, etc. Wood harvested by pulp and paper companies under license agreements must be (Cite as: 48 FR 10395, *10415) used in the mill(s) operated by the licensee. Agreements negotiated with sawmilling companies accounted for approximately 51 percent of the softwood sawlog harvest from Crown lands in 1981. These agreements are similar to those with pulp and paper companies except that they normally run for 10 years (with a 10-year renew option), and the Province retains forest management responsibilities. The companies do pay for road construction and maintenance. Base stumpage rates are determined by the Province at the time of the agreement, as a percentage of end-product prices, based on tender sales in the area and the rate accorded under similar agreements elsewhere in the Province. Provisions for periodic review and adjustment are included in the agreements; adjustment is based on an indexing mechanism which relates to the market price for softwood lumber of various sizes. The Nova Scotia government responds to applications for license agreements on a "first-come first-served" basis. One agreement was awarded in 1981, and one in 1982. No payments were received to acquire stumpage rights under this type of arrangement during these years. All stumpage fees are collected by the Nova Scotia Department of Lands and Forest. In addition to license agreements, the province disposes of small lots of sawlogs by public tender from time to time, either as standing timber or as logs piled at road side. In 1981, such tender sales accounted for about 11 (Cite as: 48 FR 10395, *10415) percent of sawlogs sold from Crown lands. These sales involve a small amount of timber, and all terms, including volume and location, are set by the province. Prices are established under a competitive bidding system with an upset price based on the knowledge of going rates in the area. Ontario Licensing System The primary type of timber cutting license in Ontario has traditionally been the Order-in-Council License (OCL). OCL's were introduced in the 1920's to accommodate the timber needs of scattered pulp and paper mills in northern Ontario. During the 1940's and 1950's, sawmill operators began using the system, first for salvage operations and then increasingly for undamaged timber. Technological advances during the 1960's and 1970's led to higher volume demand by sawmill operators, until all of the available yield in the province's forestland was allotted. OCL's are gradually being replaced by Forest Management Agreements (FMA), which cover large areas and convey many forest management responsibilities to the licensee. Other types of licenses in Ontario are Salvage Licenses, which permit expedient harvesting of damaged timber; District Cutting Licenses, (Cite as: 48 FR 10395, *10415) which are issued primarily to individuals; and a few competitively bid Sale Licenses, which are awarded in small areas of high demand. To acquire stumpage rights on Crown lands in Ontario, an applicant must be incorporated to carry on timber harvesting activities in the province, or own and operate a mill, or have a contract to supply wood to a mill. Stumpage licenses are managed by the Ministry of Natural Resources of Ontario. Ontario identifies 12 criteria used by the Ministry to evaluate license applications. These fall under three paramount factors, which are timber and land characteristics, viability of the applicant, and impact on the provincial economy. This last factor includes revenues expected, employment to be generated, and other economic, social, and environmental objectives. In Ontario, the Crown approves management and operating plans which specify the volume to be cut annually on each license. These plans also allow provincial direction of all forest management activities. The extent to which the province also performs these activities depends on the license type or the amount of area which has been licensed to one company within a management unit. The Ministry has divided the entire provincially owned forest into Crown Management Units (CMU) to administer its forest management policies. Stumpage rights in Ontario are granted under equal terms to Canadian and non-Canadian companies, although exports of logs are banned by the province. A study in 1972 indicated that approximately 40 percent of the total (Cite as: 48 FR 10395, *10415) area under license was granted to non-Canadian controlled companies, and the province estimates that this percentage is still accurate. Payment for Stumpage The payment system for stumpage in Ontario is also managed by the Ministry of Natural Resources, which maintains procedures for wood measurement and financial services. Stumpage fees consist of an area charge, Crown dues, a bonus price, and in the case of sale licenses, a tendered bid. Interest is charged at one percent a month for all overdue stumpage payments. The area charge in Ontario is rent for ground used and is not related to the volume of timber cut. It is designed to cover fire protection and other management costs. The charge is uniform and increases by 10 percent a year; it is currently Canadian $60.60 per square mile. *10416 (Cite as: 48 FR 10395, *10416) Crown dues cover most of the total stumpage fees. They are specified under the Crown Timber Act of 1980 for major species and product categories. Ontario states that the dues are designed to provide a fair return to the province and are based on past provincial costs to maintain, improve, and regenerate the resource. The Crown Timber Act specifies two sets of Crown dues. The first set uses a minimum price for the competitively bid sale licenses and also applies to (Cite as: 48 FR 10395, *10416) district cutting licenses. The second set applies to volume agreement prices. Volume agreements were introduced in the 1960's to allow for OCL's to be issued for species not being cut by long-term license holders who cut other species in the same area. They now encompass virtually all areas under license. Regulation 234 of the Crown Timber Act sets out the schedule for the two sets of Crown dues. The dues are then tied to a base and are adjusted in proportion to a six-month, rolling-average Commodity Selling Price Index produced by Statistics Canada, a federal agency. The rolling average is updated quarterly, so both sets of Crown dues change with it on a quarterly basis. The bonus price is a negotiated payment in addition to Crown dues. It is expected to take into account material differences in the location and quality of stumpage obtained by a firm. It is updated much less frequently than Crown dues, ranging in review period from one to five years depending on the license type. Order-in-Council Licenses (OCL's) Order-in-Council Licenses (OCL's), originating in the 1920's, are still the widespread vehicle for stumpage allocation in Ontario. OCL's currently cover 74 percent of timber area under license and represent 83 percent of licenses in issuance. Three hundred ninety eight OCL's are outstanding, but they are (Cite as: 48 FR 10395, *10416) expected to be phased out in favor of Forest Management Agreements during the 1980's. The duration and the area of coverage of OCL's vary widely and are at the discretion of the Ministry of Natural Resources. Other terms and conditions of OCL's are negotiated, but tend to be consistent from one license to the next. Renewals are permitted on OCL's only to complete the harvesting intended for the original term. OCL's may be transferred, but not for the profit of the original licensee. Forest management activities under OCL's are managed by the Crown through the negotiation of annual operating and management plans. Normally, the province supervises the harvesting and conducts the renewal and improvement of the forest. Fire prevention and insect and disease protection are also largely performed by the Crown. Some forest management activities may be performed by the company with the approval of the Crown. Stumpage fees for OCL's consist of the basic Crown dues and the negotiated bonus price. The bonus price is reviewed every three years, unless otherwise specified in the license. Forest Management Agreements After all softwood in Ontario became fully committed in the 1960's, the (Cite as: 48 FR 10395, *10416) province made plans to intensify forest management. Such extensive improvements were needed that major responsibilities had to be assigned to timber licensees. Thus, forest management agreements were developed to replace existing licenses. Currently these agreements have been reached strictly with pulp and paper manufacturers, although the province expects to extend their coverage to all Crown forest areas during the upcoming decade. Stumpage fees under forest management agreements consist of Crown dues and the negotiated bonus price. The bonus price is reviewed at five-year intervals only. Other Licenses Ontario issues Salvage Licenses to hasten harvesting of damaged timber. Fifty Salvage Licenses are outstanding, cover less than one percent of the total area under license. They are issued normally for one-year periods and generally convey no management responsibilities to the licensee. Stumpage fees are negotiated and may be less than the applicable Crown dues. District Cutting Licenses are issued in Ontario to cover very small areas for one year. Roughly 20,000 of these licenses are issued annually to individual or small commercial operators. The total area under these licenses is less than one percent of the area under license. (Cite as: 48 FR 10395, *10416) Forest management responsibilities under District Cutting Licenses are retained by the Crown. Stumpage fees consist of Crown dues, which are set separately by statute from dues under other license types (except sale licenses), and a bonus price set by the province. Ontario also issues about 15 competitively bid Sale Licenses per year which cover less than one percent of the total area under license. These are used for the sale of small areas of timber in locations where demand exceeds available supply, usually in high quality hardwood stands. Sale Licenses are normally issued for one or two years and convey no forest management responsibility to the licensee. For Sale Licenses, the Crown dues and a bonus price set by the district office form the starting bid price. Sealed tender offers above the starting price become the basis for issuance of the license. Prince Edward Island Background There are approximately 20.9 million cubic meters of standing timber in Prince Edward Island (P.E.I.), most of which is generally poor quality. The province owns about 10 percent of the total volume. Many of the 50 small mills (Cite as: 48 FR 10395, *10416) comprising the lumber industry are part-time operations supplementing other sources of income. Most of the lumber is not graded according to official standards and is of non-exportable quality. The response shows that none of the lumber produced was exported during 1981 and 1982. No shakes, shingles or fence are exported from P.E.I. Stumpage Rights and Payments There is no allocation process. Stumpage rights and prices for standing timber on Crown land are determined through a competitive bid process. The Crown advertises "stump tenders" (offers of blocks of standing timber) once a year. Advertisements appear in provincial newspapers at least three weeks prior to closing date, and bids are opened at a public meeting. The highest bidder is normally awarded the contract, except where that bidder's record of past performance is demonstrably poor. Stumpage prices are in effect for one year; i.e., the duration of the contract. A minimum base price ("upset price") may be established by the provincial Forest Service to ensure that bids do not come in below known stumpage rates in the industry. Estimation of expected stumpage values are based on the Forest Service staff estimations of the volume of logs, pulpwood, etc. which could be (Cite as: 48 FR 10395, *10416) removed. The price of finished products, transport costs, recovery factor, or mill costs are not used in setting stumpage upset prices. Rights do not differ between millers and pulpwood contractors. The P.E.I. Forest Service establishes the volume of timber allowed to be cut under the contracts. Once the timber has been paid for and removed, the contractor *10417 (Cite as: 48 FR 10395, *10417) may dispose of it within any market as he/she wishes. Quebec Background Quebec's supply of standing timber is a mixture of decidouous and coniferous species, generally sparsely scattered and consisting of rather small trees. The vast majority of these timber resourses (approximately 90 percent) is located on Crown lands. Until the early 1970's, the relatively poor quality of Que>=1bec's timber combined with inadequate technology made it inefficient and uneconomical for use in the sawmill industry. Consequently, most of Que>=1bec's timber was used by the pulp and paper industry, and the only timber allocation system in the province--the timber limit system--had been set up with the needs of that industry for long-term timber supplies in mind. (Cite as: 48 FR 10395, *10417) Early in the 1970's, however, technological advances in the sawmill industry in the form of sophisticated, computerized machinery, made it possible to process this timber into lumber and its by-products. As a result of these changes, Que>=1bec started to allocate stumpage under a new system--supply agreements from domanial forests--whose purpose was to increase the profits derived from provincial timberlands and to make the timber resource more accessible to other possible users, including the sawmill industry. Accordingly, no additional timber limit concessions have been awarded since 1974; all new concessions since then have been in the form of supply agreements from domanial forests. The province, through the retrocession or outright revocation of timber limits as they come up for renewal, aims to make domanial forests the only form of tenure and supply agreements the sole form of allocation of stumpage. Under both systems, all fees and dues are administratively set by the province through Orders-in-Council, sometimes through negotiation. There is no system of competitive bidding for stumpage in Que>=1bec. The specific features of both allocation systems are described below. Timber Limits Under the timber limit system, "limit holders" are assigned all rights to (Cite as: 48 FR 10395, *10417) standing timber in a given area. The limit holder is responsible for forest management and silviculture within his area. Accordingly, he must submit on a regular basis a forest management plan to the provincial authorities. The government grants an annual cutting license to the limit holder, based on its estimate of the concession's sustained yield possibilities. Under the timber limit system, the province traditionally provided the sawmill industry with that portion of timber not used by limit holders at lower stumpage dues, given the poor quality of the timber. Supply Agreements (Domanial Forests) Domanial forests are public lands managed by the provincial government of Que>=1bec. The province enters into supply agreements for standing timber from these forests with any interested companies. For sawmills, the duration of these agreements varies from five to twenty years, depending on each mill's size. In effect, these are fixed-term timber purchase agreements in which the holder's rights to timber are limited to areas specified by the province. This contrasts with the earlier system, whereby the holder can select the areas to be harvested each year within the concession area up to the total amount specified by the cutting license. Another difference between the two systems is that under supply agreements, timber cut from a domanial forest can be used (Cite as: 48 FR 10395, *10417) only to supply the holder's mills and cannot be resold. Renewal of the supply agreements depends on the yield and performance of the agreement holder. The province is responsible for devising and implementing forest management plans. The agreement holder prepares an annual logging plan for submission to the provincial authorities, who then issue annual cutting permits for a specific volume of wood defined by species. Saskatchewan Background Saskatchewan's major industries are farming and mining. Its forest industry is underdeveloped, and softwood timber is small and scattered. In order to attract mills, long-term agreements with negotiable conditions were initiated. Stumpage In Saskatchewan, stumpage rights are allocated in two ways: (1) under a timber permit, which is granted annually; and (2) under Forest Management License Agreements (FMLA's). About 13 percent of the production of the softwood industry under investigation is allocated by permit, and the balance (Cite as: 48 FR 10395, *10417) by FMLA's. A timber permit authorizes the holder to harvest a stated volume of timber, is valid for one year, and is renewable. FMLA's are negotiated separately with each company and therefore their terms vary. Stumpage rights can be awarded for up to 20 years with a renew option. Under both arrangements, the Forestry Branch of the provincial government specifies the annual allowable cut. The area to be harvested is selected by the permittee or company, subject to government approval. For timberland under the permit system, the province is responsible for management, silviculture, main road construction, reforestation, fire and disease prevention, etc. In contrast, under FMLA's the company is completely responsible for forestry management, but other services may be carried out by the province with the company paying partial costs, according to the individual agreement; e.g., the company might pay Canadian $0.20 per cord on all timber harvested toward the costs of reforestation. The province is always responsible for fire and disease protection. Main roads are constructed by the Province up to a negotiated quantity specified in each contract. If a company requires additional roads, it must construct them at its own expense. Stumpage fees are paid on a monthly (or sometimes quarterly) basis to the Forestry Branch. Timber permit allocations pay on the lumber outturn of the mill. Rates take into account timber quality. FMLA's are of two types: (Cite as: 48 FR 10395, *10417) volume agreements and area agreements. Volume agreement stumpage dues are paid on the mill outturn and can be renegotiated periodically. Area agreement fees are paid on scaled volume delivered to the mill yard and are indexed. Federal Stumpage Background Federal Crown lands represent 11 percent of productive timberlands in the Dominion of Canada. Management of the federal timberlands is divided among the Departments of National Defense (DND), Parks Canada (DPC), and Indian and Northern Affairs (DINA). Ninety-five percent is managed by DINA and is located in the Yukon and Northwest Territories. This ninety-five percent is administered under terms of the Territorial Land Act and under Indian Timber Regulations of the Indian Act. The Canadian Forestry Service administers the remaining 5 percent of the federal forests on behalf of the DND and the DPC under appropriate Acts and Agreements. Of the 11 percent federal Crown lands, 90 percent is inaccessible for economical supply of North American timber markets, and other acreages are *10418 (Cite as: 48 FR 10395, *10418) dedicated to parks, defense establishments and Indian Reserves. On about 130 thousand square kilometers (km 2 ) of national parks, logging is