Tobacco Marketing Quotas, Acreage Allotments, and Production Adjustment

SUMMARY: With revisions, this final rule adopts the proposed rule

published in the Federal Register on January 11, 1994 (59 FR 1493). The

proposed rule set out regulations for implementing for tobacco the

domestic content assessment provisions added, as section 320C, to the

Agricultural Adjustment Act of 1938 (1938 Act) by section 1106 of the

Omnibus Budget Reconciliation Act of 1993 (the 1993 Act). Those

provisions generally require a ``domestic manufacturer of cigarettes''

(as defined in the 1938 Act) to pay certain additional assessments and

make certain tobacco purchases if, for any calendar year beginning with

the 1994 calendar year, domestic tobacco constitutes less than 75

percent of the total tobacco used by the manufacturer to produce

cigarettes in the United States. This final rule sets out requirements

for recordkeeping, penalties, appeals, and other matters necessary to

the enforcement and administration of section 320C.

EFFECTIVE DATE: January 1, 1994.

FOR FURTHER INFORMATION CONTACT: Michael D. Thompson, Agricultural

Program Specialist, Tobacco and Peanuts Division, Agricultural

Stabilization and Conservation Service, United States Department of

Agriculture (USDA), P. O. Box 2415, Washington, DC 20013-2415,

telephone 202-720-4281.

SUPPLEMENTARY INFORMATION:

Executive Order 12886

This rule is issued in conformance with Executive Order 12866. This

final rule has been determined to be economically significant.

Therefore, a final regulatory impact analysis has been conducted. A

copy of the Final Regulatory Impact Statement may be obtained from Dr.

Robert Miller, Director, Tobacco and Peanut Analysis Division,

Agricultural Stabilization and Conservation Service, USDA, P. O. Box

2415, Washington, DC 20013-2415, telephone: 202-720-8839.

The domestic marketing assessment (DMA) provisions of the 1993 Act

are expected to increase the usage of domestic tobacco by 222 million

pounds for marketing year (MY) 1994. Even if cigarette production

declines to the extent forecast in the Final Regulatory Impact

Analysis, by the sixth year with DMA provisions, extra domestic tobacco

required to avoid any additional assessments by cigarette manufacturers

will still be 115 million pounds. The increase in the use of domestic

tobacco is expected to draw down current loan stocks of burley and

flue-cured tobacco by 159 million pounds in MY 1994. Consequently, the

Commodity Credit Corporation's loan outlays for tobacco for the 1994 MY

are estimated to be about $320 million less. These actions should, in

subsequent years, reduce the amount of the No-Net-Cost tobacco program

assessments paid by producers and purchasers of domestic burley and

flue-cured tobacco. Additionally, with the DMA in place, about 8,000

farms may remain in operation over the next six years that would

otherwise go out of business.

Since the cost of domestic tobacco is higher than that of imported

tobacco, manufacturers may shift some cigarette production to foreign

based operations. The Final Regulatory Impact Analysis indicates that

at a maximum, approximately 10,300 jobs could be lost if manufacturers

shift cigarette production to foreign based operations and there is a

reduction in U.S. unmanufactured exports. However, the largest domestic

manufacturer of cigarettes has testified before a House of

Representatives Subcommittee that it will not shift any cigarette

production overseas as a result of the DMA.

The impact statement indicated little effect on the consumer prices

for cigarettes because tobacco accounts for only about 3 percent of the

retail cost of cigarettes.

This regulatory action is not expected to have an adverse effect on

the environment, public health or safety, or State, local, or tribal

governments or communities. This regulatory action is not expected to

be inconsistent nor interfere with any action taken or planned by

another Federal agency. Other than as indicated in the summary of the

regulatory impact statement, this action would not alter the budgetary

impact of entitlements, grants, user fees, loan programs or the rights

and obligations of the recipients thereof. This rule would be

consistent with the President's priorities and principles set forth in

Executive Order 12866.

Regulatory Flexibility Act

It has been determined that the Regulatory Flexibility Act is not

applicable to this final rule since the Agricultural Stabilization and

Conservation Service is not required by 5 U.S.C. 553 or any other

provision of law to publish a notice of proposed rulemaking with

respect to the subject matter of this rule.

Federal Assistance Program

The title and number of the Federal Assistance Program, as found in

the Catalog of Federal Domestic Assistance, to which this rule applies

are: Commodity Loans and Purchases--10.051.

Environmental Evaluation

It has been determined by an environmental evaluation that this

action will have no significant impact on the quality of the human

environment. Therefore, neither an environmental assessment nor an

environmental impact statement is needed.

Executive Order 12372

This activity is not subject to the provisions of Executive Order

12372 which requires intergovernmental consultation with State and

local officials. See the notice related to 7 CFR part 3015, subpart V,

published at 48 FR 29115 (June 24, 1983).

Executive Order 12778

This final rule has been reviewed in accordance with Executive

Order 12778. The provisions of this final rule are retroactive to

January 1, 1994, and preempt State laws to the extent that such laws

are inconsistent with the provisions of this rule. Before any legal

action is brought regarding determinations made under the provisions of

7 CFR part 723, the administrative appeal provisions set forth at 7 CFR

part 780 must be exhausted.

Paperwork Reduction Act

This final rule imposes new recordkeeping and information

collection requirements on ``domestic manufacturers of cigarettes'' (as

defined in the 1938 Act) and related tobacco industry businesses. The

content of, and justification for, the reporting and recordkeeping

requirements has been submitted to the Office of Management and Budget

(OMB), as an addendum to OMB No. 0560-0058, in accordance with the

requirements of the Paperwork Reduction Act of 1980, as amended. The

Department is seeking Expedited Clearance by OMB within 21 days of the

date of the publication of this rule. These requirements will be

conditional until such clearance is obtained. No person shall be

penalized or otherwise adversely affected for a failure to comply with

any recordkeeping requirements in this rule as concerns records that

would have been required to be generated prior to the publication of

the final rule implementing the program provided for in this rule.

However, all persons shall be required to maintain and submit on

request, all records generated prior to the publication of the final

rule which are relevant to the provisions of this rule and shall be

required, to the full extent possible, for all uses of tobacco relevant

to this rule. Those comments which were received in response to the

proposed rule which addressed recordkeeping and reporting requirements

are addressed in the discussion which follows. The public burden is

estimated to average 20 hours annually per response, including time for

reviewing instructions, searching existing data sources, and completing

and reviewing the information collection. Additional comments regarding

the recordkeeping and reporting requirements contained in this final

rule, and suggested alternatives, may also be sent to OMB, Paperwork

Reduction Project (OMB No. 0560-0058), Washington, DC 20503; and to

USDA, Clearance Officer, OIRM, AG Box 7630, Washington, DC 20250.

Background

Section 320C applies only to ``domestic manufacturers of

cigarettes'' which are defined in Section 301 of the 1938 Act as

including any manufacturer that produces at least 1 percent of the

cigarettes produced and sold in the United States. Under Section 320C,

effective with calendar year 1994, such a manufacturer must pay an

assessment and make certain compensatory tobacco purchases unless

domestic tobacco equals or exceeds 75 percent of the total tobacco used

by the manufacturer to produce cigarettes in the United States for the

calendar year. The Secretary of Agriculture can reduce the percentage

in some circumstances. Penalties and other charges can apply for

failing to pay the assessments or make the compensatory purchases.

Domestic tobacco, under the proposed rule, was defined to be tobacco

produced in the United States and ``United States'' was defined for all

geographical purposes under the rule to include the fifty States, the

territories and possessions of the United States, Puerto Rico, and the

District of Columbia. Section 1106 of the 1993 Act, which added Section

320C to the 1938 Act, also provided for certain assessments on imported

tobacco. Those assessments, which are different from those added in

Section 320C, were implemented in an interim rule published on December

23, 1993 (58 FR 68017), and a final rule published on March 9, 1994 (59

FR 10939).

Comments

A. Commenters

Twenty-three comments were received in response to the rule

proposed to implement section 320C. Six comments were from major

cigarette manufacturers, six were from tobacco State farm

organizations, one from a national farm organization, one from a

tobacco producer loan association, one from a tobacco export

organization, two from businesses related to the tobacco industry, one

from a member of Congress, one from an international governmental

commission, one from a national health organization, and three from

individuals.

B. Discussion

(1) General Comments. One comment objected to the use of the term

``domestic content requirement'' in the rule since the 75 percent

standard, even apart from the ability of the Secretary to reduce the

percentage in certain instances, is not an absolute requirement. Rather

the target, if met, serves as an alternative to certain additional

assessments and purchases. Two comments suggested that section 320C

violates understandings under the General Agreement on Tariffs and

Trade (GATT). One comment sought an exemption from coverage for

manufacturers of cigarettes whose output of cigarettes is sufficiently

low that the manufacturer is not subject under other programs to

certain labelling requirements. Four comments suggested delaying

implementation of the rule until any GATT challenges were resolved or

delaying implementation until January 1996 in order to allow for

uninhibited use of current inventories of tobacco.

The use of ``domestic content requirement'' in this context can be

misleading. The rule has been modified accordingly. GATT objections to

the Congressionally-mandated 75 percent provision go beyond the scope

of this rulemaking. Also, given that section 320C was enacted in August

of 1993, and the lack of any provision in section 320C for delay, there

is no authority or warrant for delaying the implementation of the rule.

If needed, surplus quantities of foreign tobacco could, presumably, be

re-sold.

(2) Regulatory Impact Analysis. Nine comments objected to matters

contained in the regulatory impact analysis and have been considered in

the final impact statement. To the extent those comments addressed

particular provisions of the rule they are addressed in this discussion

as well.

(3) Covered Tobacco and Cigarettes. Some have questioned whether

two groups of tobacco, in particular, should be counted as being

foreign or imported tobacco for the use calculations; namely: (1)

Turkish and Oriental tobaccos and (2) stems, reconstituted tobacco and

other unmanufactured tobacco for which no duty is collected by the

United States Customs Service. Five comments favored, and two opposed,

treating the two groups as countable tobacco. Three comments argued

that limiting coverage to cigarettes produced in the United States was

a ``loophole'' which could be avoided by subject manufacturers by

relocating. Two comments suggested that cigarettes made in the United

States and then exported should be excluded from coverage on the ground

that such coverage would be detrimental to domestic manufacturing

operations. Two comments favored the rule's provisions on coverage of

cigarettes as they stood in the proposed rule. There are six

manufacturers who, at the present time, appear to qualify as ``domestic

manufacturers of cigarettes'' (as defined in the 1938 Act). The six

manufacturers suggested that the rule needed clarification on when

tobacco would be considered used to produce cigarettes. They suggested

that such use should be deemed to occur when the tobacco is removed

from inventory for immediate manufacture into cigarettes. Three

comments specified that they favored not counting reclaimed tobacco

against the use calculations. In addition, manufacturers suggested that

they should be able to rely on third party certifications regarding

whether tobacco is foreign or domestic.

The treatment of all of that which is commonly considered to be

``tobacco'' as countable tobacco use is a matter of statutory

construction. Upon review of the comments it continues to appear

inappropriate, for reasons set out with the proposed rule, to exclude

any such tobacco from such consideration despite some definitional

issues that arise in connection with the 1938 Act. Thus, the final rule

continues to treat Oriental and Turkish tobacco and tobacco in any form

(including tobacco for which no duty is due) as ``tobacco'' for

purposes of the rule. Countable tobacco would include, though not

necessarily be limited to, all tobacco which is within the scope of

Chapter 2401 of Harmonized Tariff Schedule (HTS) and certain classes

within Chapter 2403 of the HTS. Likewise, the limitation of coverage in

the rule to cigarettes produced in the United States by subject

manufacturers is a matter of statutory construction and it continues to

appear, for the reasons set out with the proposed rule, that this

limitation is proper. With respect to weight calculations, it has been

determined, as suggested in the comments, that tobacco be considered to

have been used to produce cigarettes at the point at which it is

removed from inventory for immediate manufacture into cigarettes. The

commenters have indicated that manufacturers keep current records on

that basis and adoption of that standard should be administratively

workable with the least interference with commerce. Manufacturers will

continue to have the burden of demonstrating compliance with the rule.

Also, the final rule reflects agreement that reclaimed tobacco should

not be counted when re-used by the same manufacturer. With respect to

certifications for category of origin (foreign or domestic), the final

rule allows such reliance by providing that certain purchases of

tobacco whose identity might otherwise be unknown may be considered

domestic tobacco if an appropriate certification is obtained from the

party who transfers the tobacco to the manufacturer. The rule sets out

requirements for the certification, which include acknowledgement that

false certifications can lead to criminal or civil penalties or

sanctions. The rule allows the Director of the Tobacco and Peanuts

Division of the Agricultural Stabilization and Conservation Service

(hereafter ``Director'') to prescribe the form of the certification to

be used. If the Director has not prescribed such a form, then the

manufacturer will be required to ensure that a form of the

manufacturer's own design is used, maintained, and meets the specific

requirements of the regulation.

(4) Domestic Assessment Rate, Required Purchases and Appeals. Under

section 320C, those manufacturers who do not meet the critical use

percentage must pay an assessment, over and above other assessments

that may apply under the 1938 Act and other legislation, equal to the

difference, by a formula set out in the statute, between the market

prices of certain domestic tobaccos and the market price of imported

tobacco. Four comments suggested that the domestic and foreign price

comparison should be on the same weight basis (``green'' or ``dry'')

and it was also suggested that cigar tobacco should be excluded from

the calculation of the imported tobacco market price. Two comments

suggested the DMA should not be considered due until all administrative

appeals by the manufacturer are completed. The statute further provides

that a manufacturer who fails to make the critical use percentage must,

to the full extent of the shortfall, purchase an equal amount of

tobacco from the inventories of the producer owned cooperative

marketing associations for burley and flue-cured tobacco. Two comments

suggested that the rule's 30 calendar day period for such compensatory

purchases was too short and should be 90 days. Also, two comments

suggested that the time for administrative appeals should not be the 15

calendar days provided for in the proposed rule but 30 calendar days

instead. Another suggested that a clarification was needed in the rule

to ensure that all adverse determinations under the rule were

administratively appealable.

Domestic tobacco is normally marketed on a ``green'' (unprocessed)

weight basis but imported tobacco normally is purchased on a ``dry''

(processed) weight basis. In order to provide for a more accurate

comparison of the market prices for use in calculating the DMA rate,

the rule specifies that, as determined appropriate, the Director may

use ``dry'' weight figures for both domestic and imported prices and

may exclude cigar and other non-cigarette tobacco as the Director deems

appropriate and practicable. The due date for the assessment has not

been adjusted in the rule. To do so would provide an incentive for

unnecessary appeals, and would dilute the intended effect of the

assessment. However, the Director will have the discretion to extend

the time for actual payment, subject to such conditions as the Director

considers to be appropriate. Such extension will not toll the accrual

of interest. The Director may also for cause extend the time for

submitting an appeal; the 15 calendar day period should be enough time

to express interest in an appeal and request an extension. The 15

calendar day period comports with the normal time for administrative

appeals provided for in the generic appeal regulations found at 7 CFR

part 780. The provisions of the rule have, however, been clarified,

consistent with original intent, to specify that a manufacturer may

appeal any adverse determination made under the rule with respect to

that manufacturer. Also, to reflect commercial exigencies, the time for

making compensatory purchases has been changed in the rule from 30

calendar days to 60 calendar days; the Director may grant further

extensions for cause.

(5) Recordkeeping and Reporting Requirements. The six domestic

manufacturers complained that the recordkeeping provisions of the rule

did not comport with their current procedures, were excessive, and

would require costly adjustments in their operations, particularly the

proposal for batch-by-batch and lot-by-lot recordkeeping for tobacco

removed from inventory for manufacture into cigarettes. Consistent with

their other comments, the manufacturers suggested that recordkeeping

for such tobacco uses be directed at total removals from inventory

immediately before manufacture. The manufacturers indicated that all

manufacturers, for that stage of the manufacturing process, maintain

records by weight and category (domestic or foreign). These commenters

also objected to the proposal requiring reporting of the manufacturer's

total tobacco inventory and reporting of non-cigarette tobacco use;

further, some suggested that USDA's Form TB-26, Tobacco Stock Report,

be used instead of reports created specifically for compliance with the

rule. The proposed rule provided for recordkeeping for a minimum of

three years and four comments criticized a statement in the rule

placing the risk on the record keeper for any destruction of records

after the minimum period. Another comment specifically supported having

a provision in the final rule mandating that submitted records and

reports be kept confidential by the agency. Further, as to audits, the

statute allows for assessing the audit costs against the manufacturer.

One comment suggested that the costs should, instead, be paid out of

domestic assessments.

To comport with other changes in the rule, the recordkeeping

requirements are modified in the final rule to focus, as far as end use

is concerned, on the point at which tobacco is removed from inventory

for immediate manufacture into cigarettes. Other modifications have

been made, including removal of the need to keep records based on

country of origin. Also, with the modifications, the manufacturer's

records for tobacco used for the actual manufacture of cigarettes will

not have to be kept batch-by-batch or lot-by-lot. However, lot-by-lot

accounting will still be required for accounting for tobacco taken into

inventory. The rule continues to require recordkeeping and reports for

total inventory and for manufacturing uses for purposes other than

cigarettes as such information will be needed as a check on reports of

the tobacco used to manufacture cigarettes. Use of Form TB-26 will not

be allowed in lieu of reports specifically created for compliance with

the rule as that form is intended to serve other purposes and may not

contain all the information and/or explicit or implied certifications

of compliance needed. However, manufacturers are free to use whatever

data source they wish in preparing reports relating to compliance with

the rule, including data contained on Form TB-26, with the

understanding that the resubmission of any data would carry with it a

reaffirmation of its accuracy.

The three-year provision for mandatory recordkeeping is less than

may be the applicable statute of limitations. Accordingly, it is not

possible or appropriate to immunize parties subject to the rule from

the effects of an imprudent record destruction. That risk can be

avoided by more extended recordkeeping as circumstances dictate.

Regarding confidentiality, it is the agency's intent to maintain the

confidentiality of all records to the extent permitted by law. Section

320C(b)(2)(d) of the 1938 Act adopts the confidentiality provisions of

Section 320B of the same Act. However, as confidentiality matters go to

internal agency matters, rather than regulation of private entities or

individuals, it has been determined that the final rule should not

contain confidentiality provisions. Finally, as to audits,

manufacturers will remain potentially liable for the cost of the audit

since such liability is statutory. Moreover, relieving manufacturers of

that liability would not only raise the potential cost of administering

the program but could also discourage efficient recordkeeping which

leads to easily-verified information.

In addition to the modifications indicated above, provisions have

been included in the rule to take into account absences of records for

events occurring prior to the publication of the final rule.

(6) Reduction in the Domestic Content Percentage. Section 320C(f)

provides that if the Secretary, in consultation with producer owned

cooperative marketing associations, determines that because of drought

or other conditions beyond the control of producers, the quantity of

domestic burley or flue-cured tobacco that is harvested and suitable

for marketing is substantially less than the expected yield for the

crop, and that pool inventories for the kind of tobacco involved have

been depleted, then, effective for the calendar year following the year

in which the crop loss occurs, the Secretary of Agriculture may reduce

the critical domestic content percentage below 75 percent. The proposed

rule specified that such reductions would be made only if the

inventories of domestic burley or flue-cured tobacco fell below 25

percent of the ``reserve stock level'' for the respective tobacco. The

manner in which the ``reserve stock level'' is calculated is by a

formula set out in section 301 of the 1938 Act.

Three comments suggested that the reduction of the domestic content

level be allowed in either of the two years following the disaster

because the inventory effect on an individual manufacturer might not be

felt for two years. Another comment suggested that reasons other than

crop loss should trigger the reduction and that a reduction should be

considered without adherence to a rigid requirement that domestic

inventories of burley or flue-cured tobacco be down to 25 percent of

the ``reserve stock level.'' Another comment suggested that major

cigarette manufacturers be consulted with respect to percentage

reduction issues.

By statute, reductions in the domestic content nonassessment

percentage is limited to the year following the year of the crop loss.

Further, the necessity of such a crop loss is also statutory. However,

in order to provide greater flexibility in responding to market

circumstances, the reference to 25 percent of the reserve stock level

has been dropped from the rule so as to allow the Director to exercise

greater judgment in determining whether to reduce the percentage where

the statutory preconditions for a reduction exist. Formal consultation

with manufacturers regarding reductions is not provided for in the

statute and goes to internal agency decision making; however, where

there is a potential for a reduction, major manufacturers and other

interested members of the public will be free to make their views known

to the producer owned cooperative marketing associations and to USDA in

the normal manner.

List of Subjects in 7 CFR Part 723

Acreage allotments, Assessments, Marketing quotas, Penalties,

Reporting and recordkeeping requirements, Tobacco.

For the reasons set forth in the preamble, 7 CFR part 723 is

amended as follows:

PART 723--TOBACCO

1. The authority citation for 7 CFR part 723 is revised to read as

follows:

Authority: 7 U.S.C. 1301, 1311-1314, 1314-1, 1314b, 1314b-1,

1314b-2, 1314c, 1314d, 1314e, 1314f, 1314i, 1315, 1316, 1362, 1363,

1372-75, 1421, 1445-1, and 1445-2.

.2. Part 723 is amended by adding subpart E to read as follows:

Subpart E--Domestically Produced Cigarettes

Sec.

723.501 Definitions.

723.502 Domestic tobacco content nonassessment percentage.

723.503 Domestic content marketing assessment.

723.504 Required purchases from tobacco loan stocks.

723.505 Reduction of domestic content nonassessment percentage.

723.506 Required records and reports; burden of proof.

723.507 False reports; failure to file reports; examinations of

records; and records for events occurring prior to the publication

of the final rule.

723.508 Reconsideration and appeal.

Subpart E--Domestically Produced Cigarettes

Sec. 723.501 Definitions.

In addition to the definitions set forth at Sec. 723.104, the

definitions set forth in this section shall be applicable for purposes

of administering the provisions of this subpart.

ASCS. The USDA's Agricultural Stabilization and Conservation

Service.

CCC. The Commodity Credit Corporation, an instrumentality of the

USDA.

Covered cigarettes. Cigarettes produced in the United States.

Director. Except with respect to references to the National Appeals

Division of ASCS, the Director of the Tobacco and Peanuts Division, or

the successor to the Director.

Domestic assessment use shortage. For any domestic manufacturer,

the domestic assessment use shortage shall be, as determined by the

Director, the amount, converted to pounds, by which, for the relevant

calendar year, domestic tobacco use for covered cigarettes produced by

the manufacturer was less than the amount which, as a percentage of

total tobacco use for these cigarettes, would have equaled the domestic

content nonassessment percentage.

Domestic content nonassessment percentage. The domestic content

nonassessment percentage shall be 75 percent unless otherwise specified

in this subpart.

Domestic manufacturer. A domestic manufacturer of cigarettes.

Domestic manufacturer of cigarettes. A person who, as determined by

the Director, produces and sells more than 1 percent of the cigarettes

produced and sold in the United States.

Domestic tobacco. Any quantity of harvested tobacco which has been

cultivated, grown, and produced in the United States.

Foreign tobacco. Tobacco that is not domestic tobacco.

Imported tobacco. Any tobacco, including (but not limited to)

Oriental and Turkish tobaccos, that is not domestic tobacco and has

been entered into the commerce of the United States. Any tobacco that

cannot, as determined by the Director, be verified as to its being

domestic tobacco shall be presumed to be imported tobacco.

NASS. The National Agricultural Statistics Service, USDA.

Origin category. The categorization of tobacco as either domestic

or foreign tobacco.

Price support inventory. The inventory of tobacco which has been

pledged as collateral for a price support loan made by CCC through a

producer owned cooperative marketing association.

Producer owned cooperative marketing associations. Those

associations which by law act as agents for producers for price support

loans for tobacco. Those associations for burley and flue-cured tobacco

are the Burley Tobacco Growers Cooperative Association, the Burley

Stabilization Corporation, and the Flue-Cured Tobacco Cooperative

Stabilization Corporation, or their successors.

Tobacco. Any commodity or substance that is commonly considered to

be tobacco in the trade.

United States. The 50 States of the United States, the District of

Columbia, Puerto Rico, or any Territory or Possession of the United

States.

Unmanufactured tobacco. Any tobacco in any form that is not

processed and packaged as a ready consumer tobacco product, including,

but not limited to, tobacco in the form of leaf tobacco, strips, stems,

scrap, and reconstituted, homogenized, and blended tobacco or products

(other than consumer-ready products).

USDA. The U.S. Department of Agriculture.

Sec. 723.502 Domestic tobacco content nonassessment percentage.

(a) General requirements. (1)(i) For cigarette production for each

calendar year beginning with calendar year 1994, the Director shall

determine for each domestic manufacturer the percentage that domestic

tobacco constitutes of the total tobacco used by that manufacturer to

produce cigarettes in the United States. If such percentage use of

domestic tobacco does not equal or exceed the domestic content

nonassessment percentage for that calendar year, the manufacturer shall

be deemed to have a domestic assessment use shortage and shall pay an

assessment in the amount specified in Sec. 723.503 and shall make

compensatory tobacco purchases in the amount specified in Sec. 723.504.

(ii) For any calendar year, the domestic content nonassessment

percentage shall be 75 percent unless for that calendar year the

percentage is reduced under Sec. 723.505, in which case the domestic

content nonassessment percentage shall be such reduced percentage.

(iii) Any assessment or purchase requirement which shall follow in

the event of a domestic assessment use shortage shall be in addition to

any other assessment or obligation that may be due or imposed.

(2) Any tobacco that has been reconstituted, or otherwise processed

to the extent that it has lost its respective identity as either

domestic tobacco or imported tobacco, shall be considered to be foreign

tobacco when making determinations under this subpart.

(3) Any tobacco otherwise subject to paragraph (a)(2) of this

section which is purchased by the manufacturer from a broker or

processor may nonetheless be considered to be domestic tobacco by the

Director if a valid certification meeting the requirements of this

section and satisfactory to the Director is signed by the transferring

party.

(4) In order to be credited under paragraph (a)(3) of this section,

a certification must conform to all requirements imposed by the

Director which may include use of a prescribed form.

(5) If the Director has not prescribed a form for use for such

certifications, it shall be the responsibility of the domestic

manufacturer to ensure that a proper certification has been obtained on

a form devised by such manufacturer. In order to be valid for purposes

of this section, the certification so devised must:

(i) Specify the total amount of tobacco being transferred to the

domestic manufacturer by the certifying party and the amount of such

tobacco which is domestic tobacco;

(ii) Certify, except as provided in paragraph (a)(6) of this

section, that such domestic tobacco was purchased directly from a

domestic producer (at auction, directly or from the price support

inventory of the applicable association) at market rates for domestic

tobacco, and that the certifying party can demonstrate the actual

disbursement of the purchase price.

(iii) Certify that the certifying party has no reason to believe

that the tobacco certified as domestic tobacco is foreign tobacco;

(iv) Refer to this subpart and section 320C of the Agricultural

Adjustment Act of 1938 and state the purposes for which the

certification is requested and made;

(v) State that the certification involves material information

which may or will be relied upon by the United States government for

purposes of enforcement of the provisions of this subpart;

(vi) State that false or inaccurate information may lead to civil

or criminal penalties or sanctions under the provisions of 18 U.S.C.

1001 or other provisions of law.

(6)(i) If any such certifying party has not purchased the tobacco

from a domestic producer or the price support inventory of the

applicable association, the certifying party shall be required in lieu

of the requirements of paragraph (a)(5)(ii) of this section to attach a

certification from the party from whom the certifying party obtained

the tobacco. Such sub-certification shall conform to the provisions of

paragraph (a)(5)(i) through (a)(5)(vi) of this section. Additional sub-

certifications shall be required as needed to trace the tobacco back to

the domestic producer.

(ii) In the event that such certifications as are otherwise

required in order to treat tobacco as domestic tobacco cannot be

reasonably obtained, the Director may relieve the domestic manufacturer

from such requirements based on such representations of the origin

category of the tobacco as the Director finds sufficient to serve the

purposes of this subpart.

(7) The domestic manufacturer shall be required to maintain all

records as may be needed to establish the origin of tobacco taken into

inventory including any certifications regarding such origin.

(8) Any tobacco having lost its identity with respect to its origin

category during the manufacturing process but which in the normal

course of business is recaptured and reused by the same manufacturer to

manufacture cigarettes in the United States and any tobacco in any

cigarettes returned to the manufacturer of the cigarettes which is

reused by the same manufacturer to manufacture new cigarettes in the

United States shall not be counted toward the domestic content

calculations made under this subpart. The domestic manufacturer shall

maintain such records that show the quantity of tobacco so reclaimed or

reused in the manufacturing of cigarettes for the calendar year.

However, any tobacco reused by a manufacturer different than the

original manufacturer shall be counted toward the domestic use

calculations for both manufacturers.

(b) Year-end reports required to be made by manufacturers. (1) In

addition to any other reports required by this subpart, beginning with

the 1994 calendar year, a domestic manufacturer of cigarettes shall

report to the Director, for each calendar year, the following

information:

(i) The total quantity of tobacco used by the manufacturer to

produce cigarettes in the United States during such calendar year.

(ii) The total quantity of imported tobacco used by the

manufacturer in the production of cigarettes in the United States

during such calendar year.

(iii) The total quantity of domestic tobacco used by the

manufacturer in the production of cigarettes in the United States

during such calendar year.

(iv) The total quantity of tobacco reused in the production of

cigarettes during such calendar year that was reclaimed from the

manufacturing process or from returned cigarettes and is exempt from

counting toward the total final domestic use calculation for the

manufacturer under paragraph (a)(8) of this section.

(v) The total number of individual cigarettes produced during such

calendar year.

(2) For purposes of the information required to be reported by

paragraphs (b)(1)(i) through (b)(1)(iii) of this section, the

quantities reported shall be based on the packed, redried weight of the

tobacco when it is removed from inventory for immediate entry into the

manufacturing process for making cigarettes. The weights required for

paragraph (b)(1)(iv) of this section shall be the actual weight of the

reclaimed tobacco.

(c) Where and when to report. The reports required by this subpart

shall, unless otherwise specified in this subpart, be mailed or

otherwise delivered in hard copy to the Director, Tobacco and Peanuts

Division, Agricultural Stabilization and Conservation Service, USDA, P.

O. Box 2415, Washington, DC 20013-2415 by February 15 of the year after

the calendar year to which the report applies. The Director may specify

the form in which any report required by this subpart shall be made and

may make other requests for information as may be necessary to

effectively enforce the provisions of this subpart.

(d) Failure to report. A manufacturer who fails to report the

quantities of domestic and imported tobacco used for manufacturing

cigarettes shall be presumed to have used only imported tobacco in such

cigarettes. In addition, with respect to any recordkeeping or reporting

requirement imposed by this subpart, the failure to file any report

timely or to supply any required information shall permit the Director

to determine that the information not timely filed or supplied is

adverse to the party responsible for the submission and to make

determinations under this subpart accordingly by any method determined

reasonable by the Director. If the correct and verifiable information

is later submitted, the Director may, in lieu of drawing such

conclusions, assess the costs incurred as a result of the failure to

supply the information in a timely manner.

Sec. 723.503 Domestic content marketing assessment.

(a) General. Effective beginning with the 1994 calendar year, each

domestic manufacturer of cigarettes with a domestic assessment tobacco

use shortage for a calendar year shall pay to CCC a non-refundable

domestic marketing assessment under this section in an amount which

equals the product calculated by multiplying the amount in pounds of

the shortage by the assessment rate per pound calculated under

paragraph (b) of this section.

(b) Assessment rate. The domestic marketing assessment rate for

purposes of this section shall be determined separately for each

calendar year. The assessment rate shall be the difference per pound

between:

(1) One-half the sum of the average prices per pound received by

domestic producers of burley tobacco and flue-cured tobacco,

respectively, for their respective marketing years preceding the

calendar year of the domestic assessment use shortage, and,

(2) The average price per pound of unmanufactured imported

cigarette tobacco for the calendar year preceding the year of the

shortage.

(c) Data used to calculate market prices. The Director may use data

published by NASS for purposes of making market price determinations

under this section and may use a weighted average price of

unmanufactured cigarette tobacco which was imported during the previous

calendar year, as calculated from Bureau of Census data, for such

calendar year. The Director may make adjustments in the average prices

or weights used to determine the domestic marketing assessment rate as

determined appropriate by the Director to ensure that the average

prices used for both domestic and imported tobacco are on an equivalent

basis to the extent practical. Such adjustments, if any, shall be based

on historical conversion yields common to the tobacco trade and may

include the exclusion of cigar tobacco from the calculation of the

average import price or the exclusion of other non-cigarette tobacco

from such calculation.

(d) Time for paying assessment. The domestic manufacturer shall pay

the domestic marketing assessment provided for in this section within

30 calendar days after demand for payment. However, if the manufacturer

timely requests reconsideration or timely appeals the determination,

the time for payment of the amount in dispute may be extended by the

Director to a date no later than 30 calendar days after the final

determination is rendered. Such extensions shall be subject to such

conditions as the Director may impose and shall be subject to a

continued accrual of interest, unless otherwise specified by the

Director. The rate for such interest shall be the rate charged on any

obligation owing to CCC at the time of the assessment, as determined by

the Director.

(e) Failure to timely pay assessment. If a domestic manufacturer

fails in a timely manner to pay any assessment under this section, such

manufacturer shall be subject to a penalty in an amount equal to twice

the amount of the initial assessment in addition to any interest that

has accrued on such obligations and in addition to any other charges or

obligations that may apply.

(f) Interest. All sums due to CCC under this subpart shall accrue

interest at a rate of interest which the Director determines is

currently being assessed for any other obligations due CCC. Such

charges shall be in addition to any other charges due.

Sec. 723.504 Required purchases from tobacco loan stocks.

(a) General. In addition to paying a domestic marketing assessment,

each domestic manufacturer of cigarettes who for any calendar year

beginning with the 1994 calendar year has a domestic assessment use

shortage shall purchase a quantity of burley and flue-cured tobacco

from the loan stocks of the producer owned cooperative marketing

associations for burley and flue-cured tobacco in the amounts

prescribed in this section.

(b) Purchase quantity. The amount of tobacco that must be purchased

shall be an amount equal to the amount, in pounds, of the

manufacturer's domestic assessment use shortage. The total amount of

required purchases shall be divided equally between burley and flue-

cured tobacco. If it is determined that the required amount of

purchases by all manufacturers would reduce the inventories of burley

or flue-cured tobacco below the reserve stock level, the Director may

reduce the required purchase quantity on a proportional basis. Required

purchases under this section shall not be considered as purchases for

purposes of meeting the manufacturer's purchase intentions under

section 320B of the 1938 Act.

(c) Purchase price. In order to receive credit for a purchase to

satisfy a purchase required by this section, the purchase price must

not be less than the published offer list price of the applicable

producer owned cooperative marketing association which shall be a price

available to all qualified buyers. Credit for required purchases shall

not be allowed if discounts, rebates, or other special incentives have

been offered and received in connection with purchases of tobacco loan

stocks from association inventories.

(d) Failure to purchase required amount. Each manufacturer shall

have 60 calendar days from date of notification of the required

purchase amount to complete the purchases required under this section.

The producer owned cooperative marketing associations shall report to

the Director the quantities of required purchases that have been made.

A manufacturer who fails to purchase, within the allotted time, the

required quantity of burley or flue-cured tobacco shall be liable for

penalty on each pound of tobacco for which there has been a failure to

make a timely purchase. The penalty rate shall be the amount determined

to be equal to 75 percent of the average market price for the kind of

tobacco required to be purchased for the marketing year that ends in

the calendar year of the manufacturer's domestic assessment use

shortage.

Sec. 723.505 Reduction of domestic content nonassessment percentage.

(a) General. The Director, in consultation with the appropriate

producer owned cooperative marketing associations, may reduce the

domestic content nonassessment percentage for a calendar year to a

percentage below 75 percent for any calendar year with respect to which

the Director determines that the production of burley or flue-cured

tobacco for the preceding year was substantially reduced because of

natural disaster or other conditions beyond the control of producers

and the loan stock inventory for the kind of tobacco is effectively

depleted.

(b) Expected production. For purposes of this section, the Director

may determine, but shall not be required to determine, the expected

amount of production of tobacco based on the planted acreage as

reported by NASS for the respective kind of tobacco multiplied by the

simple average of the five most recent years' average yields per acre

for the respective kind of tobacco. The Director may take into account

such other factors as the Director may deem to be relevant and

appropriate, including changes in the national quota set by the USDA

for the kind of tobacco involved.

(c) Deadline for determination. The Director shall announce the

reduced percentage by November 30 of the year preceding the calendar

year to which the reduced percentage will apply.

Sec. 723.506 Required records and reports; burden of proof.

(a) Required records. Each domestic manufacturer, for all

manufacturing plants producing cigarettes covered under this subpart,

shall maintain records on a calendar year basis for each lot of

unmanufactured tobacco taken into inventory that shows for each lot

the:

(1) Kind or type of tobacco,

(2) Form of tobacco, such as leaf, strips, scrap, stems,

reconstituted, reclaimed, etc.,

(3) Origin category of the tobacco (domestic or imported); and

(4) Weight of the tobacco.

(b) Record retention period. Records shall be retained for at least

3 calendar years after the calendar year to which the records apply.

The minimum period of record retention may be extended upon written

notification by the USDA Office of Inspector General or the Director.

Nothing in this paragraph shall relieve the domestic manufacturer of

the burden of establishing compliance with the provisions of this

subpart.

(c) Required reports. (1) In addition to any other report or

recordkeeping that may be required under this subpart or otherwise,

each domestic manufacturer shall for each calendar year file a report

with the Director showing, with the same particularity and categories

of data required under paragraph (a) of this section, the quantity of

unmanufactured tobacco that the manufacturer:

(i) Acquired during the calendar year,

(ii) Used to manufacture covered cigarettes during the calendar

year,

(iii) Used, or otherwise disposed of, other than to manufacture

covered cigarettes during the calendar year, and

(iv) Has in inventory at end of the calendar year.

(2) In addition, a one-time report containing the same

particularity and categories of data required under paragraph (a) of

this section shall be made by each domestic manufacturer setting out

the total amount of unmanufactured tobacco in the manufacturer's

inventory as of January 1, 1994. Such report shall be submitted within

15 calendar days after publication of this rule in the Federal

Register.

(3) The information provided in the reports required in paragraph

(c) of this section may be obtained from reports prepared and submitted

to USDA for other purposes. The resubmission of such information shall

constitute a current affirmation of the accuracy of such data or

information.

(4) Reports required by this section shall be mailed or otherwise

delivered in hard copy to the Director, Tobacco and Peanuts Division,

Agricultural Stabilization and Conservation Service, USDA, P. O. Box

2415, Washington, DC 20013-2415 by February 15 of the year after the

calendar year for which the report applies except with respect to the

one-time report required by paragraph (c)(2) of this section, which

shall be submitted by the date specified in paragraph (c)(2) of this

section.

(d) Variances in reports and recordkeeping and deadlines. The

Director may grant variances from the report, recordkeeping, and

deadlines required by this section or subpart but only in writing and

only to the extent that it is determined that such variances are

justified, taking into account the overall purposes of this subpart and

the desire to avoid undue interference with commerce.

(e) Burden of proof. The burden of proof on all issues arising

under this subpart regarding compliance with the provisions of this

subpart shall be on the domestic manufacturer of cigarettes.

Sec. 723.507 False reports; failure to file reports; examination of

records; and records for events occurring prior to the publication of

the final rule.

(a) False reports, failure to file report. In addition to any other

sanction or remedy or presumption that may apply, a person shall be

subject to all other remedies provided for by law including, but not

limited to, those that apply under section 320C of the Agricultural

Adjustment Act of 1938, as amended (7 U.S.C. 1314i), and 18 U.S.C. 1001

for any:

(1) False or inaccurate report, certification, or statement, or

(2) Failure to provide required information.

(b) Examination of records. The Director, the Office of Inspector

General, or any authorized representative of the United States may

examine such records, books, computer files, or any other material to

determine the correctness of any report or information provided to the

Director or to obtain relevant information. Reasonable costs incurred

with respect to any such audit may be charged to the domestic

manufacturer which is the subject of the audit or examination.

(c) Records for events occurring prior to the publication of the

final rule. No person shall be penalized or otherwise adversely

affected for a failure to comply with any recordkeeping requirements in

this rule as concerns records that would have been required to be

generated prior to the publication of the final rule implementing the

program provided for in this subpart. However, all persons shall be

required to maintain and submit on request, all records generated prior

to the publication of the final rule which are relevant to the

provisions of this subpart and shall be required, to the full extent

possible, for all uses of tobacco relevant to this subpart. Nothing in

this paragraph shall be justification for the destruction of records or

information, or for refusing a request for relevant information.

Sec. 723.508 Reconsideration and appeal.

A domestic manufacturer of cigarettes may request that the Director

reconsider any adverse determination with respect to such manufacturer

under this subpart. A request for reconsideration shall be made within

15 calendar days after the date of the notification of failure to

comply except that the manufacturer for cause may request that the time

for such filing be extended. The Director may grant such requests and

may set conditions for such extensions. Unless otherwise specified by

the Director, an extension of the time for reconsideration, or the

pendency of reconsideration or appeal, shall not toll the time for

payment of any amount due, nor toll the accrual of interest. If the

domestic manufacturer is dissatisfied with the reconsideration

determination rendered, such manufacturer may appeal the determination

to the Director, National Appeals Division in accordance with part 780

of this title.

Signed at Washington, DC, on May 24, 1994.

Bruce R. Weber,

Acting Administrator, Agricultural Stabilization and Conservation

Service.

[FR Doc. 94-13318 Filed 5-26-94; 2:48 pm]

BILLING CODE 3410-05-P