Revisions to the Upland Cotton User Marketing Certificate Program

DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1427

RIN 0560-AD58

Revisions to the Upland Cotton User Marketing Certificate Program

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Proposed rule.

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SUMMARY: Concerns have been raised about the cost of the upland cotton

user marketing certificate program and the way in which it has been

administered. A notice requesting comments regarding the program was

published in the Federal Register on August 20, 1993, at 58 FR 44320.

Comments were solicited with respect to several of the concerns that

have been raised. The Commodity Credit Corporation (CCC) is now

requesting further comments with respect to proposed changes in the

formula for determining the user marketing payment rate; whether export

contracts that specify shipment after September 30 should be eligible

for payments beginning October 1, and, if so, whether the maximum

payment rate should be 2.5 cents per pound until such time as the

payment rate calculation is based entirely on Northern Europe forward

prices; and whether a destination should be required to be declared for

export sales contracts.

DATES: Comments must be received by March 11, 1994, in order to be

assured of consideration.

ADDRESSES: Comments must be mailed to Director, Fibers and Rice

Analysis Division (FRAD), Agricultural Stabilization and Conservation

Service (ASCS), United States Department of Agriculture (USDA), room

3754-S, PO Box 2415, Washington, DC 20013-2415.

FOR FURTHER INFORMATION CONTACT: Wayne Bjorlie, FRAD, ASCS, USDA, room

3754-S, PO Box 2415, Washington, DC 20013-2415 or call 202-720-7954.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

The proposed rule is issued in conformance with Executive Order

12866. Based on information compiled by USDA, it has been determined

that this proposed rule would materially alter the budgetary impacts of

entitlements and the rights and obligations of entitlement recipients.

A change in the method of determining the payment rate under the

program could raise payment rates for domestic textile mills and lower

payment rates for exporters of U.S.-grown cotton, reducing budgetary

expenditures. The ability of exporters to earn a payment on forward-

crop sales beginning earlier in the marketing year could afford them

greater benefits under the program and result in more price

competition. The requirement that exporters designate the country of

destination of the cotton before CCC will fix a payment rate will

entail additional paperwork for exporters and could reduce exports of

U.S. cotton.

These program changes are projected to increase the average rate at

which domestic mills are being paid by about one-half cent and to

decrease the average rate at which exporters are being paid by about

two cents. As a result, domestic mill use of upland cotton is expected

to increase by 50,000 bales per year and exports of U.S. cotton are

expected to be reduced by 100,000 bales per year. These changes are not

significant enough to have any impact on acreage reduction programs,

prices, or farm income. Government outlays for Step-2 payments are

projected to be reduced by an average of almost $30 million per year.

Other than the impacts indicated above, this action:

(1) Will not have an annual effect on the economy of $100 million

or more or adversely affect in a material way the economy, a sector of

the economy, productivity, jobs, the environment, public health or

safety, or State, local or tribal governments or communities;

(2) Will not create a serious inconsistency or otherwise interfere

with an action taken or planned by another agency;

(3) Will not materially alter the budgetary impacts of user fees or

loan programs, and;

(4) Will not raise novel legal policy issues arising out of legal

mandates, the President's priorities, or the principles set forth in

Executive Order 12866.

Regulatory Flexibility Act

It has been determined that the Regulatory Flexibility Act is not

applicable to this proposed rule since the CCC 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 these

determinations.

Environmental Evaluation

It has been determined by an environmental evaluation that this

action will not have a significant impact on the quality of the human

environment. Therefore, neither an Environmental Assessment nor an

Environmental Impact Statement is needed.

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: Cotton Production Stabilization--10.052.

Executive Order 12778

This proposed rule has been reviewed in accordance with Executive

Order 12778. The provisions of this proposed rule do not preempt State

laws, are not retroactive, and do not involve administrative appeals.

Executive Order 12372

This program/activity is not subject to the provisions of Executive

Order 12372, which requires intergovernmental consultation with State

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

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

Paperwork Reduction Act

The information collection requirements contained in the current

regulations have been approved by the Office of Management and Budget

(OMB), under the provisions of 44 U.S.C. chapter 35, through August 31,

1994 (OMB No. 0560-0136). Changes made to the Upland Cotton Domestic

User/Exporter Agreement as a result of this proposed rule have been

submitted to OMB for approval in addition to one new information

collection requirement (see Attachment 1).

Preliminary Regulatory Impact Analysis

The Preliminary Regulatory Impact Analysis describing the options

considered in developing this proposed rule and the impact of the

implementation of each option is available on request from the above-

named individual.

Background

This proposed rule amends 7 CFR part 1427 to set forth proposed

determinations with respect to the upland cotton user marketing

certificate program. A notice requesting comments on the administration

of the program was published on August 20, 1993, at 58 FR 44320.

Comments were requested on these specific concerns:

(1) How to make the program equitable to exporters with and without

foreign affiliates, to domestic textile mills, and to other members of

the U.S. cotton industry;

(2) How best to meet the legislative objectives of the program as

they relate to U.S. cotton competitiveness;

(3) How to assure that export contracts considered eligible to lock

in rates in advance under the program represent actual sales and how to

institute appropriate measures that discourage program abuse but do not

unduly penalize exporters if they are unable to ship cotton due to

unforseen and unavoidable circumstances;

(4) How to operate a program that interferes as little as possible

with normal cotton marketing practices, that does not overly influence

or dominate decision-making in the cotton market, that will not result

in cotton price distortions, and that will not commit Federal funds

unnecessarily to the competitiveness program; and

(5) How to accomplish the above objectives in a way that is not

administratively burdensome.

A total of sixteen comments were received in response to the notice

requesting comments.

With regard to changing the formula for calculating the user

marketing certificate payment rate, four respondents supported a

proposal that would limit the weekly increase in the forward payment

rate calculation to 25 percent of the current week's payment rate

calculation. Two respondents recommended basing the user marketing

certificate payment rate throughout the year on a four-week moving

average of the payment rate formula. One respondent commented that

domestic mills should receive the same rate as exporters or the formula

should be eliminated. Another respondent urged elimination of the

current and forward dual rate structure and suggested that CCC make

adjustments in the price quotations to reflect actual sales prices.

Four respondents recommended eliminating the program altogether, one

respondent recommended eliminating the program for exporters only, and

one respondent suggested using a fixed certificate rate of 0.5 cents

per week. Two respondents did not comment on the payment rate formula.

With regard to the formula used to determine whether a special

import quota is in effect, three respondents recommended that only

current Northern Europe price quotations be used.

With regard to sales to foreign affiliates, one respondent asked

that sales to foreign affiliates be allowed to continue, one respondent

asked that sales to foreign affiliates not be allowed, and three

respondents asked that only sales to end users be allowed. In addition,

one respondent requested that CCC not establish regulations that

interfere with traditional international marketing practices.

Two respondents requested that there not be a time limit for

specifying the destination of any exports. One respondent asked that

liquidated damages be calculated based on 50 percent of the certificate

value and another respondent asked that CCC increase penalties for non-

performance on export contracts.

Several respondents commented on various provisions of the upland

cotton loan program. One respondent suggested lowering the loan rate to

45 cents. One respondent asked that the loan period be shortened to ten

months with a two-month extension, that preliminary notice of any

discretionary adjustment to the adjusted world price (AWP) be given and

that producers be ineligible for loans if they have cotton under loan

from a previous crop. One respondent suggested that CCC deduct carrying

charges from the loan proceeds.

After considering these comments, the following changes are

proposed to be made with respect to the regulations governing the

upland cotton user marketing certificate program:

(1) Beginning with the period each year when both Northern Europe

current prices and Northern Europe forward prices are available,

determine the payment rate for both domestic mills and exporters using

a blend of the two prices similar to the method used to make a

transition in the AWP from current to forward prices. Establish a six-

week transition period during which blended prices would be used.

Following the transition period, calculate payment rates based on the

Northern Europe forward prices. If adopted, this proposal would require

that a complementary procedure be established for determining the

``Step 3'' special import quota;

(2) Allow export contracts that specify delivery after September 30

to qualify for payments beginning about October 1. Such contracts would

earn the lower of the rate in effect for a given week or 2.5 cents per

pound until such time as the payment rate is based entirely on Northern

Europe forward prices. Thereafter, no limitation on the payment rate

would apply; and

(3) Require exporters to declare the country of destination before

a Step-2 payment rate can be established for an export contract.

List of Subjects in 7 CFR Part 1427

Cotton, Loan programs/agriculture, Packaging and containers, Price

support programs, Reporting and recordkeeping requirements, Surety

bonds, Warehouses.

Accordingly, it is proposed that 7 CFR part 1427 be amended as

follows:

PART 1427--COTTON

1. The authority citation for 7 CFR part 1427 continues to read as

follows:

Authority: 7 U.S.C. 1421, 1423, 1425, 1444, and 1444-2; 15

U.S.C. 714b and 714c.

2. Section 1427.102 is amended by:

A. Adding ``End user'' definition, and

B. Revising definitions of ``Northern Europe current price'',

``Northern Europe forward price'', ``Northern Europe price'', ``U.S.

Northern Europe current price'', ``U.S. Northern Europe forward

price'', and ``U.S. Northern Europe price'' to read as follows:

Sec. 1427.102 Definitions.

* * * * *

End user means the person or entity who opens a bale of cotton for

use in the manufacture of cotton products.

* * * * *

Northern Europe current (NEc) price means the average of the

current shipment prices for the preceding Friday through Thursday for

the five lowest-priced growths of the growths quoted for Middling (M)

1\3/32\ inch cotton C.I.F. northern Europe.

Northern Europe forward (NEf) price means the average of the

forward shipment prices for the preceding Friday through Thursday for

the five lowest-priced growths of the growths quoted for M 1\3/32\ inch

cotton C.I.F. northern Europe.

Northern Europe (NE) price means, during the period in which only

one daily price quotation is available for the growth quoted for M 1\3/

32\ inch cotton, C.I.F. northern Europe, the average for the preceding

Friday through Thursday period of the five lowest-priced growths of the

growths quoted for M 1\3/32\ inch cotton, C.I.F. northern Europe.

* * * * *

U.S. Northern Europe current (USNEc) price means the average of the

current shipment prices for the preceding Friday through Thursday for

the lowest-priced United States growth as quoted for Middling (M)\3/32\

inch cotton C.I.F. northern Europe.

U.S. Northern Europe forward (USNEf) price means the average of the

forward shipment prices for the preceding Friday through Thursday for

the lowest-priced United States growth as quoted for M 1\3/32\ inch

cotton C.I.F. northern Europe.

U.S. Northern Europe (USNE) price means, during the period in which

only one daily price quotation is available for the growth quoted for M

1\3/32\ inch cotton, C.I.F. northern Europe, the average for the

preceding Friday through Thursday period of the lowest-price United

States growth as quoted for M 1\3/32\ inch cotton, C.I.F. northern

Europe.

3. Section 1427.107 is amended by:

A. Redesignating paragraphs (d) through (g) as paragraphs (f)

through (i), respectively,

B. Revising paragraphs (a), (b), and (c),

C. Adding new paragraphs (d) and (e), and

D. Revising redesignated paragraph (f)(3)(i) to read as follows:

Sec. 1427.107 Payment rate.

(a) Payments will be made to domestic users for all eligible bales

opened and exporters on contracts which specify shipment of the cotton

by not later than September 30 following such contract period and for

which a country of destination has been named, whenever the formula

defined in paragraph (c) of this section (hereinafter referred to as

the ``payment rate calculation'') results in positive values for the

four preceding consecutive weeks and the adjusted world price,

determined in accordance with Sec. 1427.25 of this part (hereinafter

referred to as the ``AWP''), does not exceed the current crop-year loan

level for the base quality of upland cotton by more than 130 percent in

any week of the 4-week period. Payments will not be made if the payment

rate calculation, adjusted for the value of any certificate or cash

payments issued under this section, results in a positive value for

each week of the immediately preceding 10-week period. The payment rate

for any Friday through Thursday period is equal to the payment rate

calculation for the immediately preceding Friday through Thursday

period.

(b) Payments will be made to exporters on contracts which specify

shipment of the cotton after September 30 following such contract

period and for which a country of destination has been named beginning

the Friday through Thursday week which includes October 1 whenever the

payment rate calculations defined in paragraph (c) of this section are

positive for the preceding four consecutive weeks and the AWP does not

exceed the current crop-year loan level for the base quality of upland

cotton by more than 130 percent in any week of the 4-week period. No

payments will be allowed on contracts which specify shipment of the

cotton after September 30 following such contract period if the

contract was made prior to the Friday through Thursday week which

includes the preceding October 1. With respect to contracts which

specify shipment of the cotton after September 30, 1994 but before

September 30, 1995, no payments will be made on contracts made prior to

the week following the first week covering the period Friday through

Thursday which includes April 15, 1994 or, if the USNEc, the USNEf, the

NEc and the NEf are not available, prior to the week following the

first week covering the period Friday through Thursday after the week

which includes April 15, 1994 in which the USNEc, the USNEf, the NEc

and the NEf are available. Payments will not be made if the payment

rate calculation, adjusted for the value of any certificate or cash

payments issued under this section, results in a positive value for

each week of the immediately preceding 10-week period. Beginning the

Friday through Thursday week which includes October 1 and until the

seventh week following the first week covering the period Friday

through Thursday which includes April 15 or, if the USNEc, the USNEf,

the NEc and the NEf are not available, until the seventh week following

the first week covering the period Friday through Thursday after the

week which includes April 15 in which the USNEc, the USNEf, the NEc and

the NEf are available, the payment rate for any Friday through Thursday

period is equal to the lower of the payment rate calculation for the

immediately preceding Friday through Thursday period or 2.5 cents.

Beginning the seventh week following the first week covering the period

Friday through Thursday which includes April 15 or, if the USNEc, the

USNEf, the NEc and the NEf are not available, beginning with the

seventh week following the first week covering the period Friday

through Thursday after the week which includes April 15 in which the

USNEc, the USNEf, the NEc and the NEf are available, the payment rate

for any Friday through Thursday period is equal to the payment rate

calculation for the immediately preceding Friday through Thursday

period.

(c) (1) Beginning August 1 until the first week covering the period

Friday through Thursday which includes April 15 or, if the USNEc, the

USNEf, NEc and the NEf are not available, until the first week covering

the period Friday through Thursday after the week which includes April

15 in which the USNEc, the USNEf, the NEc and the NEf are available,

the payment rate calculation is the USNE minus the NE price minus 1.25

cents per pound.

(2) Beginning with the first week covering the period Friday

through Thursday which includes April 15 or, if the USNEc, the USNEf,

the NEc and the NEf are not available, beginning with the first week

covering the period Friday through Thursday after the week which

includes April 15 in which the USNEc, the USNEf, the NEc and the NEf

price are available, the payment rate calculation will be based on an

average of the USNEc price and the USNEf (hereinafter referred to as

the ``blended U.S. Northern Europe price'') and an average of the NEc

and the NEf (hereinafter referred to as the ``blended Northern Europe

price'') as follows:

(i) Weeks 1 and 2: Blended U.S. Northern Europe price equals

((2 x USNEc)+USNEf)/3. Blended Northern Europe price equals

((2 x NEc)+NEf)/3.

(ii) Weeks 3 and 4: Blended U.S. Northern Europe price equals

(USNEc+USNEf)/2. Blended Northern Europe price equals (NEc+NEf)/2.

(iii) Weeks 5 and 6: Blended U.S. Northern Europe price equals

(USNEc+(2 x USNEf))/3. Blended Northern Europe price equals

(NEc+(2 x NEf))/3. The payment rate calculation for the 6-week period

is the blended U.S. Northern Europe price minus the blended Northern

Europe price minus 1.25 cents per pound.

(3) Beginning with the seventh week following the first week

covering the period Friday through Thursday which includes April 15 or,

if the USNEc, the USNEf, the NEc and the NEf are not available,

beginning with the seventh week following the first week covering the

period Friday through Thursday after the week which includes April 15

in which the USNEc, the USNEf, the NEc and the NEf are available, until

July 31, the payment rate calculation is the USNEf minus the NEf minus

1.25 cents per pound.

(d) For contracts entered into before August 30, 1991, the payment

rate shall be zero.

(e) All export contracts must specify a country of destination in

order to determine the applicable payment rate. If the country of

destination is declared on the date the export sale is first confirmed

in writing, the payment rate shall be the rate in effect for that

Friday through Thursday week. If the country of destination is declared

after the date that sale is first confirmed in writing but prior to

shipment, the payment rate shall be the lower of the rate in effect at

the time the sale was made or the rate in effect at the time the

destination was declared. If no destination is declared prior to

shipment, the payment rate shall be the lower of the rate in effect at

the time the sale was first confirmed in writing or the rate in effect

on the shipment date. The exporter shall notify CCC if there is a

change in the country of destination previously declared for any export

contract. Upon receipt of such notification, CCC will establish the

payment rate for cotton shipped under such contract at the lower of the

payment rate in effect when the original contract was made, or the

payment rate in effect on the date written notification which is

submitted to CCC stating that the cotton shipped, or to be shipped,

under such contract was, or shall be shipped to a country other than

that shown in the original contract.

* * * * *

(f) * * *

(3) * * *

(i) The difference between the highest payment rate paid to, or

earned by, the exporter between the date the original contract was

entered into and December 31 of the year in which the original contract

shipment period ends, regardless of whether the highest payment rate

paid to, or earned by, the exporter was based upon a current or forward

contract, and the lower of the original contract payment rate or if a

replacement contract has been made, the replacement contract payment

rate, or if a change of destination country was made, the payment rate

in effect at the time change of destination is declared, or

* * * * *

4. Section 1427.108 (c)(2) and (d) are revised to read as follows:

Sec. 1427.108 Payment.

* * * * *

(c) * * *

(2) Sold by the exporter on the date the contract for sale is first

confirmed in writing by the exporter or importer and the destination

country is named.

(d) Payments in accordance with this subpart shall be made

available upon application for payment and submission of supporting

documentation, including proof of purchases and consumption of eligible

cotton by the domestic user or proof of export of eligible cotton by

the exporter, as required by the provisions of the Upland Cotton

Domestic User/Exporter Agreement and instructions issued by CCC.

Retention of export payments is predicated upon the receipt by CCC of

proof of delivery to the designated country within 60 calendar days of

such payment.

5. Section 1427.109(c)(3)(i) is revised to read as follows:.

Sec. 1427.109 Contract cancellations.

* * * * *

(c) * * *

(3) * * *

(i) The difference between the highest payment rate paid to or

earned by, the exporter between the date the original contract was

entered into and December 31 of the year in which the original contract

shipment period ends, regardless of whether the highest payment rate

paid to, or earned by the exporter was based upon a current or forward

contract and the lower of the original contract payment rate or if a

replacement contract has been made, the replacement contract payment

rate, or if a change of destination country was made, the payment rate

in effect at the time the change of destination is declared, or

* * * * *

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

Bruce R. Weber,

Executive Vice President, Commodity Credit Corporation.

Note: The following form will not appear in the Code of Federal

Regulations.

BILLING CODE 3410-05-P

TP01MR94.000

[FR Doc. 94-4674 Filed 2-24-94; 4:22 pm]

BILLING CODE 3410-05-C