Dairy Tariff-Rate Import Quota Licensing

SUMMARY: This final rule supersedes Import Regulation 1, Revision 7,

which governs the administration of the import licensing system for

certain dairy products which are eligible for in-quota tariff rates

established in the Harmonized Tariff Schedule of the United States

resulting from the entry into force of certain provisions in the

Uruguay Round Agreement.

EFFECTIVE DATE: This final rule is effective October 9, 1996.

FOR FURTHER INFORMATION CONTACT: Diana Wanamaker, STOP 1021, U.S.

Department of Agriculture, 1400 Independence Avenue, S.W., Washington,

D.C. 20250-1021, or telephone (202) 720-2916.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This final rule is issued in conformance with Executive Order

12866. It has been determined to be economically significant for the

purposes of E.O. 12866 and, therefore, has been reviewed by the Office

of Management and Budget (OMB).

Regulatory Flexibility Act

It has been determined that the Regulatory Flexibility Act is not

applicable to this final rule since the Office of the Secretary 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.

Executive Order 12372

This program 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).

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.

Paperwork Reduction Act

In accordance with provisions of the Paperwork Reduction Act of

1995, the Department amended the information collection approved by the

Office of Management and Budget (OMB) under OMB control number 0551-

0001. Since this final rule provides for a substantial revision of the

existing Import Regulation, the current information collection was

amended to support the final rule. The information collection consists

of an application for dairy import licenses, a certification that the

applicant meets the eligibility requirements of Sec. 6.23 and

documentation which supports that certification as required under

Sec. 6.24. The total burden is estimated to be 375 hours. Copies of

this information collection can be obtained from Pamela Hopkins, the

Agency Information Collection Coordinator, at (202) 720-6173.

Executive Order 12778

This final rule has been reviewed under Executive Order 12778. The

provisions of this final rule would have preemptive effect with respect

to any state or local laws, regulations, or policies which conflict

with such provisions or which otherwise impede their full

implementation. The final rule would not have retroactive effect.

Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L.

104-121, 5 U.S.C. 801-808)

Further, a determination has been made that a delay in the

implementation of this rule would be contrary to the public interest

such that the Small Business Regulatory Enforcement Fairness Act of

1996 (Pub. L. 104-121, 5 U.S.C. Secs. 801-808) is not applicable to

this rule. If the effective date for this rule were delayed 60 days,

the reform of the dairy licensing system would be delayed by an entire

year since the rule must be in place prior to the application period

for the next year's licenses.

Background

This final rule revises Import Regulation 1, Revision 7, which

governs the administration of the import licensing system for certain

dairy products which are eligible for in-quota tariff rates proclaimed

in the Harmonized Tariff Schedule of the United States (HTS). In order

to encourage public participation in the rulemaking process, the

Department published an Advance Notice of Proposed Rulemaking (ANPR) in

the Federal Register on June 2, 1994 (59 FR 28495) with a public

comment period which ended on August 2, 1994, and held a public hearing

on March 10, 1995. The Department solicited further comments from the

public in response to the interim rules published in the Federal

Register on January 6, 1995 (60 FR 1989), May 2, 1995 (60 FR 21425),

and September 13, 1995 (60 FR 47453) which made certain modifications

to the existing rule (Revision 7) and implemented Uruguay Round

Agreement commitments for the 1995 and 1996 quota years. Comments

received in response to the ANPR and the Interim Rules as well as

written testimony and briefs submitted to the Department with respect

to the public hearing were addressed in the proposed rule which was

published in the Federal Register on January 18, 1996 (61 FR 1233).

The proposed rule substantially revised the existing rule to

incorporate Uruguay Round Agreement commitments relating to increased

market access for dairy articles; effected changes to the Harmonized

Tariff Schedule of the United States pursuant to Presidential

Proclamation 6763 of December 23, 1994; and reformed the regulatory

process to update, strengthen, and simplify the requirements of the

regulation. USDA encouraged interested persons to submit their

comments, views, and suggestions on the proposed rule during a 60-day

comment period which closed on March 18, 1996.

USDA received comments from 52 entities: two trade associations;

seven representatives of foreign governments; seven Congressional

representatives; three foreign exporting entities; and the remainder,

importers or their legal counsel, nearly all of them participants in

the existing import licensing program. In general, the comments focused

on: strengthened eligibility requirements (Sec. 6.23), particularly the

proposed increase in the license utilization requirement; the uniform

application of provisions with respect to noncompliance with this

requirement and the restriction on sales-in-transit; a broad range of

issues related to allocation of licenses for in-quota quantities of

dairy products; and transfer of license eligibility (Sec. 6.28).

Discussion of Major Comments

In General

A number of comments received argued that the proposed rule

contained requirements that were ``retroactive'' and, therefore, could

not legally be applied. The argument advanced was that USDA would be

establishing eligibility for license, at least in part, on the past

performance of the importers (e.g., the importers' utilization of its

[[Page 53003]]

license in the past), and new performance requirements could not

legally be based on past transactions.

USDA disagrees. The consequences of these provisions occur only in

the future. Further, the import licensing system has always been based,

at least in part, on importer's past performance. The fundamental basis

for historical license is that those eligible for such licenses are

persons who, at some time in the past, were actively engaged in the

business of importing cheese. There is nothing ``retroactive'' about

such an eligibility rule and, equally, nothing retroactive about the

eligibility rules or performance requirements proposed.

Definitions (Sec. 6.21)

In the proposed rule, USDA made a number of changes to the

definitions in the existing regulation to conform to changes proposed

in the operational provisions of the rule. The final rule incorporates

most of these proposed changes with several additional modifications

suggested in comments received from the public. USDA replaced the term

``quota article'' with the term ``article'' to be consistent with the

terminology in the Harmonized Tariff System; added a definition of ``EC

15'' to reflect the recent accession of Finland, Sweden and Austria

into the European Union; revised the definition of ``postmark'' to make

it clear that all U.S. Postal Service deliveries including ``same day''

service, express service and priority mail are included; and deleted

the term ``sales-in-transit'' which became unnecessary when the rules

on limiting use of this practice were deleted from Sec. 6.23 in the

final rule.

USDA decided not to adopt several recommendations made in the

comments. Some commentors suggested that USDA develop special

definitions for the terms ``authorized agent,'' ``any country,'' and

``force majeure.'' USDA sees no need for special definitions for these

terms since the regulation uses the terms as they would ordinarily and

customarily be understood. Special definitions are appropriate only

where a term does not have a commonly understood meaning. One commentor

also suggested that USDA define the term ``Basic Annual Allocation''

(``BAA''); however, because BAA will cease to have any function in the

regulatory scheme after the allocation of 1997 historical licenses,

USDA determined that there is no purpose in developing such a

definition.

Eligibility (Sec. 6.23)

USDA had proposed certain eligibility criteria to ensure that

import licenses would be issued only to bona fide import/distribution

or manufacturing concerns that would use the dairy articles imported in

their own business operations. USDA received numerous comments on this

section of the proposed rule.

In general, most comments received from the dairy industry

supported USDA's proposal to strengthen eligibility requirements. One

commentor, however, suggested that eligibility requirements be made

gradually more stringent rather than all at once. Two commentors

expressed concerns that small businesses might have difficulty in

meeting these more stringent requirements and recommended that USDA

make no changes in this area or even make the eligibility requirements

less stringent. Several comments approved USDA's attempt to impose

uniform eligibility standards for all license types; two comments

suggested that USDA go even further and establish identical eligibility

criteria for both cheese and non-cheese dairy products.

The comments received also contained a variety of other comments

expressing widely divergent views on the eligibility provisions of the

proposed regulation. For example, some comments favored issuing

licenses only to importers and excluding exporters altogether, while

others argued that exporters should be eligible to apply for cheese

licenses as well as non-cheese licenses. One commentor wanted USDA to

exclude historical license holders altogether from eligibility for

nonhistorical licenses and to make nonhistorical licenses renewable in

some unspecified way.

Most commentors expressed misgivings about USDA's proposal to

increase the license utilization requirement from the previous 85

percent to the proposed 90 percent. They were especially concerned that

this more stringent eligibility criterion would apply to applicants for

historical licenses because failure to utilize 90 percent of a license

amount in a single year would effectively result in permanent

ineligibility to apply for that historical license. Commentors

contended that they could lose eligibility not through their own fault,

but because of economic conditions beyond their control such as

fluctuating exchange rates, unavailability of supply or foreign

government policy. These comments appear to have some empirical

support: USDA took note of the increasingly complex international

market situation, and of the fact that average quota utilization rates

had declined from approximately 93 percent during the 1990-94 period to

87 percent during 1995.

On a similar issue, several commentors argued that the proposal to

require 95 percent utilization for conversion of a Revision 8

nonhistorical butter license to a historical license was too stringent

and that the level should be reduced to be in line with utilization

requirements applicable to other dairy products. Several commentors

objected to the provision in the proposed rule that would prohibit

persons who hold such converted historical butter licenses from also

applying for nonhistorical butter licenses.

Other comments with respect to butter licenses varied widely. Two

commentors argued that there should be no historical licenses for

butter. Another proposed that USDA issue historical licenses for butter

in amounts 200 percent of the license amounts utilized during the 1997

and 1998 quota years, although that commentor failed to indicate how

such license increases could be achieved given the limited quantities

available for allocation under the tariff-rate quota.

Several comments were directed to the proposed rule's provisions

governing applicant eligibility based on its status as a manufacturer.

One comment argued that the rules were cumbersome and that USDA would

find them hard to enforce. Two commentors recommended that USDA

eliminate the requirement that a manufacturer be listed in the USDA

publication of Dairy Plants Surveyed and Approved for USDA Grading

Service (``Dairy Plants''). Two comments agreed with the use of ``Dairy

Plants'' listings as a criterion for eligibility, but argued that USDA

should limit eligibility to plants listed in Section I of that

publication, and exclude ``packagers'' listed in Section II. Two

comments suggested that the 75 percent processing requirement be moved

from Sec. 6.27(b) of the proposed rule to section Sec. 6.23 and become

a requirement for establishing eligibility, but did not explain how

applicants could certify as to future behavior.

Ten comments were received on the proposed rule's provisions with

respect to export monopolies. Essentially, the proposed rule relieved

licensees of certain utilization requirements if the licensee must

purchase its dairy articles from an export monopoly. Three comments

argued that the provision discriminated against certain countries and

that there was no evidence that export monopolies disadvantaged license

holders. On the other hand, several comments favored the provision,

stating that it recognized legitimate concerns about the economic power

that

[[Page 53004]]

export monopolies could exercise in the marketplace. Two comments

suggested that the Office of the Trade Representative, rather than

USDA, make the export monopoly determination.

Nearly all comments received discussed the proposed rule's

treatment of ``sales-in-transit.'' Most comments asked that USDA either

remove, or provide exemptions from, the limitations on sales-in-

transit. The comments stressed the commercial advantages of using

sales-in-transit where an importer's requirements are less than a

single container load; for importing higher-valued table cheeses; and

for facilitating just-on-time deliveries. The comments also questioned

whether the restrictions in the regulations would be effective in

addressing suspected license misuse.

Several comments addressed the provisions of the proposed rule with

respect to ``associated'' or ``affiliated'' persons. These provisions

are intended to continue USDA's longstanding policy of ensuring wider

distribution of licenses and of preventing groups of related persons

from controlling unduly large proportions of the lottery licenses for

specific dairy articles (nonhistorical and supplementary licenses under

Revision 7). Because the proposed rule contemplated the conversion of

certain (Revision 7) nonhistorical licenses to historical licenses,

USDA had increased concern about concentration of lottery licenses and

so proposed to further tighten the rules with respect to associated or

affiliated persons. The comments received expressed uncertainty about

the meaning of the ``economic benefits'' test included in the proposed

rule and sought further clarification.

A number of comments were also received with respect to designated

licenses. Several commentors complained that foreign governments were

not meeting notification deadlines for importers. Two commentors

opposed the provisions in the proposed rule that prohibit importers

with designated licenses from also receiving nonhistorical licenses for

the same article. Two foreign governments asked that the proposed rule

be revised to permit them to redesignate importers during a quota year,

a practice that is currently prohibited except where licenses are

surrendered or revoked. Other comments suggested that USDA totally

eliminate designated licenses; limit designation to entities not owned

or controlled by foreign governments; replace designated licenses with

certificates of quota eligibility that could be allocated by the

exporting country; or permit designation with respect to non- cheese

products.

Based on comments received, USDA has incorporated the following

modifications in the final rule:

(1) Importer Eligibility--USDA has made three changes to the

proposed rule. First, USDA will consider entries based on sales-in-

transit or warehouse withdrawal in determining applicant eligibility.

The limitations in the proposed rule on the use of sales-in-transit

have been eliminated. Second, in cases where an importer seeks to

qualify on the basis of at least eight entries of dairy products, the

final rule clarifies that such entries must be made from ``separate''

shipments. Third, for non-cheese dairy product eligibility based on at

least eight entries, the final rule reduces the minimum weight for each

entry from ``not less than 2,000 kilograms'' to ``not less than 450

kilograms'' consistent with the way in which the rule treats entries of

cheese.

(2) Manufacturer Eligibility--The final rule includes an

eligibility criterion in addition to those proposed in

Sec. 6.23(b)(1)(i)(C). Under the final rule, an entity will also be

eligible to apply for a license as a manufacturer if it owns or

operates a plant listed as a ``processor'' of cheese in Section I of

the most current issue of the USDA publication Dairy Plants Surveyed

and Approved for USDA Grading Service.

(3) Certain Butter--The proposed rule provided that a person issued

a nonhistorical license during the 1996 and 1997 quota years would be

eligible to apply for an historical license thereafter if it satisfied

certain criteria, including having utilized at least 95 percent of its

license amount during the previous year. Persons receiving historical

licenses under this provision could not also be issued nonhistorical

licenses.

The final rule makes three changes. First, the quota years upon

which eligibility will be determined have been changed from 1996 and

1997 to 1997 and 1998. This is because the nonhistorical licenses

issued for 1996 are smaller than those that will be issued under the

final rule for 1997 and 1998. Second, the proposed 95 percent

utilization requirement has been reduced in the final rule to 90

percent. Third, the final rule incorporates an exception to the

prohibition on historical license holders also receiving a

nonhistorical license. Under the final rule, if all applicants that do

not hold a converted historical license for butter have been issued a

nonhistorical license and there is still such butter license available,

a holder of a converted historical butter license may be eligible to

receive a nonhistorical license for some or all of that remaining

butter.

(4) Exceptions--Section 6.23(c) of the proposed rule established

certain exceptions, i.e., circumstances under which an applicant would

not be determined eligible to receive a license to import. The final

rule makes four changes to the proposed rule in this respect.

First, the proposed rule would have excluded from license

eligibility a person who failed to enter at least 90 percent of the

amount of an article permitted under a license during the previous

quota year. The final rule reduces the threshold from ``at least 90

percent'' to ``at least 85 percent.'' This is the same threshold that

had been applicable under the existing rule.

Second, the proposed rule contained an exception to an exception,

i.e., it provided that the 90 percent utilization rule (now changed to

85 percent in the final rule) would not apply where the licensee was

dealing with an export monopoly. Under the proposed rule, USDA would

have published a list of countries that operated or permitted export

monopolies and provided an exception where countries on that list were

specified on an import license. USDA has determined, however, that this

is not a sufficiently flexible approach to this problem, particularly

since, in the future, countries that have an export monopoly may

discontinue this practice, or countries currently without an export

monopoly could create one. Therefore, although the final rule maintains

the export monopoly exception, the provision regarding publication of a

list of countries has been deleted. Instead, a licensee may petition

USDA to apply the exception and will be required to provide information

regarding the alleged export monopoly. An ``export monopoly'' means a

privilege vested in one or more persons consisting of the exclusive

right to carry on the exportation of any article of dairy products from

a country to the United States.

Third, the proposed rule would have excluded from license

eligibility a person who during the previous quota year had entered

more than 25 percent of its license amount through sales-in-transit or

warehouse withdrawal. The final rule eliminates this provision and

permits unrestricted use of sales-in-transit or warehouse withdrawal

without affecting license eligibility.

Fourth, the proposed rule provided that certain persons would be

ineligible for a nonhistorical license if they were either affiliated

with or associated with persons who had applied for such a license. The

final rule identifies two

[[Page 53005]]

additional classes of persons who will be deemed ineligible for

nonhistorical licenses: children of an applicant for a nonhistorical

license (who will be considered ``affiliates''); and persons who manage

or are managed by applicants (who will be deemed to be ``associated''

with such applicants).

USDA did not make any changes to the ``economics benefits'' test

incorporated in the proposed rule. USDA's intent, in establishing this

test, is that it apply to regular, joint business relationships where

one licensee consistently purchases primarily for the other's use,

where one licensee manages the other's portfolio, or where imports of

the two licensees are regularly commingled for sale to third parties.

Applications for License (Sec. 6.24)

The final rule changes the application period for the 1997 quota

year to October 10 through October 31. Beginning in the 1998 quota

year, the application period will be September 1 through October 15 of

each quota year. In response to several comments, the final rule has

been revised to simplify certain documentation requirements. An

applicant seeking to establish eligibility as an importer will be

required to submit Customs Forms 7501, but will not be required to

submit commercial invoices or bills of sale showing the applicant as

the owner and the original consignee for the number and level of

entries required under Sec. 6.23. USDA has determined that the

requirement to submit commercial invoices or bills of sale is no longer

necessary because the provision prohibiting consideration of sale-in-

transit entries as a basis for eligibility has been eliminated. In

addition, where the applicant is applying on the basis of at least

eight separate shipments, the applicant will be required to submit (1)

the required Customs or Census forms and commercial invoices where

specified for eight shipments, (2) a certification that the remaining

required documents are on file at its premises, and (3) in the case

where the shipments are imports, a list of the entry numbers, dates of

entry and volumes on those documents; or, in the case where the

shipments are exports, a list of the dates of export and volumes on

those documents.

One comment suggested that Customs Forms 7505 and 3416 be accepted

in lieu of a Customs Form 7501. However, Form 7505 is no longer used

and all entries require a Form 7501, which provides more information

than Form 3461. Requiring Form 7501 for all imports will be simpler and

will ease both the application process and program administration.

Allocation of Licenses (Sec. 6.25)

USDA received a broad range of comments concerning the allocation

of both existing licenses and licenses for the Uruguay Round

quantities. Most commentors agreed that there should be higher minimum

license sizes than provided in the existing rule and a rank-order

lottery for allocating nonhistorical licenses for cheese. USDA has

taken into account the comments received and has modified the proposed

rule as follows:

(1) Historical licenses--Approximately half of the comments

discussed Sec. 6.25(b) which deals with allocation of historical

licenses in 1998 and subsequent years, and revises the existing rule so

that a license that is being consistently underutilized will be

permanently reduced. The proposed rule would have required that a

licensee who surrendered a portion of a license in three consecutive

years, or in at least three of five consecutive years, would thereafter

be issued a license in an amount equal to the average annual quantity

entered during that period. The final rule makes several changes.

First, USDA will permanently reduce the amount of a historical

license only if a licensee surrenders more than 50 percent of a license

over three consecutive years or three out of five years. Second, this

rule will apply only to surrenders beginning with the 1996 quota year.

Third, the final rule provides the Secretary of Agriculture with

discretion not to implement this provision in 1999, when it would first

take effect, if he deems it inappropriate in light of market

conditions.

Under the previous rule, there was no consequence for surrendering

license amounts. Commentors opposed to the provisions that would

permanently reduce the amount of an historical license allege that the

provision would violate the licensee's property rights. However,

licensees do not acquire property rights in historical licenses; a

license is an annual allocation of permission to import under the

tariff-rate quota, and can be modified for public policy reasons. In

light of the small amounts of license available to new entrants or

others who wish to increase imports of a given article, USDA determined

that it was sound public policy to reallocate license amounts that were

consistently not being used. The provision in the final rule should

increase the amount available in the nonhistorical pool while giving

historical license holders a fair opportunity to demonstrate that they

are using their licenses. The amount by which an historical license is

permanently reduced will be transferred to Appendix 2--nonhistorical

licenses. Some commentors were concerned that downturns in foreign

supplies available for export to the United States or proposed

limitation on sales-in-transit would lead to extensive reductions in

historical licenses. However, the final rule, which changes the trigger

level for reduction to surrenders exceeding 50 percent of a license,

should assuage these concerns.

(2) Nonhistorical licenses--Two commentors submitted virtually

identical proposals suggesting that eligible applicants who have no

historical license for a particular dairy article from a particular

country, or have an historical license which is smaller than the

minimum license size for a particular article, should be given priority

in the lottery. Another commentor opposed this proposal. USDA has

determined that this proposal would result in only marginal

improvement, if any, for small license holders. While, in theory, a new

entrant or small license holder might be more likely to receive the

license of its choice if some historical license holders were

eliminated from bidding for that license during the first round, the

actual probability could just as easily decrease. No historical license

holder would be entirely eliminated from the first round, because none

of the licensees hold historical licenses larger than the lottery

minimum for every one of the items in the lottery. Thus holders of one

or several historical licenses larger than the lottery minimum can

simply indicate their preference for other cheese types which they

might otherwise not have chosen.

One commentor suggested USDA immediately increase the size of the

lottery license pool by taking from current historical licensees 50

percent of their license volume. The Department finds no justification

for arbitrarily taking away 50 percent of an historical license under

current circumstances. Under the final rule, the pool of nonhistorical

lottery licenses will instead be gradually increased because of the

impact of higher eligibility and utilization standards on historical

licensees.

Certain commentors objected in principle to a rank-order lottery

system. One preferred continuing the random lottery system, arguing

that it gave importers a better chance to receive greater amounts of

license. Another commentor criticized the use of any lottery system as

impeding long-term commercial relationships and hindering market

development for specialized dairy products. The final rule maintains

[[Page 53006]]

the rank-order lottery system because, although it does not guarantee

continuity of license, it should increase an applicant's odds of

receiving a license for the same article in consecutive years.

A commentor asked whether it will be possible to get a license

which is smaller than the minimum cited in the rule. Sections

6.25(c)(1)(i)(E) and 6.25(c)(1)(ii)(E) of the final rule provide for

such situations.

(3) Designated licenses--The comments submitted on license

allocation were the same as those submitted with respect to eligibility

for a designated license under Sec. 6.23.

Surrender and Reallocation (Sec. 6.26)

The final rule provides that the final date for surrendering

licenses will be October 1 and the application date for reallocation

will be not later than September 15. The proposed rule would have

advanced these dates one month. Five commentors expressed concerns that

the proposed dates were too early given the new requirements of

Revision 8. In addition, the final rule modifies Sec. 6.26(d)(4) to

allow a licensee who has surrendered part of a license to be issued a

reallocated amount for the same article from the same country if all

other licensees applying for a reallocated quantity of that article

have been allocated a license. One commentor proposed that a provision

should be made for new applications from new eligible applicants

immediately following the first round of reallocations. The tight time

frame for license reallocation, just two and a half months before the

end of the quota year, does not permit another application period to

establish eligibility.

Limitations on Use of License (Sec. 6.27)

Numerous comments criticized as vague the provision in the proposed

rule that prohibited use of a license for the benefit of another

person. That provision, Sec. 6.27(a), has been rewritten in the final

rule to be more specific, and states that a licensee shall not obtain

or use a license for speculation, brokering, or offering for sale, or

permit any other person to use the license for profit.

Several commentors questioned the need for the requirement that

manufacturer licensees use a minimum of 75 percent of their licensed

imports in their own processing operations in the United States. This

requirement applies to persons who apply on the basis of being

manufacturers under Sec. 6.23(b)(1)(i)(C), Sec. 6.23(b)(1)(ii)(C), or

Sec. 6.23(b) (3), (4), or (5). The provision for manufacturer

eligibility was introduced in Revision 7, and was intended to give

manufacturers who had no history of imports the opportunity to have

direct access to imported dairy products for use in manufacturing. If a

manufacturer also wishes to participate in the cheese distribution

business in a manner which does not first subject imports under license

to processing as defined in Sec. 6.21, then it can apply for a license

on the basis of imports or exports in the preceding year in accordance

with the criteria established in Sec. 6.23.

Transfer of License (Sec. 6.28)

Six comments recommended that USDA make the provisions of the

proposed rule governing the acquisition and transfer of eligibility

more flexible. Two comments included specific proposals. Based on

comments received, USDA made several technical changes in the final

rule.

Specifically, the final rule provides that after the Licensing

Authority receives written notice of intent to sell or convey, it will

respond within 20 days. The Licensing Authority may require additional

information in order to make a determination. The parties to the sale

or conveyance must demonstrate that the sale or conveyance complies

with the requirements of paragraph Sec. 6.28(a). In addition,

Sec. 6.28(c) and (d) have been combined and redrafted for greater

clarity. Section 6.28(c) provides that USDA will, (1) for purposes of

establishing historical eligibility, deem the person to whom the

business was sold or conveyed to be the person to whom transferred

historical licenses were issued in the preceding year and (2) will

credit entries made by the person who sells or conveys the business to

the person to whom the business is sold or conveyed. The person to whom

the business is sold or conveyed must meet the required utilization

levels to remain eligible in the following year, but will not be held

responsible for pre-sale violations committed by the person who sold or

conveyed the business.

Two comments suggested revising Sec. 6.28 to permit the transfer of

some but not all of the licenses held by a person when it sells one of

the dairy product import businesses it operates. The recommendation is

that USDA permit such a transfer if the business sold had maintained

separate facilities at a separate location from those of the rest of

the seller's businesses for at least three years prior to the proposed

sale. USDA is studying this proposal but will not incorporate the

recommendation into the final rule at this time. USDA could consider

this proposed change as an amendment to the final rule at some future

date.

Use of Licenses (Sec. 6.29)

The final rule also contains a provision that had been

inadvertently left out of the proposed rule. Section 6.29(c)(3) was

added and provides that if an article was placed in a warehouse by a

foreign supplier and then sold to a licensee, the licensee must

present, at time at time of entry, Customs Form 7501 endorsed by the

foreign supplier and the commercial invoice.

Two comments proposed replacing the through-bill-of-lading

requirement with a certificate of origin requirement to allow importers

the flexibility to source products in the most efficient manner. USDA

is currently reviewing this proposal to determine what impact it might

have with respect enforcing the country of origin allocations of the

tariff-rate quotas.

Record Maintenance and Inspection (Sec. 6.30)

One comment argued that a three-year rather than a five-year record

keeping requirement would be more manageable for a small business. The

final rule maintains the proposed five-year requirement which is

standard under other Department regulations. Another commentor proposed

that recordkeeping be limited only to entries of articles under

license. The final rule requires that the records with respect to all

transactions covered by this regulation be retained for five years

subsequent to the end of the quota year in which the purchase, sale, or

transaction occurred. This has been deemed necessary for the

enforcement of this regulation. Failure to maintain documentation would

be a violation of the regulation subject to suspension or debarment

under Sec. 6.31.

Debarment and suspension (Sec. 6.31)

On January 4, 1996, the Department of Agriculture published a final

rule, 61 FR 250, governing nonprocurement debarment and suspension,

which became effective on February 5, 1996, subsequent to the

publication of the Dairy Tariff-Rate Import Quota proposed rule. The

Department's new nonprocurement debarment and suspension regulations

now apply to all persons who have participated, are currently

participating or may reasonably be expected to participate in

transactions under Federal nonprocurement programs and, for the first

time, covers dairy import quota licensing.

The USDA nonprocurement debarment and suspension regulation accords

with Executive Order 12549

[[Page 53007]]

which requires that, to the extent permitted by law, all Executive

departments and agencies participate in a government-wide system for

nonprocurement debarment and suspension. A person who is debarred or

suspended is excluded from all Federal programs and activities.

Debarment or suspension of a person participating in the dairy import

licensing system will have a government-wide effect.

Therefore, Sec. 6.31 ``Suspension or revocation of a license,'' and

Sec. 6.32 ``Administrative appeals'' are deleted from the proposed rule

and a new Sec. 6.31 ``Debarment and suspension'' has been inserted into

the final rule. The new Sec. 6.31 simply refers to the Department's

nonprocurement debarment and suspension regulations at 7 CFR part 3017.

Globalization of Licenses (Sec. 6.32)

Section 6.33 ``Globalization of Licenses'' of the proposed rule has

been revised and renumbered as Sec. 6.32. The final rule, in response

to comments, makes September 1 the final date for requesting a

globalization rather than August 1 as was proposed. One commentor

proposed that all licenses be fully globalized, eliminating the

Licensing Authority's discretion to globalize only a portion thereof.

Two commentors recommended automatic or semi-automatic globalization if

a supplying country has a poor record of filling a TRQ or does not fill

a specific percent of its total TRQ allocation by a specific date.

Another commentor, however, argued that USDA should not globalize any

licenses until after the license surrender and reallocation process has

been completed. This would delay consideration of globalization until

late October. The final rule does not reflect these comments. Most

would be inconsistent with U.S. obligations to consult with and/or seek

the consent of foreign governments regarding requests for

globalization, while the suggestion to globalize in October would not

provide importers sufficient time to seek alternative sources.

License Fee (Sec. 6.33)

Section 6.34 ``License fee'' of the proposed rule has been revised

and renumbered as Sec. 6.33. One commentor was confused about why

Sec. 6.31(a)(1) of the proposed rule provided that a license could be

suspended or revoked for failure to pay a license fee in accordance

with Sec. 6.34, when Sec. 6.34 itself contained an identical provision.

USDA agrees that this was unnecessary and confusing and so Sec. 6.31

has been totally revised, as discussed earlier. There is no longer any

reference to the failure to pay a license fee. Failure to pay a license

fee is dealt with in the new Sec. 6.33 which provides that if a license

fee is not paid by the final payment date, the license will be put on

hold and a warning letter will be issued. If payment is not postmarked

or received within 21 days of the date of the warning letter, the

license will be revoked.

In general, commentors recognized the necessity and fairness of the

fee. Individual commentors argued variously that the fee: was too high;

should be based on the amount of licenses received; should be

eliminated; or should be split into two separate payments, one for the

processing applications and another upon receipt of the license. These

issues were previously addressed in the background section of the

proposed rule. The fee is required by an Office of Management and

Budget Directive and must be based on the cost of services rendered,

not on the size of the license. One comment also requested that the

method of calculating the fee, which was included in Revision 7, be

reinserted in the rule and that the date of the annual Federal Register

Notice be moved back to July 31 as proposed. The method of calculation

of the fee will appear in the Federal Register as in the past. The date

will remain August 31 as its relationship to the application period

remains the same as under Revision 7.

Adjustment of Appendices (Sec. 6.34)

Section 6.35 of the proposed rule--``Adjustment of Appendices'' has

been revised and renumbered as Sec. 6.34. In response to comments,

Appendices 1, 2, and 3 have been combined into a single table for

easier retrieval of information on TRQ allocations. This table will

list the in-quota TRQ quantities in parallel columns by license type

(Appendices 1, 2, and 3) for each dairy article by Additional U.S. Note

number. The table will also show allocations by countries of origin,

where applicable.

A further comment proposed that Sec. 6.34(a) be modified to permit

any reductions in or revocations of historical licenses for any reason

in the 1997 and 1998 quota years be reallocated among other historical

licenses (for that article and supplying country) which are less than

19,000 kilograms in size, rather than moving those amounts to Appendix

2 for the lottery. There will be no reductions of historical licenses

in those years. Any revoked licenses will be transferred to Appendix 2

for nonhistorical licenses which may be applied for by any license

holder.

List of Subjects in 7 CFR Part 6

Agricultural commodities, Cheese, Dairy products, Imports,

Reporting and recordkeeping requirements.

Final Rule

Accordingly, 7 CFR part 6 subpart--Tariff Rate Quotas Secs. 6.20-

6.33 and Appendix 1, Appendix 2, and Appendix 3 thereto, are revised to

read as follows:

Subpart--Dairy Tariff-Rate Import Quota Licensing

Sec.

6.20 Introduction.

6.21 Definitions.

6.22 Requiremtnt for a license.

6.23 Eligibility to apply for a license.

6.24 Application for a license.

6.25 Allocation of licenses.

6.26 Surrender and reallocation.

6.27 Limitations on use of license.

6.28 Transfer of license.

6.29 Use of licenses.

6.30 Record maintenance and inspection.

6.31 Debarment and suspension.

6.32 Globalization of licenses.

6.33 License fee.

6.34 Adjustment of Appendices.

6.35 Miscellaneous.

6.36 Supersedure of Import Regulation 1, Revision 7.

Appendices 1,2, and 3 to Subpart--Dairy Tariff-Rate Import Quota

Licensing.

Subpart--Dairy Tariff-Rate Import Quota Licensing

Authority: Additional U.S. Notes 6, 7, 8, 12, 14, 16-23 and 25

to Chapter 4 and General Note 15 of the Harmonized Tariff Schedule

of the United States (19 U.S.C. 1202), Pub. L. 97-258, 96 Stat.

1051, as amended (31 U.S.C. 9701), and secs. 103 and 404, Pub. L.

103-465, 108 Stat. 4819 (19 U.S.C. 3513 and 3601).

Sec. 6.20 Introduction.

(a) Presidential Proclamation 6763 of December 23, 1994, modified

the Harmonized Tariff Schedule of the United States affecting the

import regime for certain articles of dairy products. The Proclamation

terminated quantitative restrictions that had been imposed pursuant to

section 22 of the Agricultural Adjustment Act of 1933, as amended (7

U.S.C. 624); proclaimed tariff-rate quotas for such articles pursuant

to Pub. L. 103-465; and specified which of such articles may be entered

only by or for the account of a person to whom a license has been

issued by the Secretary of Agriculture.

(b) Effective January 1, 1995, the prior regime of absolute quotas

for certain dairy products was replaced by a system of tariff-rate

quotas. The articles subject to licensing under the new tariff-rate

quotas are listed in Appendices 1, 2, and 3 of this subpart. Licenses

will be issued pursuant to the provisions of this

[[Page 53008]]

subpart for the 1997 and subsequent quota years. These licenses will

permit the holder to import specified quantities of the subject

articles into the United States at the applicable in-quota rate of

duty. If an importer has no license for an article subject to a tariff-

rate quota, such importer will, with certain exceptions, be required to

pay the applicable over-quota rate of duty.

(c) The Secretary of Agriculture has determined that this subpart

will, to the fullest extent practicable, result in fair and equitable

allocation of the right to import articles subject to such tariff-rate

quotas. The subpart will also maximize utilization of the tariff-rate

quotas for such articles, taking due account of any special factors

which may have affected or maybe affecting the trade in the articles

concerned.

Sec. 6.21 Definitions.

As used in this subpart and the Appendices thereto, the following

terms mean:

``Article''--One of the products listed in Appendices 1, 2, or 3

which are the same as those described in Additional U.S. Notes 6, 7, 8,

12, 14, 16-23 and 25 to Chapter 4 of the Harmonized Tariff Schedule.

``Customs''--The United States Customs Service.

``Country''--Country of origin as determined in accordance with

Customs rules and regulations, except that ``EC 12'', ``EC 15'', and

``Other countries'' shall each be treated as a country.

``Cheese or cheese products''--Articles in headings 0406,

1901.90.34, and 1901.90.36 of the Harmonized Tariff Schedule.

``Commercial entry''--Any entry except those made by or for the

account of the United States Government or for a foreign government,

for the personal use of the importer or for sampling, taking orders,

research, or the testing of equipment.

``Dairy products''--Articles in headings 0401 through 0406,

margarine cheese listed under headings 1901.90.34 and 1901.90.36, ice

cream listed under heading 2105, and casein listed under heading 3501

of the Harmonized Tariff Schedule.

``Department''--The United States Department of Agriculture.

``EC 12''--Belgium, Denmark, the Federal Republic of Germany,

France, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,

Spain, and the United Kingdom.

``EC 15''--Austria, Belgium, Denmark, the Federal Republic of

Germany, Finland, France, Greece, Ireland, Italy, Luxembourg, the

Netherlands, Portugal, Spain, Sweden and the United Kingdom.

``Enter'' or ``Entry''--To make or making entry for consumption, or

withdrawal from warehouse for consumption in accordance with Customs

regulations and procedures.

``Harmonized Tariff Schedule'' or ``HTS''--The Harmonized Tariff

Schedule of the United States.

``Licensee''--A person to whom a license has been issued under this

subpart.

``Licensing Authority''--The Dairy Import Quota Manager, Import

Policies and Programs Division, Foreign Agricultural Service, U.S.

Department of Agriculture.

``Other countries''--Countries not listed by name as having

separate tariff-rate quota allocations for an article in the Additional

U.S. Notes to Chapter 4 of the Harmonized Tariff Schedule.

``Person''--An individual, firm, corporation, partnership,

association, trust, estate or other legal entity.

``Postmark''--The postage cancellation mark or date applied by the

United States Postal Service. This does not include the date on metered

postage affixed by the applicant, or on mail delivered by private

entities.

``Process'' or ``Processing''--Any additional preparation of a

dairy product, such as melting, grating, shredding, cutting and

wrapping, or blending with any additional ingredient.

``Quota year''--The 12-month period beginning on January 1 of a

given year.

``Tariff-rate quota amount'' or ``TRQ amount''--The amount of an

article subject to the applicable in-quota rate of duty established

under a tariff-rate quota.

``United States''--The customs territory of the United States,

which is limited to the 50 states, the District of Columbia, and Puerto

Rico.

Sec. 6.22 Requirement for a license.

(a) General rule. A person who seeks to enter, or cause to be

entered, an article shall obtain a license, in accordance with this

subpart, except as provided in paragraph (b).

(b) Exceptions. Licenses are not required if:

(1) The article is imported by or for the account of any agency of

the U.S. Government;

(2) The article is imported for the personal use of the importer,

provided that the net weight does not exceed five kilograms in any one

shipment;

(3) The article imported will not enter the commerce of the United

States and is imported as a sample for taking orders, for exhibition,

for display or sampling at a trade fair, for research, for testing of

equipment; or for use by embassies of foreign governments. Written

approval of the Licensing Authority shall be obtained prior to entry,

and the importer of record (or a broker or agent acting on its behalf)

shall provide to the Licensing Authority, prior to the release of such

articles, the appropriate Customs documentation identifying the

article, quantity to be imported, its location, intended use, an entry

number and the importer of record. The Licensing Authority may also

require as a condition of import that the article be destroyed or re-

exported after such use; or

(4) Such person pays the applicable over-quota rate of duty.

Sec. 6.23 Eligibility to apply for a license.

(a) In general. To apply for any license, a person shall have:

(1) a business office, and be doing business, in the United States,

and

(2) an agent in the United States for service of process.

(b) Eligibility for the 1997 and subsequent quota years.

(1) Historical licenses (Appendix 1). Any person issued a

historical or nonhistorical license for the 1996 quota year for an

article may apply for a historical license (Appendix 1) for the same

article from the same country for the 1997 and subsequent quota years,

if such person was, during the 12-month period ending August 31 prior

to the quota year, either:

(i) where the article is cheese or cheese product,

(A) the owner of and importer of record for at least three separate

commercial entries of cheese or cheese products totaling not less than

57,000 kilograms net weight, each of the three entries not less than

2,000 kilograms net weight,

(B) the owner of and importer of record for at least eight separate

commercial entries of cheese or cheese products, from at least eight

separate shipments, totaling not less than 19,000 kilograms net weight,

each of the eight entries not less than 450 kilograms net weight, with

a minimum of two entries in each of at least three quarters during that

period; or

(C) the owner or operator of a plant listed in Section II or listed

in Section I as a processor of cheese of the most current issue of

``Dairy Plants Surveyed and Approved for USDA Grading Service'' and had

processed or packaged at least 450,000 kilograms of cheese or cheese

products in its own plant in the United States; or

(ii) where the article is not cheese or cheese product,

[[Page 53009]]

(A) the owner of and importer of record for at least three separate

commercial entries of dairy products totaling not less than 57,000

kilograms net weight, each of the three entries not less than 2,000

kilograms net weight;

(B) the owner of and importer of record for at least eight separate

commercial entries of dairy products, from at least eight separate

shipments, totaling not less than 19,000 kilograms net weight, each of

the eight entries not less than 450 kilograms net weight, with a

minimum of two entries in each of at least three quarters during that

period;

(C) the owner or operator of a plant listed in the most current

issue of ``Dairy Plants Surveyed and Approved for USDA Grading

Service'' and had manufactured, processed or packaged at least 450,000

kilograms of dairy products in its own plant in the United States; or

(D) the exporter of dairy products in the quantities and number of

shipments required under (A) or (B) above.

(2) Certain butter. A person issued a nonhistorical license for

butter for the 1997 or 1998 quota year may annually apply for a

historical license (Appendix 1) for the same quantity of butter for the

subsequent quota year and each year thereafter, provided that such

person has used at least 90 percent of the original license issued for

the previous quota year and meets the requirements of paragraph

(b)(1)(ii). However, if a person is issued a historical license

pursuant to this paragraph, that person may not be issued a

nonhistorical license for butter for any quota year in which that

historical license is issued to that person, unless applicants who do

not hold such a license have all been issued such a nonhistorical

license.

(3) Nonhistorical licenses for cheese or cheese products (Appendix

2). A person may annually apply for a nonhistorical license for cheese

or cheese products (Appendix 2) for the 1997 quota year and each quota

year thereafter if such person meets the requirements of paragraph

(b)(1)(i) of this section.

(4) Nonhistorical licenses for articles other than cheese or cheese

products (Appendix 2). A person may annually apply for a nonhistorical

license for articles other than cheese or cheese products (Appendix 2)

for the 1997 quota year and each quota year thereafter if such person

meets the requirements of paragraph (b)(1)(ii).

(5) Designated license (Appendix 3). A person may annually apply

for a designated license (Appendix 3) for the 1997 quota year and for

each quota year thereafter, provided that such person meets the

requirements of paragraph (b)(1)(i), of this section and provided

further that the government of the country has designated such person

for such license. The designating country shall submit its selection of

designated importers in writing directly to the Licensing Authority not

later than October 31 prior to the beginning of the quota year.

(c) Exceptions.

(1) A licensee that fails in a quota year to enter at least 85

percent of the amount of an article permitted under a license, shall

not be eligible to receive a license for the same article from the same

country for the next quota year. For the purpose of this paragraph, the

amount of an article permitted under the license will exclude any

amounts surrendered pursuant to Sec. 6.26(a), but will include any

additional allocations received pursuant to Sec. 6.26(b).

(2) Paragraph (c)(1) of this section will not apply where the

licensee demonstrates to the satisfaction of the Licensing Authority

that the failure resulted from breach by a carrier of its contract of

carriage, breach by a supplier of its contract to supply the article,

act of God or force majeure.

(3) Paragraph (c)(1) of this section may not apply in the case of

historical or nonhistorical licenses, where the licensee demonstrates

to the satisfaction of the Licensing Authority that the country

specified on the license maintains or permits an export monopoly to

control the dairy articles concerned and the licensee petitions the

Licensing Authority to waive this requirement. The licensee shall

submit evidence that the country maintains an export monopoly as

defined in this paragraph. For the purposes of this paragraph ``export

monopoly'' means a privilege vested in one or more persons consisting

of the exclusive right to carry on the exportation of any article of

dairy products from a country to the United States.

(4) The Licensing Authority will not issue a nonhistorical license

(Appendix 2) for an article from a country during a quota year to an

applicant who is affiliated with another applicant to whom the

Licensing Authority is issuing a non-historical license for the same

article from the same country for that quota year. Further, the

Licensing Authority will not issue a nonhistorical license for butter

to an applicant who is affiliated with another applicant to whom the

Licensing Authority is issuing a historical butter license of 57,000

kilograms or greater. For the purpose of this paragraph, an applicant

will be deemed affiliated with another applicant if:

(i) the applicant is the spouse, brother, sister, parent, child or

grandchild of such other applicant;

(ii) the applicant is the spouse, brother, sister, parent, child or

grandchild of an individual who owns or controls such other applicant;

(iii) the applicant is owned or controlled by the spouse, brother,

sister, parent, child or grandchild of an individual who owns or

controls such other applicant.

(iv) both applicants are 5 percent or more owned or directly or

indirectly controlled, by the same person;

(v) the applicant, or a person who owns or controls the applicant,

benefits from a trust that controls such other applicant.

(5) The Licensing Authority will not issue a nonhistorical license

(Appendix 2) for an article from a country during a quota year to an

applicant who is associated with another applicant to whom the

Licensing Authority is issuing a nonhistorical license for the same

article from the same country for that quota year. Further, the

Licensing Authority will not issue a nonhistorical license for butter

to an applicant who is associated with another applicant to whom the

Licensing Authority is issuing a historical butter license for 57,000

kilograms or greater. For the purpose of this paragraph, an applicant

will be deemed associated with another applicant if:

(i) the applicant is an employee of, or is controlled by an

employee of, such other applicant;

(ii) the applicant manages or is managed by such other applicant,

or economically benefits, directly or indirectly, from the use of the

license issued to such other applicant.

(6) The Licensing Authority will not issue a nonhistorical license

for an article from a country, for which the applicant receives a

designated license.

Sec. 6.24 Application for a license.

(a) Application for license shall be made on forms provided by the

Licensing Authority and shall be duly notarized and mailed in

accordance with Sec. 6.35(b). All parts of the application shall be

completed. For the 1997 quota year, applications should be postmarked

no earlier than October 10 and no later than October 31. For the 1998

and subsequent quota years, the application shall be postmarked no

earlier than September 1 and no later than October 15 of the year

preceding that for which license application is made. The Licensing

Authority will not accept incomplete or unpostmarked applications.

[[Page 53010]]

(b)(1) Where the applicant seeks to establish eligibility on the

basis of imports, applications shall include Customs Form 7501 showing

the applicant as the importer of record of entries required under

Sec. 6.23, during the 12-month period ending August 31 prior to the

quota year for which license is being sought.

(2) Where the applicant seeks to establish eligibility on the basis

of exports, applications shall include:

(i) Census Form 7525 or a copy of the electronic submission of such

form, and

(ii) The commercial invoice or bill of sale for the quantities and

number of export shipments required under Sec. 6.23, during the 12-

month period ending August 31 prior to the quota year for which license

is being sought.

(c) However, if the applicant is applying on the basis of more than

eight shipments, the application shall include:

(1) the required documentary evidence for eight shipments;

(2) a signed certification that the remaining required documents

are on file at the applicant's premises; and

(3)(i) if the application is made on the basis of imports, a

listing of the entry numbers, dates of entry and volumes on those

remaining documents; or

(ii) if the application is made on the basis of exports, a listing

of the dates of export and volumes on those documents.

(d) An applicant requesting more than one nonhistorical license

must rank order these requests by the applicable Additional U.S. Note

number. Cheese and cheese products must be ranked separately from dairy

articles which are not cheese or cheese products.

Sec. 6.25 Allocation of licenses.

(a) Historical licenses for the 1997 quota year (Appendix 1).

(1) A person issued a historical license for the 1996 quota year

will be issued a historical license for the 1997 quota year in an

amount equal to the Basic Annual Allocation level used by the Licensing

Authority for the 1996 quota year provided that such person meets the

requirements of Sec. 6.23(b)(1) and Sec. 6.23(c).

(2) A person issued a nonhistorical license for the 1996 quota year

will be issued a historical license for the 1997 quota year for the

same quantity as the license for the 1996 quota year, provided that

such person meets the requirements of Sec. 6.23.

(3) If a person was issued more than one historical license, or one

or more historical licenses and a nonhistorical license, for the same

article from the same country for the 1996 quota year, such person will

be issued a single historical license for the 1997 quota year, the

amount of which shall be determined in accordance with paragraphs, (a)

(1) and (2) of this section.

(b) Historical licenses for the 1998 and subsequent quota years

(Appendix 1).

(1) A person issued a historical license for the 1997 quota year

will be issued a historical license in the same amount for the same

article from the same country for the 1998 quota year and for each

subsequent quota year except that:

(i) beginning with the 1999 quota year, a person who has

surrendered more than 50 percent of such historical license in each of

the prior three quota years will thereafter be issued a license in an

amount equal to the average annual quantity entered during those three

quota years; and

(ii) beginning with the quota year 2001, a person who has

surrendered more than 50 percent of such historical license in at least

three of the prior five quota years will thereafter be issued a license

in an amount equal to the average annual quantity entered during those

five quota years.

(2) However, prior to the beginning of the 1999 quota year, the

Secretary of Agriculture may determine that the exceptions in

paragraphs (b)(1) (i) and (ii) of this section shall not apply in light

of market conditions.

(c) Nonhistorical licenses (Appendix 2). The Licensing Authority

will allocate nonhistorical licenses on the basis of a rank-order

lottery system, which will operate as follows:

(1) The minimum license size shall be:

(i) Where the article is cheese or cheese product:

(A) the total amount available for nonhistorical license where such

amount is less than 9,500 kilograms;

(B) 9,500 kilograms where the total amount available for

nonhistorical license is between 9,500 kilograms and 500,000 kilograms,

inclusive;

(C) 19,000 kilograms where the total amount available for

nonhistorical license is between 500,001 kilograms and 1,000,000

kilograms, inclusive;

(D) 38,000 kilograms where the total amount available for

nonhistorical license is greater than 1,000,000 kilograms; or

(E) an amount less than the minimum license size established in

paragraphs (c)(1)(i) (A) through (D) of this section, if requested by

the licensee;

(ii) Where the article is not cheese or cheese product:

(A) the total amount available for nonhistorical license where such

amount is less than 19,000 kilograms;

(B) 19,000 kilograms where the total amount available for

nonhistorical license is between 19,000 kilograms and 550,000

kilograms, inclusive;

(C) 38,000 kilograms where the total amount available for

nonhistorical license is between 550,001 kilograms and 1,000,000

kilograms, inclusive; and

(D) 57,000 kilograms where the total amount available for

nonhistorical license is greater than 1,000,000 kilograms;

(E) an amount less than the minimum license sizes established in

paragraphs (c)(1)(i) (A) through (D) of this section, if requested by

the licensee.

(2) Taking into account the order of preference expressed by each

applicant, as required by Sec. 6.24(c), the Licensing Authority will

allocate licenses for an article from a country by a series of random

draws. A license of minimum size will be issued to each applicant in

the order established by such draws until the total amount of such

article in Appendix 2 has been allocated. An applicant that receives a

license for an article will be removed from the pool for subsequent

draws until every applicant has been allocated at least one license,

provided that the licenses for which they applied are not already fully

allocated. Any amount remaining after the random draws which is less

than the applicable minimum license size may, at the discretion of the

Licensing Authority, be prorated equally among the licenses awarded for

that article.

(d) Designated licenses (Appendix 3).

(1) With respect to an article listed in Appendix 3, the government

of the applicable country may, not later than October 31 prior to the

beginning of a quota year, submit directly and in writing to the

Licensing Authority:

(i) the names and addresses of the importers that it is designating

to receive licenses; and

(ii) the amount, in percentage terms, of such article for which

each such importer is being designated. Where quantities for

designation result from both Tokyo Round concessions and Uruguay Round

concessions, the designations should be made in terms of each.

(2) To the extent practicable, the Licensing Authority will issue

designated licenses to those importers, and in those amounts, indicated

by the government of the applicable country, provided that the importer

designated meets the eligibility requirements set forth in Sec. 6.23.

Consistent with the international obligations of the United States, the

Licensing Authority may

[[Page 53011]]

disregard a designation if the Licensing Authority determines that the

person designated is not eligible for any of the reasons set forth in

Sec. 6.23(c) (1) or (2).

(3) If a government of a country which negotiated in the Uruguay

Round for the right to designate importers has not done so, but

determines to designate importers for the next quota year, it shall

indicate its intention to do so directly and in writing to the

Licensing Authority not later than July 1 prior to the beginning of

such next quota year. Furthermore, if a government that has designated

importers for a quota year determines that it will not continue to

designate importers for the next quota year, it shall so indicate

directly and in writing to the Licensing Authority, not later than July

1 prior to such next quota year.

Sec. 6.26 Surrender and reallocation.

(a) If a licensee determines that it will not enter the entire

amount of an article permitted under its license, such licensee shall

surrender its license right to enter the amount that it does not intend

to enter. Surrender shall be made to the Licensing Authority in

writing, mailed in accordance with Sec. 6.35(b) and postmarked no later

than October 1. Any surrender shall be final and shall be only for that

quota year, except as provided in Sec. 6.25(b). The amount of the

license not surrendered shall be subject to the license use

requirements of Sec. 6.23(c)(1).

(b) For each quota year, the Licensing Authority will, to the

extent practicable, reallocate any amounts surrendered.

(c) Any person who has been issued a license for a quota year may

apply to receive additional license, or addition to an existing license

for a portion of the amount being reallocated. The application shall be

submitted to the Licensing Authority by mail postmarked no earlier than

September 1 and not later than September 15, in accordance with

Sec. 6.35(b), and shall specify:

(1) The name and control number of the applicant;

(2) The article and country being requested, the applicable

Additional U.S. Note number and, if more than one article is requested,

a rank-order by Additional U.S. Note number; and

(3) If applicable, the number of the license issued to the

applicant for that quota year permitting entry of the same article from

the same country.

(d) The Licensing Authority will reallocate surrendered amounts

among applicants as follows:

(1) The minimum license size, or addition to an existing license,

will be the total amount of the article from a country surrendered, or

10,000 kilograms, whichever is less;

(2) Minimum size licenses, or additions to an existing license,

will be allocated among applicants requesting articles on the basis of

the rank-order lottery system described in Sec. 6.25(c);

(3) If there is any amount of an article from a country left after

minimum size licenses have been issued, the Licensing Authority may

allocate the remainder in any manner it determines equitable among

applicants who have requested that article; and

(4) No amount will be reallocated to a licensee who has surrendered

a portion of its license for the same article from the same country

during that quota year unless all other licensees applying for a

reallocated quantity have been allocated a license;

(e) However, if the government of an exporting country chooses to

designate eligible importers for surrendered amounts under Appendix 3,

the Licensing Authority shall issue the licenses in accordance with

Sec. 6.25(d)(2), provided that the government of the exporting country

notifies the Licensing Authority of its designations no later than

September 1. Such notification shall contain the names and addresses of

the importers that it is designating and the amount in percentage terms

of such article for which each importer is being designated. In such

case the requirements of paragraph (c) of this section shall not apply.

(f) Except for paragraph (a), the provisions of Sec. 6.26 for

surrendered and reallocated tariff-rate quota shares do not apply for

the 1996 quota year. Reissued tariff-rate quota shares for licenses

surrendered during 1996 will be made pursuant to the provisions in

effect for the 1996 quota year (Sec. 6.26(f)(2) as contained in 7 CFR

subtitle A, revised as of January 1, 1996).

Sec. 6.27 Limitations on use of license.

(a) A licensee shall not obtain or use a license for speculation,

brokering, or offering for sale, or permit any other person to use the

license for profit.

(b) A licensee who is eligible as a manufacturer or processor,

pursuant to Sec. 6.23, shall process at least 75 percent of its

licensed imports in such person's own facilities and maintain the

records necessary to so substantiate.

Sec. 6.28 Transfer of license.

(a) If a licensee sells or conveys its business involving articles

covered by this subpart to another person, including the complete

transfer of the attendant assets, the Licensing Authority will transfer

to such other person the historical, nonhistorical or designated

license issued for that quota year. Such sale or conveyance must be

unconditional, except that it may be in escrow with the sole condition

for return of escrow being that the Licensing Authority determines that

such sale does not meet the requirements of this paragraph.

(b) The parties seeking transfer of license shall give written

notice to the Licensing Authority of the intended sale or conveyance

described in paragraph (a) by mail as required in Sec. 6.35(b). The

notice must be received by the Licensing Authority at least 20 working

days prior to the intended consummation of the sale or conveyance. Such

written notice shall include copies of the documents of sale or

conveyance. The Licensing Authority will review the documents for

compliance with the requirements of paragraph (a) of this section and

advise the parties in writing of its findings by the end of the 20-day

period. The parties shall have the burden of demonstrating to the

satisfaction of the Licensing Authority that the contemplated sale or

conveyance complies with the requirements of paragraph (a) of this

section. Within 15 days of the consummation of the sale or conveyance,

the parties shall mail copies of the final documents to the Licensing

Authority, in accordance with Sec. 6.35(b). The Licensing Authority

will not transfer the licenses unless the documents are submitted in

accordance with this paragraph.

(c) The eligibility for a license of a person to whom a business is

sold or conveyed will be determined for the next quota year in

accordance with Sec. 6.23. For the purposes of Sec. 6.23(b)(1) the

person to whom a business is sold or conveyed shall be deemed to be the

person to whom the historical licenses were issued during the quota

year in which the sale or conveyance occurred. Further, for the

purposes of Sec. 6.23 (b) and (c), the entries made under such licenses

by the original licensee during the year in which the sale of

conveyance is made, shall be considered as having been made by the

person to whom the business was sold or conveyed.

Sec. 6.29 Use of licenses.

(a) An article entered under a license shall be an article produced

in the country specified on the license.

(b) An article entered or withdrawn from warehouse for consumption

under a license must be entered in the name of the licensee as the

importer of record by the licensee or its agent, and must be owned by

the licensee at the time of such entry.

[[Page 53012]]

(c) If the article entered or withdrawn from warehouse for

consumption was purchased by the licensee through a direct sale from a

foreign supplier, the licensee shall present, at the time of entry:

(1) A true and correct copy of a through bill of lading from the

country; and

(2) A commercial invoice or bill of sale from the seller, showing

the quantity and value of the product, the date of purchase and the

country; or

(3) Where the article was entered into warehouse by the foreign

supplier, Customs Form 7501 endorsed by the foreign supplier and the

commercial invoice.

(d) If the article entered was purchased by the licensee via sale-

in-transit, the licensee shall present, at the time of entry:

(1) A true and correct copy of a through bill of lading endorsed by

the original consignee of the goods;

(2) A certified copy of the commercial invoice or bill of sale from

the foreign supplier to the original consignee of the goods; and

(3) A commercial invoice or bill of sale from the original

consignee to the licensee.

(e) If the article entered was purchased by the licensee in

warehouse, the licensee shall present, at the time of entry:

(1) Customs Form 7501 endorsed by the original consignee of the

goods;

(2) A certified copy of the commercial invoice or bill of sale from

the foreign supplier to the original consignee of the goods; and

(3) A commercial invoice or bill of sale from the original

consignee to the licensee.

(f) The Licensing Authority may waive the requirements of

paragraphs (c), (d) or (e), if it determines that because of strikes,

lockouts or other unusual circumstances, compliance with those

requirements would unduly interfere with the entry of such articles.

(g) Nothing in this subpart shall prevent the use of immediate

delivery in accordance with the provisions of Customs regulations

relating to tariff-rate quotas.

Sec. 6.30 Record maintenance and inspection.

A licensee shall retain all records relating to its purchases,

sales and transactions governed by this subpart, including all records

necessary to establish the licensee's eligibility, for five years

subsequent to the end of the quota year in which such purchases, sales

or transactions occurred. During that period, the licensee shall, upon

reasonable notice and during ordinary hours of business, grant

officials of the U.S. Department of Agriculture full and complete

access to the licensee's premises to inspect, audit or copy such

records.

Sec. 6.31 Debarment and suspension.

7 CFR part 3017--Governmentwide Debarment and Suspension

(Nonprocurement) and Government Requirements for Drug-Free Workplace

(Grants), Subparts A through E, applies to this subpart.

Sec. 6.32 Globalization of licenses.

If the Licensing Authority determines that entries of an article

from a country are likely to fall short of that country's allocated

amount as indicated in Appendices 1, 2, and 3, the Licensing Authority

may permit, with the approval of the Office of the United States Trade

Representative, the applicable licensees to enter the remaining balance

or a portion thereof from any country during that quota year. Requests

for consideration of such adjustments must be submitted to the

Licensing Authority no later than September 1. The Licensing Authority

will obtain prior consent for such an adjustment of licenses from the

government of the exporting country for quantities in accordance with

the Uruguay Round commitment of the United States.

Sec. 6.33 License fee.

(a) A fee will be assessed each quota year for each license to

defray the Department's costs of administering the licensing system. To

the extent practicable, the fee will be announced by the Licensing

Authority in a notice published in the Federal Register no later than

August 31 of the year preceding the quota year for which the fee is

assessed.

(b) The license fee for each license issued is due and payable in

full by mail, postmarked no later than May 1 of the year for which the

license is issued, in accordance with Sec. 6.35(b). The fee for any

license issued after May 1 of any quota year is due and payable in full

by mail, postmarked no later than 30 days from the date of issuance of

the license, in accordance with Sec. 6.35(b). Fee payments shall be

made by certified check or money order payable to the Treasurer of the

United States.

(c) If the license fee is not paid by the final payment date, a

hold will be placed on the use of the license and no articles will be

permitted entry under that license. The Licensing Authority shall send

a warning letter by certified mail, return receipt requested, advising

the licensee that if payment is not mailed in accordance with

Sec. 6.35(b) or received within 21 days from the date of the letter,

that the license will be revoked. Where the license at issue is a

historical license, this will result, pursuant to Sec. 6.23(b), in the

person's loss of historical eligibility for such license.

(d) Licensees may elect not to accept certain licenses issued to

them; however, the Licensing Authority must be so notified by mail,

postmarked no later than the May 1, in accordance with Sec. 6.35(b).

Sec. 6.34 Adjustment of Appendices.

(a) Whenever a historical license (Appendix 1) is not issued to an

applicant pursuant to the provisions of Sec. 6.23, is permanently

surrendered or is revoked by the Licensing Authority, the amount of

such license will be transferred to Appendix 2.

(b) The cumulative annual transfers to Appendix 2 made in

accordance with paragraph (a) will be published in the Federal

Register. If a transfer results in the addition of a new article, or an

article from a country not previously listed in Appendix 2, the

Licensing Authority shall afford all eligible applicants for that quota

year the opportunity to apply for a license for such article.

Sec. 6.35 Miscellaneous.

(a) If any deadline date in this subpart falls on a Saturday,

Sunday or a Federal holiday, then the deadline shall be the next

business day.

(b) All submissions required by mail in this subpart shall be by

registered or certified mail, return receipt requested, with a

postmarked receipt, with the proper postage affixed and properly

addressed to the Dairy Import Licensing Group, STOP 1021, U.S.

Department of Agriculture, 1400 Independence Avenue S.W., Washington

D.C. 20250-1021.

Sec. 6.36 Supersedure of Import Regulation 1, Revision 7.

This subpart will supersede the provisions of Import Regulation 1,

Revision 7 heretofore in effect (Secs. 6.20 through 6.33 and appendices

1 through 3 as contained in 7 CFR subtitle A revised as of January 1,

1996). With respect to any violation of the provisions of that

regulation by a licensee prior to the effective date hereof, the

provisions of that regulation will be deemed to continue in full force;

however, the debarment and suspension of Sec. 6.31 of this subpart

shall apply with respect to any violation of that regulation.

[[Page 53013]]

Appendices 1, 2, and 3 to Subpart--Dairy Tariff-Rate Import Quota Licensing

[Articles subject to Appendix 1, Historical Licenses; Appendix 2, Nonhistorical Licenses; and Appendix 3,

Designated Importer Licenses for Each Quota Year]

----------------------------------------------------------------------------------------------------------------

Appendix 3--Designated

Article by additional U.S. note number and country of Appendix 1 Appendix 2 -------------------------

origin (historical) (nonhistorical) (Tokyo (Uruguay

Round) Round)

----------------------------------------------------------------------------------------------------------------

Non-Cheese Articles

(3)1997 Tariff Rate Quota In-Quota Quantity

(kilograms)

Butter (Note 6)........................................ 320,689 4,856,311 ........... ...........

EC................................................. 96,161 ............... ........... ...........

New Zealand........................................ 150,593 ............... ........... ...........

Other Countries.................................... 73,935 ............... ........... ...........

Any Country........................................ ............ 4,856,311 ........... ...........

Dried Skim Milk (Note 7)............................... 819,641 2,041,359 ........... ...........

Australia.......................................... 600,076 ............... ........... ...........

Canada............................................. 219,565 ............... ........... ...........

Any Country........................................ ............ 2,041,359 ........... ...........

Dried Whole Milk (Note 8).............................. 3,175 1,548,125 ........... ...........

New Zealand........................................ 3,175 ............... ........... ...........

Any Country........................................ ............ 1,548,125 ........... ...........

Dried Buttermilk/Whey (Note 12)........................ 224,981 ............... ........... ...........

Canada............................................. 161,161 ............... ........... ...........

New Zealand........................................ 63,820 ............... ........... ...........

Butter Substitutes containing over 45 percent of

butterfat and/or butteroil (Note 14).................. ............ 5,420,500 ........... ...........

Any Country........................................ ............ 5,420,500 ........... ...........

--------------------------------------------------------

Total: Non-Cheese Articles..................... 1,368,486 13,866,295 ........... ...........

========================================================

Cheese Articles

Cheese and substitutes for cheese (except cheese not

containing cow's milk and soft ripened cow's milk

cheese, cheese (except cottage cheese) containing 0.5

percent or less by weight of butterfat and articles

within the scope of other import quotas provided for

in this subchapter) (Note 16)......................... 25,896,207 5,574,524 9,661,128 5,198,000

Argentina.......................................... 7,690 ............... 92,310 ...........

Australia.......................................... 535,628 5,542 758,830 875,000

Canada............................................. 1,122,831 18,169 ........... ...........

Costa Rica......................................... ............ ............... ........... 1,550,000

Czech Republic..................................... ............ ............... ........... 200,000

EC;................................................ 17,194,649 5,137,783 1,132,568 1,173,000

of which:

Austria.................................... 369,747 ............... 280,253 273,000

Finland.................................... 778,593 36,310 485,097 ...........

Portugal................................... 129,309 ............... 223,691 ...........

Sweden..................................... 915,473 ............... 143,527 ...........

Israel............................................. 79,696 ............... 593,304 ...........

Iceland............................................ 294,000 ............... 29,000 ...........

New Zealand........................................ 4,779,186 36,286 6,506,528 ...........

Norway............................................. 150,000 ............... ........... ...........

Poland............................................. 936,224 ............... ........... 300,000

Slovak Republic.................................... ............ ............... ........... 600,000

Switzerland........................................ 659,983 11,429 548,588 250,000

Uruguay............................................ ............ ............... ........... 250,000

Other Countries.................................... 136,320 65,315 ........... ...........

Any Country........................................ ............ 300,000 ........... ...........

Blue-mold cheese (except Stilton produced in the United

Kingdom) and cheese and substitutes for cheese

containing, or processed from, Blue-mold cheese (Note

17)................................................... 2,366,029 154,972 ........... 200,000

Argentina.......................................... 2,000 ............... ........... ...........

EC................................................. 2,364,028 114,972 ........... 150,000

Chile.............................................. ............ 40,000 ........... ...........

Czech Republic..................................... ............ ............... ........... 50,000

Other Countries.................................... 1 ............... ........... ...........

Cheddar Cheese, and cheese and substitutes for cheese

containing, or processed from, Cheddar cheese (Note

18)................................................... 4,096,752 297,104 519,033 3,725,000

Australia.......................................... 965,795 18,704 215,501 625,000

Chile.............................................. ............ 110,000 ........... ...........

Czech Republic..................................... ............ ............... ........... 50,000

EC................................................. 263,000 ............... ........... 500,000

New Zealand........................................ 2,728,068 68,400 303,532 2,550,000

Other Countries.................................... 139,889 ............... ........... ...........

Any Country........................................ ............ 100,000 ........... ...........

American-type cheese, including Colby, washed curd and

granular cheese (but not including Cheddar) and cheese

and substitutes for cheese containing or processed

from such American-type cheese (Note 19).............. 3,001,796 63,757 357,003 50,000

Australia.......................................... 867,129 13,869 119,002 ...........

[[Page 53014]]

EC................................................. 240,392 13,608 ........... 50,000

New Zealand........................................ 1,725,719 36,280 238,001 ...........

Other Countries.................................... 168,556 ............... ........... ...........

Edam and Gouda cheese, and cheese and substitutes for

cheese containing, or processed from, Edam and Gouda

cheese (Note 20)...................................... 5,593,856 12,546 ........... 710,000

Argentina.......................................... 125,000 ............... ........... 110,000

Czech Republic..................................... ............ ............... ........... 100,000

EC;................................................ 5,283,546 5,454 ........... 500,000

of which:

Austria.................................... ............ ............... ........... 200,000

Sweden..................................... 41,000 ............... ........... ...........

Norway............................................. 159,908 7,092 ........... ...........

Other Countries.................................... 25,402 ............... ........... ...........

Italian-type cheeses, made from cow's milk, (Romano

made from cow's milk, Reggiano, Parmesan, Provolone,

Provoletti and Sbrinz and Goya, not in original

loaves) and cheese and substitutes for cheese

containing, or processed from, such Italian-type

cheeses, whether or not in original loaves (Note 21).. 6,701,591 818,956 795,517 4,965,000

Argentina.......................................... 4,095,986 29,497 367,517 1,890,000

EC................................................. 2,592,541 789,459 ........... 350,000

Hungary............................................ ............ ............... ........... 400,000

Poland............................................. ............ ............... ........... 1,325,000

Romania............................................ ............ ............... ........... 250,000

Uruguay............................................ ............ ............... 428,000 750,000

Other Countries.................................... 13,064 ............... ........... ...........

Swiss or Emmenthaler cheese other than with eye

formation, Gruyere-process cheese and cheese and

substitutes for cheese containing, or processed from,

such cheeses (Note 22)................................ 6,050,188 601,126 823,519 190,000

EC;................................................ 4,555,608 596,386 393,006 190,000

of which:

Austria.................................... 760,070 18,924 141,006 40,000

Finland.................................... 743,176 4,824 252,000 ...........

Switzerland........................................ 1,414,747 4,740 430,513 ...........

Other Countries.................................... 79,833 ............... ........... ...........

Cheese and substitutes for cheese, containing 0.5

percent or less by weight of butterfat (except

articles within the scope of other tariff-rate import

quotas provided for in this subchapter), and margarine

cheese (Note 23)...................................... 4,117,992 181,600 1,175,316 ...........

EC;................................................ 3,943,084 181,600 ........... ...........

of which:

Sweden..................................... 124,684 ............... 125,316 ...........

Israel............................................. ............ ............... 50,000 ...........

New Zealand........................................ ............ ............... 1,000,000 ...........

Poland............................................. 174,907 ............... ........... ...........

Other Countries.................................... 1 ............... ........... ...........

Swiss or Emmenthaler cheese with eye formation (Note

25)................................................... 19,480,205 2,817,126 9,557,945 1,660,000

Argentina.......................................... 9,115 ............... 70,885 ...........

Australia.......................................... 209,698 ............... 290,302 ...........

Canada............................................. ............ ............... 70,000 ...........

Czech Republic..................................... ............ ............... ........... 400,000

Hungary............................................ ............ ............... ........... 400,000

EC;................................................ 13,896,912 2,579,916 4,003,172 760,000

of which:

Austria.................................... 4,940,643 59,111 1,280,246 110,000

Finland.................................... 5,454,349 22,725 2,722,926 ...........

Sweden..................................... ............ ............... ........... 300,000

Iceland............................................ 149,999 ............... 150,001 ...........

Israel............................................. 27,000 ............... ........... ...........

Norway............................................. 3,481,310 174,000 3,227,690 ...........

Switzerland....................................... 1,620,895 63,210 1,745,895 100,000

Other Countries.................................... 85,276 ............... ........... ...........

--------------------------------------------------------

Total: Cheese Articles......................... 77,304,616 10,521,711 22,889,461 16,698,000

----------------------------------------------------------------------------------------------------------------

[[Page 53015]]

Signed at Washington, D.C. on October 2, 1996.

Dan Glickman,

Secretary of Agriculture.

[FR Doc. 96-25866 Filed 10-4-96; 3:39 pm]

BILLING CODE 3410-10-P