Revision to Part 46, Regulations Under the Perishable Agricultural Commodities Act (PACA)

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 46

[Docket Number FV97-355]

Revision to Part 46, Regulations Under the Perishable

Agricultural Commodities Act (PACA)

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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SUMMARY: The Department of Agriculture (USDA) is revising the

regulations (other than Rules of Practice) Under the Perishable

Agricultural Commodities Act (PACA or Act) to establish that electronic

transmissions are ``ordinary and usual billing or invoice statements''

within the meaning of the PACA.

EFFECTIVE DATE: December 15, 1997.

FOR FURTHER INFORMATION CONTACT: Charles W. Parrott, Assistant Chief,

PACA Branch, Room 2095-So. Bldg., Fruit and Vegetable Division, AMS,

USDA, 1400 Independence Avenue, S.W.,Washington, D.C. 20250, Phone

(202) 720-4180.

SUPPLEMENTARY INFORMATION: This regulation is issued under authority of

section 15 of the PACA (7 U.S.C. 499o).

Background

The PACA establishes a code of fair trading practices covering the

marketing of fresh and frozen fruits and vegetables in interstate and

foreign commerce. It protects growers, shippers, distributors, and

retailers dealing in those commodities by prohibiting unfair and

fraudulent trade practices. Thus, the law fosters an efficient

nationwide distribution system for fresh and frozen fruits and

vegetables, benefitting the whole marketing chain from farmer to

consumer. The PACA provides for a forum to adjudicate commercial

disputes in which USDA may award damages against a licensee who fails

to meet contractual obligations in violation of the Act. The law also

imposes a statutory trust on perishable agricultural commodities

received but not yet paid for, products derived from those commodities,

and any receivables or proceeds due from the sale of those commodities

or products thereof for the benefit of unpaid suppliers or sellers.

USDA's Agricultural Marketing Service (AMS) administers and enforces

the PACA.

The PACA Amendments of 1995, among other things, eliminated the

requirement for unpaid produce suppliers to file trust notices with

USDA in order to preserve their trust rights under the statutory trust

provision of the Act. Additionally, the amendments to the PACA allow

unpaid sellers of fresh and frozen fruits and vegetables to preserve

trust benefits by adding language to ``ordinary and usual billing or

invoice statements'' that advises the buyer of the creditor's intention

to preserve trust benefits. This addition of language indicating the

intent to preserve trust benefits to bills or invoices eliminates the

need for a trust creditor to provide any additional notice to the

debtor of the creditor's intention to preserve trust benefits. However,

the Act does not explicitly declare that information transmitted in the

course of electronic transactions would constitute ``ordinary and usual

billing or invoice statements''.

On January 15, 1997, the United Fresh Fruit and Vegetable

Association (UFFVA), a produce industry trade association based in

Alexandria, Virginia, petitioned AMS to adopt regulations under the

PACA to recognize the use of Electronic Data Interchange. Ten other

produce industry organizations joined the UFFVA on the petition. The

petitioners sought clarification as to whether EDI transactions are

considered by AMS to be ``ordinary and usual billing or invoice

statements'' within the meaning of the 1995 PACA amendments. USDA

agreed with petitioners that a revision to the regulations would

eliminate any uncertainty in this regard and would ensure that

licensees can use reasonable technological advances while still

receiving appropriate trust protection under the PACA.

Therefore, USDA proposed a change in the PACA regulations to

achieve this end. The proposal was published in the Federal Register on

June 20, 1997 (62 FR 33574). The proposal contained a definition for

the term ``ordinary and usual billing or invoice statements'' to be

added in section 46.46(a) as follows:

``Ordinary and usual billing or invoice statements'' as used in

section 5(c)(4) of the Act and ``invoice or other billing

statement'' as used in section 46.46(f)(3) mean communications

customarily used between parties to a transaction in perishable

agricultural commodities in whatever form, documentary or

electronic, for billing or invoicing purposes.

The proposed definition specifies that ``ordinary and usual billing

or invoice statements'' as used in the PACA and ``invoice or other

billing statement'' as used in section 46.46(f)(3) include both paper

documentation and electronic transmissions customarily used between a

seller and a buyer for billing or invoicing purposes. This change to

the regulations is very similar to the change suggested in the UFFVA

petition. The 30-day comment period on the proposed rule closed on July

21, 1997.

Comments

USDA received comments on the proposed rule from the American

Frozen Food Institute (AFFI), McLean, Virginia; Western Growers

Association, Newport Beach, California; Driscoll's Strawberry

Associates, Inc., Watsonville, California; and The Nunes Company, Inc.,

Salinas, California. All of the commentors supported USDA's proposal to

amend the regulations to establish that electronic transmissions are

``ordinary and usual billing or invoice statements'' within the meaning

of the PACA.

In its favorable comment, AFFI suggested that in order to clarify

and strengthen the proposal, USDA should confirm in the final rule that

including a statement on an electronic invoice or other billing

document that the sale is subject to the provisions of the PACA

statutory trust will satisfy the notice requirements under the statute.

AFFI is concerned that the statement preserving trust benefits may not

be recognized as a standard data field on an electronic document, and

therefore may not be received or read by the party to which the

information is being disclosed. However, as we stated in the preamble

to the proposed rule, both parties to an electronic transaction must

agree to the format of the information to be transmitted and received

in an electronic transmission. USDA believes that this agreement is the

proper forum for ensuring that the buyer receives notice of trust

preservation from the seller in the electronic transmission. The PACA

requires that the seller give notice to the buyer in order to preserve

its trust benefits. Therefore, a seller engaged in electronic

transactions must ensure in the agreement with its buyer that the buyer

is receiving the trust statement as part of the electronic

transmission. Otherwise, the seller is responsible for finding other

means of giving notice to the buyer in order to qualify for PACA trust

protection. Under these circumstances, USDA is making no change to the

final rule based on this comment.

Executive Orders 12866 and 12988

This rule, issued under the Perishable Agricultural Commodities Act

(7 U.S.C. 499 et seq.), as amended, has been determined to be not

significant for the purposes of Executive Order 12866.

This final rule has been reviewed under Executive Order 12988,

Civil Justice Reform. This rule is not intended

[[Page 60999]]

to have retroactive effect. This final rule will not preempt any State

or local laws, regulations, or policies, unless they present an

irreconcilable conflict with this rule. There are no administrative

procedures which must be exhausted prior to any judicial challenge to

the provisions of this rule.

Effects on Small Businesses

Pursuant to requirements set forth in the Regulatory Flexibility

Act (RFA) (5 U.S.C. 601 et seq.), USDA has considered the economic

impact of this final rule on small entities. The purpose of the RFA is

to fit regulatory actions to the scale of businesses subject to such

actions in order that small businesses will not be unduly or

disproportionately burdened. Small agricultural service firms have been

defined by the Small Business Administration (13 CFR 121.601) as those

whose annual receipts are less than $5,000,000. The PACA requires all

businesses that operate subject to its provisions maintain a license

issued by USDA. There are approximately 15,700 PACA licensees, many of

which may be classified as small entities.

The revised regulations establish that the electronic transmissions

used in perishable agricultural commodity transactions are, in fact,

``ordinary and usual billing or invoice statements.'' The use of

electronic transactions is voluntary, and the revised regulations

specifically provide companies an electronic alternative to paper

documentation to give notice of intent to preserve trust rights.

Accordingly, based on the information in the above discussion, AMS

has determined that the provisions of this rule would not have a

significant economic impact on a substantial number of small entities.

Paperwork Reduction Act

In compliance with Office of Management and Budget (OMB)

regulations (5 CFR part 1320) which implement the Paperwork Reduction

Act of 1995 (Pub. L. 104-13), the information collection and

recordkeeping requirements covered by this rule were approved by OMB on

October 31, 1996, and expires on October 31, 1999.

List of Subjects in 7 CFR Part 46

Agricultural commodities, Brokers, Penalties, Reporting and record

keeping requirements.

For the reasons set forth in the preamble, 7 CFR part 46 is amended

as follows:

PART 46--[AMENDED]

1. The authority citation for part 46 continues to read as follows:

Authority: Sec. 15, 46 Stat. 537; 7 U.S.C. 499o

2. In Sec. 46.46, a new paragraph (a)(5) is added to read as

follows:

Sec. 46.46 Statutory trust.

* * * * *

(a) * * *

(5) ``Ordinary and usual billing or invoice statements'' as used in

section 5(c)(4) of the Act, and ``invoice or other billing statement''

as used in Sec. 46.46(f)(3), mean communications customarily used

between parties to a transaction in perishable agricultural commodities

in whatever form, documentary or electronic, for billing or invoicing

purposes.

Dated: November 7, 1997.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 97-29926 Filed 11-13-97; 8:45 am]

BILLING CODE 3410-02-P