Amendment to the Tobacco Marketing Quota Regulations

SUMMARY: This rule proposes improving the administration of the tobacco

marketing quota and price support program by amending program

regulations to: provide for making quota ``inequity adjustments'' on a

``common ownership unit'' basis rather than strictly on a ``farm''

basis; eliminate unduly restrictive deadlines for the mailing of

certain quota notices; permit, for burley and flue-cured tobacco,

disaster transfers to be made by cash lessees, from cash rented farms,

without the owner's signature; provide greater flexibility in the

setting of penalty amounts for burley and flue-cured tobacco

violations; eliminate a provision that requires yearly publication in

the Federal Register of certain routine and noncontroversial penalty

computations; remove regulations governing the 1994-calendar year only

``domestic marketing assessment'', which was applicable to the use by

certain cigarette manufacturers of set percentages of domestic tobacco;

codify certain statutory provisions concerning, and penalties related

to, setting burley and flue-cured tobacco quotas; and add several

technical changes, including changes to reflect a recent reorganization

of the Department of Agriculture.

DATES: Comments must be received by May 20, 1997 to be assured of

consideration.

ADDRESSES: Submit comments on the proposed rule to: Director, Tobacco

and Peanuts Division, USDA, FSA, STOP 0514, P.O. Box 2415, Washington,

DC 20013-2415. Comments may be faxed to 202-690-2298. All written

submissions made pursuant to this rule will be made available for

public inspection in Room 5750 South Building, USDA, between the hours

of 8:15 a.m. and 4:45 p.m., during regular Federal workdays.

FOR FURTHER INFORMATION CONTACT: Verner Grise, Director, Tobacco and

Peanuts Analysis Staff, Tobacco and Peanuts Division, USDA, FSA, STOP

0514, P.O. Box 2415, Washington, DC 20013-2415, telephone 202-720-5291.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This proposed rule has been determined to be not significant and

therefore was not reviewed by OMB under Executive Order 12866.

Regulatory Flexibility Act

The Regulatory Flexibility Act is not applicable to this proposed

rule since the Farm Service Agency (FSA) is not required by 5 U.S.C.

553 or any other provision of law to publish a notice of proposed rule

making with respect to the subject matter of this rule.

Federal Assistance Program

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

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

are: Commodity Loans and Purchases--10.051.

Environmental Evaluation

It has been determined by an environmental evaluation that this

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

environment. Therefore, neither an environmental assessment nor an

environmental impact statement is needed.

Executive Order 12372

This activity is not subject to the provisions of Executive Order

12372, which requires intergovernmental consultation with State and

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

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

Executive Order 12988

This proposed rule has been reviewed in accordance with Executive

Order 12988. The provisions of this proposed rule are not retroactive

and preempt State laws to the extent that such laws are inconsistent

with the provisions of this proposed rule. Before any legal action is

brought regarding determinations made under provisions of 7 CFR part

723, the administrative appeal provisions set forth at 7 CFR Part 780

and 7 CFR Part 711, as applicable, must be exhausted.

Paperwork Reduction Act

This proposed rule does not contain new or revised information

collection requirements that require approval by OMB under the

Paperwork Reduction Act (44 U.S.C. 3507 et seq). The information

collections required in 7 CFR Part 723 have previously been cleared

under OMB control number 0560-0058.

Background and Discussion

The tobacco marketing quota and price support program is operated

by the Department of Agriculture pursuant to provisions of the

Agricultural Adjustment Act of 1938, as amended (the 1938 Act) and the

Agricultural Act of 1949, as amended (the 1949 Act). This proposed rule

would, as described below, modify tobacco marketing quota regulations

in 7 CFR Part 723. Related price support regulations are codified in 7

CFR Part 1464.

1. Allocation of Inequity Adjustments

The 1938 Act permits the FSA, out of limited national reserves, to

make so-called ``inequity adjustments'' in old farm allotments or

quotas in order to alleviate quota disparities between farms in a

county. Current rules, at Sec. 723.210, call for those adjustments to

be made by ``farm'' as that term is defined for FSA commodity support

purposes. However, for tobacco, there may, in effect, be ``farms''

within a farm when there are different common ownership units within

the farm. For that reason, to allow for greater equity, it is proposed

that the rules be modified to allow local FSA committees to choose, at

their discretion, to make inequity adjustments by common ownership

units in which case the quota adjustment would inure to the common

ownership unit rather than to the whole farm. The rule would also add,

in Sec. 723.104, a definition of ``common ownership unit'' to

facilitate the administration of the proposed change for allocating

inequity adjustments and the transfer of quota by sale.

[[Page 13547]]

2. Mailing Notices of Farm Acreage Allotments and Marketing Quotas

Current rules, in Sec. 723.213, require that quota notices be

mailed by a certain date if the quota is to be modified because of a

violation, a revision or adjustment in the allotment or quota for the

farm, or a farm reconstitution. The deadline is April 1 for farms in

Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia.

Otherwise, the deadline is May 1. Those dates are not suitable in all

instances since there may be transfers affecting the quota which have

not occurred by those dates. For that reason, and because the

regulation is strictly a matter of agency procedure, it is proposed

that these deadlines be removed from the regulations. Because of the

special considerations that accompany reductions for violations, it

would remain the agency's intention with respect to notices concerning

reductions in quota because of violations to meet the same deadlines as

those that are now in the regulations.

3. Approval of Disaster Lease and Transfer Agreements--Cash Rented

Farms

Burley and flue-cured tobacco are different from other kinds of

tobacco in that they are subject to quotas on a poundage basis. All

other tobaccos are limited by acreage only. Burley tobacco is limited

by pounds only and flue-cured tobacco is limited both by acres and

pounds. With respect to burley and flue-cured tobacco, disaster

transfers of quota pounds can be made during the harvest season if,

despite the producer's best efforts, the quota is not fully produced

because of a natural disaster. Currently, all such transfers require

the farm owner to sign the transfer documents. This rule proposes

amending Sec. 723.216 to provide that such owner's signature is not

needed when the farm is cash-rented or leased by the farm operator.

This would reflect that the owner does not have an interest in the

current year's tobacco crop or marketing quota. This would effectively

and conclusively, presume that the farm operator or tobacco producer

has paid for the quota for the current year to use to market the crop

or, as the case may be, to disaster lease and transfer the unused quota

from the farm.

4. Producer Penalty Calculations

Penalties can be assessed against producers under the 1938 Act for

excess marketings and other offenses. Section 314 of the 1938 Act

provides that the penalty rate is equal to 75 percent of the average

market price for the kind of tobacco for the immediately preceding

marketing year. That rate is applied, then, to the penalty quantity of

tobacco. Generally, under section 314, that quantity is the amount of

the excess marketings. However, section 317(g) of the 1938 Act

provides, for the poundage quota tobaccos (burley and flue-cured) only,

that no penalty shall be due or collected until 103 percent of the

marketing quota has been marketed except that where a producer falsely

identifies, or fails to account for the disposition of any tobacco, the

Secretary, in lieu of assessing and collecting penalties based on the

actual marketings of excess tobacco, may elect to assess a penalty

computed by multiplying the full penalty rate by an amount of tobacco

equal to 25 percent of the farm's effective marketing quota plus the

farm yield for the number of acres harvested in excess of the farm

acreage allotment. Thus for burley and flue-cured tobacco, two possible

standards exist for determining the penalty quantity: (1) The excess-

over-103-percent standard (``the 103-percent standard'') and (2) the

25-percent-of-quota standard (``the 25-percent standard''). In some

cases, however, the producer may have no excess marketings, but may

have mis-marketed a small number of pounds on the farm's marketing card

in which case the 25-percent standard may produce a penalty which a

local FSA committee could feel is too harsh. This could lead, by use of

the 103-percent standard, to no penalty at all which could be too

lenient. Given that the use of the full 25-percent-of-quota standard is

strictly discretionary, it would appear to follow that, in cases where

the 25-percent standard could otherwise be applied, the Secretary could

choose a penalty quantity ``up to'' 25-percent. Changing Sec. 723.409

to add that flexibility is proposed in this notice. This would, if

adopted, allow the penalty quantity to be, more appropriately, the

actual amount of pounds in violation, which could better reflect the

relative significance of different violations. This amendment will not

affect the penalty quantity for buyers, dealers, or warehouse

operators. Tobacco buyers, dealers, warehouse operators, and others

will be required to collect the full penalty rate for each pound of

invalid or suspicious marketings. In the event of an over-collection,

the penalty can be refunded.

5. Elimination of Publication in the Federal Register of Certain

Mathematical Computations

Also, it is proposed, with respect to penalties, that Sec. 723.308

be modified to remove the provision that requires publication in the

Federal Register of the penalty rate calculations for the individual

kinds of tobacco. Those rates are mathematical calculations based on

market prices and the amounts should be, within a very close amount,

well known by interested parties based on their knowledge of market

conditions. As in the past, effective notice will be provided by press

release. Further information, if needed, can be obtained by inquiry.

For these reasons, publication in the Federal Register does not appear

to be necessary.

6. Removal of Regulations Concerning the 1994 Domestic Marketing

Assessment for Manufacturers Whose Use of Domestic Tobacco Fell Below

75 Percent

This rule also proposes removing the regulations that currently

appear in Subpart E, as those regulations deal with an assessment that

only applied with respect to activities which occurred in calendar year

1994. Specifically, budget legislation enacted in 1993 provided for a

``domestic marketing assessment'' (DMA) to be applied to certain

manufacturers of cigarettes if their use of domestic tobacco did not,

for certain cigarettes, over a calendar year, amount to 75 percent of

their total tobacco use. Later legislation limited the application of

the DMA to activities occurring in calendar year 1994. Accordingly, it

does not appear worthwhile to continue the codification of the DMA

regulations. Removal of the rules will not, however, affect liabilities

with respect to the DMA for activities occurring in calendar year 1994.

7. Codification of Regulations Dealing With Establishing the National

Marketing Quotas for Burley and Flue-Cured Tobacco

It is also proposed that a new subpart be added to codify

provisions dealing with the annual establishment of the burley and

flue-cured tobacco national marketing quotas. The quotas for burley and

flue-cured tobaccos, unlike the allotments for other supported

tobaccos, are set, as provided for by statute, in a manner that takes

into account pre-announced purchase intentions of certain cigarette

manufacturers. Specifically, the calculation takes into account the

purchase intentions of those cigarette manufacturers who meet the 1938

Act definition of a ``domestic manufacturer of cigarettes'' by

producing at least 1 percent of the cigarettes produced and sold in the

United States. The 1938 Act provides, under section 317 for flue-cured

tobacco, and section 319 for burley

[[Page 13548]]

tobacco, that the quota for each kind is the amount, computed

separately which, with an allowance for the Secretary to make a

discretionary upward or downward adjustment of up to 3 percent in the

total, equals the sum of: (1) The aggregate, for the upcoming year, of

the stated intentions of the manufacturers to purchase eligible tobacco

of the relevant kind from regular auction markets, producers, or from

the inventories of the relevant producer loan associations; (2) the

average annual exports of that kind of domestic tobacco for the past 3

years; and (3) the amount the Secretary deems, in his discretion, is

needed to adjust the current inventories of the producer loan

associations to establish stocks at the reserve stock level for the

respective kind of tobacco. The reserve stock level is defined in

section 301 of the 1938 Act to be, for burley tobacco, the greater of

50 million pounds or 15 percent of the previous year's quota. For flue-

cured tobacco that level is defined to be the greater of 100 million

pounds or 15 percent of the previous year's quota. Section 319 of the

1938 Act provides, however, that the reserve stock level downward

adjustment for burley tobacco may not exceed the greater of 35 million

pounds or 50 percent of the quantity by which loan inventories exceed

the reserve stock level. Section 320A of the 1938 Act requires that the

statement of purchase intentions be filed by all manufacturers who meet

the ``domestic manufacturer of cigarettes'' definition and provides

that if a manufacturer fails to file such a statement the Secretary

must estimate the purchases for the manufacturer based on the

manufacturer's previous submissions. The statements of intention are

due before the marketing year. Section 320A of the 1938 Act sets

December 1 as the deadline for flue-cured purchase intentions. For

burley, section 320A sets January 15 as the deadline. Also, section

320A contains confidentiality provisions to protect the statements

filed by manufacturers.

Further, section 320B of the 1938 Act provides that cigarette

manufacturers must report their tobacco purchases at the end of the

year so that a comparison can be made with their statement of

intentions. Under section 320B, the manufacturer must pay a per pound

penalty, equal to twice the purchaser's share of the no-net-cost

assessment rate for the relevant marketing year, if their purchases do

not amount to 90 percent of their stated intentions. Section 320B

provides that the penalty will be assessed on the full amount of the

shortage except that 320B also provides that the statements of

intention will be adjusted downward if producers do not, counting price

support loan placements, produce, in the aggregate, the total national

quota for the relevant kind of tobacco (burley or flue-cured) for the

relevant marketing year.

These provisions have been in place for many years. This rule

proposes, however, to codify current policy to allow for comment and

modification as needed. As with current practice, the rule provides for

counting indirect and direct purchases for statement of purchase

intentions and for calculations of compliance with those intentions.

Also, the rule, for these purposes, as with current practice, specifies

that purchases of leaf, stems, trimmings, and scrap tobacco for export

should be excluded from the purchase intentions and from the purchases

that are countable toward meeting the manufacturer's obligations.

8. Technical Changes in the Regulations

This rule would also make certain technical changes, including

changing references from ``ASC'' to ``FSA'' to reflect that under a

recent reorganization, many of the functions of the former Agricultural

Stabilization and Conservation Service are now handled by the USDA's

Farm Service Agency.

List of Subjects in 7 CFR Part 723

Acreage allotments, Dealers, Domestic cigarette manufacturers,

Marketing quotas, Penalties, Tobacco

Proposed Rule

For the reasons set forth in the preamble, it is proposed that 7

CFR Part 723 be amended as follows:

PART 723--TOBACCO

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

follows:

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

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

1372-75, 1377-1379, 1421, 1445-1 and 1445-2.

2. Section 723.104 is to be amended by adding definitions for

``common ownership unit'', ``Farm Service Agency'', and ``FSA'' in

their proper alphabetical order to read as follows:

Sec. 723.104 Definitions.

Common ownership unit. A common ownership unit is a distinguishable

part of a farm, consisting of one or more tracts of land with the same

owners as determined by FSA.

Farm Service Agency. An agency within the U.S. Department of

Agriculture.

FSA. The Farm Service Agency.

* * * * *

3. Section 723.210 is amended by adding a new paragraph (d) to read

as follows:

Sec. 723.210 Corrections of errors and adjusting inequities in acreage

allotments and marketing quotas for old farms.

* * * * *

(d) Making certain adjustments on a common ownership unit basis.

Notwithstanding other provisions of this section, inequity adjustments

may be allotted by common ownership unit rather than by farm when it is

determined by the county FSA committee that the making of the

determination on that basis provides greater equity.

Sec. 723.213 [Amended]

4. Section 723.213 is amended by removing paragraph (c) and

redesignating paragraph (d) as paragraph (c).

5. Section 723.216(a) is amended by revising paragraph (a)

introductory text and by revising paragraphs (a)(2)(ii)(A) and

(a)(2)(iii)(A), to read as follows:

Sec. 723.216 Transfers of tobacco acreage allotment or marketing quota

by sale, lease, or owner.

(a) General. The allotment or quota established for a farm may be

transferred to another farm to the extent provided for in this section.

For transfers by sale, common ownership units on a farm may be

considered to be separate farms. Transfers are not permitted for cigar

binder (types 54 and 55) tobacco allotments.

* * * * *

(2) * * *

(ii) * * *

(A) Leases. The owner and operator of the transferring farm and the

owner or operator of the receiving farm. For leases made under the

disaster provisions of this section, the signature of the owner will

not be required if the FSA determines that the farm is cash leased for

the current crop year and that the owner does not share in the crop.

* * * * *

(iii) * * *

(A) Leases. The owner of the transferring farm and the owner or

operator of the receiving farm. For leases made under the disaster

provisions of this section, the signature of the owner will not be

required if the FSA determines that the farm is cash leased for the

crop year and that the owner does not share in the crop.

* * * * *

[[Page 13549]]

Sec. 723.308 [Amended]

6. Section 723.308 is amended by adding ``and announced annually''

after ``determined'' in the first sentence and removing the second

sentence.

7. Section 723.409 is amended by revising paragraphs (a), (b),

(e)(1), (e)(2) introductory text, and (f) and by removing paragraph

(g), such that the revised paragraphs in Sec. 723.409 will read as

follows:

Sec. 723.409 Producer violations, penalties, false identification and

related issues.

(a) Generally--(1) Circumstances in which penalties are due. A

penalty shall be due on all marketings from a farm which are:

(i) in excess of the applicable quota or allotment;

(ii) made without a valid marketing card;

(iii) made under circumstances where the buyer or dealer, or their

agents, know, or have reason to know, that the tobacco was, or is,

marketed in a manner which by itself or in combination with other

marketings is designed to, or has the effect of, defeating the purposes

of the tobacco price support and production adjustment program,

avoiding marketing quota limitations, or otherwise avoiding provision

of this part or part 1464;

(iv) falsely identified; or,

(v) marketings for which the producer fails to make a proper

account as required by the provisions of this part.

(2) Amount of the penalty. The amount of the penalty shall be the

amount computed by multiplying the penalty rate by the penalty

quantity.

(3) Penalty rate. The penalty rate for purposes of this section is

that rate which is computed as the penalty rate per pound for the

applicable kind of tobacco under Sec. 723.308, except to the extent

that a converted penalty rate may be used as provided for in this

section.

(4) Penalty quantity. The quantity of tobacco that is determined by

the county FSA committee to be subject to penalty, provided further

that:

(i) For burley and flue-cured tobacco, the penalty quantity for

purposes of this section shall be the amount of marketings from the

farm in excess of 103 percent of the farm's effective marketing quota

for that year, except that if the violation involves false

identification or a failure to account for tobacco, the FSA may, in its

discretion, depending on the nature of the violations, use as the

penalty quantity an amount up to 25 percent of the farm's effective

marketing quota plus 100 percent of the farm yield on any excess

acreage for the farm (acreage planted in excess of the allotted acres,

as estimated or determined).

(ii) For tobaccos other than burley and flue-cured tobacco, the

penalty quantity shall be the amount of marketings from the farm in

excess of the farm's marketing quota provided further, that in order to

aid in the collection of the penalty the FSA shall endeavor, to the

extent practicable, to apply the penalty to all of the farm's

marketings by converting the full penalty rate to a converted

proportionate penalty rate which rate may be identified on the

producer's marketing card and collected and remitted accordingly. In

making the calculation of the converted penalty rate, the agency shall

take into account any carryover tobacco applicable for the farm. If an

erroneous penalty rate is shown on the marketing card, then the

producer of the tobacco and the producer who marketed the tobacco shall

be liable for any balance due.

(5) Limitations on reduced penalty quantities. No penalty shall, to

the extent that there is discretion to do otherwise, be assessed at an

amount which is less than the amount equal to the full penalty rate

multiplied by the full number of pounds that are, or are estimated to

be, subject to penalty, unless it is determined by the county FSA

committee, with the concurrence of the State FSA committee, that all of

the following exist with respect to such violation:

(i) The violation was inadvertent and unintentional;

(ii) All of the farm's production has been accounted for and there

are no excess marketings for which there are penalties outstanding;

(iii) The records for all involved farms have been corrected to

show the marketings involved; and

(iv) The false identification or failure to account did not give

the producer an advantage under the program.

(6) Effect of improper, invalid, deceptive or unaccounted for

marketings on penalty quantity calculation. Any marketing made without

a valid marketing card, falsely-identified, or unaccounted for in

accordance with the requirements of this part, or made under

circumstances which are designed to, or have the effect of, defeating

the purpose of the tobacco marketing quota and price support program,

avoiding any limitation on marketings, avoiding a penalty, or avoiding

compliance with, or the requirements of, any regulation under this part

or under part 1464, shall be considered an excess marketing of tobacco.

Further, such marketings shall, unless shown to the satisfaction of the

county FSA committee to be otherwise, be considered, where relevant, to

be in excess of 103 percent of the applicable marketing quota for the

farm, and shall be subject to a penalty at the full penalty rate for

each pound so marketed.

(7) Pledging of tobacco by an ineligible producer. In addition to

any other circumstances in which a penalty may be assessed under this

part, the marketing or pledging for a price support loan of any tobacco

when the producer is not considered to be an ``eligible producer''

under the provisions of part 1464 of this title, shall be considered to

be a false identification of tobacco and shall be dealt with

accordingly. This remedy shall be in addition to all others as may

apply.

(8) Failures to make certain reports. If any producer who

manufactures tobacco products from tobacco produced by or for such

person fails to make the report required by Sec. 729.408, or otherwise

required by this part, or makes a false report, the producer shall be

deemed to have failed to account for the disposition of tobacco

produced on the farms(s) involved. The filing of a report by a producer

under Sec. 723.408 of this part which the State FSA committee finds to

be incomplete or incorrect shall constitute a failure to account for

the disposition of tobacco produced on the farm.

(b) Special provisions for tobacco buyers, dealers, and warehouse

operators and others who acquire tobacco.

(1) Notwithstanding the provisions of paragraph (a) of this

section, a dealer, buyer or warehouse operator shall collect an amount

of penalty equal to the applicable per pound penalty rate times the

quantity of tobacco acquired or handled by the buyer, dealer or

warehouse operator when the tobacco is not identified with a valid

producer marketing card, the tobacco is being sold under suspicious

circumstances, or when there is any reason to suspect the tobacco may

be subject to penalty. The provisions of this paragraph apply to all

purchases by a dealer, buyer or warehouse operator including those from

another dealer, buyer or warehouse operator. The dealer, buyer,

warehouse operator, or their agent, shall also collect the full amount

of the marketing quota penalty for each pound of tobacco involved in

any case in which a buyer, dealer or warehouse operator knows, or has

to reason to suspect, that the marketing is, or has been, made without

a proper marketing card or is, or has been, made with a card which the

dealer, buyer, warehouse operator, or their agents have reason to

suspect, is not a valid marketing or is made under

[[Page 13550]]

circumstances which give cause to suspect that the marketing is not

valid or is made in derogation of the tobacco marketing quota and price

support program.

(2) The amount of penalty collected may be deducted from the

proceeds of the sale of the tobacco. All such penalty collections shall

be the responsibility of each buyer dealer, or warehouse operator

involved, and their agents, and shall be remitted to FSA as provided

for in this part.

(3) The collection and remittance of penalty shall be in addition

to any other obligations that such person may have to collect other

amounts, including other penalties or assessments due on such

marketings.

(4) If a penalty is collected and remitted by a buyer, dealer, or

warehouse operator that is shown not to be due or only partially due,

then the overpayment shall be refunded to the appropriate party. It is

the responsibility of the person that collected the penalty and the

person that sold the tobacco involved to show to the satisfaction of

the FSA that such penalty is not due in the full amount collected.

* * * * *

(e) * * *

(1) For amounts of $100 or less, the county FSA committee, and

(2) For amounts over $100, the county FSA committee with approval

of the State FSA committee determines that each of the following

conditions is applicable:

* * * * *

(f) Refusal to contribute required assessments. A marketing penalty

at the full rate per pound is due on each pound of tobacco marketed

from a farm when the farm operator or producers refuse to pay no-net-

cost or marketing assessments as provided in part 1464 of this title.

In all such cases, the farm from which the tobacco has been produced

shall be considered to have a marketing quota of zero pounds and an

allotment of zero acres.

9. Part 723 subpart E is revised to read as follows:

Subpart E--Establishing Burley and Flue-Cured Tobacco National

Marketing Quotas

Sec.

723.501 Scope.

723.502 Definitions.

723.503 Establishing the quotas.

723.504 Manufacturer's intentions; penalties.

Sec. 723.501 Scope.

This subpart sets out regulations for setting annual national

marketing quotas for burley and flue-cured tobacco based on the

purchase intentions of certain manufacturers of cigarettes and on other

factors. It also sets out penalty provisions for manufacturers who fail

to purchase, within the tolerances set in this part, the amount of

domestic tobacco, by kind, reflected in the stated intention as

accounted for in accordance with this subpart.

Sec. 723.502 Definitions.

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

definitions set forth in this section shall be applicable for purposes

of administering the provisions of this subpart.

CCC. The Commodity Credit Corporation, an instrumentality of the

USDA.

Domestic manufacturer. A domestic manufacturer of cigarettes.

Domestic manufacturer of cigarettes. A manufacturer who, as

determined by the Director, produces and sells more than 1 percent of

the cigarettes produced and sold in the United States annually.

Price support inventory. The inventory of tobacco which, with

respect to a particular kind of tobacco, has been pledged as collateral

for a price support loan made by CCC through a producer-owned

cooperative marketing association.

Producer-owned cooperative marketing associations. Those

associations, or their successors, which by law act as agents for

producers for price support loans for tobacco, and which were, as of

January 1, 1996, for burley and flue-cured tobacco, the Burley Tobacco

Growers Cooperative Association, the Burley Stabilization Corporation,

and the Flue-Cured Tobacco Cooperative Stabilization Corporation.

Unmanufactured tobacco. Stemmed and unstemmed leaf tobacco, stems,

trimmings, and scrap tobacco.

Sec. 723.503 Establishing the quotas.

(a) General. Subject to the 3 percent adjustment provided for in

paragraph(b) of this section, the annual marketing quotas for burley

and flue-cured tobacco shall be calculated for each marketing year for

each kind separately as follows:

(1) Domestic manufacturer purchase intentions. First, for each kind

and year, the Director shall calculate the aggregate relevant purchaser

intentions as declared or set under this section.

(2) Exports. Next, the Director shall add to the total determined

under paragraph(a)(1) of this section the amount which is equal to the

Director's determination of the average quantity of exported domestic

leaf tobacco of the applicable kind for the past 3 marketing years. For

this purpose, exports include unmanufactured tobacco only, including,

but not limited to, stemmed and unstemmed leaf tobacco, stems,

trimmings, and scrap tobacco, and excludes tobacco contained in

manufactured products including, but not limited to cigarettes, cigars,

smoking tobacco, chewing tobacco, snuff and semi-processed bulk smoking

tobacco. The quantity of exports for the most recent year, as needed,

may be estimated.

(3) Reserve stock level adjustment. The Director may then adjust

the total calculated by adding the sums of paragraph(a)(1) and (a)(2)

of this section, by making such adjustment which the Director, in his

discretion, determines necessary to maintain inventory levels held by

producer loan associations for burley and flue-cured tobacco at the

reserve stock level. For burley tobacco, the reserve stock level for

these purposes is the larger of 50 million pounds farm sales weight or

15 percent of the previous year's national marketing quota. For flue-

cured tobacco, the reserve stock level for these purposes is the larger

of 100 million pounds farm sales weight or 15 percent of the previous

year's national marketing quota. Any adjustment under this clause shall

be discretionary taking into account supply conditions; however, for

burley tobacco no downward adjustment under this clause may exceed the

larger of 35 million pounds (farm sales weight) or 50 percent of the

amount by which loan inventories exceed the reserve stock level.

(b) Additional 3 percent adjustment. The amount otherwise

calculated under paragraph(a) of this section may be adjusted by the

Director by 3 percent of the total. This adjustment is discretionary

and may be made irrespective of whether any adjustment has been made

under paragraph(a)(3), of this section and may be made to the extent

the Director deems such an adjustment is in the best interest of the

program.

(c) Dates of announcement. For flue-cured tobacco, the quota

determination should be announced by December 15 preceding the

marketing year. For burley, the announcement should be made by February

1 preceding the marketing year.

Sec. 723.504 Manufacturers' intentions; penalties.

(a) Generally. Each domestic manufacturer shall, for each marketing

year, for burley and flue-cured tobacco separately, submit a statement

of its intended purchases of eligible tobacco

[[Page 13551]]

by the dates prescribed in paragraph (d)of this section; further, at

the end of the marketing year, each such manufacturer shall submit a

statement of its actual countable purchases of eligible tobacco for

that marketing year, by kind, for burley and flue-cured tobacco. For

these purposes, countable purchases of eligible tobacco shall be as

defined in, and determined under, paragraph (b) of this section. If a

domestic manufacturer fails to file a statement of intentions, the

Director shall declare the amount which will be considered that

manufacturer's intentions for the marketing year. That declaration by

the Director shall be based on the domestic manufacturer's previous

reports or such other information as is deemed appropriate by the

Director in the Director's discretion. Notice of the amount so declared

shall be forwarded to the domestic manufacturer. If the domestic

manufacturer fails to file a year-end report or files an inaccurate or

incomplete report, then the Director may deem that the manufacturer has

no purchases to report or take such other action as the Director

believes is appropriate to fulfill the goals of this section.

Intentions and purchases of countable tobacco will be compared for

purposes of determining whether a penalty is due from the domestic

manufacturer.

(b) Eligible tobacco for statements of intentions and countable

purchases toward those intentions. For reports and determinations under

this section, eligible tobacco for purposes of determining the

countable purchases under paragraph (a) of this section will be

unmanufactured domestic tobacco of the relevant kind for use to

manufacture, for domestic or foreign consumption, cigarettes, semi-

processed bulk smoking tobacco, and other tobacco products. Eligible

tobacco for these purposes does not include tobacco purchased for

export as leaf tobacco, stems, trimmings, or scrap. Countable purchases

of eligible tobacco shall include purchases of eligible tobacco made by

domestic manufacturers directly from the producers, from a regular

auction market, or from the price support loan inventory and shall also

include purchases by the manufacturer where the manufacturer purchases

or acquires the tobacco from dealers or buyers who purchased the

tobacco for the domestic manufacturer during the relevant marketing

year directly from a producer, at a regular auction market, or from the

price support loan inventory.

(c) Weight basis and nature of reports. The weight basis used for

all reports and comparisons shall be a farm sales weight basis unless

the Director permits otherwise and all reports will be considered to

have been made on that basis unless the report clearly states

otherwise. Submitted reports shall be deemed to cover countable

purchases of eligible tobacco only.

(d) Due dates and addresses for reports. For flue-cured tobacco the

domestic manufacturer's statement of intentions shall be submitted by

December 1 before the marketing year and the year-end report shall be

submitted by August 20 following the end of the marketing year. Those

dates for burley tobacco are January 15 and November 20, respectively.

Reports shall be mailed or delivered to the Director, Tobacco and

Peanuts Division, STOP 0514, P.O. Box 2415, Washington, DC 20013-2415.

(e) Penalties. A domestic manufacturer shall be liable for a

penalty equal to twice the purchaser's no-net-cost assessment rate per

pound for the applicable kind of tobacco for the relevant marketing

year, if the manufacturer's purchases of either burley or flue-cured

tobacco for the marketing year do not equal or exceed, as determined by

the Director, 90 percent of their stated purchase intentions for that

kind of tobacco for the relevant marketing year. The Director shall

adjust the domestic manufacturer's intentions, however, to the extent,

that producers have not produced the full amount of the national quota

for the relevant marketing year for the particular kind of tobacco. The

burden of establishing all purchases shall be with the domestic

manufacturer and the Director may, in the case of indirect purchases

for the manufacturer, require that the manufacturer obtain verification

of the purchases by the dealer who made the purchase from the producer,

at a regular auction market, or from the price support loan inventory,

in order to assure that the tobacco was countable tobacco. The Director

may require such additional information as determined needed to enforce

this subpart.

(f) Penalty notice and penalty remittance. Penalties will be

assessed after notice and an opportunity for a hearing before the

Director. Remittances are to be made to the CCC and will be credited to

the applicable producer loan association's no-net-cost fund or account

as provided for in part 1464 of this title.

(g) Maintenance and examination of records. Each domestic

manufacturer shall keep all relevant records of purchases, by kind, of

burley and flue-cured tobacco for a period of at least 3 years. The

Director, Office of Inspector General, or other duly authorized

representative of the United States may examine such records, receipts,

computer files, or other information held by a domestic manufacturer

that may be used to verify or audit such manufacturer's reports. The

reasonable cost of such examination or audit may be charged to the

domestic manufacturer who is the subject of the examination or audit.

All records examined or received under this part by officials of the

Department of Agriculture shall be kept confidential to the extent

required by law.

Secs. 723.1 through 723.504 [Amended]

10. Part 723 sections 723.1 through 723.504 are further amended by

removing ``ASC'' wherever it appears and substituting ``FSA'' in its

place.

Signed at Washington, DC, on March 11, 1997.

Bruce R. Weber,

Administrator, Farm Service Agency

[FR Doc. 97-6732 Filed 3-20-97; 8:45 am]

BILLING CODE 3410-05-M