Amendment to Cotton Warehouse Regulations for the Purpose of Defining ``Unnecessary Delay''

DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 735

RIN 0560-AF13

Amendment to Cotton Warehouse Regulations for the Purpose of

Defining ``Unnecessary Delay''

AGENCY: Farm Service Agency.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Farm Service Agency (FSA) of the United States Department

of Agriculture (USDA) gives notice that, as a result of two Federal

District Court Orders and the cotton industry's continued

encouragement, it is presently contemplating the issuance of a proposed

rule that would address the statutory phrase ``without unnecessary

delay'' contained in sections 17 and 21 of the United States Warehouse

Act (USWA) (7 U.S.C. 259 and 262). In developing the proposed rule, FSA

would consider all distinct options that would satisfy and complement

the cotton industry's diverse segments in forging a national weekly

minimum cotton flow standard. FSA requests comments and suggestions

from the public on the issues and alternatives that would be addressed

in developing such a proposal, including, but not limited to those

issues specifically mentioned in this notice. Upon receipt and review

of all comments timely received in response to this advance notice of

proposed rulemaking, FSA will develop a proposed rule regarding the

implementation and administration of a national cotton flow standard,

which provides yet another opportunity for the public to comment before

the USDA would implement a final cotton flow standard.

DATES: Comments should be submitted on or before July 27, 1998 to be

assured of consideration.

ADDRESSES: Interested persons are invited to submit written comments on

this advance notice of proposed rulemaking to: Steve Gill, Director,

Warehouse and Inventory Division, U.S. Department of Agriculture, Farm

Service Agency, Stop 0553, 1400 Independence Avenue, SW, Washington, DC

20250-0553; telephone (202) 720-2121; fax (202) 690-3123; also E-mail

comments may be sent to: [email protected] Additionally,

comments may be sent via the Internet through the National Cotton

Flow's (NCF) homepage at: http://www.fsa.usda.gov/ncf.

All written comments received in response to this advance notice

will be available for public inspection in Room 5968, South Agriculture

Building, U.S. Department of Agriculture, 1400 Independence Avenue, SW,

Washington, DC, between 8:00 a.m. and 4:30 p.m., Monday through Friday,

except holidays.

FOR FURTHER INFORMATION CONTACT: Steve Mikkelsen, Deputy Director,

Warehouse and Inventory Division, U.S. Department of Agriculture, Farm

Service Agency, Stop 0553, 1400 Independence Avenue, SW, Washington, DC

20250-0553; telephone (202) 720-2121, fax (202) 690-3123.

Background

Since the early 1960's, the timely delivery of stored cotton has

been an issue throughout the cotton industry. While cotton shippers and

cotton merchants required timely delivery to meet the demands of the

marketplace, warehousemen contended that the delivery demands placed on

them by shippers and merchants were unreasonable and exceeded warehouse

capabilities. Over the last 30 years, the cotton industry has made two

valid attempts to address the cotton flow issue, and in 1969, USDA

issued a proposed rule concerning cotton flow for warehouses licensed

under the USWA. Comments received in response to that proposed rule

discouraged USDA from implementing a cotton flow standard through its

regulatory process and, as a result, a final rule was never issued.

Continued discussions throughout the various segments of the cotton

industry also have failed to bring about an endorsement of a single

standard that was acceptable throughout the cotton industry.

During the 1995/96 cotton season, the Coalition for Cotton Flow

Standards (CCFS), an organization created by the National Cotton

Council (NCC) with the approval of all segments of the cotton industry,

instituted a one-year voluntary cotton flow standard. Initially, this

standard appeared acceptable to all segments of the cotton industry.

The voluntary standard (1) contained weekly minimum flow requirements

for warehousemen; (2) levied penalties for nonperformance by either the

warehouseman or shipper; and (3) incorporated an arbitration system to

settle disputes that arose over cotton flow issues. Approximately 90

percent of all cotton shippers and 52 percent of all cotton

warehousemen agreed to comply with this voluntary, one-year standard.

However, many warehousemen agreed to abide by the standard only if at

least 90 percent of all cotton shippers and warehousemen also agreed to

comply.

When shipment delays began to occur during the 1995/96 crop year,

rather than exercising the arbitration rights incorporated in the

voluntary standard implemented by the CCFS, several cotton shippers

filed complaints with FSA. These shippers requested FSA to investigate

the cotton flow situation, and suspend the federal license of those

warehouses that had not delivered cotton without unnecessary delay

pursuant to the USWA.

FSA personnel contacted and made several on-site visits to

warehouses about which FSA had received complaints. FSA reached no

ultimate conclusion, but the findings suggested that the unacceptable

delays experienced by the cotton shippers and merchants may have been

due, in part, to the lack of a standard method for requesting services

and a lack of uniform definitions for common terms used to request

these services throughout the cotton industry. For example, it appears

that shippers and warehousemen begin recording time from different

starting points, and there may be several days difference between a

shipper's ``request date'' and warehouseman's ``confirm date.'' The

lack of a standard method for requesting services and of uniform common

terms may have led to an appearance of a longer delivery delay than

actually existed.

In addition to filing complaints with FSA, several shippers also

filed lawsuits in United States District Court against

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two cotton warehousemen, alleging that these warehousemen were delaying

cotton deliveries to increase storage earnings. In each of these cases,

lack of determination by USDA in the use and meaning of the USWA

statutory phrase ``without unnecessary delay'' was a key issue for the

courts. Ultimately, the shippers elected to dismiss their suits after

the warehousemen agreed to join them in requesting that the cases be

remanded to USDA to determine the definition of the statutory phrase

``without unnecessary delay.'' The Courts agreed and remanded the

matter of defining ``without unnecessary delay'' to USDA.

In June 1997, the Cotton Warehouse Association of America (CWAA)

and the American Cotton Service Warehouse Association (ACSWA) reached

an unprecedented mutual agreement for a cotton flow standard that would

expedite the shipment of U.S. cotton into marketing trade channels and

enhance the prices received by producers while reducing the cost of

handling cotton. These two associations, along with the American Cotton

Shippers Association (ACSA) and textile mill segments, petitioned USDA

requesting that FSA facilitate the needs of the entire cotton industry

through an expeditious establishment and implementation of a uniform

cotton flow standard. These associations recommended to USDA that a

weekly minimum flow standard should be as follows:

Except when prevented from doing so by Act of God or force majeure,

a mandatory, non-cumulative, weekly minimum standard for bales to be

shipped or made ready for scheduled delivery that week would be not

less than 4.5% of CCC licensed capacity of a warehouse in effect

during the week of shipment.

As a result of these events, USDA has decided to define, through

the rulemaking process, the statutory phrase ``without unnecessary

delay'' and establish a weekly minimum cotton flow standard that would

be national in scope.

Using the USWA as the Tool for Implementing the Cotton Flow Standard

Section 21 of the USWA (7 U.S.C. 262) mandates that federally

licensed warehousemen, ``in the absence of some lawful excuse, shall,

without unnecessary delay, deliver the agricultural products stored

therein upon a demand made by either the holder * * * or depositor. * *

*'' In addition, section 17 of the USWA (7 U.S.C. 259) mandates that

all non-federally licensed warehousemen who issue electronic warehouse

receipts, ``in the absence of a lawful excuse, shall, without

unnecessary delay, deliver the cotton stored in the warehouse on demand

made by the person named in the record in the central filing system as

holder of the receipt.''

USDA believes that the standard should be based on the USWA rather

than the Cotton Storage Agreement (CSA). For the 1997 crop, more than

15.5 million bales of cotton were receipted with electronic warehouse

receipts under the USWA through its federally licensed warehouse system

and its approved electronic receipt providers that service non-

federally licensed warehousemen, shippers, merchants, receipt holders,

and other segments of the cotton industry. This represented more than

80 percent of the total 1997 cotton production. In contrast, less than

20 percent of the 1997 cotton production was associated with CCC's

Cotton Storage Agreement (CSA) during this period. In addition, a

standard based on the CSA would apply only to CCC-owned or loan bales

and not to another storage bale, warehouse, or industry segment. Given

CSA's applicability to CCC-interest cotton only, USDA perceives that

the USWA's influence would embody the bulk of cotton handled and

merchandised.

General Provision and Options

FSA is seeking comments from the public regarding a weekly minimum

cotton flow standard that would address the statutory phrase ``without

unnecessary delay.'' While the public is free to comment on all aspects

of this notice, two options for administering the cotton flow standard

are being presented in this notice. The two options differ in the level

of USDA involvement in ensuring compliance with the standard and in

regulating the cotton industry regarding the standard.

FSA is considering the following cotton flow standard that would

apply to the statutory phrase ``without unnecessary delay.'' For the

purpose of this advance notice of proposed rulemaking, this standard

would be applicable to both options:

Cotton Flow Standard

Except when prevented from doing so by force majeure, a mandatory,

non-cumulative, weekly minimum shipping standard for bales delivered

or staged for a scheduled delivery during that week shall be not

less than 4.5% of the licensed or approved storage capacity of a

warehouse in effect during the week of shipment, or as determined by

the Secretary.

Option I. Under Option I, USDA would establish a cotton flow

standard to address the statutory phrase ``without unnecessary delay'',

but would have minimal involvement in administering and ensuring

compliance with the established standard. Option I would include

provisions for private non-governmental dispute resolution and would

define USDA's limited regulatory role in administering the cotton flow

standard.

(a) Cotton Flow Standard. As stated above.

(b) Dispute Resolution. Unresolved claims for noncompliance with

the national cotton flow standard would be resolved through arbitration

administered by the cotton industry.

(1) Arbitration.

(i) Disputes between warehousemen, merchants, receipt holders, and

shippers, who are members of the same trade association with an

established arbitration system, would resolve their disputes through

that association.

(ii) Parties that are members of different trade associations each

with established arbitration systems would mutually negotiate about

which association's arbitration system would be utilized. No split

arbitrations would be allowed, only one association's arbitration

system could be used.

(iii) When the parties cannot mutually agree upon, which

association's arbitration system to utilize in resolving the dispute,

they would enter into a contract a with private arbitrator adhering to

the American Arbitration Association's (AAA) Standards and Procedures.

(iv) Private arbitrators following AAA's Standards and Procedures

would resolve those disputes between parties belonging to trade

associations without an established arbitration system, or who are not

members of any trade association, and/or with a party who is a member

of a trade association with an established arbitration system when the

other party does not agree to use that association's arbitration

system.

(v) The noncomplying party would be responsible for all costs and

expenses associated with the arbitration.

(c) USDA's Regulatory Role.

(1) USDA would not hear complaints or settle unresolved disputes

between a shipper and a warehouseman involving a national cotton flow

standard violation or associated damages.

(2) No arbitrator's rendered determination or award would affect,

obligate, or restrict USDA's authority to administer and regulate the

issuance of USWA licenses, USWA receipts, contractual agreements, or

the electronic warehouse receipt provider system.

Option II. Under Option II, USDA would establish a cotton flow

standard to address the statutory phrase ``without

[[Page 28490]]

unnecessary delay'' and would be involved in the daily administration

of the cotton flow standard. Option II includes regulatory definitions

and procedures for the timely delivery and acceptance of cotton that

are applicable to cotton flow standard compliance determination,

dispute resolution, and reporting requirements.

(a) Definitions and Terms. The definitions and terms stated in this

section are applicable for the purposes of administering the regulation

under Option II. The following definitions are proposed. The public is

free to comment on these definitions, including their inclusion or

exclusion in the regulation:

(1) Confirmed Shipment Date. A warehouseman's scheduled delivery

date for a specific bale, confirmed in writing or by any other rapid

written communication method physically notifying the receipt holder.

(2) Delivery. A warehouseman's physical act placing a scheduled

bale in some type of conveyance or otherwise making the bale available

according to the receipt holder's instructions.

(3) Force majeure. Severe weather conditions, fire, explosion,

flood, earthquake, insurrection, riot, strike, labor dispute, act of

civil or military authority, non-availability of transportation

facilities, or any other cause beyond the control of the warehouseman

or receipt holder, which renders performance impossible.

(4) Scheduled Bales. Specific bales that a warehouseman schedules

with written confirmation for delivery on a specified date.

(5) Shipping Order. A warehouseman's unique document that

identifies and confirms each specific bale scheduled for delivery and

references a receipt holder's original delivery request.

(6) Timely Delivery. An act by which a warehouseman makes available

to the receipt holder a scheduled bale on or before the ``confirmed

shipment date'', or within fourteen (14) calendar days after receiving

the receipt holder's written delivery request.

(7) Timely Acceptance. An act by which a receipt holder takes

possession and removes scheduled bales from a warehouse on or before

the ``confirmed shipment date.''

(8) Unnecessary Delay. A receipt holder's failure to take ``timely

acceptance'' or a warehouseman's failure to make ``timely delivery'' of

a scheduled bale on or before the ``confirmed shipment date'' in

absence of force majeure. Also, a warehouseman's failure to meet or

exceed the weekly minimum cotton flow standard.

(9) Week. Seven (7) consecutive calendar days, beginning 12:00 a.m.

Saturday morning and ending 11:59 p.m. Friday night, or as determined

by the Secretary.

(b) Cotton Flow Standard. As stated above.

(c) Delivery of Cotton from Storage.

(1) The Secretary expects cotton warehousemen who issue electronic

warehouse receipts and/or who are USWA licensed to schedule delivery as

close as possible to a receipt holder's requested delivery date for

cotton stored in their warehouse.

(2) Warehouseman must schedule delivery of all bales at the request

of the receipt holder.

(3) A scheduled bale not delivered during any week would be the

first bale delivered the following week. When delivered, this bale

would count towards the weekly minimum cotton flow standard during the

week delivered.

(4) Each individual bale within a non-segregated lot, that a

warehouseman receives, stores, and redelivers under a multiple bale

warehouse receipt, such bales would count toward the weekly minimum

cotton flow standard upon delivery.

(5) When a warehouseman receives, stores, and redelivers bales as

an unbroken non-segregated lot, without receipting them under a

multiple bale or as a single warehouse receipt(s), such bales would not

count toward the weekly minimum cotton flow standard upon delivery.

(6) In the absence of force majeure, warehousemen that fail to

``timely deliver'' scheduled bales and receipt holders that fail to

``timely accept'' scheduled cotton will be deemed as not complying with

the weekly minimum cotton flow standard.

(d) Dispute Resolution. Unresolved claims for noncompliance with

the national cotton flow standard would be first resolved by mediation

and finally by arbitration.

(1) Mediation. Disputes in which one or more of the affected

parties belong to a trade association(s) without an established

arbitration system, or who are not members of any trade association, or

who are members of separate associations and cannot agree on which

association's arbitration system to utilize, would be resolved through

the following alternative dispute resolution process:

(i) The parties would, in good faith, attempt to resolve the

dispute through a mediation process administered by an independent

mediator recommended by AAA and conducted in accordance with current

AAA Mediation Rules and Procedures before resorting to binding

arbitration.

(ii) The parties would faithfully observe all applicable AAA rules,

procedures, and abide by and execute any agreement or determination

recommended by the mediator.

(iii) When good faith mediation fails to resolve the dispute, both

parties would submit their dispute to binding arbitration administered

by an independent arbitrator recommended by AAA.

(2) Arbitration.

(i) Disputes between warehousemen, merchants, receipt holders, and

shippers, who are members of the same trade association with an

established arbitration system, would resolve their disputes through

that association.

(ii) The parties would mutually negotiate about which association's

arbitration system would be utilized, when the parties are members of

different trade associations with established arbitration systems. No

split arbitrations would be allowed, only one association's can be

used.

(iii) When parties cannot mutually agree, which association's

arbitration system to utilize in resolving the dispute, they would

enter into a contract with private arbitrators adhering to AAA's

standards and procedures.

(iv) Private arbitrators who follow AAA's standards and procedures

would resolve those disputes between parties who belong to trade

associations without an established arbitration system, or who are not

members of any trade association, and/or with a party who is a member

of a trade association with an established arbitration system when the

other party does not agree to use that association's arbitration

system.

(v) In the event a party refuses to submit to arbitration or fails

to abide by any determination or award rendered by the arbitrators, the

party desiring arbitration or enforcement of the determination or award

may notify USDA of the party's unwillingness to resolve a cotton flow

standard dispute or comply with an arbitrator's rendered determination

or award.

(vi) The noncomplying party would be responsible for all costs and

expenses associated with the arbitration and any costs incurred by

USDA.

(vii) Any controversy or claim arising from or related to the

arbitrator's rendered determination or award may be enforced by any

federal or state court having jurisdiction thereof.

(e) USDA's Regulatory Role.

(1) USDA would not hear complaints or settle unresolved disputes

between a shipper and a warehouseman involving

[[Page 28491]]

a national cotton flow standard violation or associated damages.

(2) No arbitrator's rendered determination or award would affect,

obligate, or restrict USDA's authority to administer and regulate the

issuance of USWA licenses, USWA receipts, contractual agreements, or

the electronic warehouse receipt provider system.

(3) Under the authority of the USWA and its regulations, USDA may

independently administer all regulatory actions, arbitration proceeding

determinations, and rendered awards when such action is necessary for

the effective administration of the national cotton flow standard.

(4) USDA will require USWA licensed warehousemen and non-federally

licensed warehousemen, receipt holders, and shippers who utilize the

electronic warehouse receipt system to:

(i) Meet the weekly minimum cotton flow standard.

(ii) ``Timely deliver'' and ``timely accept'' scheduled bales.

(5) USDA would reserve the right to take action against the

noncomplying party, including:

(i) Suspension or termination of licenses issued in accordance with

the USWA.

(ii) Suspension or termination of access to the electronic receipt

provider system.

(f) Program Operations and Maintenance. Congress requires USDA to

collect sufficient fees for the operation and maintenance of all USWA

related operations. USDA is considering funding the cost of

administering a national cotton flow standard through an assessment on

each bale of cotton.

(1) Warehousemen would collect an assessment on each individually

receipted bale and each individual bale represented by a multiple bale

receipt that is delivered or redelivered for shipment.

(2) The assessment would be collected along with other

warehouseman's tariff charges in the final settlement of each shipping

order.

(3) The warehouseman would forward the collected assessments to

USDA quarterly.

(g) Reports and Reporting. Each week, warehousemen would

electronically transmit a report to USDA that would be comprised of

warehouse information that the cotton industry considers essential for

improving global marketing opportunities, enhancing cotton values, and

encouraging timely delivery and acceptance of stored cotton. USDA would

collectively merge this information into a ``National Cotton Flow

Standard Status Report'' that USDA would publish electronically on the

Internet.

Comments

The information collected in response to this advance notice of

proposed rulemaking will be used to determine the cotton industry's

overall needs regarding a ``National Cotton Flow Standard''. Appendix I

provides interested parties an opportunity to respond to specific

questions on the issue of a national cotton flow standard. Respondents

may simply cut out or duplicate the stated issues/questions furnished

in Appendix I of this notice. Respondents may submit their comments to

the address shown above. Respondents may also access these same issues/

questions and submit comments via the Internet through the NCF homepage

address at: http://www.fsa.usda.gov/ncf.

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Alternative suggestions, ideas and comments will be considered

fully. When providing comments regarding this advance notice of

proposed rulemaking, the respondent should provide the FSA with a

complete description of the details of the alternative method or issue,

along with supporting data.

Signed at Washington, D.C., on May 19, 1998.

Keith Kelly,

Administrator, Farm Service Agency.

[FR Doc. 98-13819 Filed 5-22-98; 8:45 am]

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