Regulations Under the Perishable Agricultural Commodities Act (PACA); Renewal of License

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 46

[Docket Number FV98-359]

Regulations Under the Perishable Agricultural Commodities Act

(PACA); Renewal of License

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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

Regulations to provide for a three-year license renewal period for

retailers and grocery wholesalers, and provide all other licensees the

option of renewing their licenses on an annual, biennial, or triennial

basis. The PACA Amendments of 1995 (1995 Amendments) provided for the

gradual elimination of license fees for retailers and grocery

wholesalers over a three-year period ending November 14, 1998. The 1995

Amendments also gave the Secretary of Agriculture the authority to

determine the interval for renewing licenses and asked the Secretary to

take due account of savings to the program when determining the

appropriate intervals for license renewals.

EFFECTIVE DATE: December 1, 1998.

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

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

USDA, Washington, D.C. 20250, Phone (202) 720-4180,

Email__charles[email protected].

SUPPLEMENTARY INFORMATION: This proposal is issued under authority of

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

Background

The Perishable Agricultural Commodities Act (PACA) establishes a

code of fair trading practices covering the marketing of fresh and

frozen fruits and vegetables in interstate and foreign commerce. The

PACA protects growers, shippers, distributors, and retailers dealing in

those commodities by prohibiting unfair and fraudulent practices. In

this way, the law fosters an efficient nationwide distribution system

for fresh and frozen fruits and vegetables, benefiting the whole

marketing chain from farmer to consumer. USDA's Agricultural Marketing

Service (AMS) administers and enforces the PACA.

In accordance with the 1995 Amendments to the PACA, retailers and

grocery wholesalers will no longer pay a license fee under the PACA

after November 14, 1998, but will still be required to maintain a valid

license. The 1995 Amendments also authorized the Secretary of

Agriculture to determine the interval for renewing licenses for all

licensees, taking into account the likely savings to the program. The

House of Representatives Committee on Agriculture, in it's report

accompanying the 1995 Amendments, asked USDA to examine promptly the

necessity for a yearly renewal requirement for retailers and grocery

wholesalers in an effort to move toward multi-year licenses.

A proposed rule to amend the regulations was published in the

Federal Register on July 31, 1998 (63 FR 40842). The proposal provided

for the shifting of retailers and grocery wholesalers to a mandatory

three-year license renewal period and provided the option of multi-year

licensing to all other licensees. Comments on the proposed rule were to

be submitted by September 14, 1998. AMS received six comments.

This final rule gradually shifts retailers and grocery wholesalers

to a triennial license renewal interval. Each of the remaining 10,000

licensees (commission merchants, brokers, wholesalers, processors,

truckers, food service), all of which will continue to pay license

fees, have the option of renewing their licenses every one, two, or

three years. The option is available to both new license applicants and

to existing licensees when they renew their license.

Beginning on the effective date of this rule, all new PACA licenses

issued to retailers and grocery wholesalers will be valid for three

years. AMS has determined that this rule will become effective on

December 1, 1998, in order to give AMS and all licensees sufficient

time to prepare for the new renewal procedure. Retailers and grocery

wholesalers that are currently licensed will be shifted to a three year

license over the next three years. AMS will mail each exisiting

retailer or grocery wholesaler licensee a license renewal application

at least 30 days prior to its PACA license anniversary date and notify

each one of its new anniversary date.

Staggering the new triennial renewal period for retailers and

grocery wholesalers over a three-year period will guard against an

inundation of renewal applications three years from now which would

increase program administrative costs. The phase-in will be implemented

as follows: During the first year of the phase-in period, retailers and

grocery wholesalers holding current licenses ending in the digits

``0,'' ``3,'' ``6,'' or ``9,'' will renew their licenses on a triennial

basis; retailers and grocery wholesalers holding licenses that end in

the digits ``1,'' ``4,'' or ``7,'' will renew their licenses this year

for a 2-year term, and thereafter on a triennial basis; and retailers

and grocery wholesalers holding licenses that end in the digits ``2,''

``5,'' or ``8,'' will renew their licenses after one year, and

thereafter on a triennial basis.

All remaining PACA licensees may choose to renew their licenses

annually, biennially, or triennially. Licensees that choose biennial or

triennial renewal will ``lock in'' the current license fee rate for a

two or three-year period. This rule also provides for a refund of that

portion of the license fee to those firms required to obtain a new

license due to a change in legal status (e.g.: a partnership of two

becomes a partnership of three individuals; a sole proprietor

incorporates; or a firm re-incorporates), and to those firms that cease

business operations or whose license terminates because of bankruptcy.

In those instances, USDA will issue refunds only for the full years

remaining on the license. To cover the administrative costs associated

with processing the early termination of a license, USDA will assess

the entity a $100 processing fee.

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Comments

We received comments from North American Perishable Agricultural

Receivers, Baltimore, Maryland; Western Growers Association, Newport

Beach, California; Food Marketing Institute, Washington, D.C.; Food

Distributors International (FDI), Falls Church, Virginia; National

Grocers Association, Reston, Virginia; and Nardella, Inc.,

Philadelphia, Pennsylvania. All of the commentors strongly support the

Department of Agriculture (USDA) proposal to amend the (PACA)

regulations to provide for a three-year license renewal period for

retailers and grocery wholesalers, and provide all other licensees the

option of renewing their licenses for one, two, or three years.

In its favorable comment, FDI, however, questions the provision in

the proposed rule that USDA would assess an entity a $100 processing

fee for the early termination of a multi-year PACA license if the

licensee was required to obtain a new license because of a change in

legal status, ceased business operations, or whose license terminated

because of bankruptcy. FDI states that USDA sets forth no rationale why

the costs of early termination of a license is more than eight times

USDA's $8 cost of renewing a license. In addition, FDI argues that in

instances involving bankruptcy, USDA is claiming an asset of a

bankrupt, i.e. a portion of the receivable refunded license fee. Such

an asset, FDI states, should be returned to the bankrupt estate to

ensure payment of claims against the estate--some of which may have

arisen under PACA for which trust protection was not preserved.

USDA disagrees with FDI and believes that a $100 processing fee for

early termination of a multi-year license is justified in that the

refund request must be handled outside of the normal cycle of renewals

and terminations. Early termination of a license includes updating

agency records to show the reasons for early termination, preparing

refund documentation for the National Finance Center along with an

audit trail to verify that the refund was made, validating claims,

responding to inquiries and disputes, and providing notice to trade

publications that circumstances warranted the early termination of a

firm's license. Because of the special handling required to refund

multi-year license fees when an early termination occurs, USDA believes

that the $100 processing fee is justified. USDA believes that the $100

fee is minimal in comparison to the net amount of $450 or $1000 that

would be refunded to the licensee holding a biennial or triennial

license. In any event, the multi-year license option is not mandatory

for all licensees. An applicant or licensee that does not want to risk

losing a $100 processing fee because of early termination of its

license does have the option of annual renewal. Finally, USDA does not

believe that the costs incurred by one licensee because of early

license termination should be borne by all licensees. Under the

circumstances, USDA is making no change to the final rule based on this

comment.

Executive Orders 12866 and 12988

This final rule is issued under the Perishable Agricultural

Commodities Act (7 U.S.C. 499 et seq.), as amended, and 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. The final rule is not intended to have

retroactive effect. The 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, a

majority of which may be classified as small entities.

In accordance with the PACA Amendments of 1995, retailers and

grocery wholesalers will no longer pay a fee to be licensed under the

PACA after November 14, 1998. The final rule establishes a 3-year

renewal cycle for all retailers and grocery wholesalers licensed under

the PACA. Given that those PACA licensees will now renew their licenses

every three years rather than annually as is currently required, we

anticipate that they will have lower administrative costs and a

reduction in their record keeping and reporting burden.

In addition, we project that the administrative costs and record

keeping requirements for the remaining fee-paying licensees will, like

the retailers and grocery wholesalers, be reduced if they choose the

biennial or triennial renewal options. We believe that their greatest

savings will result from choosing the triennial renewal option, with a

lesser degree of savings resulting from the biennial renewal option.

Finally, we believe that that all fee-paying licensees would

indirectly benefit from the cost savings realized from these revisions

to the PACA program, which is funded through the fees paid by

licensees. Any cost savings to the program will help delay the need for

an increase in fees to fund the program.

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

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 record

keeping requirements covered by this final rule were approved by OMB on

April 1, 1998, and expire on April 30, 2001.

List of Subjects in 7 CFR Part 46

Agricultural commodities, Brokers, Penalties, Reporting and

recordkeeping 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. 46.9, paragraphs, (j), (k), and (l) are added to read as

follows:

Sec. 46.9 Termination, suspension, revocation, cancellation of

licenses; notices; renewal.

* * * * *

(j) Beginning on December 1, 1998, the renewal period for new

licenses issued to retailers and grocery wholesalers is three years.

(k) Beginning on December 1, 1998, commission merchants, brokers,

and dealers (other than grocery wholesalers

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and retailers) who are new or existing licensees, may choose to renew

their licenses on an annual, biennial, or triennial basis. In the event

that the holder of a multi-year license ceases business operations or

undergoes a change in legal status that results in the issuance of a

new license prior to the next license renewal date, a refund will be

issued of any remaining full-year portion of advance fee paid, minus a

$100 processing fee.

(l) Retailers and grocery wholesalers who are existing licensees as

of December 1, 1998, will be phased into the three-year renewal process

during the succeeding one-year as follows:

(1) Licenses held by retailers and grocery wholesalers ending in

the digits ``0,'' ``3,'' ``6,'' or ``9,'' will be renewed on a

triennial basis.

(2) Licenses held by retailers and grocery wholesalers ending in

the digits ``1,'' ``4,'' or ``7,'' will be renewed for two years and

thereafter on a triennial basis.

(3) Licenses held by retailers and grocery wholesalers ending in

the digits ``2,'' ``5,'' or ``8,'' will renew their licenses after one

year, and thereafter on a triennial basis.

Dated: November 13, 1998.

Larry B. Lace,

Acting Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 98-30906 Filed 11-18-98; 8:45 am]

BILLING CODE 3410-02-P