Amendment to the Tobacco Marketing Quota Regulations

DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 723

RIN 0560-AE96

Amendment to the Tobacco Marketing Quota Regulations

AGENCY: Farm Service Agency, USDA.

ACTION: Final rule.

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SUMMARY: This rule adopts as final, with minor technical changes, the

proposed rule published in the Federal Register on March 21, 1997 (62

FR 13546). The rule amends the tobacco marketing quota 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 producer violations;

eliminate a provision that requires yearly publication in the Federal

Register of routine 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 routine statutory

provisions concerning, and penalties related to, setting burley and

flue-cured tobacco national marketing quotas; and add several technical

changes, including changes to reflect a recent reorganization of the

Department of Agriculture.

EFFECTIVE DATE: March 10, 1998.

FOR FURTHER INFORMATION CONTACT: Joe Lewis, Jr., Agricultural Program

Specialist, Tobacco and Peanuts Division, Farm Service Agency, United

States Department of Agriculture (USDA), 1400 Independence Avenue, SW,

STOP 0514, Washington, DC 20250-0514, telephone 202-720-0795.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This 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 final 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--10.0514.

Environmental Evaluation

It has been determined by an environment 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 final rule has been reviewed in accordance with Executive

Order 12988. The provisions of this final rule are not retroactive and

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

the provisions of this 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 final 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.

Discussion of Comments

Thirty comments were received from the public in response to the

proposed rule which was published in the Federal Register at 62 FR

13546 (March 21, 1997). Twenty-eight were from tobacco producers, one

from a State farm organization and one from a college student. Only one

comment was unfavorable and it expressed concern about the health

issues of tobacco which are beyond the scope of this proceeding.

Accordingly, the rule has been amended with technical changes for

clarity and those corrections include new cross references in 723.309

and in 723.410 to 723.409 as amended in the rule. The latter specifies

that where more than one party is responsible for the mis-marketing of

tobacco, all parties are ultimately jointly liable for the remittance

of the penalty amount to the government if the party who is normally

assigned the duty of making the payment fails to make the payment.

Also, to avoid any controversy and make clear that the rule is all-

encompassing, certain references have been changed to specify that any

party, regardless of how they would normally classify themselves, that

aids in the mis-marketing of suspicious tobacco can be liable for

remitting the penalty amount to FSA. This is not an expansion of the

rule as any such aid would permit such a person to be considered a

``dealer'' in tobacco within the meaning of the rule.

List of Subjects in 7 CFR Part 723

Acreage allotments, Dealers, Domestic cigarette manufactures,

Marketing quotas, Penalties, Tobacco.

For the reasons set forth in the preamble, 7 CFR part 723 is

amended as follows:

PART 723--TOBACCO

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

follows:

[[Page 11582]]

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 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

allocation 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 is amended by revising paragraphs (a)

introductory text, (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.

(1) * * *

(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 of the

transferring farm 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.

(B) * * *

(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 of the

transferring farm 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.

* * * * *

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.

Sec. 723.309 [Amended]

7. The introductory text in Sec. 723.309 is amended by adding the

words ``Subject to any additional requirements or provisions for

remittances which are contained in Sec. 723.409 of this part'', before

the words ``The persons to pay.''

8. Section 723.409 is amended by revising the heading, paragraphs

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

paragraph (g), to read as follows:

Sec. 723.409 Producer violations, penalties, false identification

collections and remittances by dealers, buyers, handlers, warehouses,

and other parties; 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 a 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 provisions

of this part or part 1464 of this title;

(iv) Falsely identified; or,

(v) Marketings for which the producer or other party 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 penalty quantity for purposes of this

section is the quantity of tobacco that is determined by the county FSA

committee subject to the Director's review 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 tobacco 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 may endeavor, to the

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

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

[[Page 11583]]

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 be

assessed at less than the maximum amount 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 of this title, 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 such person or

another fails to make the report required by Sec. 723.408(f) or

otherwise required by this part, or makes a false report, such producer

shall be deemed to have failed to account for the disposition of

tobacco produced on the farm(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, handlers,

warehouse operators and others who acquire, handle, or facilitate the

marketing of tobacco. Notwithstanding the provisions of paragraph (a)

of this section and other provisions of this part:

(1) Unless such amount has been remitted by another in accord with

the provisions of this part, a dealer, buyer, warehouse operator or

other person handling tobacco shall collect, and remit to FSA, an

amount equal to the full penalty rate provided for in Sec. 723.208

times the quantity of tobacco involved where the tobacco is not

identified with a valid producer or dealer card, the tobacco is sold

under suspicious circumstances, or when there is reason to suspect that

the tobacco may be subject to a penalty for any reason or may be

marketed in derogation of the goals and purposes of the tobacco support

program. For purposes of the preceding sentence ``handling'' shall

include any services provided with respect to the tobacco, and any

facilitation of the marketing of tobacco regardless of the level or

amount of contact, if any, that the party may actually have with the

tobacco.

(2) The amount of the penalty required to be collected may be

deducted from the proceeds due a seller and all parties chargeable

under paragraph (b)(1) of this section shall be jointly and severally

liable for insuring that the monies are remitted to FSA except to the

extent that the Director shall allow for an exemption to facilitate the

marketing of tobacco, or for some other reason.

(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.

(c) * * *

(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:

(i) * * *

(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. In Sec. 723.410 the introductory text is revised to read as

follows:

Sec. 723.410 Penalties considered to be due from warehouse operators,

dealers, buyers, and others excluding the producer.

Subject to any additional requirements or provisions for

remittances which are contained in Sec. 723.409 of this part, any

marketing of tobacco under one of the following conditions shall be

considered to be a marketing of excess tobacco.

* * * * *

10. 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 anufacturer'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.

[[Page 11584]]

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 paragraphs (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 by the date 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 assumed to cover countable

purchases of eligible tobacco only, absent indications to the contrary.

(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 respective dates for burley tobacco shall be January 15 before

the burley tobacco marketing year and November 20 after the burley

tobacco marketing year.

[[Page 11585]]

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

Peanuts Division, STOP 0514, 1400 Independence Avenue, SW, Washington,

DC 20250-0514.

(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 is, to the manufacturer, a

countable purchase. 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 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. 723.101 through 723.504 [Amended]

11. Sections 723.101 through 723.504 are amended by removing

``ASC'' wherever it appears and adding ``FSA'' in its place.

Signed at Washington, DC, on March 3, 1998.

Keith Kelly,

Administrator, Farm Service Agency.

[FR Doc. 98-6060 Filed 3-9-98; 8:45 am]

BILLING CODE 3410-05-P