Amendments to the Regulations for Cotton Warehouses Regarding the Delivery of Stored Cotton

DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 735

RIN 0560-AF13

Amendments to the Regulations for Cotton Warehouses Regarding the

Delivery of Stored Cotton

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: This rule proposes to amend the regulations governing cotton

warehouses under the United States Warehouse Act (USWA) to establish a

cotton shipping standard that would define the statutory phrase

``without unnecessary delay'' which could be used to determine whether

warehouse operators deliver cotton timely. The Department of

Agriculture (USDA) is taking this action as the result of two Federal

District Court orders requesting USDA to define the statutory phrase

``without unnecessary delay'' as set forth in the USWA. Concurrently,

several segments of the cotton industry requested the implementation of

a uniform national cotton shipping standard for the delivery of stored

cotton that would increase the market value of producer cotton through

timely and improved delivery. Before issuing this proposed rule, the

Farm Service Agency (FSA) published an advanced notice of proposed

rulemaking (ANPRM) in the May 26, 1998, Federal Register (63 FR 28488)

seeking comments on two independent options and specific questions

regarding National Cotton Flow Standard issues. Each option contained

identical methods for defining ``without unnecessary delay,'' and

establishment of both a uniform cotton shipping standard and dispute

resolution. Along with minimal USDA involvement Option I offered

nothing more. However, Option II offered standardized terminology,

definitions, dispute mediation, a national cotton flow shipping status

report, user fees, and greater USDA regulatory role. Public comments

favored Option I and expressed a strong conviction that USDA should

only establish a cotton shipping standard, but allowed enforcement by

the cotton industry without USDA involvement, assessment of user fees,

or increased governmental costs. This proposed rule expresses those

public comments and provides another opportunity for the public to

comment before FSA publishes a final rule.

DATES: Comments should be submitted on or before July 27, 1999 to be

assured of consideration.

ADDRESSES: FSA invites interested persons to submit written comments on

this proposed rule to: Steve Gill, Director, Warehouse and Inventory

Division, U.S. Department of Agriculture, Farm Service Agency, STOP

0553, 1400 Independence Avenue, SW, Washington, D.C. 20250-0553;

telephone (202) 720-2121; fax (202) 690-3123; or by E-mail comments to:

Steve M[email protected]. Additionally, interested persons may

send comments 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 proposed rule

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

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

Washington, D.C., 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,

D.C. 20250-0553; telephone (202) 720-2121; or fax (202) 690-3123.

Persons with disabilities who require alternative means for

communication of regulatory information (braille, large print,

audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600

(voice and TDD).

SUPPLEMENTARY INFORMATION:

Executive Order 12866

The Office of Management and Budget has reviewed the proposed rule

and determined the rule to be significant for the purposes of Executive

Order 12866. A Cost-Benefit Assessment (CBA) was prepared. The costs

associated with the implementation of the proposed rule will be minimal

to all parties involved. The CBA summarized the cost and benefit impact

of the proposed rule as follows:

The cost associated with the implementation of the proposed rule

will be minimal to all parties involved.

The cotton industry will benefit from FSA establishing a shipping

standard that the industry can apply through arbitration or legal

proceedings to determine whether warehouse operators are delivering

cotton ``without unnecessary delay.'' Establishment of a national

shipping standard would potentially help (1) maintain the

competitiveness of U.S. cotton in domestic and world markets, (2)

improve the prices that producers receive in those areas affected by

delivery delays, and (3) eliminate any disruption in commerce due to

uncertainty of delivery expectations.

Copies of the CBA are available upon request at the address listed

above.

Executive Order 12988

This proposed rule has been reviewed in accordance with Executive

Order 12988. The provisions of this proposed rule do not preempt State

laws, are not retroactive, and do not involve administrative appeals.

Environmental Evaluation

It has been determined by an environmental evaluation that this

action will not have a significant impact on the quality of the human

environment. Therefore, neither an Environmental Assessment nor an

Environmental Impact Statement is needed.

Executive Order 12612, Federalism

This proposed rule would not involve any policies that have

federalism implications under Executive Order 12612.

Executive Order 12372

FSA programs are not subject to the provisions of Executive Order

12372, which require 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).

[[Page 28939]]

Paperwork Reduction Act

The amendments set forth in this proposed rule do not affect

information collection or recordkeeping requirements.

Regulatory Flexibility Act

It has been determined that the Regulatory Flexibility Act is not

applicable to this proposed rule because this rule will not have a

significant effect on a substantial number of small businesses.

Licensing under the USWA is strictly voluntary on the warehouseman's

part.

Unfunded Mandate Reform Act of 1995 (UMRA)

This proposed rule contains no Federal mandates under the

regulatory provisions of Title II of the UMRA for State, local, and

tribal governments or the private sector. Thus, this rule is not

subject to the requirements of sections 202 and 205 of the UMRA.

Background

Since the early 1960's, the timely delivery and shipping of stored

cotton (cotton flow) has been an ongoing issue throughout the cotton

industry. While cotton shippers and cotton merchants require timely

delivery and shipping to meet the demands of the marketplace, cotton

warehousemen contend that the delivery and shipping demands placed on

them by shippers and merchants are unreasonable and exceeded warehouse

capabilities. When delivery and shipping delays began to occur during

the 1995/96 crop year, rather than exercising the arbitration rights

incorporated in the voluntary standard that was implemented by the

Coalition for Cotton Flow Standards (CCFS), an organization created by

the National Cotton Council, 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 and shipped cotton ``without unnecessary delay'' as

required by the USWA. USWA personnel investigated and found the lack of

uniform common terms and a standard process for requesting services may

have contributed to confusion and the appearance of longer delivery and

shipping delays.

In addition to filing complaints with FSA, several shippers also

filed lawsuits in United States District Courts against two cotton

warehousemen. In each of these cases, the 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 jointly agreeing to

request that the cases be remanded for 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.

Concurrently, several segments of the cotton industry requested

USDA to implement a uniform national cotton shipping standard, based on

weekly deliveries of 4.5% of each warehouse's Commodity Credit

Corporation's (CCC) Cotton Storage Agreement (CSA) approved capacity.

The industry presented 4.5% as the level that would expedite the

delivery and shipment of U.S. cotton into marketing trade channels and

enhance prices paid producers while reducing the cost of handling

cotton. Because the CSA's applicability was for CCC-interest cotton

only and about 80% of all cotton being receipted under the USWA's

electronic warehouse receipt authority. USDA perceived that a delivery

and shipping standard should be based on the USWA rather than the CSA.

As a result of these events, on May 26, 1998, USDA published an

ANPRM (63 FR 28488) that sought public comments on two independent

options and specific questions regarding National Cotton Flow Standard

issues. Each contained identical methods for defining ``without

unnecessary delay,'' and establishment of both a uniform cotton

shipping standard and dispute resolution. Along with minimal USDA

involvement Option I offered nothing more. However, Option II offered

standardized definitions, terminologies, dispute mediation, a national

cotton flow shipping status report, operated with user fees, and a

greater USDA regulatory role. Public comments favored Option I and

strongly expressed a conviction that USDA should only establish a

cotton shipping standard, but allow enforcement by the cotton industry

without USDA involvement, assessment of user fees, or increased

governmental costs.

Summary of Public Comments

FSA received 47 public comments in response to the ANPRM that was

published on May 26, 1998 (63 FR 28488). Comments and suggestions were

received from 6 sectors of the trade-industry as follows: 6 Cotton

Trade Associations; 23 Cotton Warehouse Operators; 15 Cotton Brokers/

Merchants; 1 Attorney; 1 Retired USDA Employee; and 1 Cottonseed Oil

Processor. Of the comments received, 1 respondent approved of the

ANPRM's Option I as written; 35 respondents approved of the ANPRM's

stated cotton flow standard, but believed that any dispute resolution

should be administered by cotton industry arbitration procedures; 4

respondents favored the ANPRM's stated cotton flow standard without

arbitration procedures; 2 respondents believed that compliance should

be enforced through the Commodity Credit Corporation's Cotton Storage

Agreement with modified cotton industry arbitration provisions; 1

respondent favored the ANPRM's 4.5% shipping requirement, but opposed

the 14-day shipping period included in Option II; 1 respondent favored

the ANPRM's 4.5% shipping requirement, but wanted it to be based on the

previous week's ending inventory rather than a licensed or approved

capacity; 1 respondent opposed the entire ANPRM, but favored cotton

industry self-regulation; and 2 respondents favored no established

cotton shipping standard.

Public comments received in response to the ANPRM expressed the

strong conviction that USDA should define ``without unnecessary delay''

through the establishment of a national cotton shipping standard based

on weekly deliveries of 4.5% of a warehouse's approved capacity, but

allowed enforcement by the cotton industry without governmental

involvement, assessment of user fees, or increased governmental costs.

Since public comments strongly expressed that USDA limit its role and

involvement to defining ``without unnecessary delay'' through

establishing a national cotton shipping standard, reserving enforcement

by the cotton industry without governmental involvement, assessment of

user fees, or governmental costs. FSA is limiting USDA's role and

involvement in publishing this proposed rule that sets forth a national

cotton shipping standard that defines ``without unnecessary delay,''

and reserves any compliance or dispute resolution for the cotton

industry without USDA enforcement or involvement.

The provisions in this proposed rule would be applicable to cotton

warehousemen licensed under the USWA and warehousemen who utilize

electronic warehouse receipts stored in a central filing system

approved under the USWA.

List of Subjects in 7 CFR Part 735

Administrative practice and procedure, Cotton, Delivery, Reporting

and recordkeeping requirements, Shipping, Surety bonds, Warehouses.

For the reasons stated in the preamble, the Farm Service Agency

[[Page 28940]]

proposes to amend 7 CFR part 735 as follows:

PART 735--COTTON WAREHOUSES

1. The authority citation for 7 CFR part 735 continues to read as

follows:

Authority: 7 U.S.C. 241 et seq.

Secs. 735.106 through 735.199 [Added and Reserved]

2. Sections 735.106 through 735.199 are added and reserved.

3. Section 735.2 is amended by adding paragraph ((jj) to read as

follows:

Sec. 735.2 Terms defined.

* * * * *

(jj) 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

that renders performance impossible.

4. Add an undesignated center heading entitled, ``Delivery and

Shipping'' after reserved Sec. 735.199.

5. Sections 735.200 through 735.202 are added under the

undesignated heading ``Delivery and Shipping'' to read as follows:

Sec. 735.200 Applicability.

The cotton shipping standard set forth in Sec. 735.201 is

applicable to all cotton warehousemen licensed under the Act and to all

warehousemen that issue electronic warehouse receipts through an

authorized electronic warehouse receipt provider in accordance with

Secs. 735.100 through 735.105 regardless of whether the warehouse is

licensed under the Act.

Sec. 735.201 Cotton Shipping Standard.

Unless prevented from doing so by force majeure, a warehouseman

identified in Sec. 735.200 shall deliver stored cotton without

unnecessary delay. A warehouseman shall be considered to have delivered

cotton without unnecessary delay if for the week in question, the

warehouseman has delivered or staged for scheduled delivery at least

4.5% of either their licensed capacity or Commodity Credit Corporation

approved storage capacity or other storage capacity as determined by

the Secretary to be in effect during the week of shipment.

Sec. 735.202 Compliance and Dispute Resolution.

(a) Any claims for noncompliance with the cotton shipping standard

will be resolved by the parties involved through established industry,

professional, or mutually agreed upon arbitration procedures. The

arbitration procedures shall be nondiscriminatory and provide all

persons equal access and protection relating to the cotton shipping

standard.

(b) No arbitration determination or award resulting from

noncompliance with the shipping standard shall affect, obligate, or

restrict the Farm Service Agency's authority to provide, administer,

and regulate the issuance of licenses and receipts, contractual

agreements, or authorized electronic warehouse receipt provider systems

in accordance with the Act.

(c) The Farm Service Agency shall not settle unresolved disputes

involving the cotton shipping standard or associated damages.

(d) In the event any party requests assistance from or initiates

the involvement of the Farm Service Agency in matters relating to the

cotton shipping standard, the initiating party shall be responsible for

all costs incurred by the Farm Service Agency. Before any such

assistance is provided, the initiating party shall make payment to the

Farm Service Agency in an amount equal to the Agency's good faith

estimate of costs and expenses that will be incurred in fulfilling the

request. Costs incurred that exceed the Agency's good faith estimate

will be the responsibility of the initiating party.

Signed at Washington, D.C., on May 24, 1999.

Parks Shackelford,

Acting Administrator, Farm Service Agency.

[FR Doc. 99-13635 Filed 5-27-99; 8:45 am]

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