[Federal Register Volume 59, Number 104 (Wednesday, June 1, 1994)]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13318]
Federal Register / Vol. 59, No. 104 / Wednesday, June 1, 1994 /
[[Page Unknown]]
[Federal Register: June 1, 1994]
VOL. 59, NO. 104
Wednesday, June 1, 1994
DEPARTMENT OF AGRICULTURE
Agricultural Stabilization and Conservation Service
7 CFR Part 723
RIN 0560-AD56
Tobacco Marketing Quotas, Acreage Allotments, and Production
Adjustment
AGENCY: Agricultural Stabilization and Conservation Service, USDA.
ACTION: Final rule.
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SUMMARY: With revisions, this final rule adopts the proposed rule
published in the Federal Register on January 11, 1994 (59 FR 1493). The
proposed rule set out regulations for implementing for tobacco the
domestic content assessment provisions added, as section 320C, to the
Agricultural Adjustment Act of 1938 (1938 Act) by section 1106 of the
Omnibus Budget Reconciliation Act of 1993 (the 1993 Act). Those
provisions generally require a ``domestic manufacturer of cigarettes''
(as defined in the 1938 Act) to pay certain additional assessments and
make certain tobacco purchases if, for any calendar year beginning with
the 1994 calendar year, domestic tobacco constitutes less than 75
percent of the total tobacco used by the manufacturer to produce
cigarettes in the United States. This final rule sets out requirements
for recordkeeping, penalties, appeals, and other matters necessary to
the enforcement and administration of section 320C.
EFFECTIVE DATE: January 1, 1994.
FOR FURTHER INFORMATION CONTACT: Michael D. Thompson, Agricultural
Program Specialist, Tobacco and Peanuts Division, Agricultural
Stabilization and Conservation Service, United States Department of
Agriculture (USDA), P. O. Box 2415, Washington, DC 20013-2415,
telephone 202-720-4281.
SUPPLEMENTARY INFORMATION:
Executive Order 12886
This rule is issued in conformance with Executive Order 12866. This
final rule has been determined to be economically significant.
Therefore, a final regulatory impact analysis has been conducted. A
copy of the Final Regulatory Impact Statement may be obtained from Dr.
Robert Miller, Director, Tobacco and Peanut Analysis Division,
Agricultural Stabilization and Conservation Service, USDA, P. O. Box
2415, Washington, DC 20013-2415, telephone: 202-720-8839.
The domestic marketing assessment (DMA) provisions of the 1993 Act
are expected to increase the usage of domestic tobacco by 222 million
pounds for marketing year (MY) 1994. Even if cigarette production
declines to the extent forecast in the Final Regulatory Impact
Analysis, by the sixth year with DMA provisions, extra domestic tobacco
required to avoid any additional assessments by cigarette manufacturers
will still be 115 million pounds. The increase in the use of domestic
tobacco is expected to draw down current loan stocks of burley and
flue-cured tobacco by 159 million pounds in MY 1994. Consequently, the
Commodity Credit Corporation's loan outlays for tobacco for the 1994 MY
are estimated to be about $320 million less. These actions should, in
subsequent years, reduce the amount of the No-Net-Cost tobacco program
assessments paid by producers and purchasers of domestic burley and
flue-cured tobacco. Additionally, with the DMA in place, about 8,000
farms may remain in operation over the next six years that would
otherwise go out of business.
Since the cost of domestic tobacco is higher than that of imported
tobacco, manufacturers may shift some cigarette production to foreign
based operations. The Final Regulatory Impact Analysis indicates that
at a maximum, approximately 10,300 jobs could be lost if manufacturers
shift cigarette production to foreign based operations and there is a
reduction in U.S. unmanufactured exports. However, the largest domestic
manufacturer of cigarettes has testified before a House of
Representatives Subcommittee that it will not shift any cigarette
production overseas as a result of the DMA.
The impact statement indicated little effect on the consumer prices
for cigarettes because tobacco accounts for only about 3 percent of the
retail cost of cigarettes.
This regulatory action is not expected to have an adverse effect on
the environment, public health or safety, or State, local, or tribal
governments or communities. This regulatory action is not expected to
be inconsistent nor interfere with any action taken or planned by
another Federal agency. Other than as indicated in the summary of the
regulatory impact statement, this action would not alter the budgetary
impact of entitlements, grants, user fees, loan programs or the rights
and obligations of the recipients thereof. This rule would be
consistent with the President's priorities and principles set forth in
Executive Order 12866.
Regulatory Flexibility Act
It has been determined that the Regulatory Flexibility Act is not
applicable to this final rule since the Agricultural Stabilization and
Conservation Service is not required by 5 U.S.C. 553 or any other
provision of law to publish a notice of proposed rulemaking 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 12778
This final rule has been reviewed in accordance with Executive
Order 12778. The provisions of this final rule are retroactive to
January 1, 1994, 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 the provisions of
7 CFR part 723, the administrative appeal provisions set forth at 7 CFR
part 780 must be exhausted.
Paperwork Reduction Act
This final rule imposes new recordkeeping and information
collection requirements on ``domestic manufacturers of cigarettes'' (as
defined in the 1938 Act) and related tobacco industry businesses. The
content of, and justification for, the reporting and recordkeeping
requirements has been submitted to the Office of Management and Budget
(OMB), as an addendum to OMB No. 0560-0058, in accordance with the
requirements of the Paperwork Reduction Act of 1980, as amended. The
Department is seeking Expedited Clearance by OMB within 21 days of the
date of the publication of this rule. These requirements will be
conditional until such clearance is obtained. No person shall be
penalized or otherwise adversely affected for a failure to comply with
any recordkeeping requirements in this rule as concerns records that
would have been required to be generated prior to the publication of
the final rule implementing the program provided for in this rule.
However, all persons shall be required to maintain and submit on
request, all records generated prior to the publication of the final
rule which are relevant to the provisions of this rule and shall be
required, to the full extent possible, for all uses of tobacco relevant
to this rule. Those comments which were received in response to the
proposed rule which addressed recordkeeping and reporting requirements
are addressed in the discussion which follows. The public burden is
estimated to average 20 hours annually per response, including time for
reviewing instructions, searching existing data sources, and completing
and reviewing the information collection. Additional comments regarding
the recordkeeping and reporting requirements contained in this final
rule, and suggested alternatives, may also be sent to OMB, Paperwork
Reduction Project (OMB No. 0560-0058), Washington, DC 20503; and to
USDA, Clearance Officer, OIRM, AG Box 7630, Washington, DC 20250.
Background
Section 320C applies only to ``domestic manufacturers of
cigarettes'' which are defined in Section 301 of the 1938 Act as
including any manufacturer that produces at least 1 percent of the
cigarettes produced and sold in the United States. Under Section 320C,
effective with calendar year 1994, such a manufacturer must pay an
assessment and make certain compensatory tobacco purchases unless
domestic tobacco equals or exceeds 75 percent of the total tobacco used
by the manufacturer to produce cigarettes in the United States for the
calendar year. The Secretary of Agriculture can reduce the percentage
in some circumstances. Penalties and other charges can apply for
failing to pay the assessments or make the compensatory purchases.
Domestic tobacco, under the proposed rule, was defined to be tobacco
produced in the United States and ``United States'' was defined for all
geographical purposes under the rule to include the fifty States, the
territories and possessions of the United States, Puerto Rico, and the
District of Columbia. Section 1106 of the 1993 Act, which added Section
320C to the 1938 Act, also provided for certain assessments on imported
tobacco. Those assessments, which are different from those added in
Section 320C, were implemented in an interim rule published on December
23, 1993 (58 FR 68017), and a final rule published on March 9, 1994 (59
FR 10939).
Comments
A. Commenters
Twenty-three comments were received in response to the rule
proposed to implement section 320C. Six comments were from major
cigarette manufacturers, six were from tobacco State farm
organizations, one from a national farm organization, one from a
tobacco producer loan association, one from a tobacco export
organization, two from businesses related to the tobacco industry, one
from a member of Congress, one from an international governmental
commission, one from a national health organization, and three from
individuals.
B. Discussion
(1) General Comments. One comment objected to the use of the term
``domestic content requirement'' in the rule since the 75 percent
standard, even apart from the ability of the Secretary to reduce the
percentage in certain instances, is not an absolute requirement. Rather
the target, if met, serves as an alternative to certain additional
assessments and purchases. Two comments suggested that section 320C
violates understandings under the General Agreement on Tariffs and
Trade (GATT). One comment sought an exemption from coverage for
manufacturers of cigarettes whose output of cigarettes is sufficiently
low that the manufacturer is not subject under other programs to
certain labelling requirements. Four comments suggested delaying
implementation of the rule until any GATT challenges were resolved or
delaying implementation until January 1996 in order to allow for
uninhibited use of current inventories of tobacco.
The use of ``domestic content requirement'' in this context can be
misleading. The rule has been modified accordingly. GATT objections to
the Congressionally-mandated 75 percent provision go beyond the scope
of this rulemaking. Also, given that section 320C was enacted in August
of 1993, and the lack of any provision in section 320C for delay, there
is no authority or warrant for delaying the implementation of the rule.
If needed, surplus quantities of foreign tobacco could, presumably, be
re-sold.
(2) Regulatory Impact Analysis. Nine comments objected to matters
contained in the regulatory impact analysis and have been considered in
the final impact statement. To the extent those comments addressed
particular provisions of the rule they are addressed in this discussion
as well.
(3) Covered Tobacco and Cigarettes. Some have questioned whether
two groups of tobacco, in particular, should be counted as being
foreign or imported tobacco for the use calculations; namely: (1)
Turkish and Oriental tobaccos and (2) stems, reconstituted tobacco and
other unmanufactured tobacco for which no duty is collected by the
United States Customs Service. Five comments favored, and two opposed,
treating the two groups as countable tobacco. Three comments argued
that limiting coverage to cigarettes produced in the United States was
a ``loophole'' which could be avoided by subject manufacturers by
relocating. Two comments suggested that cigarettes made in the United
States and then exported should be excluded from coverage on the ground
that such coverage would be detrimental to domestic manufacturing
operations. Two comments favored the rule's provisions on coverage of
cigarettes as they stood in the proposed rule. There are six
manufacturers who, at the present time, appear to qualify as ``domestic
manufacturers of cigarettes'' (as defined in the 1938 Act). The six
manufacturers suggested that the rule needed clarification on when
tobacco would be considered used to produce cigarettes. They suggested
that such use should be deemed to occur when the tobacco is removed
from inventory for immediate manufacture into cigarettes. Three
comments specified that they favored not counting reclaimed tobacco
against the use calculations. In addition, manufacturers suggested that
they should be able to rely on third party certifications regarding
whether tobacco is foreign or domestic.
The treatment of all of that which is commonly considered to be
``tobacco'' as countable tobacco use is a matter of statutory
construction. Upon review of the comments it continues to appear
inappropriate, for reasons set out with the proposed rule, to exclude
any such tobacco from such consideration despite some definitional
issues that arise in connection with the 1938 Act. Thus, the final rule
continues to treat Oriental and Turkish tobacco and tobacco in any form
(including tobacco for which no duty is due) as ``tobacco'' for
purposes of the rule. Countable tobacco would include, though not
necessarily be limited to, all tobacco which is within the scope of
Chapter 2401 of Harmonized Tariff Schedule (HTS) and certain classes
within Chapter 2403 of the HTS. Likewise, the limitation of coverage in
the rule to cigarettes produced in the United States by subject
manufacturers is a matter of statutory construction and it continues to
appear, for the reasons set out with the proposed rule, that this
limitation is proper. With respect to weight calculations, it has been
determined, as suggested in the comments, that tobacco be considered to
have been used to produce cigarettes at the point at which it is
removed from inventory for immediate manufacture into cigarettes. The
commenters have indicated that manufacturers keep current records on
that basis and adoption of that standard should be administratively
workable with the least interference with commerce. Manufacturers will
continue to have the burden of demonstrating compliance with the rule.
Also, the final rule reflects agreement that reclaimed tobacco should
not be counted when re-used by the same manufacturer. With respect to
certifications for category of origin (foreign or domestic), the final
rule allows such reliance by providing that certain purchases of
tobacco whose identity might otherwise be unknown may be considered
domestic tobacco if an appropriate certification is obtained from the
party who transfers the tobacco to the manufacturer. The rule sets out
requirements for the certification, which include acknowledgement that
false certifications can lead to criminal or civil penalties or
sanctions. The rule allows the Director of the Tobacco and Peanuts
Division of the Agricultural Stabilization and Conservation Service
(hereafter ``Director'') to prescribe the form of the certification to
be used. If the Director has not prescribed such a form, then the
manufacturer will be required to ensure that a form of the
manufacturer's own design is used, maintained, and meets the specific
requirements of the regulation.
(4) Domestic Assessment Rate, Required Purchases and Appeals. Under
section 320C, those manufacturers who do not meet the critical use
percentage must pay an assessment, over and above other assessments
that may apply under the 1938 Act and other legislation, equal to the
difference, by a formula set out in the statute, between the market
prices of certain domestic tobaccos and the market price of imported
tobacco. Four comments suggested that the domestic and foreign price
comparison should be on the same weight basis (``green'' or ``dry'')
and it was also suggested that cigar tobacco should be excluded from
the calculation of the imported tobacco market price. Two comments
suggested the DMA should not be considered due until all administrative
appeals by the manufacturer are completed. The statute further provides
that a manufacturer who fails to make the critical use percentage must,
to the full extent of the shortfall, purchase an equal amount of
tobacco from the inventories of the producer owned cooperative
marketing associations for burley and flue-cured tobacco. Two comments
suggested that the rule's 30 calendar day period for such compensatory
purchases was too short and should be 90 days. Also, two comments
suggested that the time for administrative appeals should not be the 15
calendar days provided for in the proposed rule but 30 calendar days
instead. Another suggested that a clarification was needed in the rule
to ensure that all adverse determinations under the rule were
administratively appealable.
Domestic tobacco is normally marketed on a ``green'' (unprocessed)
weight basis but imported tobacco normally is purchased on a ``dry''
(processed) weight basis. In order to provide for a more accurate
comparison of the market prices for use in calculating the DMA rate,
the rule specifies that, as determined appropriate, the Director may
use ``dry'' weight figures for both domestic and imported prices and
may exclude cigar and other non-cigarette tobacco as the Director deems
appropriate and practicable. The due date for the assessment has not
been adjusted in the rule. To do so would provide an incentive for
unnecessary appeals, and would dilute the intended effect of the
assessment. However, the Director will have the discretion to extend
the time for actual payment, subject to such conditions as the Director
considers to be appropriate. Such extension will not toll the accrual
of interest. The Director may also for cause extend the time for
submitting an appeal; the 15 calendar day period should be enough time
to express interest in an appeal and request an extension. The 15
calendar day period comports with the normal time for administrative
appeals provided for in the generic appeal regulations found at 7 CFR
part 780. The provisions of the rule have, however, been clarified,
consistent with original intent, to specify that a manufacturer may
appeal any adverse determination made under the rule with respect to
that manufacturer. Also, to reflect commercial exigencies, the time for
making compensatory purchases has been changed in the rule from 30
calendar days to 60 calendar days; the Director may grant further
extensions for cause.
(5) Recordkeeping and Reporting Requirements. The six domestic
manufacturers complained that the recordkeeping provisions of the rule
did not comport with their current procedures, were excessive, and
would require costly adjustments in their operations, particularly the
proposal for batch-by-batch and lot-by-lot recordkeeping for tobacco
removed from inventory for manufacture into cigarettes. Consistent with
their other comments, the manufacturers suggested that recordkeeping
for such tobacco uses be directed at total removals from inventory
immediately before manufacture. The manufacturers indicated that all
manufacturers, for that stage of the manufacturing process, maintain
records by weight and category (domestic or foreign). These commenters
also objected to the proposal requiring reporting of the manufacturer's
total tobacco inventory and reporting of non-cigarette tobacco use;
further, some suggested that USDA's Form TB-26, Tobacco Stock Report,
be used instead of reports created specifically for compliance with the
rule. The proposed rule provided for recordkeeping for a minimum of
three years and four comments criticized a statement in the rule
placing the risk on the record keeper for any destruction of records
after the minimum period. Another comment specifically supported having
a provision in the final rule mandating that submitted records and
reports be kept confidential by the agency. Further, as to audits, the
statute allows for assessing the audit costs against the manufacturer.
One comment suggested that the costs should, instead, be paid out of
domestic assessments.
To comport with other changes in the rule, the recordkeeping
requirements are modified in the final rule to focus, as far as end use
is concerned, on the point at which tobacco is removed from inventory
for immediate manufacture into cigarettes. Other modifications have
been made, including removal of the need to keep records based on
country of origin. Also, with the modifications, the manufacturer's
records for tobacco used for the actual manufacture of cigarettes will
not have to be kept batch-by-batch or lot-by-lot. However, lot-by-lot
accounting will still be required for accounting for tobacco taken into
inventory. The rule continues to require recordkeeping and reports for
total inventory and for manufacturing uses for purposes other than
cigarettes as such information will be needed as a check on reports of
the tobacco used to manufacture cigarettes. Use of Form TB-26 will not
be allowed in lieu of reports specifically created for compliance with
the rule as that form is intended to serve other purposes and may not
contain all the information and/or explicit or implied certifications
of compliance needed. However, manufacturers are free to use whatever
data source they wish in preparing reports relating to compliance with
the rule, including data contained on Form TB-26, with the
understanding that the resubmission of any data would carry with it a
reaffirmation of its accuracy.
The three-year provision for mandatory recordkeeping is less than
may be the applicable statute of limitations. Accordingly, it is not
possible or appropriate to immunize parties subject to the rule from
the effects of an imprudent record destruction. That risk can be
avoided by more extended recordkeeping as circumstances dictate.
Regarding confidentiality, it is the agency's intent to maintain the
confidentiality of all records to the extent permitted by law. Section
320C(b)(2)(d) of the 1938 Act adopts the confidentiality provisions of
Section 320B of the same Act. However, as confidentiality matters go to
internal agency matters, rather than regulation of private entities or
individuals, it has been determined that the final rule should not
contain confidentiality provisions. Finally, as to audits,
manufacturers will remain potentially liable for the cost of the audit
since such liability is statutory. Moreover, relieving manufacturers of
that liability would not only raise the potential cost of administering
the program but could also discourage efficient recordkeeping which
leads to easily-verified information.
In addition to the modifications indicated above, provisions have
been included in the rule to take into account absences of records for
events occurring prior to the publication of the final rule.
(6) Reduction in the Domestic Content Percentage. Section 320C(f)
provides that if the Secretary, in consultation with producer owned
cooperative marketing associations, determines that because of drought
or other conditions beyond the control of producers, the quantity of
domestic burley or flue-cured tobacco that is harvested and suitable
for marketing is substantially less than the expected yield for the
crop, and that pool inventories for the kind of tobacco involved have
been depleted, then, effective for the calendar year following the year
in which the crop loss occurs, the Secretary of Agriculture may reduce
the critical domestic content percentage below 75 percent. The proposed
rule specified that such reductions would be made only if the
inventories of domestic burley or flue-cured tobacco fell below 25
percent of the ``reserve stock level'' for the respective tobacco. The
manner in which the ``reserve stock level'' is calculated is by a
formula set out in section 301 of the 1938 Act.
Three comments suggested that the reduction of the domestic content
level be allowed in either of the two years following the disaster
because the inventory effect on an individual manufacturer might not be
felt for two years. Another comment suggested that reasons other than
crop loss should trigger the reduction and that a reduction should be
considered without adherence to a rigid requirement that domestic
inventories of burley or flue-cured tobacco be down to 25 percent of
the ``reserve stock level.'' Another comment suggested that major
cigarette manufacturers be consulted with respect to percentage
reduction issues.
By statute, reductions in the domestic content nonassessment
percentage is limited to the year following the year of the crop loss.
Further, the necessity of such a crop loss is also statutory. However,
in order to provide greater flexibility in responding to market
circumstances, the reference to 25 percent of the reserve stock level
has been dropped from the rule so as to allow the Director to exercise
greater judgment in determining whether to reduce the percentage where
the statutory preconditions for a reduction exist. Formal consultation
with manufacturers regarding reductions is not provided for in the
statute and goes to internal agency decision making; however, where
there is a potential for a reduction, major manufacturers and other
interested members of the public will be free to make their views known
to the producer owned cooperative marketing associations and to USDA in
the normal manner.
List of Subjects in 7 CFR Part 723
Acreage allotments, Assessments, Marketing quotas, Penalties,
Reporting and recordkeeping requirements, 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 is revised 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, 1421, 1445-1, and 1445-2.
.2. Part 723 is amended by adding subpart E to read as follows:
Subpart E--Domestically Produced Cigarettes
Sec.
723.501 Definitions.
723.502 Domestic tobacco content nonassessment percentage.
723.503 Domestic content marketing assessment.
723.504 Required purchases from tobacco loan stocks.
723.505 Reduction of domestic content nonassessment percentage.
723.506 Required records and reports; burden of proof.
723.507 False reports; failure to file reports; examinations of
records; and records for events occurring prior to the publication
of the final rule.
723.508 Reconsideration and appeal.
Subpart E--Domestically Produced Cigarettes
Sec. 723.501 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.
ASCS. The USDA's Agricultural Stabilization and Conservation
Service.
CCC. The Commodity Credit Corporation, an instrumentality of the
USDA.
Covered cigarettes. Cigarettes produced in the United States.
Director. Except with respect to references to the National Appeals
Division of ASCS, the Director of the Tobacco and Peanuts Division, or
the successor to the Director.
Domestic assessment use shortage. For any domestic manufacturer,
the domestic assessment use shortage shall be, as determined by the
Director, the amount, converted to pounds, by which, for the relevant
calendar year, domestic tobacco use for covered cigarettes produced by
the manufacturer was less than the amount which, as a percentage of
total tobacco use for these cigarettes, would have equaled the domestic
content nonassessment percentage.
Domestic content nonassessment percentage. The domestic content
nonassessment percentage shall be 75 percent unless otherwise specified
in this subpart.
Domestic manufacturer. A domestic manufacturer of cigarettes.
Domestic manufacturer of cigarettes. A person who, as determined by
the Director, produces and sells more than 1 percent of the cigarettes
produced and sold in the United States.
Domestic tobacco. Any quantity of harvested tobacco which has been
cultivated, grown, and produced in the United States.
Foreign tobacco. Tobacco that is not domestic tobacco.
Imported tobacco. Any tobacco, including (but not limited to)
Oriental and Turkish tobaccos, that is not domestic tobacco and has
been entered into the commerce of the United States. Any tobacco that
cannot, as determined by the Director, be verified as to its being
domestic tobacco shall be presumed to be imported tobacco.
NASS. The National Agricultural Statistics Service, USDA.
Origin category. The categorization of tobacco as either domestic
or foreign tobacco.
Price support inventory. The inventory of tobacco which 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 which by law act as agents for producers for price support
loans for tobacco. Those associations for burley and flue-cured tobacco
are the Burley Tobacco Growers Cooperative Association, the Burley
Stabilization Corporation, and the Flue-Cured Tobacco Cooperative
Stabilization Corporation, or their successors.
Tobacco. Any commodity or substance that is commonly considered to
be tobacco in the trade.
United States. The 50 States of the United States, the District of
Columbia, Puerto Rico, or any Territory or Possession of the United
States.
Unmanufactured tobacco. Any tobacco in any form that is not
processed and packaged as a ready consumer tobacco product, including,
but not limited to, tobacco in the form of leaf tobacco, strips, stems,
scrap, and reconstituted, homogenized, and blended tobacco or products
(other than consumer-ready products).
USDA. The U.S. Department of Agriculture.
Sec. 723.502 Domestic tobacco content nonassessment percentage.
(a) General requirements. (1)(i) For cigarette production for each
calendar year beginning with calendar year 1994, the Director shall
determine for each domestic manufacturer the percentage that domestic
tobacco constitutes of the total tobacco used by that manufacturer to
produce cigarettes in the United States. If such percentage use of
domestic tobacco does not equal or exceed the domestic content
nonassessment percentage for that calendar year, the manufacturer shall
be deemed to have a domestic assessment use shortage and shall pay an
assessment in the amount specified in Sec. 723.503 and shall make
compensatory tobacco purchases in the amount specified in Sec. 723.504.
(ii) For any calendar year, the domestic content nonassessment
percentage shall be 75 percent unless for that calendar year the
percentage is reduced under Sec. 723.505, in which case the domestic
content nonassessment percentage shall be such reduced percentage.
(iii) Any assessment or purchase requirement which shall follow in
the event of a domestic assessment use shortage shall be in addition to
any other assessment or obligation that may be due or imposed.
(2) Any tobacco that has been reconstituted, or otherwise processed
to the extent that it has lost its respective identity as either
domestic tobacco or imported tobacco, shall be considered to be foreign
tobacco when making determinations under this subpart.
(3) Any tobacco otherwise subject to paragraph (a)(2) of this
section which is purchased by the manufacturer from a broker or
processor may nonetheless be considered to be domestic tobacco by the
Director if a valid certification meeting the requirements of this
section and satisfactory to the Director is signed by the transferring
party.
(4) In order to be credited under paragraph (a)(3) of this section,
a certification must conform to all requirements imposed by the
Director which may include use of a prescribed form.
(5) If the Director has not prescribed a form for use for such
certifications, it shall be the responsibility of the domestic
manufacturer to ensure that a proper certification has been obtained on
a form devised by such manufacturer. In order to be valid for purposes
of this section, the certification so devised must:
(i) Specify the total amount of tobacco being transferred to the
domestic manufacturer by the certifying party and the amount of such
tobacco which is domestic tobacco;
(ii) Certify, except as provided in paragraph (a)(6) of this
section, that such domestic tobacco was purchased directly from a
domestic producer (at auction, directly or from the price support
inventory of the applicable association) at market rates for domestic
tobacco, and that the certifying party can demonstrate the actual
disbursement of the purchase price.
(iii) Certify that the certifying party has no reason to believe
that the tobacco certified as domestic tobacco is foreign tobacco;
(iv) Refer to this subpart and section 320C of the Agricultural
Adjustment Act of 1938 and state the purposes for which the
certification is requested and made;
(v) State that the certification involves material information
which may or will be relied upon by the United States government for
purposes of enforcement of the provisions of this subpart;
(vi) State that false or inaccurate information may lead to civil
or criminal penalties or sanctions under the provisions of 18 U.S.C.
1001 or other provisions of law.
(6)(i) If any such certifying party has not purchased the tobacco
from a domestic producer or the price support inventory of the
applicable association, the certifying party shall be required in lieu
of the requirements of paragraph (a)(5)(ii) of this section to attach a
certification from the party from whom the certifying party obtained
the tobacco. Such sub-certification shall conform to the provisions of
paragraph (a)(5)(i) through (a)(5)(vi) of this section. Additional sub-
certifications shall be required as needed to trace the tobacco back to
the domestic producer.
(ii) In the event that such certifications as are otherwise
required in order to treat tobacco as domestic tobacco cannot be
reasonably obtained, the Director may relieve the domestic manufacturer
from such requirements based on such representations of the origin
category of the tobacco as the Director finds sufficient to serve the
purposes of this subpart.
(7) The domestic manufacturer shall be required to maintain all
records as may be needed to establish the origin of tobacco taken into
inventory including any certifications regarding such origin.
(8) Any tobacco having lost its identity with respect to its origin
category during the manufacturing process but which in the normal
course of business is recaptured and reused by the same manufacturer to
manufacture cigarettes in the United States and any tobacco in any
cigarettes returned to the manufacturer of the cigarettes which is
reused by the same manufacturer to manufacture new cigarettes in the
United States shall not be counted toward the domestic content
calculations made under this subpart. The domestic manufacturer shall
maintain such records that show the quantity of tobacco so reclaimed or
reused in the manufacturing of cigarettes for the calendar year.
However, any tobacco reused by a manufacturer different than the
original manufacturer shall be counted toward the domestic use
calculations for both manufacturers.
(b) Year-end reports required to be made by manufacturers. (1) In
addition to any other reports required by this subpart, beginning with
the 1994 calendar year, a domestic manufacturer of cigarettes shall
report to the Director, for each calendar year, the following
information:
(i) The total quantity of tobacco used by the manufacturer to
produce cigarettes in the United States during such calendar year.
(ii) The total quantity of imported tobacco used by the
manufacturer in the production of cigarettes in the United States
during such calendar year.
(iii) The total quantity of domestic tobacco used by the
manufacturer in the production of cigarettes in the United States
during such calendar year.
(iv) The total quantity of tobacco reused in the production of
cigarettes during such calendar year that was reclaimed from the
manufacturing process or from returned cigarettes and is exempt from
counting toward the total final domestic use calculation for the
manufacturer under paragraph (a)(8) of this section.
(v) The total number of individual cigarettes produced during such
calendar year.
(2) For purposes of the information required to be reported by
paragraphs (b)(1)(i) through (b)(1)(iii) of this section, the
quantities reported shall be based on the packed, redried weight of the
tobacco when it is removed from inventory for immediate entry into the
manufacturing process for making cigarettes. The weights required for
paragraph (b)(1)(iv) of this section shall be the actual weight of the
reclaimed tobacco.
(c) Where and when to report. The reports required by this subpart
shall, unless otherwise specified in this subpart, be mailed or
otherwise delivered in hard copy to the Director, Tobacco and Peanuts
Division, Agricultural Stabilization and Conservation Service, USDA, P.
O. Box 2415, Washington, DC 20013-2415 by February 15 of the year after
the calendar year to which the report applies. The Director may specify
the form in which any report required by this subpart shall be made and
may make other requests for information as may be necessary to
effectively enforce the provisions of this subpart.
(d) Failure to report. A manufacturer who fails to report the
quantities of domestic and imported tobacco used for manufacturing
cigarettes shall be presumed to have used only imported tobacco in such
cigarettes. In addition, with respect to any recordkeeping or reporting
requirement imposed by this subpart, the failure to file any report
timely or to supply any required information shall permit the Director
to determine that the information not timely filed or supplied is
adverse to the party responsible for the submission and to make
determinations under this subpart accordingly by any method determined
reasonable by the Director. If the correct and verifiable information
is later submitted, the Director may, in lieu of drawing such
conclusions, assess the costs incurred as a result of the failure to
supply the information in a timely manner.
Sec. 723.503 Domestic content marketing assessment.
(a) General. Effective beginning with the 1994 calendar year, each
domestic manufacturer of cigarettes with a domestic assessment tobacco
use shortage for a calendar year shall pay to CCC a non-refundable
domestic marketing assessment under this section in an amount which
equals the product calculated by multiplying the amount in pounds of
the shortage by the assessment rate per pound calculated under
paragraph (b) of this section.
(b) Assessment rate. The domestic marketing assessment rate for
purposes of this section shall be determined separately for each
calendar year. The assessment rate shall be the difference per pound
between:
(1) One-half the sum of the average prices per pound received by
domestic producers of burley tobacco and flue-cured tobacco,
respectively, for their respective marketing years preceding the
calendar year of the domestic assessment use shortage, and,
(2) The average price per pound of unmanufactured imported
cigarette tobacco for the calendar year preceding the year of the
shortage.
(c) Data used to calculate market prices. The Director may use data
published by NASS for purposes of making market price determinations
under this section and may use a weighted average price of
unmanufactured cigarette tobacco which was imported during the previous
calendar year, as calculated from Bureau of Census data, for such
calendar year. The Director may make adjustments in the average prices
or weights used to determine the domestic marketing assessment rate as
determined appropriate by the Director to ensure that the average
prices used for both domestic and imported tobacco are on an equivalent
basis to the extent practical. Such adjustments, if any, shall be based
on historical conversion yields common to the tobacco trade and may
include the exclusion of cigar tobacco from the calculation of the
average import price or the exclusion of other non-cigarette tobacco
from such calculation.
(d) Time for paying assessment. The domestic manufacturer shall pay
the domestic marketing assessment provided for in this section within
30 calendar days after demand for payment. However, if the manufacturer
timely requests reconsideration or timely appeals the determination,
the time for payment of the amount in dispute may be extended by the
Director to a date no later than 30 calendar days after the final
determination is rendered. Such extensions shall be subject to such
conditions as the Director may impose and shall be subject to a
continued accrual of interest, unless otherwise specified by the
Director. The rate for such interest shall be the rate charged on any
obligation owing to CCC at the time of the assessment, as determined by
the Director.
(e) Failure to timely pay assessment. If a domestic manufacturer
fails in a timely manner to pay any assessment under this section, such
manufacturer shall be subject to a penalty in an amount equal to twice
the amount of the initial assessment in addition to any interest that
has accrued on such obligations and in addition to any other charges or
obligations that may apply.
(f) Interest. All sums due to CCC under this subpart shall accrue
interest at a rate of interest which the Director determines is
currently being assessed for any other obligations due CCC. Such
charges shall be in addition to any other charges due.
Sec. 723.504 Required purchases from tobacco loan stocks.
(a) General. In addition to paying a domestic marketing assessment,
each domestic manufacturer of cigarettes who for any calendar year
beginning with the 1994 calendar year has a domestic assessment use
shortage shall purchase a quantity of burley and flue-cured tobacco
from the loan stocks of the producer owned cooperative marketing
associations for burley and flue-cured tobacco in the amounts
prescribed in this section.
(b) Purchase quantity. The amount of tobacco that must be purchased
shall be an amount equal to the amount, in pounds, of the
manufacturer's domestic assessment use shortage. The total amount of
required purchases shall be divided equally between burley and flue-
cured tobacco. If it is determined that the required amount of
purchases by all manufacturers would reduce the inventories of burley
or flue-cured tobacco below the reserve stock level, the Director may
reduce the required purchase quantity on a proportional basis. Required
purchases under this section shall not be considered as purchases for
purposes of meeting the manufacturer's purchase intentions under
section 320B of the 1938 Act.
(c) Purchase price. In order to receive credit for a purchase to
satisfy a purchase required by this section, the purchase price must
not be less than the published offer list price of the applicable
producer owned cooperative marketing association which shall be a price
available to all qualified buyers. Credit for required purchases shall
not be allowed if discounts, rebates, or other special incentives have
been offered and received in connection with purchases of tobacco loan
stocks from association inventories.
(d) Failure to purchase required amount. Each manufacturer shall
have 60 calendar days from date of notification of the required
purchase amount to complete the purchases required under this section.
The producer owned cooperative marketing associations shall report to
the Director the quantities of required purchases that have been made.
A manufacturer who fails to purchase, within the allotted time, the
required quantity of burley or flue-cured tobacco shall be liable for
penalty on each pound of tobacco for which there has been a failure to
make a timely purchase. The penalty rate shall be the amount determined
to be equal to 75 percent of the average market price for the kind of
tobacco required to be purchased for the marketing year that ends in
the calendar year of the manufacturer's domestic assessment use
shortage.
Sec. 723.505 Reduction of domestic content nonassessment percentage.
(a) General. The Director, in consultation with the appropriate
producer owned cooperative marketing associations, may reduce the
domestic content nonassessment percentage for a calendar year to a
percentage below 75 percent for any calendar year with respect to which
the Director determines that the production of burley or flue-cured
tobacco for the preceding year was substantially reduced because of
natural disaster or other conditions beyond the control of producers
and the loan stock inventory for the kind of tobacco is effectively
depleted.
(b) Expected production. For purposes of this section, the Director
may determine, but shall not be required to determine, the expected
amount of production of tobacco based on the planted acreage as
reported by NASS for the respective kind of tobacco multiplied by the
simple average of the five most recent years' average yields per acre
for the respective kind of tobacco. The Director may take into account
such other factors as the Director may deem to be relevant and
appropriate, including changes in the national quota set by the USDA
for the kind of tobacco involved.
(c) Deadline for determination. The Director shall announce the
reduced percentage by November 30 of the year preceding the calendar
year to which the reduced percentage will apply.
Sec. 723.506 Required records and reports; burden of proof.
(a) Required records. Each domestic manufacturer, for all
manufacturing plants producing cigarettes covered under this subpart,
shall maintain records on a calendar year basis for each lot of
unmanufactured tobacco taken into inventory that shows for each lot
the:
(1) Kind or type of tobacco,
(2) Form of tobacco, such as leaf, strips, scrap, stems,
reconstituted, reclaimed, etc.,
(3) Origin category of the tobacco (domestic or imported); and
(4) Weight of the tobacco.
(b) Record retention period. Records shall be retained for at least
3 calendar years after the calendar year to which the records apply.
The minimum period of record retention may be extended upon written
notification by the USDA Office of Inspector General or the Director.
Nothing in this paragraph shall relieve the domestic manufacturer of
the burden of establishing compliance with the provisions of this
subpart.
(c) Required reports. (1) In addition to any other report or
recordkeeping that may be required under this subpart or otherwise,
each domestic manufacturer shall for each calendar year file a report
with the Director showing, with the same particularity and categories
of data required under paragraph (a) of this section, the quantity of
unmanufactured tobacco that the manufacturer:
(i) Acquired during the calendar year,
(ii) Used to manufacture covered cigarettes during the calendar
year,
(iii) Used, or otherwise disposed of, other than to manufacture
covered cigarettes during the calendar year, and
(iv) Has in inventory at end of the calendar year.
(2) In addition, a one-time report containing the same
particularity and categories of data required under paragraph (a) of
this section shall be made by each domestic manufacturer setting out
the total amount of unmanufactured tobacco in the manufacturer's
inventory as of January 1, 1994. Such report shall be submitted within
15 calendar days after publication of this rule in the Federal
Register.
(3) The information provided in the reports required in paragraph
(c) of this section may be obtained from reports prepared and submitted
to USDA for other purposes. The resubmission of such information shall
constitute a current affirmation of the accuracy of such data or
information.
(4) Reports required by this section shall be mailed or otherwise
delivered in hard copy to the Director, Tobacco and Peanuts Division,
Agricultural Stabilization and Conservation Service, USDA, P. O. Box
2415, Washington, DC 20013-2415 by February 15 of the year after the
calendar year for which the report applies except with respect to the
one-time report required by paragraph (c)(2) of this section, which
shall be submitted by the date specified in paragraph (c)(2) of this
section.
(d) Variances in reports and recordkeeping and deadlines. The
Director may grant variances from the report, recordkeeping, and
deadlines required by this section or subpart but only in writing and
only to the extent that it is determined that such variances are
justified, taking into account the overall purposes of this subpart and
the desire to avoid undue interference with commerce.
(e) Burden of proof. The burden of proof on all issues arising
under this subpart regarding compliance with the provisions of this
subpart shall be on the domestic manufacturer of cigarettes.
Sec. 723.507 False reports; failure to file reports; examination of
records; and records for events occurring prior to the publication of
the final rule.
(a) False reports, failure to file report. In addition to any other
sanction or remedy or presumption that may apply, a person shall be
subject to all other remedies provided for by law including, but not
limited to, those that apply under section 320C of the Agricultural
Adjustment Act of 1938, as amended (7 U.S.C. 1314i), and 18 U.S.C. 1001
for any:
(1) False or inaccurate report, certification, or statement, or
(2) Failure to provide required information.
(b) Examination of records. The Director, the Office of Inspector
General, or any authorized representative of the United States may
examine such records, books, computer files, or any other material to
determine the correctness of any report or information provided to the
Director or to obtain relevant information. Reasonable costs incurred
with respect to any such audit may be charged to the domestic
manufacturer which is the subject of the audit or examination.
(c) Records for events occurring prior to the publication of the
final rule. No person shall be penalized or otherwise adversely
affected for a failure to comply with any recordkeeping requirements in
this rule as concerns records that would have been required to be
generated prior to the publication of the final rule implementing the
program provided for in this subpart. However, all persons shall be
required to maintain and submit on request, all records generated prior
to the publication of the final rule which are relevant to the
provisions of this subpart and shall be required, to the full extent
possible, for all uses of tobacco relevant to this subpart. Nothing in
this paragraph shall be justification for the destruction of records or
information, or for refusing a request for relevant information.
Sec. 723.508 Reconsideration and appeal.
A domestic manufacturer of cigarettes may request that the Director
reconsider any adverse determination with respect to such manufacturer
under this subpart. A request for reconsideration shall be made within
15 calendar days after the date of the notification of failure to
comply except that the manufacturer for cause may request that the time
for such filing be extended. The Director may grant such requests and
may set conditions for such extensions. Unless otherwise specified by
the Director, an extension of the time for reconsideration, or the
pendency of reconsideration or appeal, shall not toll the time for
payment of any amount due, nor toll the accrual of interest. If the
domestic manufacturer is dissatisfied with the reconsideration
determination rendered, such manufacturer may appeal the determination
to the Director, National Appeals Division in accordance with part 780
of this title.
Signed at Washington, DC, on May 24, 1994.
Bruce R. Weber,
Acting Administrator, Agricultural Stabilization and Conservation
Service.
[FR Doc. 94-13318 Filed 5-26-94; 2:48 pm]
BILLING CODE 3410-05-P
