[Federal Register Volume 59, Number 7 (Tuesday, January 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-712]
[[Page Unknown]]
[Federal Register: January 11, 1994]
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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: Proposed rule.
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SUMMARY: The Omnibus Budget Reconciliation Act of 1993 (the 1993 Act)
was enacted on August 10, 1993. Section 1106 of the 1993 Act amended
the Agricultural Adjustment Act of 1938 (the 1938 Act) by adding new
section 320C that imposes a domestic tobacco content requirement for
cigarettes made in the United States by any ``domestic manufacturer of
cigarettes'' as defined in the 1938 Act. Under the provisions of the
Act, as amended, each such manufacturer of cigarettes must certify the
percentage of tobacco produced in the United States which was used by
the manufacturer to produce cigarettes during the preceding calendar
year. If the percentage of United States produced tobacco used by a
domestic manufacturer of cigarettes in the manufacture of cigarettes is
less than 75 percent, the manufacturer will be subject to a domestic
marketing assessment and must purchase a quantity of tobacco from
inventories of the producer owned burley and flue-cured cooperative
marketing associations in an amount equal to the quantity of imported
tobacco used by the manufacturer to produce cigarettes during the
preceding calendar year that exceeds 25 percent of the total quantity
of tobacco used in such cigarette production. When a manufacturer is
subject to a domestic content marketing assessment, the assessment rate
will be based on the amount by which \1/2\ the sum of the average
prices per pound received during the most recent marketing year, by
producers of domestically produced burley tobacco and flue-cured
tobacco, respectively, exceeds the average price per pound paid for
unmanufactured imported tobacco during the preceding calendar year.
This proposed rule would amend the regulations to implement the
provisions of section 320C.
DATES: Comments must be received on or before February 10, 1994, in
order to be assured of consideration.
ADDRESSES: Interested persons are invited to submit written comments
to: Director, Tobacco and Peanuts Division, Agricultural Stabilization
and Conservation Service, United States Department of Agriculture, P.O.
Box 2415, Washington, DC 20013-2415.
FOR FURTHER INFORMATION CONTACT: Michael D. Thompson, Agricultural
Program Specialist, Tobacco and Peanuts Division, Agricultural
Stabilization and Conservation Service, United States Department of
Agriculture, P. O. Box 2415, Washington, DC 20013-2415, telephone 202-
720-4281.
SUPPLEMENTARY INFORMATION:
Executive Order 12886
This proposed rule is issued in conformance with Executive Order
12866. Based on a preliminary regulatory impact analysis, this proposed
rule has been determined to be economically significant. To obtain a
copy of the Preliminary Regulatory Impact Statement, contact Dr. Robert
Miller, Director, Tobacco and Peanut Analysis Division, Agricultural
Stabilization and Conservation Service, United States Department of
Agriculture, P. O. Box 2415, Washington, DC 20013-2415, telephone (202)
720-8839.
The 75 percent domestic tobacco content requirement is expected to
increase the usage of domestic tobacco by 188 million pounds for 1994
which will cost domestic manufacturers about $200 million. Since the
cost of domestic tobacco is about double that of imported tobacco,
domestic cigarette manufacturers are expected to shift cigarette
production to foreign based operations. As this shift in production
occurs, domestic cigarette production is expected to decline about 9
percent a year for the next four years. This will result in the loss of
about 11,000 jobs in domestic cigarette manufacturing plants. The use
of domestically produced tobacco will eventually decline to a level
less than if there were no domestic content requirement. Domestic
cigarette output is expected to decline about 40 percent by 1998. The
impact statement indicates little effect on the consumer prices for
cigarettes because the tobacco accounts for only about 3 percent of the
cost of cigarettes. The regulatory impact analysis does not consider
any effects that an increase in cigarette excise tax may have on
domestic cigarette production.
The initial increase in the use of domestic tobacco is expected to
draw down current loan stocks of burley and flue-cured tobacco. This
will benefit tobacco producers in the short term since the Commodity
Credit Corporation's net loan outlays for the 1994 marketing year are
estimated to be about $380 million less as a result of the domestic
tobacco content requirement. This will reduce the amount of the no-net-
cost assessments paid by producers and purchasers of tobacco.
Except for the cigarette manufacturing sector, this proposed
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 an 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 proposed 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 proposed 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 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--10.051.
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 proposed rule has been reviewed in accordance with Executive
Order 12778. The provisions of this proposed rule are not retroactive
and preempt State laws to the extent that such laws are inconsistent
with the provisions of this proposed 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 proposed rule would impose new record keeping and information
collection requirements on domestic manufacturers of cigarettes and
related tobacco industry business beginning January 1, 1994. The
contents of and justification for the reporting and record keeping
requirements will be submitted to the Office of Management and Budget,
under OMB No. 0560-0058, for review and approval in accordance with the
requirements of the Paperwork Reduction Act of 1980, as amended.
Comments regarding these requirements in this proposed rule and
suggested alternatives may be sent to the Office of Management and
Budget, Paperwork Reduction Project, Washington, DC 20503; and to the
Department of Agriculture, Clearance Officer, OIRM, room 404-W,
Washington, DC 20250.
Summary of Statutory Provisions
Section 320B of the 1938 Act imposes certain requirements on
``domestic manufacturers of cigarettes'' and those manufacturers are
defined in section 301 of the 1938 Act to be those that produce and
sell at least one percent of the cigarettes produced and sold in the
United States. Section 320B requires that those manufacturers specify
each year, in advance, their expected purchases of burley and flue-
cured tobacco. The sanction for failing to do so accurately, within
certain limits, is that the manufacturer must pay an additional
assessment to offset the cost of the Federal tobacco program.
Section 320C provides for additional requirements that must be met
by ``domestic manufacturers of cigarettes'' to avoid additional
assessments. The provisions of section 320C are set out in greater
detail below in the description of the content and organization of the
proposed rule. Generally, under section 320C manufacturers who are
``domestic manufacturers of cigarettes'' must certify each year the
percentage of U.S. tobacco used in their cigarettes. If more than 25
percent is imported tobacco, the manufacturer must pay an assessment.
Also, if this limit is exceeded, the manufacturer must make
compensatory purchases of tobacco from the burley and flue-cured
producer loan associations and may be required to pay a penalty for
failing to make such compensatory purchases in a timely manner. Under
section 320C(f), the 75/25 ratio may be reduced if the Secretary
determines that U.S. tobacco supply conditions warrant a reduction due
to conditions beyond the control of producers. Also, section 320C
requires that manufacturers file reports and maintain records as
specified by the Secretary to enforce that section. Failure to file
required reports or maintain records, or the submission of false
information can lead to criminal penalties as well as other sanctions.
Other new provisions concerning assessments on imported tobacco enacted
in the 1993 Act will be implemented in a separate rule.
Coverage of the Proposed Rule; Definition of Tobacco
The 75/25 ratio is referred to in the rule as the ``domestic
content requirement.'' Since this requirement is a calendar year
requirement under section 320C, the proposed rule would apply the
requirement first in 1994. The authorizing statute was enacted well
into 1993. There is nothing in the Act to provide for making the
provisions retroactive.
The requirement applies only to ``domestic manufacturers of
cigarettes.'' The statute does not limit, as such, the content
requirement to cigarettes produced by those manufacturers in the United
States. The fact that section 320C applies the requirement only to
certain ``domestic'' manufacturers, and given other provisions of
section 320C, the proposed rule limits the coverage to cigarettes
produced by subject manufacturers in the United States. For that
purpose, the rule defines ``United States,'' consistent with section
301 of the 1938 Act, to be the fifty States, the territories of the
United States, the District of Columbia and Puerto Rico. With respect
to limiting coverage to domestic production, section 320C(b) provides
that the sanctions in 320C(c), (d), and (e) will apply when the use of
``imported tobacco'' exceeds 25 percent. Tobacco becomes ``imported''
only by reference to a domestic market. Hence, it appears clear that
the statute was intended to cover only domestic production of
cigarettes.
The domestic content requirement requires counting all the
``tobacco'' in the cigarettes and computing the amount of ``imported
tobacco'' in those cigarettes. The 1938 Act covers many commodities,
including tobacco. Until recently the tobacco provisions of the 1938
Act dealt mainly with regulating the production of tobacco by domestic
producers and the definition of ``tobacco'' in section 301 of the 1938
Act, which is made generally applicable to the entire 1938 Act, appears
to have been drafted accordingly when it was enacted in 1938. The term
``tobacco'' is used in section 320C without a modifier and in
combination with the word ``imported.'' Tobacco is classified by kind
and by type number. For example, domestic burley tobacco is commonly
referred to as type 31. Section 301 refers to the ``Service and
Regulatory Announcement 118 of the U.S. Department of Agriculture
(USDA) Bureau of Agricultural Economics'' published in 1929 and defines
tobacco to mean certain specified tobacco types by type number as
identified in Announcement 118. All of the identified types, however,
are identified in Announcement 118 as domestic tobaccos. Foreign
tobaccos are assigned other type numbers and, thus, under the section
301 definition, they technically would not appear to be, ``tobacco'' at
all under that definition. However, section 320C clearly was intended
to measure the amount of use of ``imported tobacco,'' as those words
would be defined in their common meaning as compared with domestic
tobacco use. Use of the section 301 definition of ``tobacco'' would
make that comparison impossible and make the statute essentially
meaningless. Thus, the proposed rule presumes that the Congress did not
intend for the section 301 definition of ``tobacco'' to be used for the
section 320C purpose. The proposed rule has been drafted accordingly.
``Tobacco'' is defined in the proposed rule to mean that which is
commonly considered to be ``tobacco'' in the trade. As there is no
provision in the statute to do otherwise, that would include all
foreign tobacco, including those like Turkish and Oriental tobaccos,
which may not have as close a domestic counterpart as other tobaccos.
This inclusion is consistent with the Conference report issued with the
1993 Act (H. Conf. Report No. 103-213) where the Conference managers
stated their belief that the 75/25 ratio, by allowing the maintenance
of current blends, would be sufficient to ``permit the continued
importation of Turkish and Oriental tobaccos.'' If Turkish and Oriental
tobaccos were not subject to section 320C, the ratio would be
irrelevant. These conclusions, as with all aspects of the proposed
rule, are subject to further consideration on receipt of comments.
Discussion of Proposed Rule
1. Domestic Tobacco Content Requirement (Sec. 723.502)
A ``domestic manufacturer of cigarettes'' is defined in section
301(b)(17) of the 1938 Act as ``a person that produces and sells more
than 1 percent of the cigarettes produced and sold in the United
States.'' To avoid the domestic marketing assessment and other
sanctions imposed by section 320C of the amended 1938 Act, beginning in
1994 and each succeeding calendar year, each domestic manufacturer of
cigarettes must use at least 75 percent domestically grown tobacco in
the cigarettes manufactured by such manufacturer. In determining
compliance with the domestic content requirement, the proposed rule
specifies that imported tobacco will include all tobacco imported into
the United States including Oriental and Turkish tobaccos. The domestic
tobacco content requirement will apply to all cigarettes manufactured
in the United States by a domestic manufacturer of cigarettes without
regard to whether the manufactured cigarettes are sold domestically or
exported. The domestic content requirement would not apply to
cigarettes manufactured outside the United States by a domestic
manufacturer of cigarettes. Likewise, the domestic tobacco content
requirement would not apply to tobacco processed in the United States
for use in making cigarettes outside the United States. Domestic
manufacturers of cigarettes with operations located outside the United
States would not be required to file reports for cigarettes
manufactured in such foreign based operations for foreign-made
cigarettes and the domestic content rules would not apply to such
cigarettes.
2. Reports and Certifications by Domestic Manufacturers of Cigarettes
(Sec. 723.502)
Under the proposed rule, beginning with the 1994 and each
succeeding calendar year, each domestic manufacturer of cigarettes
would be required to maintain records, file reports and certify to the
quantities of domestic and imported tobacco used by such manufacturer
to manufacture cigarettes in the United States. Determinations as to
content percentages would be based on the weight of the tobacco when it
is ready for the cigarette manufacturing process. Adjustments, to avoid
double-counting, will be made for any tobacco which loses its identity
during the manufacturing process and is recaptured and reused to
manufacture cigarettes by the same manufacturer and for tobacco in any
cigarettes returned to the manufacturer and reused by such manufacturer
to manufacture other cigarettes. Such adjustments will be made only to
the extent that records are maintained which prove the reuse of such
tobacco. For the purpose of determining the domestic content
percentage, any tobacco reconstituted, or otherwise processed, so as to
lose its respective identity as either imported tobacco or domestic
tobacco, before being acquired by a domestic manufacturer of cigarettes
shall be considered to be imported tobacco when it is used to produce
cigarettes by a domestic manufacturer of cigarettes. The proposed rule
provides that reports and certifications must be mailed or otherwise
delivered to Director, Tobacco and Peanuts Division, Agricultural
Stabilization and Conservation Service, U. S. Department of
Agriculture, P. O. Box 2415, Washington, DC 20013-2415 by February 15
of the year after the calendar year for which reports and
certifications apply. Failure to file timely reports or make required
certifications will result in all tobacco used by the manufacturer in
the manufacturing of cigarettes in the United States being considered
as imported tobacco and sanctions would be applied accordingly. Such a
presumption is provided for in section 320C(b) of the 1938 Act.
3. Domestic Marketing Assessment and Required Purchases of Tobacco
(Secs. 723.503 and 723.504)
Section 320C(c) of the Act provides that if the quantity of
imported tobacco used by a domestic manufacturer for making cigarettes
for the year exceeds 25 percent, such manufacturer must pay a domestic
marketing assessment on each pound of imported tobacco used in excess
of 25 percent. In addition, as provided in section 320C(d) and (e),
such manufacturer must purchase tobacco from the existing burley and
flue-cured tobacco inventories of producer owned cooperative marketing
associations in an amount equal to the weight of imported tobacco used
in excess of 25 percent.
The per pound domestic marketing assessment rate set by section
320C(c) is the difference between one-half the sum of the average
market prices received by domestic producers of burley tobacco and
flue-cured tobacco, respectively, and the average price of
unmanufactured imported tobacco. Domestically produced burley and flue-
cured tobaccos are marketed on a marketing year basis. The average
price per pound paid to domestic producers for a kind of tobacco is
determined for the marketing year. The marketing years are: for burley
tobacco, October 1 through September 30; and for flue-cured tobacco,
July 1 through June 30. Under the proposed rule, the average prices for
domestically produced burley tobacco and flue-cured tobacco would be
calculated using data published by the Department of Agriculture's
National Agricultural Statistics Service (NASS). For the other side of
the comparison, a weighted average price of all unmanufactured tobacco
imported for consumption in the United States, with no allowance for
tobacco reexported, would be calculated from Bureau of Census data. For
example, if the calculated average market prices were $1.83 per pound
for burley tobacco and $1.73 per pound for flue-cured tobacco, the
average price would be $1.78 per pound. If the weighted average price
of unmanufactured imported tobacco for the relevant period was $1.28
per pound, a domestic marketing assessment rate of $0.50 per pound
would apply. That rate would be multiplied by the pounds of imported
tobacco used in excess of the 25 percent limit (unless a higher limit
had been set under the Secretary's discretionary authority to adjust
the limit as provided for in section 320C(f)). If noncompliance is
indicated, the cigarette manufacturer will have an opportunity for an
administrative hearing before any domestic marketing assessments or
other sanctions are imposed. Under the proposed rule payment of the
assessment would be required to be made within 30 days after the
manufacturer is notified of the amount due.
Where a domestic content violation has occurred, the compensatory
purchases of tobacco by a manufacturer, as required by section 320C(d)
and (e), must be in equal quantities of burley and flue-cured tobacco
and must be from the inventories of producer owned cooperative
marketing associations that handle price support loans for tobacco.
However, the statute provides that if the total required compensatory
purchases by all noncomplying manufacturers would reduce the
associations inventories of loan stocks of burley or flue-cured tobacco
below the reserve stock level for the respective kind of tobacco, the
required purchase of such kind of tobacco, for each manufacturer, may
be reduced proportionately. These provisions of section 320C would be
implemented by Sec. 723.504 of the proposed rule. The required
purchases of burley tobacco could be made from either of the two
producer owned marketing associations for burley tobacco: the Burley
Tobacco Growers Cooperative Association and the Burley Stabilization
Corporation. There is only one applicable producer association for
flue-cured tobacco, the Flue-Cured Tobacco Cooperative Stabilization
Corporation. Under the proposed rule, required purchases of tobacco
must be at the applicable list price published by the association
without discounts of any kind. The manufacturer would be allowed to
make such purchases from any grade or grades of uncommitted tobacco in
the association's inventories. Compensatory purchases of tobacco would
be required to be made within 30 days after the manufacturer is
notified of the quantities of burley and flue-cured tobacco that must
be purchased. However, the time could be extended if the manufacturer
requests reconsideration of the compensatory purchase determination. As
provided in sections 320C (d) and (e) of the statute, if a manufacturer
fails to make the required compensatory purchases in a timely manner,
the manufacturer, under the proposed rule, would be subject to a
penalty of 75 percent of the average market price for the applicable
kind of tobacco for the most recent marketing year multiplied by the
quantity of tobacco involved. Further, as provided in sections
320C(d)(5) and (e)(5), these compensatory purchases could not be
counted by the manufacturer for purchases in the application of section
320B of the 1938 Act.
4. Reduction of Domestic Content Required Percentage (Sec. 723.505)
Section 320C(f) provides that the Secretary may reduce the 75
percent domestic content requirement for a calendar year following a
crop loss if the Secretary, in consultation with the producer owned
tobacco associations, determines that: (1) Because of drought, insect
or disease infestation, or other natural disaster or other conditions
beyond the control of producers, the total quantity of a crop of
domestic burley or flue-cured tobacco which is harvested and suitable
for marketing is substantially less than the expected production for
the crop and (2) loan stock inventories for the kind of tobacco have
been depleted. Under the proposed rule, the expected production would
be calculated based on the planted acreage of the kind of tobacco, as
reported by the NASS, multiplied by the average of the 5 most recent
years' average yields per acre as published by the NASS for that kind
of tobacco. The loan stock inventory of a kind of tobacco would be
considered to be depleted if the Secretary, in consultation with the
associations, concluded that the loan stock inventories at the
beginning of the next marketing year for such kind of tobacco would not
likely exceed 25 percent of the reserve stock level. Under the proposed
rule, the Secretary would make the determination to announce any
reduced percentage for the domestic content requirement by November 30
of the year preceding the year of the reduction. Under the proposed
rule, the Secretary's authority for making the determinations on
reducing the domestic content percentage would be delegated to the
Director, Tobacco and Peanuts Division.
5. Required Records and Reports (Sec. 723.506); False Statements
(Sec. 723.507); and Confidentiality (Sec. 723.508)
Section 320C(b) of the 1938 Act requires that manufacturers
maintain records and make such reports as are necessary to show
compliance with the domestic tobacco content requirement. That section
also provides that the Secretary and the USDA Office of Inspector
General may examine such records and other matters as the Secretary has
reason to believe may be relevant and that the Secretary may charge a
fee to the manufacturer for the reasonable cost of any such
examination. Section 320C(b) provides, as well, that any person who
fails to provide requested information or provides false information
shall be subject to 18 U.S.C. 1001 which, generally, provides that
persons who knowingly and willfully supply false or misleading
information, or cover up information, on matters within the
jurisdiction of federal agencies, may be fined up to $10,000 or
imprisoned up to five years. Section 320C(b) also provides that
information submitted regarding cigarette content and levels of
production will be exempt from disclosure to other members of the
public under the Freedom of Information Act provisions of 5 U.S.C. 552.
These provisions of section 320C are implemented in Sec. 723.506
through Sec. 723.508 of the proposed rule.
Under the proposed rule, with respect to records and reports,
manufacturers would be required, at a minimum, to file reports and
maintain records concerning the kind, quantity, form (stemmed,
unstemmed, reconstituted, etc.), and country of origin of all tobacco
which is:
(1) In inventory at the beginning of the calendar year,
(2) Acquired during the calendar year,
(3) Used to manufacture cigarettes in the United States during the
calendar year, and
(4) Disposed of other than through the manufacture of cigarettes in
the United States during the calendar year.
Separate records would be required for each lot, batch, or blend
that is used to manufacture cigarettes. These records would be required
to indicate the quantity of tobacco by category, domestic or import,
and the total quantity of tobacco for each specific lot, batch, or run
of tobacco. Regarding confidentiality, while the provisions of the
statute controls disclosure of information regarding individual
manufacturers, summary statistical data and general statements that are
not related to a specific cigarette manufacturer could be released.
List of Subjects in 7 CFR Part 723
Acreage allotments, Assessments, Marketing quotas, Penalties,
Recording and recordkeeping requirements, Tobacco.
For the reasons set out in the preamble, it is proposed that 7 CFR
part 723 be amended as follows:
PART 723--TOBACCO
1. The authority citation for 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.
723.503 Domestic content marketing assessment.
723.504 Required purchases from tobacco loan stocks.
723.505 Reduction of domestic content percentage.
723.506 Required records and reports; Burden of proof.
723.507 False reports; Failure to file reports; and Examination of
records.
723.508 Reconsideration and appeal.
723.509 Confidentiality of information.
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.
Domestic manufacturer of cigarettes. A person that 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.
Imported tobacco. Any tobacco, including Oriental and Turkish
tobaccos, not produced in the United States if such tobacco has been
entered into the United States. Any tobacco that cannot be verified as
being domestic tobacco shall be presumed to be imported tobacco.
Manufactured tobacco. Tobacco that has been processed and packaged
into cigarettes or other consumer tobacco products.
Producer owned cooperative marketing association. Those loan
associations that offer price support for burley and flue-cured tobacco
through contractual agreements with the Commodity Credit Corporation of
USDA. These associations are the Burley Tobacco Growers Cooperative
Association, the Burley Stabilization Corporation, and the Flue-Cured
Tobacco Cooperative Stabilization Corporation.
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 that is not processed and
packaged as a consumer tobacco product.
USDA. The U.S. Department of Agriculture.
Sec. 723.502 Domestic tobacco content.
(a) General requirement. (1) Except as provided in Sec. 723.505 of
this part, during each calendar year beginning with 1994, the total
domestic tobacco used for cigarettes manufactured in the United States
by a domestic manufacturer of cigarettes shall, for the calendar year,
equal or exceed 75 percent of the total quantity of tobacco used by
such manufacturer in such cigarettes.
(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 before its acquisition by such
domestic manufacturer of cigarettes, shall be considered as imported
tobacco when determining compliance with the domestic tobacco content
requirements of this subpart.
(3) Any tobacco having lost its identity with respect to its origin
of production during the manufacturing process which is recaptured and
reused to manufacture cigarettes in the United States by the same
manufacturer and any cigarettes returned to the manufacturer and reused
by such manufacturer to manufacture cigarettes in the United States
shall not be recounted. The burden of establishing such re-use shall be
on the manufacturer.
(b) Reports required by manufacturers. (1) Beginning with the 1994
calendar year, a domestic manufacturer of cigarettes shall report to
the Director, for each calendar year, the following on the basis of
weights of tobacco as it begins use in manufacturing cigarettes:
(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.
(2) For purposes of the report required by paragraph (b)(1) of this
section, tobacco weights shall be reported based on the weight of
tobacco when it is ready for manufacturing into cigarettes and to the
extent, if any, that a conversion is needed, tobacco weight shall be
converted to such weights based on normal processing yields with
respect to the various forms and kinds of tobacco, subject to review by
the Director.
(c) Where and when to report. The reports required by this subpart
shall be mailed or otherwise delivered to 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.
(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. The Director may determine the total quantity of tobacco
used by any method determined reasonable by the Director to arrive at
that estimate.
(e) Failure to comply. Each domestic manufacturer of cigarettes who
fails to comply with the requirements of this section shall pay a
domestic marketing assessment and shall purchase loan stocks of tobacco
in accordance with Secs. 723.503 and 723.504.
Sec. 723.503 Domestic content marketing assessment.
(a) General. Each domestic manufacturer of cigarettes who fails to
comply with the domestic content requirement in Sec. 723.502 shall pay
a nonrefundable domestic marketing assessment to the Commodity Credit
Corporation as provided in this section.
(b) Assessment rate. A domestic marketing assessment rate, for
purposes of this section, shall be determined for each calendar year.
The assessment rate shall be equal to the difference between one-half
the sum of the average prices per pound received by domestic producers
of burley tobacco and flue-cured tobacco, respectively, for the
previous marketing year as determined by the Director. The Director may
use for that purpose data published by the National Agricultural
Statistic Service of USDA and the weighted average price of
unmanufactured tobacco which was imported during the previous calendar
year, as calculated from Bureau of Census data for such calendar year.
Other data may be used in lieu of that data.
(c) Amount of assessment due. The Director shall assess a domestic
marketing assessment against each domestic manufacturer of cigarettes
who fails to comply with the domestic content requirement of this
subpart. The domestic marketing assessment shall be determined by:
(1) Multiplying the required percentage of domestic content by the
total pounds of tobacco used to produce cigarettes during the
applicable calendar year;
(2) Subtracting the pounds of domestic tobacco used in such
cigarettes from the result determined in paragraph (c)(1) of this
section, and
(3) Multiplying the result determined in paragraph (c)(2) of this
section, if a positive number, by the assessment rate determined under
the provisions of paragraph (b) of this section.
(d) Time for paying assessment. The 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.
(e) Failure to timely pay assessment. If a domestic manufacturer of
cigarettes 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. The penalty shall
be payable in addition to the initial assessment and any other charges
that apply.
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 fails to comply with
Sec. 723.502, as determined by the Director, shall purchase a quantity
of burley and flue-cured tobacco from the loan stocks of the producer
owned cooperative marketing associations as provided in this section.
(b) Purchase quantity. The amount of tobacco that must be purchased
shall be an amount equal to the amount of imported tobacco on which the
assessment in Sec. 723.503 can be levied. 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 pro rata 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 published offer list price of the applicable producer
cooperative marketing association. 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 30 calendar days from date of notification of the required
purchase amount to complete the purchases required under this section.
The producer cooperative marketing association 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 year preceding the year of the
violation.
Sec. 723.505 Reduction of domestic content percentage.
(a) General. The Director, in consultation with the producer owned
cooperative marketing associations, may reduce the domestic content
level to a percentage below 75 percent for any calendar year, when 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 for the
immediately preceding crop year and that the loan stock inventory for
the kind of tobacco involved will be depleted to 25 percent of the
reserve stock level for that kind of tobacco.
(b) Expected production. For purposes of this section, the Director
may determine, but shall not be required to determine, the expected
production of tobacco based on the planted acreage as reported by the
National Agricultural Statistics Service 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.
(c) Deadline for determination. The Director shall announce the
reduced percentage level for domestic content 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. (1) Each domestic manufacturer of cigarettes,
for all manufacturing plants producing cigarettes chargeable to the
manufacturer under this subpart, shall maintain records, on a calendar
year basis, by kind of tobacco, the quantity, form and country of
origin of all unmanufactured tobacco which is:
(i) In inventory at the beginning of the calendar year,
(ii) Acquired during the calendar year,
(iii) Used to manufacture cigarettes in the United States during
the calendar year, and
(iv) Used, or otherwise disposed of, other than to manufacture
cigarettes during the calendar year.
(2) Each domestic manufacturer of cigarettes shall maintain a
record with respect to each batch or lot of tobacco used in each
separate run or blend of cigarettes for the subject manufacturing
plants as follows:
(i) The total quantity of tobacco used,
(ii) The quantity of domestic tobacco used,
(iii) The quantity of imported tobacco used,
(iv) The quantity of reconstituted tobacco used in the
manufacturing of cigarettes and with respect to such tobacco:
(A) The quantity that resulted from tobacco that lost its identity
during the manufacturing process and was recaptured and reused to
manufacture cigarettes by such manufacturer.
(B) The quantity that resulted from cigarettes returned to the
manufacturer and reused by such manufacturer to manufacture other
cigarettes.
(3) Records shall be retained for at least 3 calendar years after
the calendar year for which the report and certification in
Sec. 723.502 is made. Records shall be retained for a longer period
upon written notification by the USDA Office of Inspector General, the
Administrator, Deputy Administrator or Director. In any case, the
destruction of records shall not release any party from any burden that
may be lawfully imposed and shall not release any manufacturer from the
burden of proof imposed by this section.
(b) Required reports. In addition to the reports and certifications
required in Sec. 723.502, each domestic manufacturer of cigarettes
shall submit a report of the information required by paragraph (a)(1)
of this section.
(c) When and where to report. The report required by this section
shall be mailed or otherwise delivered 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 and certification
applies.
(d) Burden of proof. The manufacturer shall bear the burden of
proof on all issues arising under this subpart.
Sec. 723.507 False reports; Failure to file reports; and Examination
of records.
(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 1938 Act and 18
U.S.C. 1001 for any:
(1) False report, certification, or statement, or
(2) Failure to provide required information.
(b) Examination of records. The Director, the Office of Inspector
General, or an authorized representative 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 required information. The reasonable cost incurred by such audit
may be charged to the cigarette manufacturer who is the subject of the
audit or examination.
Sec. 723.508 Reconsideration and appeal.
A domestic manufacturer of cigarettes may request that the Director
reconsider any determination of such manufacturer's failure to comply
with the provisions of this subpart. A request for reconsideration
shall be made within 15 calendar days after the date of the
notification of failure to comply. If such manufacturer is dissatisfied
with the determination rendered with respect for reconsideration, such
manufacturer may appeal the determination to the Director, National
Appeals Division in accordance with part 780 of this title.
Sec. 723.509 Confidentiality of information.
The reports, certifications, and other information furnished by a
cigarette manufacturer shall be kept confidential by all officials and
employees of the Department of Agriculture. Only such data as may be
determined relevant shall be disclosed to investigative authorities,
under court orders, or at administrative hearings and to the extent
permitted by law. Such information shall not be available to the public
under the provisions of the Freedom of Information Act contained in 5
U.S.C. 552. Aggregate data and general statements not identified to an
individual manufacturer may be released if otherwise allowed by law.
Signed at Washington, DC, on January 7, 1994.
Grant Buntrock,
Administrator, Agricultural, Stabilization and Conservation Service.
[FR Doc. 94-712 Filed 1-7-94; 1:02 pm]
BILLING CODE 3410-05-P