[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