[Federal Register Volume 59, Number 40 (Tuesday, March 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4674]


[[Page Unknown]]

[Federal Register: March 1, 1994]


                                                    VOL. 59, NO. 40

                                             Tuesday, March 1, 1994
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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1427

RIN 0560-AD58

 

Revisions to the Upland Cotton User Marketing Certificate Program

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Proposed rule.

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SUMMARY: Concerns have been raised about the cost of the upland cotton 
user marketing certificate program and the way in which it has been 
administered. A notice requesting comments regarding the program was 
published in the Federal Register on August 20, 1993, at 58 FR 44320. 
Comments were solicited with respect to several of the concerns that 
have been raised. The Commodity Credit Corporation (CCC) is now 
requesting further comments with respect to proposed changes in the 
formula for determining the user marketing payment rate; whether export 
contracts that specify shipment after September 30 should be eligible 
for payments beginning October 1, and, if so, whether the maximum 
payment rate should be 2.5 cents per pound until such time as the 
payment rate calculation is based entirely on Northern Europe forward 
prices; and whether a destination should be required to be declared for 
export sales contracts.

DATES: Comments must be received by March 11, 1994, in order to be 
assured of consideration.

ADDRESSES: Comments must be mailed to Director, Fibers and Rice 
Analysis Division (FRAD), Agricultural Stabilization and Conservation 
Service (ASCS), United States Department of Agriculture (USDA), room 
3754-S, PO Box 2415, Washington, DC 20013-2415.

FOR FURTHER INFORMATION CONTACT: Wayne Bjorlie, FRAD, ASCS, USDA, room 
3754-S, PO Box 2415, Washington, DC 20013-2415 or call 202-720-7954.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    The proposed rule is issued in conformance with Executive Order 
12866. Based on information compiled by USDA, it has been determined 
that this proposed rule would materially alter the budgetary impacts of 
entitlements and the rights and obligations of entitlement recipients. 
A change in the method of determining the payment rate under the 
program could raise payment rates for domestic textile mills and lower 
payment rates for exporters of U.S.-grown cotton, reducing budgetary 
expenditures. The ability of exporters to earn a payment on forward-
crop sales beginning earlier in the marketing year could afford them 
greater benefits under the program and result in more price 
competition. The requirement that exporters designate the country of 
destination of the cotton before CCC will fix a payment rate will 
entail additional paperwork for exporters and could reduce exports of 
U.S. cotton.
    These program changes are projected to increase the average rate at 
which domestic mills are being paid by about one-half cent and to 
decrease the average rate at which exporters are being paid by about 
two cents. As a result, domestic mill use of upland cotton is expected 
to increase by 50,000 bales per year and exports of U.S. cotton are 
expected to be reduced by 100,000 bales per year. These changes are not 
significant enough to have any impact on acreage reduction programs, 
prices, or farm income. Government outlays for Step-2 payments are 
projected to be reduced by an average of almost $30 million per year.
    Other than the impacts indicated above, this action:
    (1) Will not have an annual effect on the economy of $100 million 
or more or adversely affect in a material way the economy, a sector of 
the economy, productivity, jobs, the environment, public health or 
safety, or State, local or tribal governments or communities;
    (2) Will not create a serious inconsistency or otherwise interfere 
with an action taken or planned by another agency;
    (3) Will not materially alter the budgetary impacts of user fees or 
loan programs, and;
    (4) Will not raise novel legal policy issues arising out of legal 
mandates, the President's priorities, or the 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 CCC 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 these 
determinations.

Environmental Evaluation

    It has been determined by an environmental evaluation that this 
action will not have a significant impact on the quality of the human 
environment. Therefore, neither an Environmental Assessment nor an 
Environmental Impact Statement is needed.

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: Cotton Production Stabilization--10.052.

Executive Order 12778

    This proposed rule has been reviewed in accordance with Executive 
Order 12778. The provisions of this proposed rule do not preempt State 
laws, are not retroactive, and do not involve administrative appeals.

Executive Order 12372

    This program/activity is not subject to the provisions of Executive 
Order 12372, which requires intergovernmental consultation with State 
and local officials. See notice related to 7 CFR part 3015, subpart V, 
published at 48 FR 29115 (June 24, 1983).

Paperwork Reduction Act

    The information collection requirements contained in the current 
regulations have been approved by the Office of Management and Budget 
(OMB), under the provisions of 44 U.S.C. chapter 35, through August 31, 
1994 (OMB No. 0560-0136). Changes made to the Upland Cotton Domestic 
User/Exporter Agreement as a result of this proposed rule have been 
submitted to OMB for approval in addition to one new information 
collection requirement (see Attachment 1).

Preliminary Regulatory Impact Analysis

    The Preliminary Regulatory Impact Analysis describing the options 
considered in developing this proposed rule and the impact of the 
implementation of each option is available on request from the above-
named individual.

Background

    This proposed rule amends 7 CFR part 1427 to set forth proposed 
determinations with respect to the upland cotton user marketing 
certificate program. A notice requesting comments on the administration 
of the program was published on August 20, 1993, at 58 FR 44320. 
Comments were requested on these specific concerns:
    (1) How to make the program equitable to exporters with and without 
foreign affiliates, to domestic textile mills, and to other members of 
the U.S. cotton industry;
    (2) How best to meet the legislative objectives of the program as 
they relate to U.S. cotton competitiveness;
    (3) How to assure that export contracts considered eligible to lock 
in rates in advance under the program represent actual sales and how to 
institute appropriate measures that discourage program abuse but do not 
unduly penalize exporters if they are unable to ship cotton due to 
unforseen and unavoidable circumstances;
    (4) How to operate a program that interferes as little as possible 
with normal cotton marketing practices, that does not overly influence 
or dominate decision-making in the cotton market, that will not result 
in cotton price distortions, and that will not commit Federal funds 
unnecessarily to the competitiveness program; and
    (5) How to accomplish the above objectives in a way that is not 
administratively burdensome.
    A total of sixteen comments were received in response to the notice 
requesting comments.
    With regard to changing the formula for calculating the user 
marketing certificate payment rate, four respondents supported a 
proposal that would limit the weekly increase in the forward payment 
rate calculation to 25 percent of the current week's payment rate 
calculation. Two respondents recommended basing the user marketing 
certificate payment rate throughout the year on a four-week moving 
average of the payment rate formula. One respondent commented that 
domestic mills should receive the same rate as exporters or the formula 
should be eliminated. Another respondent urged elimination of the 
current and forward dual rate structure and suggested that CCC make 
adjustments in the price quotations to reflect actual sales prices. 
Four respondents recommended eliminating the program altogether, one 
respondent recommended eliminating the program for exporters only, and 
one respondent suggested using a fixed certificate rate of 0.5 cents 
per week. Two respondents did not comment on the payment rate formula.
    With regard to the formula used to determine whether a special 
import quota is in effect, three respondents recommended that only 
current Northern Europe price quotations be used.
    With regard to sales to foreign affiliates, one respondent asked 
that sales to foreign affiliates be allowed to continue, one respondent 
asked that sales to foreign affiliates not be allowed, and three 
respondents asked that only sales to end users be allowed. In addition, 
one respondent requested that CCC not establish regulations that 
interfere with traditional international marketing practices.
    Two respondents requested that there not be a time limit for 
specifying the destination of any exports. One respondent asked that 
liquidated damages be calculated based on 50 percent of the certificate 
value and another respondent asked that CCC increase penalties for non-
performance on export contracts.
    Several respondents commented on various provisions of the upland 
cotton loan program. One respondent suggested lowering the loan rate to 
45 cents. One respondent asked that the loan period be shortened to ten 
months with a two-month extension, that preliminary notice of any 
discretionary adjustment to the adjusted world price (AWP) be given and 
that producers be ineligible for loans if they have cotton under loan 
from a previous crop. One respondent suggested that CCC deduct carrying 
charges from the loan proceeds.
    After considering these comments, the following changes are 
proposed to be made with respect to the regulations governing the 
upland cotton user marketing certificate program:
    (1) Beginning with the period each year when both Northern Europe 
current prices and Northern Europe forward prices are available, 
determine the payment rate for both domestic mills and exporters using 
a blend of the two prices similar to the method used to make a 
transition in the AWP from current to forward prices. Establish a six-
week transition period during which blended prices would be used. 
Following the transition period, calculate payment rates based on the 
Northern Europe forward prices. If adopted, this proposal would require 
that a complementary procedure be established for determining the 
``Step 3'' special import quota;
    (2) Allow export contracts that specify delivery after September 30 
to qualify for payments beginning about October 1. Such contracts would 
earn the lower of the rate in effect for a given week or 2.5 cents per 
pound until such time as the payment rate is based entirely on Northern 
Europe forward prices. Thereafter, no limitation on the payment rate 
would apply; and
    (3) Require exporters to declare the country of destination before 
a Step-2 payment rate can be established for an export contract.

List of Subjects in 7 CFR Part 1427

    Cotton, Loan programs/agriculture, Packaging and containers, Price 
support programs, Reporting and recordkeeping requirements, Surety 
bonds, Warehouses.

    Accordingly, it is proposed that 7 CFR part 1427 be amended as 
follows:

PART 1427--COTTON

    1. The authority citation for 7 CFR part 1427 continues to read as 
follows:

    Authority: 7 U.S.C. 1421, 1423, 1425, 1444, and 1444-2; 15 
U.S.C. 714b and 714c.

    2. Section 1427.102 is amended by:
    A. Adding ``End user'' definition, and
    B. Revising definitions of ``Northern Europe current price'', 
``Northern Europe forward price'', ``Northern Europe price'', ``U.S. 
Northern Europe current price'', ``U.S. Northern Europe forward 
price'', and ``U.S. Northern Europe price'' to read as follows:


Sec. 1427.102  Definitions.

* * * * *
    End user means the person or entity who opens a bale of cotton for 
use in the manufacture of cotton products.
* * * * *
    Northern Europe current (NEc) price means the average of the 
current shipment prices for the preceding Friday through Thursday for 
the five lowest-priced growths of the growths quoted for Middling (M) 
1\3/32\ inch cotton C.I.F. northern Europe.
    Northern Europe forward (NEf) price means the average of the 
forward shipment prices for the preceding Friday through Thursday for 
the five lowest-priced growths of the growths quoted for M 1\3/32\ inch 
cotton C.I.F. northern Europe.
    Northern Europe (NE) price means, during the period in which only 
one daily price quotation is available for the growth quoted for M 1\3/
32\ inch cotton, C.I.F. northern Europe, the average for the preceding 
Friday through Thursday period of the five lowest-priced growths of the 
growths quoted for M 1\3/32\ inch cotton, C.I.F. northern Europe.
* * * * *
    U.S. Northern Europe current (USNEc) price means the average of the 
current shipment prices for the preceding Friday through Thursday for 
the lowest-priced United States growth as quoted for Middling (M)\3/32\ 
inch cotton C.I.F. northern Europe.
    U.S. Northern Europe forward (USNEf) price means the average of the 
forward shipment prices for the preceding Friday through Thursday for 
the lowest-priced United States growth as quoted for M 1\3/32\ inch 
cotton C.I.F. northern Europe.
    U.S. Northern Europe (USNE) price means, during the period in which 
only one daily price quotation is available for the growth quoted for M 
1\3/32\ inch cotton, C.I.F. northern Europe, the average for the 
preceding Friday through Thursday period of the lowest-price United 
States growth as quoted for M 1\3/32\ inch cotton, C.I.F. northern 
Europe.
    3. Section 1427.107 is amended by:
    A. Redesignating paragraphs (d) through (g) as paragraphs (f) 
through (i), respectively,
    B. Revising paragraphs (a), (b), and (c),
    C. Adding new paragraphs (d) and (e), and
    D. Revising redesignated paragraph (f)(3)(i) to read as follows:


Sec. 1427.107  Payment rate.

    (a) Payments will be made to domestic users for all eligible bales 
opened and exporters on contracts which specify shipment of the cotton 
by not later than September 30 following such contract period and for 
which a country of destination has been named, whenever the formula 
defined in paragraph (c) of this section (hereinafter referred to as 
the ``payment rate calculation'') results in positive values for the 
four preceding consecutive weeks and the adjusted world price, 
determined in accordance with Sec. 1427.25 of this part (hereinafter 
referred to as the ``AWP''), does not exceed the current crop-year loan 
level for the base quality of upland cotton by more than 130 percent in 
any week of the 4-week period. Payments will not be made if the payment 
rate calculation, adjusted for the value of any certificate or cash 
payments issued under this section, results in a positive value for 
each week of the immediately preceding 10-week period. The payment rate 
for any Friday through Thursday period is equal to the payment rate 
calculation for the immediately preceding Friday through Thursday 
period.
    (b) Payments will be made to exporters on contracts which specify 
shipment of the cotton after September 30 following such contract 
period and for which a country of destination has been named beginning 
the Friday through Thursday week which includes October 1 whenever the 
payment rate calculations defined in paragraph (c) of this section are 
positive for the preceding four consecutive weeks and the AWP does not 
exceed the current crop-year loan level for the base quality of upland 
cotton by more than 130 percent in any week of the 4-week period. No 
payments will be allowed on contracts which specify shipment of the 
cotton after September 30 following such contract period if the 
contract was made prior to the Friday through Thursday week which 
includes the preceding October 1. With respect to contracts which 
specify shipment of the cotton after September 30, 1994 but before 
September 30, 1995, no payments will be made on contracts made prior to 
the week following the first week covering the period Friday through 
Thursday which includes April 15, 1994 or, if the USNEc, the USNEf, the 
NEc and the NEf are not available, prior to the week following the 
first week covering the period Friday through Thursday after the week 
which includes April 15, 1994 in which the USNEc, the USNEf, the NEc 
and the NEf are available. Payments will not be made if the payment 
rate calculation, adjusted for the value of any certificate or cash 
payments issued under this section, results in a positive value for 
each week of the immediately preceding 10-week period. Beginning the 
Friday through Thursday week which includes October 1 and until the 
seventh week following the first week covering the period Friday 
through Thursday which includes April 15 or, if the USNEc, the USNEf, 
the NEc and the NEf are not available, until the seventh week following 
the first week covering the period Friday through Thursday after the 
week which includes April 15 in which the USNEc, the USNEf, the NEc and 
the NEf are available, the payment rate for any Friday through Thursday 
period is equal to the lower of the payment rate calculation for the 
immediately preceding Friday through Thursday period or 2.5 cents. 
Beginning the seventh week following the first week covering the period 
Friday through Thursday which includes April 15 or, if the USNEc, the 
USNEf, the NEc and the NEf are not available, beginning with the 
seventh week following the first week covering the period Friday 
through Thursday after the week which includes April 15 in which the 
USNEc, the USNEf, the NEc and the NEf are available, the payment rate 
for any Friday through Thursday period is equal to the payment rate 
calculation for the immediately preceding Friday through Thursday 
period.
    (c) (1) Beginning August 1 until the first week covering the period 
Friday through Thursday which includes April 15 or, if the USNEc, the 
USNEf, NEc and the NEf are not available, until the first week covering 
the period Friday through Thursday after the week which includes April 
15 in which the USNEc, the USNEf, the NEc and the NEf are available, 
the payment rate calculation is the USNE minus the NE price minus 1.25 
cents per pound.
    (2) Beginning with the first week covering the period Friday 
through Thursday which includes April 15 or, if the USNEc, the USNEf, 
the NEc and the NEf are not available, beginning with the first week 
covering the period Friday through Thursday after the week which 
includes April 15 in which the USNEc, the USNEf, the NEc and the NEf 
price are available, the payment rate calculation will be based on an 
average of the USNEc price and the USNEf (hereinafter referred to as 
the ``blended U.S. Northern Europe price'') and an average of the NEc 
and the NEf (hereinafter referred to as the ``blended Northern Europe 
price'') as follows:
    (i) Weeks 1 and 2: Blended U.S. Northern Europe price equals 
((2 x USNEc)+USNEf)/3. Blended Northern Europe price equals 
((2 x NEc)+NEf)/3.
    (ii) Weeks 3 and 4: Blended U.S. Northern Europe price equals 
(USNEc+USNEf)/2. Blended Northern Europe price equals (NEc+NEf)/2.
    (iii) Weeks 5 and 6: Blended U.S. Northern Europe price equals 
(USNEc+(2 x USNEf))/3. Blended Northern Europe price equals 
(NEc+(2 x NEf))/3. The payment rate calculation for the 6-week period 
is the blended U.S. Northern Europe price minus the blended Northern 
Europe price minus 1.25 cents per pound.
    (3) Beginning with the seventh week following the first week 
covering the period Friday through Thursday which includes April 15 or, 
if the USNEc, the USNEf, the NEc and the NEf are not available, 
beginning with the seventh week following the first week covering the 
period Friday through Thursday after the week which includes April 15 
in which the USNEc, the USNEf, the NEc and the NEf are available, until 
July 31, the payment rate calculation is the USNEf minus the NEf minus 
1.25 cents per pound.
    (d) For contracts entered into before August 30, 1991, the payment 
rate shall be zero.
    (e) All export contracts must specify a country of destination in 
order to determine the applicable payment rate. If the country of 
destination is declared on the date the export sale is first confirmed 
in writing, the payment rate shall be the rate in effect for that 
Friday through Thursday week. If the country of destination is declared 
after the date that sale is first confirmed in writing but prior to 
shipment, the payment rate shall be the lower of the rate in effect at 
the time the sale was made or the rate in effect at the time the 
destination was declared. If no destination is declared prior to 
shipment, the payment rate shall be the lower of the rate in effect at 
the time the sale was first confirmed in writing or the rate in effect 
on the shipment date. The exporter shall notify CCC if there is a 
change in the country of destination previously declared for any export 
contract. Upon receipt of such notification, CCC will establish the 
payment rate for cotton shipped under such contract at the lower of the 
payment rate in effect when the original contract was made, or the 
payment rate in effect on the date written notification which is 
submitted to CCC stating that the cotton shipped, or to be shipped, 
under such contract was, or shall be shipped to a country other than 
that shown in the original contract.
* * * * *
    (f) * * *
    (3) * * *
    (i) The difference between the highest payment rate paid to, or 
earned by, the exporter between the date the original contract was 
entered into and December 31 of the year in which the original contract 
shipment period ends, regardless of whether the highest payment rate 
paid to, or earned by, the exporter was based upon a current or forward 
contract, and the lower of the original contract payment rate or if a 
replacement contract has been made, the replacement contract payment 
rate, or if a change of destination country was made, the payment rate 
in effect at the time change of destination is declared, or
* * * * *
    4. Section 1427.108 (c)(2) and (d) are revised to read as follows:


Sec. 1427.108  Payment.

* * * * *
    (c) * * *
    (2) Sold by the exporter on the date the contract for sale is first 
confirmed in writing by the exporter or importer and the destination 
country is named.
    (d) Payments in accordance with this subpart shall be made 
available upon application for payment and submission of supporting 
documentation, including proof of purchases and consumption of eligible 
cotton by the domestic user or proof of export of eligible cotton by 
the exporter, as required by the provisions of the Upland Cotton 
Domestic User/Exporter Agreement and instructions issued by CCC. 
Retention of export payments is predicated upon the receipt by CCC of 
proof of delivery to the designated country within 60 calendar days of 
such payment.
    5. Section 1427.109(c)(3)(i) is revised to read as follows:.


Sec. 1427.109  Contract cancellations.

* * * * *
    (c) * * *
    (3) * * *
    (i) The difference between the highest payment rate paid to or 
earned by, the exporter between the date the original contract was 
entered into and December 31 of the year in which the original contract 
shipment period ends, regardless of whether the highest payment rate 
paid to, or earned by the exporter was based upon a current or forward 
contract and the lower of the original contract payment rate or if a 
replacement contract has been made, the replacement contract payment 
rate, or if a change of destination country was made, the payment rate 
in effect at the time the change of destination is declared, or
* * * * *
    Signed at Washington, DC, on February 24, 1994.
Bruce R. Weber,
Executive Vice President, Commodity Credit Corporation.

    Note: The following form will not appear in the Code of Federal 
Regulations.

BILLING CODE 3410-05-P

TP01MR94.000


[FR Doc. 94-4674 Filed 2-24-94; 4:22 pm]
BILLING CODE 3410-05-C