[Federal Register Volume 59, Number 71 (Wednesday, April 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8801]


[[Page Unknown]]

[Federal Register: April 13, 1994]


                                                    VOL. 59, NO. 71

                                          Wednesday, April 13, 1994

DEPARTMENT OF AGRICULTURE

Agricultural Stabilization and Conservation Service

7 CFR Part 708

 

End-Use Certificate System

AGENCY: Agricultural Stabilization and Conservation Service, USDA.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Agricultural Stabilization and Conservation Service (ASCS) 
of the Department of Agriculture gives notice that it is currently 
planning to issue a proposed rule to implement U.S. end-use 
certificates for commodities imported from any foreign country or 
instrumentality that requires end-use certificates. The proposed action 
is in accordance with section 321(f) of the North American Free Trade 
Agreement (NAFTA) Implementation Act (the Act) which requires such 
action be taken by the Secretary of Agriculture. The primary purpose of 
the U.S. end-use certificate requirement is to help ensure that foreign 
agricultural commodities are not used in U.S. Government-assisted 
export programs. ASCS requests comments and suggestions from the public 
on the alternatives and issues that need to be addressed in 
implementing such a proposal including, but not limited to, those 
issues mentioned in this notice. Supporting data for comments are 
requested.

DATES: Comments should be submitted on or before May 13, 1994 to be 
assured of consideration.

ADDRESSES: Comments should be sent to the Deputy Administrator, 
Commodity Operations, ASCS, P.O. Box 2415, Washington, DC 20013-2415. 
All written comments received in response to this advance notice will 
be available for public inspection in room 5755, South Building, 14th 
Street and Independence Avenue SW., Washington, DC between 8 a.m. and 5 
p.m., Monday through Friday, except holidays.

FOR FURTHER INFORMATION CONTACT: Steve Gill, Chief, Inventory 
Management Branch, Commodity Operations Division, ASCS, P.O. Box 2415, 
Washington, DC 20013-2415; phone 202-720-6500.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 321(f) of the Act established an end-use certificate 
requirement for wheat and barley imported into the U.S. from any 
foreign country, such as Canada, or instrumentality that requires end-
use certificates for imports that are products of the U.S. The primary 
purpose of the U.S. end-use certificate requirement is to help ensure 
that foreign produced agricultural commodities are not used in U.S. 
Government-assisted export programs. The Act is not specific regarding 
the type of end-use certificate system to be implemented or the 
information to be collected. The Secretary of Agriculture is directed 
to issue regulations regarding the information to be provided in end-
use certificates. The information could include type of commodity, 
class, quantity, country of origin, importer of the commodity, and the 
end-use of the commodity, if known at the time of importation of the 
commodity.
    As a means of protecting the interests of U.S. agricultural 
producers, the Act provides that the Secretary may, after consulting 
with domestic producers and reporting to the Congress, suspend end-use 
certificate requirements if the requirements have directly resulted in 
the reduction of:
    (1) Income to U.S. producers of agricultural commodities, or
    (2) Competitiveness of U.S. agricultural commodities in world 
export markets.
    If a foreign country or instrumentality that requires end-use 
certificates eliminates its system, the Secretary is to suspend the 
U.S. end-use certificate requirement 30 calendar days after the 
suspension by the foreign country or instrumentality.
    Further, the Act provides that it shall be a violation of 18 U.S.C. 
1001 for a person to engage in fraud or knowingly violate Section 
321(f) or applicable regulations.
    As of this date, only Canada requires end-use certificates on U.S. 
grain entering the country.
    Current statutes provide that only commodities produced in the U.S. 
may be considered eligible for use in U.S. Government-assisted export 
programs. These programs have proved to be an important vehicle for 
developing commercial export markets, meeting humanitarian food needs, 
and spurring economic and agricultural growth in developing countries. 
In essence, the programs help U.S. agricultural producers by developing 
and expanding export markets for their commodities and improving the 
competitiveness of those commodities in world markets. For example, in 
the case of wheat, approximately 80 percent of U.S. wheat exported in 
recent years was done so under at least one of USDA's export programs. 
Given that the U.S. is striving toward a free and fair environment for 
the trade of agricultural commodities in North America (e.g., through 
NAFTA and Uruguay Round of the General Agreement on Tariffs and Trade 
(GATT)), the Congress, recognizing the important role that U.S. 
Government-assisted export programs play in the U.S. economy, has 
approved legislation which endeavors to ensure the integrity of such 
programs.
    The main question this notice poses is:
    What type of end-use certificate system will best accomplish the 
objective of helping ensure that foreign agricultural commodities are 
not used in U.S. Government-assisted export programs while still 
maintaining compatibility with the grain merchandising system of the 
U.S.?
    Are current handling and reporting requirements such that the 
gathering of additional information on the use of imported grain will 
be sufficient to meet U.S. origin requirements of Government-assisted 
export programs? Or are more stringent handling requirements necessary 
to ensure that imported grain will not be used in U.S. Government-
assisted export programs? While one of several alternative systems 
could be implemented, all systems have advantages and disadvantages. 
Thus, consideration must be given to the effects such a system will 
have on U.S. producers, importers, warehouses, grain handlers, millers, 
processors, exporters, feedlot operators, and ultimately, U.S. 
consumers.

II. U.S. Grain System vs. Canadian Grain System

    Because Canada is the only country currently requiring end-use 
certificates, a comparison of the U.S. and Canadian marketing systems 
is helpful. The handling and distribution of grain in the U.S. is based 
on blending various grades and qualities from different locations to 
reach the quality attributes desired by the buyer. The Canadian grain 
handling and distribution system is quite different. That system 
preserves the origin and, in some cases, the variety of Canadian grain. 
Blending and commingling different lots of grain are not part of normal 
commercial practices in Canada.

III. Canadian End-Use System

    The Canadian end-use system reflects their marketing system. The 
Government of Canada (GOC) requires that U.S. milling wheat and barley 
imported into Canada be accompanied by an end-use certificate. This is 
to ensure that non-Canadian grain does not become commingled with 
Canadian grain.
    The GOC position is that it wants to protect Canada's strict 
varietal licensing system which has been designed to select what they 
view as superior quality grain varieties. In addition, mirroring U.S. 
concern, the GOC wants to avoid any concern that U.S. grain might take 
advantage of GOC domestic or export programs, such as the Western Grain 
Transportation Act.
    When a U.S. grain exporter wants to ship grain to Canada, an end-
user (the consignee) must be identified. The U.S. grain must be 
consigned directly to a milling, manufacturing, brewing, distilling, or 
other processing facility for consumption at that facility. Three 
months after the Canadian consignee receives the imported U.S. grain, 
the consignee is required to file quarterly reports until the imported 
grain has been fully consumed as a food or feed ingredient. After the 
grain has arrived at the location specified in the end-use certificate, 
it must be stored and handled separately and cannot be moved or used 
for any other purpose than that specified in the end-use certificate 
without the permission of the GOC.
    Grain imported into Canada for direct feed-use must be 
``denatured'' before it can be transported across the border. GOC 
regulations define ``denatured'' as any lot containing at least 10 
percent permanently colored kernels.

IV. Alternatives for a U.S. End-Use System

    What type of end-use certificate system will best accomplish the 
objective of helping ensure that foreign agricultural commodities are 
not used in U.S. Government-assisted export programs while still 
maintaining compatibility with the grain merchandising system of the 
U.S.?
    Should a U.S. end-use system be patterned after the Canadian end-
use system and, if so, in what way? Should a U.S. end-use system simply 
adopt the Canadian provisions? Or, in that the Canadian system reflects 
the Canadian marketing system, should the U.S. adopt an end-use system 
that also reflects the U.S. marketing system?
    The key issue separating the following alternatives involves the 
issue of commingling vs. separate storage (i.e., identity preservation) 
of imported and U.S. origin grain. In brief, the proposed alternatives 
are as follow:
    (1) Allow commingling of imported and U.S. grain. Require that a 
certificate which collects all relevant information be issued at the 
U.S. border on imported grain. Continue (or modify) current ASCS rules 
and policies that help ensure that foreign agricultural commodities are 
not used in U.S. Government-assisted programs.
    (2) Allow commingling of imported and U.S. grain. Require that the 
commingled imported and U.S. grain be stored separately from U.S. 
origin grain until delivered to the end-user.
    (3) Prohibit commingling of imported and U.S. grain. Require that 
imported grain be stored separately from U.S. origin grain until 
delivered to the end-user.
    The following provides additional information on the proposed 
alternatives. Variations on these alternatives may also be considered.
    (1) ASCS could implement a ``border certificate'' system in which, 
as the agricultural commodity crosses the U.S. border, the importer 
would complete a form identifying the various required information 
elements. Under this scenario, certificates would be issued and 
collected at the border. ASCS could compile data, publish reports, and 
perform compliance checks based on the information collected. This 
alternative would be the simplest of the alternatives to operate and 
administer. It would not impose any additional burden on the U.S. grain 
handling sector.
    (2) ASCS could implement a system which tracks commingled grain. 
This scenario would allow foreign agricultural commodities to be 
blended and commingled with U.S. commodities under the requirement that 
all lots containing commingled U.S. and foreign agricultural 
commodities be tracked, with a complete paper-trail, throughout the 
entire U.S. commodity system. This alternative would permit the 
blending and commingling of U.S. and Canadian grain, but only under the 
condition that all lots containing even a trace amount of Canadian 
grain be identified and tracked through the grain system. For example, 
if one ton of Canadian wheat was imported and blended with 10 tons of 
U.S. wheat, that entire lot would have to be identified as commingled 
U.S.-Canadian wheat and tracked to the final user since that 11 tons of 
commingled U.S.-Canadian wheat would not be eligible for use in 
Government-assisted export programs. If the commingled lot were further 
blended with another 19 tons, and then split into two separate lots of 
15 tons--the identifying paperwork would have to accompany both lots 
through the rest of the marketing chain. To make this alternative work, 
ASCS would have to be able to require that the identity of the 
commingled grain be preserved on all commercial sales documents, such 
as invoices and bills of lading, from the first point where the U.S. 
and Canadian grain is commingled through each subsequent sale, i.e., 
from the point of commingling through the remainder of the U.S. 
marketing chain to the processor, feedlot, brewer, distiller, or 
exporter.
    (3) ASCS could implement an ``identity preservation'' system--an 
end-use certificate system that preserves the identity and origin of 
the commodity as it moves through each step of the marketing chain by 
requiring separate handling and storage. Only the end-user, such as a 
flour miller, would be allowed to commingle U.S. and imported 
commodities. Of course, if the flour were being purchased by the 
Commodity Credit Corporation (CCC) for use in a Government-assisted 
program, domestic origin requirements would prevail subjecting the 
miller to compliance reviews by ASCS. This alternative would give a 
high level of assurance that Canadian grain was not entering the U.S. 
Government-assisted programs and provide large amounts of information 
on quantity and quality of Canadian grain entering the U.S.

V. Current ASCS Rules and Policies

    Any end-use certificate system should be designed to supplement or 
broaden the use of current ASCS rules and policies used to procure 
commodities for donation or sale under the Food for Progress, Pub. L. 
480 Titles II and III, and section 416(b) foreign food assistance 
programs, as well as for domestic food assistance programs. Under these 
programs, the physical commingling of U.S. origin grain with non-U.S. 
origin grain is allowed provided that at the time of delivery to CCC 
the grain merchant has a sufficient quantity and quality of U.S. origin 
grain available at the location where loading occurred to account for 
the grain sold to CCC. The grain merchant's accounting records and 
supporting documents must demonstrate such availability and reduction 
in the stocks of U.S. origin grain. ASCS monitors the compliance of 
CCC's contractors through the selection and review of a number of 
contracts each quarter. The domestic origin reviews are performed by 
the Kansas City Commodity Office, ASCS. It is the responsibility of the 
CCC contractor to adequately maintain documents to establish the origin 
of the commodity. Failure of CCC's contractors to establish or 
otherwise maintain adequate records which verify the U.S. origin of the 
commodity or product delivered to CCC may be cause for suspension or 
debarment from bidding on future CCC contracts.

VI. Compliance Costs

    It is ASCS' intent that costs associated with verifying end-use 
certificate compliance will be borne by entities importing the grain. 
Such costs will likely be assessed at the time of issuance of each end-
use certificate.

VII. Summary

    Many variations of the aforementioned alternatives are possible. 
ASCS invites interested persons to submit written comments and 
supporting data with regard to the establishment of an end-use 
certificate system for the U.S. Comments are specifically invited on 
the following issues:

A. General Issue

    What type of end-use certificate system will best accomplish the 
objective of helping ensure that foreign agricultural commodities are 
not used in U.S. Government-assisted export programs while still 
maintaining compatibility with the grain merchandising system of the 
U.S.?

B. Operational Issues

    1. What information should be collected on an end-use certificate?
    2. How can ASCS minimize paperwork and reporting requirements 
associated with end-use certificates?
    3. How should ASCS enforce requirements under an end-use 
certificate system?
    4. Should all imported grain be covered by certificates or should 
some types of grain--such as wheat and barley used for livestock feed--
be exempted?
    5. Should imported grain be stored separately from domestically-
produced grain (i.e., identity preserved)?

C. Economic Impacts

(a) General
    1. Will end-use certificates under the different alternatives 
significantly change U.S. import levels for wheat and barley, or will 
they mainly increase reporting, handling, and/or storage requirements?
    2. What modifications, if any, of current procedures of the grain 
merchandising system will be required under the alternative end-use 
certificate systems, and what economic impacts--costs or benefits--will 
any such modifications have?
(b) Specific
    1. What are the potential economic impacts--positive or negative--
of imports and the alternative end-use certificate systems on costs, 
income, and employment of:
    a. Local elevators;
    b. Other local businesses and rural communities;
    c. Importers, merchandisers, regional and other warehouses;
    d. Millers, bakers, and processors;
    e. Feedlots and the livestock sector;
    f. U.S. grain and livestock producers; and
    g. U.S. consumers?
    2. What are the potential impacts--positive or negative--of imports 
and the alternative end-use certificate systems on U.S. Government 
programs and outlays?
    3. What are the potential impacts on others, if any, not listed 
above?

    Signed at Washington, DC on April 7, 1994.
Bruce R. Weber,
Acting Administrator, Agricultural Stabilization and Conservation 
Service.
[FR Doc. 94-8801 Filed 4-12-94; 8:45 am]
BILLING CODE 3410-05-P