[Federal Register Volume 59, Number 104 (Wednesday, June 1, 1994)]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13318]


  Federal Register / Vol. 59, No. 104 / Wednesday, June 1, 1994 /
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[[Page Unknown]]

[Federal Register: June 1, 1994]


                                                   VOL. 59, NO. 104

                                            Wednesday, June 1, 1994

DEPARTMENT OF AGRICULTURE

Agricultural Stabilization and Conservation Service

7 CFR Part 723

RIN 0560-AD56

 

Tobacco Marketing Quotas, Acreage Allotments, and Production 
Adjustment

AGENCY: Agricultural Stabilization and Conservation Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: With revisions, this final rule adopts the proposed rule 
published in the Federal Register on January 11, 1994 (59 FR 1493). The 
proposed rule set out regulations for implementing for tobacco the 
domestic content assessment provisions added, as section 320C, to the 
Agricultural Adjustment Act of 1938 (1938 Act) by section 1106 of the 
Omnibus Budget Reconciliation Act of 1993 (the 1993 Act). Those 
provisions generally require a ``domestic manufacturer of cigarettes'' 
(as defined in the 1938 Act) to pay certain additional assessments and 
make certain tobacco purchases if, for any calendar year beginning with 
the 1994 calendar year, domestic tobacco constitutes less than 75 
percent of the total tobacco used by the manufacturer to produce 
cigarettes in the United States. This final rule sets out requirements 
for recordkeeping, penalties, appeals, and other matters necessary to 
the enforcement and administration of section 320C.

EFFECTIVE DATE: January 1, 1994.

FOR FURTHER INFORMATION CONTACT: Michael D. Thompson, Agricultural 
Program Specialist, Tobacco and Peanuts Division, Agricultural 
Stabilization and Conservation Service, United States Department of 
Agriculture (USDA), P. O. Box 2415, Washington, DC 20013-2415, 
telephone 202-720-4281.

SUPPLEMENTARY INFORMATION:

Executive Order 12886

    This rule is issued in conformance with Executive Order 12866. This 
final rule has been determined to be economically significant. 
Therefore, a final regulatory impact analysis has been conducted. A 
copy of the Final Regulatory Impact Statement may be obtained from Dr. 
Robert Miller, Director, Tobacco and Peanut Analysis Division, 
Agricultural Stabilization and Conservation Service, USDA, P. O. Box 
2415, Washington, DC 20013-2415, telephone: 202-720-8839.
    The domestic marketing assessment (DMA) provisions of the 1993 Act 
are expected to increase the usage of domestic tobacco by 222 million 
pounds for marketing year (MY) 1994. Even if cigarette production 
declines to the extent forecast in the Final Regulatory Impact 
Analysis, by the sixth year with DMA provisions, extra domestic tobacco 
required to avoid any additional assessments by cigarette manufacturers 
will still be 115 million pounds. The increase in the use of domestic 
tobacco is expected to draw down current loan stocks of burley and 
flue-cured tobacco by 159 million pounds in MY 1994. Consequently, the 
Commodity Credit Corporation's loan outlays for tobacco for the 1994 MY 
are estimated to be about $320 million less. These actions should, in 
subsequent years, reduce the amount of the No-Net-Cost tobacco program 
assessments paid by producers and purchasers of domestic burley and 
flue-cured tobacco. Additionally, with the DMA in place, about 8,000 
farms may remain in operation over the next six years that would 
otherwise go out of business.
    Since the cost of domestic tobacco is higher than that of imported 
tobacco, manufacturers may shift some cigarette production to foreign 
based operations. The Final Regulatory Impact Analysis indicates that 
at a maximum, approximately 10,300 jobs could be lost if manufacturers 
shift cigarette production to foreign based operations and there is a 
reduction in U.S. unmanufactured exports. However, the largest domestic 
manufacturer of cigarettes has testified before a House of 
Representatives Subcommittee that it will not shift any cigarette 
production overseas as a result of the DMA.
    The impact statement indicated little effect on the consumer prices 
for cigarettes because tobacco accounts for only about 3 percent of the 
retail cost of cigarettes.
    This regulatory action is not expected to have an adverse effect on 
the environment, public health or safety, or State, local, or tribal 
governments or communities. This regulatory action is not expected to 
be inconsistent nor interfere with any action taken or planned by 
another Federal agency. Other than as indicated in the summary of the 
regulatory impact statement, this action would not alter the budgetary 
impact of entitlements, grants, user fees, loan programs or the rights 
and obligations of the recipients thereof. This rule would be 
consistent with the President's priorities and principles set forth in 
Executive Order 12866.

Regulatory Flexibility Act

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this final rule since the Agricultural Stabilization and 
Conservation Service is not required by 5 U.S.C. 553 or any other 
provision of law to publish a notice of proposed rulemaking with 
respect to the subject matter of this rule.

Federal Assistance Program

    The title and number of the Federal Assistance Program, as found in 
the Catalog of Federal Domestic Assistance, to which this rule applies 
are: Commodity Loans and Purchases--10.051.

Environmental Evaluation

    It has been determined by an environmental evaluation that this 
action will have no significant impact on the quality of the human 
environment. Therefore, neither an environmental assessment nor an 
environmental impact statement is needed.

Executive Order 12372

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

Executive Order 12778

    This final rule has been reviewed in accordance with Executive 
Order 12778. The provisions of this final rule are retroactive to 
January 1, 1994, and preempt State laws to the extent that such laws 
are inconsistent with the provisions of this rule. Before any legal 
action is brought regarding determinations made under the provisions of 
7 CFR part 723, the administrative appeal provisions set forth at 7 CFR 
part 780 must be exhausted.

Paperwork Reduction Act

    This final rule imposes new recordkeeping and information 
collection requirements on ``domestic manufacturers of cigarettes'' (as 
defined in the 1938 Act) and related tobacco industry businesses. The 
content of, and justification for, the reporting and recordkeeping 
requirements has been submitted to the Office of Management and Budget 
(OMB), as an addendum to OMB No. 0560-0058, in accordance with the 
requirements of the Paperwork Reduction Act of 1980, as amended. The 
Department is seeking Expedited Clearance by OMB within 21 days of the 
date of the publication of this rule. These requirements will be 
conditional until such clearance is obtained. No person shall be 
penalized or otherwise adversely affected for a failure to comply with 
any recordkeeping requirements in this rule as concerns records that 
would have been required to be generated prior to the publication of 
the final rule implementing the program provided for in this rule. 
However, all persons shall be required to maintain and submit on 
request, all records generated prior to the publication of the final 
rule which are relevant to the provisions of this rule and shall be 
required, to the full extent possible, for all uses of tobacco relevant 
to this rule. Those comments which were received in response to the 
proposed rule which addressed recordkeeping and reporting requirements 
are addressed in the discussion which follows. The public burden is 
estimated to average 20 hours annually per response, including time for 
reviewing instructions, searching existing data sources, and completing 
and reviewing the information collection. Additional comments regarding 
the recordkeeping and reporting requirements contained in this final 
rule, and suggested alternatives, may also be sent to OMB, Paperwork 
Reduction Project (OMB No. 0560-0058), Washington, DC 20503; and to 
USDA, Clearance Officer, OIRM, AG Box 7630, Washington, DC 20250.

Background

    Section 320C applies only to ``domestic manufacturers of 
cigarettes'' which are defined in Section 301 of the 1938 Act as 
including any manufacturer that produces at least 1 percent of the 
cigarettes produced and sold in the United States. Under Section 320C, 
effective with calendar year 1994, such a manufacturer must pay an 
assessment and make certain compensatory tobacco purchases unless 
domestic tobacco equals or exceeds 75 percent of the total tobacco used 
by the manufacturer to produce cigarettes in the United States for the 
calendar year. The Secretary of Agriculture can reduce the percentage 
in some circumstances. Penalties and other charges can apply for 
failing to pay the assessments or make the compensatory purchases. 
Domestic tobacco, under the proposed rule, was defined to be tobacco 
produced in the United States and ``United States'' was defined for all 
geographical purposes under the rule to include the fifty States, the 
territories and possessions of the United States, Puerto Rico, and the 
District of Columbia. Section 1106 of the 1993 Act, which added Section 
320C to the 1938 Act, also provided for certain assessments on imported 
tobacco. Those assessments, which are different from those added in 
Section 320C, were implemented in an interim rule published on December 
23, 1993 (58 FR 68017), and a final rule published on March 9, 1994 (59 
FR 10939).

Comments

A. Commenters

    Twenty-three comments were received in response to the rule 
proposed to implement section 320C. Six comments were from major 
cigarette manufacturers, six were from tobacco State farm 
organizations, one from a national farm organization, one from a 
tobacco producer loan association, one from a tobacco export 
organization, two from businesses related to the tobacco industry, one 
from a member of Congress, one from an international governmental 
commission, one from a national health organization, and three from 
individuals.

B. Discussion

    (1) General Comments. One comment objected to the use of the term 
``domestic content requirement'' in the rule since the 75 percent 
standard, even apart from the ability of the Secretary to reduce the 
percentage in certain instances, is not an absolute requirement. Rather 
the target, if met, serves as an alternative to certain additional 
assessments and purchases. Two comments suggested that section 320C 
violates understandings under the General Agreement on Tariffs and 
Trade (GATT). One comment sought an exemption from coverage for 
manufacturers of cigarettes whose output of cigarettes is sufficiently 
low that the manufacturer is not subject under other programs to 
certain labelling requirements. Four comments suggested delaying 
implementation of the rule until any GATT challenges were resolved or 
delaying implementation until January 1996 in order to allow for 
uninhibited use of current inventories of tobacco.
    The use of ``domestic content requirement'' in this context can be 
misleading. The rule has been modified accordingly. GATT objections to 
the Congressionally-mandated 75 percent provision go beyond the scope 
of this rulemaking. Also, given that section 320C was enacted in August 
of 1993, and the lack of any provision in section 320C for delay, there 
is no authority or warrant for delaying the implementation of the rule. 
If needed, surplus quantities of foreign tobacco could, presumably, be 
re-sold.
    (2) Regulatory Impact Analysis. Nine comments objected to matters 
contained in the regulatory impact analysis and have been considered in 
the final impact statement. To the extent those comments addressed 
particular provisions of the rule they are addressed in this discussion 
as well.
    (3) Covered Tobacco and Cigarettes. Some have questioned whether 
two groups of tobacco, in particular, should be counted as being 
foreign or imported tobacco for the use calculations; namely: (1) 
Turkish and Oriental tobaccos and (2) stems, reconstituted tobacco and 
other unmanufactured tobacco for which no duty is collected by the 
United States Customs Service. Five comments favored, and two opposed, 
treating the two groups as countable tobacco. Three comments argued 
that limiting coverage to cigarettes produced in the United States was 
a ``loophole'' which could be avoided by subject manufacturers by 
relocating. Two comments suggested that cigarettes made in the United 
States and then exported should be excluded from coverage on the ground 
that such coverage would be detrimental to domestic manufacturing 
operations. Two comments favored the rule's provisions on coverage of 
cigarettes as they stood in the proposed rule. There are six 
manufacturers who, at the present time, appear to qualify as ``domestic 
manufacturers of cigarettes'' (as defined in the 1938 Act). The six 
manufacturers suggested that the rule needed clarification on when 
tobacco would be considered used to produce cigarettes. They suggested 
that such use should be deemed to occur when the tobacco is removed 
from inventory for immediate manufacture into cigarettes. Three 
comments specified that they favored not counting reclaimed tobacco 
against the use calculations. In addition, manufacturers suggested that 
they should be able to rely on third party certifications regarding 
whether tobacco is foreign or domestic.
    The treatment of all of that which is commonly considered to be 
``tobacco'' as countable tobacco use is a matter of statutory 
construction. Upon review of the comments it continues to appear 
inappropriate, for reasons set out with the proposed rule, to exclude 
any such tobacco from such consideration despite some definitional 
issues that arise in connection with the 1938 Act. Thus, the final rule 
continues to treat Oriental and Turkish tobacco and tobacco in any form 
(including tobacco for which no duty is due) as ``tobacco'' for 
purposes of the rule. Countable tobacco would include, though not 
necessarily be limited to, all tobacco which is within the scope of 
Chapter 2401 of Harmonized Tariff Schedule (HTS) and certain classes 
within Chapter 2403 of the HTS. Likewise, the limitation of coverage in 
the rule to cigarettes produced in the United States by subject 
manufacturers is a matter of statutory construction and it continues to 
appear, for the reasons set out with the proposed rule, that this 
limitation is proper. With respect to weight calculations, it has been 
determined, as suggested in the comments, that tobacco be considered to 
have been used to produce cigarettes at the point at which it is 
removed from inventory for immediate manufacture into cigarettes. The 
commenters have indicated that manufacturers keep current records on 
that basis and adoption of that standard should be administratively 
workable with the least interference with commerce. Manufacturers will 
continue to have the burden of demonstrating compliance with the rule. 
Also, the final rule reflects agreement that reclaimed tobacco should 
not be counted when re-used by the same manufacturer. With respect to 
certifications for category of origin (foreign or domestic), the final 
rule allows such reliance by providing that certain purchases of 
tobacco whose identity might otherwise be unknown may be considered 
domestic tobacco if an appropriate certification is obtained from the 
party who transfers the tobacco to the manufacturer. The rule sets out 
requirements for the certification, which include acknowledgement that 
false certifications can lead to criminal or civil penalties or 
sanctions. The rule allows the Director of the Tobacco and Peanuts 
Division of the Agricultural Stabilization and Conservation Service 
(hereafter ``Director'') to prescribe the form of the certification to 
be used. If the Director has not prescribed such a form, then the 
manufacturer will be required to ensure that a form of the 
manufacturer's own design is used, maintained, and meets the specific 
requirements of the regulation.
    (4) Domestic Assessment Rate, Required Purchases and Appeals. Under 
section 320C, those manufacturers who do not meet the critical use 
percentage must pay an assessment, over and above other assessments 
that may apply under the 1938 Act and other legislation, equal to the 
difference, by a formula set out in the statute, between the market 
prices of certain domestic tobaccos and the market price of imported 
tobacco. Four comments suggested that the domestic and foreign price 
comparison should be on the same weight basis (``green'' or ``dry'') 
and it was also suggested that cigar tobacco should be excluded from 
the calculation of the imported tobacco market price. Two comments 
suggested the DMA should not be considered due until all administrative 
appeals by the manufacturer are completed. The statute further provides 
that a manufacturer who fails to make the critical use percentage must, 
to the full extent of the shortfall, purchase an equal amount of 
tobacco from the inventories of the producer owned cooperative 
marketing associations for burley and flue-cured tobacco. Two comments 
suggested that the rule's 30 calendar day period for such compensatory 
purchases was too short and should be 90 days. Also, two comments 
suggested that the time for administrative appeals should not be the 15 
calendar days provided for in the proposed rule but 30 calendar days 
instead. Another suggested that a clarification was needed in the rule 
to ensure that all adverse determinations under the rule were 
administratively appealable.
    Domestic tobacco is normally marketed on a ``green'' (unprocessed) 
weight basis but imported tobacco normally is purchased on a ``dry'' 
(processed) weight basis. In order to provide for a more accurate 
comparison of the market prices for use in calculating the DMA rate, 
the rule specifies that, as determined appropriate, the Director may 
use ``dry'' weight figures for both domestic and imported prices and 
may exclude cigar and other non-cigarette tobacco as the Director deems 
appropriate and practicable. The due date for the assessment has not 
been adjusted in the rule. To do so would provide an incentive for 
unnecessary appeals, and would dilute the intended effect of the 
assessment. However, the Director will have the discretion to extend 
the time for actual payment, subject to such conditions as the Director 
considers to be appropriate. Such extension will not toll the accrual 
of interest. The Director may also for cause extend the time for 
submitting an appeal; the 15 calendar day period should be enough time 
to express interest in an appeal and request an extension. The 15 
calendar day period comports with the normal time for administrative 
appeals provided for in the generic appeal regulations found at 7 CFR 
part 780. The provisions of the rule have, however, been clarified, 
consistent with original intent, to specify that a manufacturer may 
appeal any adverse determination made under the rule with respect to 
that manufacturer. Also, to reflect commercial exigencies, the time for 
making compensatory purchases has been changed in the rule from 30 
calendar days to 60 calendar days; the Director may grant further 
extensions for cause.
    (5) Recordkeeping and Reporting Requirements. The six domestic 
manufacturers complained that the recordkeeping provisions of the rule 
did not comport with their current procedures, were excessive, and 
would require costly adjustments in their operations, particularly the 
proposal for batch-by-batch and lot-by-lot recordkeeping for tobacco 
removed from inventory for manufacture into cigarettes. Consistent with 
their other comments, the manufacturers suggested that recordkeeping 
for such tobacco uses be directed at total removals from inventory 
immediately before manufacture. The manufacturers indicated that all 
manufacturers, for that stage of the manufacturing process, maintain 
records by weight and category (domestic or foreign). These commenters 
also objected to the proposal requiring reporting of the manufacturer's 
total tobacco inventory and reporting of non-cigarette tobacco use; 
further, some suggested that USDA's Form TB-26, Tobacco Stock Report, 
be used instead of reports created specifically for compliance with the 
rule. The proposed rule provided for recordkeeping for a minimum of 
three years and four comments criticized a statement in the rule 
placing the risk on the record keeper for any destruction of records 
after the minimum period. Another comment specifically supported having 
a provision in the final rule mandating that submitted records and 
reports be kept confidential by the agency. Further, as to audits, the 
statute allows for assessing the audit costs against the manufacturer. 
One comment suggested that the costs should, instead, be paid out of 
domestic assessments.
    To comport with other changes in the rule, the recordkeeping 
requirements are modified in the final rule to focus, as far as end use 
is concerned, on the point at which tobacco is removed from inventory 
for immediate manufacture into cigarettes. Other modifications have 
been made, including removal of the need to keep records based on 
country of origin. Also, with the modifications, the manufacturer's 
records for tobacco used for the actual manufacture of cigarettes will 
not have to be kept batch-by-batch or lot-by-lot. However, lot-by-lot 
accounting will still be required for accounting for tobacco taken into 
inventory. The rule continues to require recordkeeping and reports for 
total inventory and for manufacturing uses for purposes other than 
cigarettes as such information will be needed as a check on reports of 
the tobacco used to manufacture cigarettes. Use of Form TB-26 will not 
be allowed in lieu of reports specifically created for compliance with 
the rule as that form is intended to serve other purposes and may not 
contain all the information and/or explicit or implied certifications 
of compliance needed. However, manufacturers are free to use whatever 
data source they wish in preparing reports relating to compliance with 
the rule, including data contained on Form TB-26, with the 
understanding that the resubmission of any data would carry with it a 
reaffirmation of its accuracy.
    The three-year provision for mandatory recordkeeping is less than 
may be the applicable statute of limitations. Accordingly, it is not 
possible or appropriate to immunize parties subject to the rule from 
the effects of an imprudent record destruction. That risk can be 
avoided by more extended recordkeeping as circumstances dictate. 
Regarding confidentiality, it is the agency's intent to maintain the 
confidentiality of all records to the extent permitted by law. Section 
320C(b)(2)(d) of the 1938 Act adopts the confidentiality provisions of 
Section 320B of the same Act. However, as confidentiality matters go to 
internal agency matters, rather than regulation of private entities or 
individuals, it has been determined that the final rule should not 
contain confidentiality provisions. Finally, as to audits, 
manufacturers will remain potentially liable for the cost of the audit 
since such liability is statutory. Moreover, relieving manufacturers of 
that liability would not only raise the potential cost of administering 
the program but could also discourage efficient recordkeeping which 
leads to easily-verified information.
    In addition to the modifications indicated above, provisions have 
been included in the rule to take into account absences of records for 
events occurring prior to the publication of the final rule.
    (6) Reduction in the Domestic Content Percentage. Section 320C(f) 
provides that if the Secretary, in consultation with producer owned 
cooperative marketing associations, determines that because of drought 
or other conditions beyond the control of producers, the quantity of 
domestic burley or flue-cured tobacco that is harvested and suitable 
for marketing is substantially less than the expected yield for the 
crop, and that pool inventories for the kind of tobacco involved have 
been depleted, then, effective for the calendar year following the year 
in which the crop loss occurs, the Secretary of Agriculture may reduce 
the critical domestic content percentage below 75 percent. The proposed 
rule specified that such reductions would be made only if the 
inventories of domestic burley or flue-cured tobacco fell below 25 
percent of the ``reserve stock level'' for the respective tobacco. The 
manner in which the ``reserve stock level'' is calculated is by a 
formula set out in section 301 of the 1938 Act.
    Three comments suggested that the reduction of the domestic content 
level be allowed in either of the two years following the disaster 
because the inventory effect on an individual manufacturer might not be 
felt for two years. Another comment suggested that reasons other than 
crop loss should trigger the reduction and that a reduction should be 
considered without adherence to a rigid requirement that domestic 
inventories of burley or flue-cured tobacco be down to 25 percent of 
the ``reserve stock level.'' Another comment suggested that major 
cigarette manufacturers be consulted with respect to percentage 
reduction issues.
    By statute, reductions in the domestic content nonassessment 
percentage is limited to the year following the year of the crop loss. 
Further, the necessity of such a crop loss is also statutory. However, 
in order to provide greater flexibility in responding to market 
circumstances, the reference to 25 percent of the reserve stock level 
has been dropped from the rule so as to allow the Director to exercise 
greater judgment in determining whether to reduce the percentage where 
the statutory preconditions for a reduction exist. Formal consultation 
with manufacturers regarding reductions is not provided for in the 
statute and goes to internal agency decision making; however, where 
there is a potential for a reduction, major manufacturers and other 
interested members of the public will be free to make their views known 
to the producer owned cooperative marketing associations and to USDA in 
the normal manner.

List of Subjects in 7 CFR Part 723

    Acreage allotments, Assessments, Marketing quotas, Penalties, 
Reporting and recordkeeping requirements, Tobacco.

    For the reasons set forth in the preamble, 7 CFR part 723 is 
amended as follows:

PART 723--TOBACCO

    1. The authority citation for 7 CFR part 723 is revised to read as 
follows:

    Authority: 7 U.S.C. 1301, 1311-1314, 1314-1, 1314b, 1314b-1, 
1314b-2, 1314c, 1314d, 1314e, 1314f, 1314i, 1315, 1316, 1362, 1363, 
1372-75, 1421, 1445-1, and 1445-2.

    .2. Part 723 is amended by adding subpart E to read as follows:

Subpart E--Domestically Produced Cigarettes

Sec.
723.501  Definitions.
723.502  Domestic tobacco content nonassessment percentage.
723.503  Domestic content marketing assessment.
723.504  Required purchases from tobacco loan stocks.
723.505  Reduction of domestic content nonassessment percentage.
723.506  Required records and reports; burden of proof.
723.507  False reports; failure to file reports; examinations of 
records; and records for events occurring prior to the publication 
of the final rule.
723.508  Reconsideration and appeal.

Subpart E--Domestically Produced Cigarettes


Sec. 723.501  Definitions.

    In addition to the definitions set forth at Sec. 723.104, the 
definitions set forth in this section shall be applicable for purposes 
of administering the provisions of this subpart.
    ASCS. The USDA's Agricultural Stabilization and Conservation 
Service.
    CCC. The Commodity Credit Corporation, an instrumentality of the 
USDA.
    Covered cigarettes. Cigarettes produced in the United States.
    Director. Except with respect to references to the National Appeals 
Division of ASCS, the Director of the Tobacco and Peanuts Division, or 
the successor to the Director.
    Domestic assessment use shortage. For any domestic manufacturer, 
the domestic assessment use shortage shall be, as determined by the 
Director, the amount, converted to pounds, by which, for the relevant 
calendar year, domestic tobacco use for covered cigarettes produced by 
the manufacturer was less than the amount which, as a percentage of 
total tobacco use for these cigarettes, would have equaled the domestic 
content nonassessment percentage.
    Domestic content nonassessment percentage. The domestic content 
nonassessment percentage shall be 75 percent unless otherwise specified 
in this subpart.
    Domestic manufacturer. A domestic manufacturer of cigarettes.
    Domestic manufacturer of cigarettes. A person who, as determined by 
the Director, produces and sells more than 1 percent of the cigarettes 
produced and sold in the United States.
    Domestic tobacco. Any quantity of harvested tobacco which has been 
cultivated, grown, and produced in the United States.
    Foreign tobacco. Tobacco that is not domestic tobacco.
    Imported tobacco. Any tobacco, including (but not limited to) 
Oriental and Turkish tobaccos, that is not domestic tobacco and has 
been entered into the commerce of the United States. Any tobacco that 
cannot, as determined by the Director, be verified as to its being 
domestic tobacco shall be presumed to be imported tobacco.
    NASS. The National Agricultural Statistics Service, USDA.
    Origin category. The categorization of tobacco as either domestic 
or foreign tobacco.
    Price support inventory. The inventory of tobacco which has been 
pledged as collateral for a price support loan made by CCC through a 
producer owned cooperative marketing association.
    Producer owned cooperative marketing associations. Those 
associations which by law act as agents for producers for price support 
loans for tobacco. Those associations for burley and flue-cured tobacco 
are the Burley Tobacco Growers Cooperative Association, the Burley 
Stabilization Corporation, and the Flue-Cured Tobacco Cooperative 
Stabilization Corporation, or their successors.
    Tobacco. Any commodity or substance that is commonly considered to 
be tobacco in the trade.
    United States. The 50 States of the United States, the District of 
Columbia, Puerto Rico, or any Territory or Possession of the United 
States.
    Unmanufactured tobacco. Any tobacco in any form that is not 
processed and packaged as a ready consumer tobacco product, including, 
but not limited to, tobacco in the form of leaf tobacco, strips, stems, 
scrap, and reconstituted, homogenized, and blended tobacco or products 
(other than consumer-ready products).
    USDA. The U.S. Department of Agriculture.


Sec. 723.502  Domestic tobacco content nonassessment percentage.

    (a) General requirements. (1)(i) For cigarette production for each 
calendar year beginning with calendar year 1994, the Director shall 
determine for each domestic manufacturer the percentage that domestic 
tobacco constitutes of the total tobacco used by that manufacturer to 
produce cigarettes in the United States. If such percentage use of 
domestic tobacco does not equal or exceed the domestic content 
nonassessment percentage for that calendar year, the manufacturer shall 
be deemed to have a domestic assessment use shortage and shall pay an 
assessment in the amount specified in Sec. 723.503 and shall make 
compensatory tobacco purchases in the amount specified in Sec. 723.504.
    (ii) For any calendar year, the domestic content nonassessment 
percentage shall be 75 percent unless for that calendar year the 
percentage is reduced under Sec. 723.505, in which case the domestic 
content nonassessment percentage shall be such reduced percentage.
    (iii) Any assessment or purchase requirement which shall follow in 
the event of a domestic assessment use shortage shall be in addition to 
any other assessment or obligation that may be due or imposed.
    (2) Any tobacco that has been reconstituted, or otherwise processed 
to the extent that it has lost its respective identity as either 
domestic tobacco or imported tobacco, shall be considered to be foreign 
tobacco when making determinations under this subpart.
    (3) Any tobacco otherwise subject to paragraph (a)(2) of this 
section which is purchased by the manufacturer from a broker or 
processor may nonetheless be considered to be domestic tobacco by the 
Director if a valid certification meeting the requirements of this 
section and satisfactory to the Director is signed by the transferring 
party.
    (4) In order to be credited under paragraph (a)(3) of this section, 
a certification must conform to all requirements imposed by the 
Director which may include use of a prescribed form.
    (5) If the Director has not prescribed a form for use for such 
certifications, it shall be the responsibility of the domestic 
manufacturer to ensure that a proper certification has been obtained on 
a form devised by such manufacturer. In order to be valid for purposes 
of this section, the certification so devised must:
    (i) Specify the total amount of tobacco being transferred to the 
domestic manufacturer by the certifying party and the amount of such 
tobacco which is domestic tobacco;
    (ii) Certify, except as provided in paragraph (a)(6) of this 
section, that such domestic tobacco was purchased directly from a 
domestic producer (at auction, directly or from the price support 
inventory of the applicable association) at market rates for domestic 
tobacco, and that the certifying party can demonstrate the actual 
disbursement of the purchase price.
    (iii) Certify that the certifying party has no reason to believe 
that the tobacco certified as domestic tobacco is foreign tobacco;
    (iv) Refer to this subpart and section 320C of the Agricultural 
Adjustment Act of 1938 and state the purposes for which the 
certification is requested and made;
    (v) State that the certification involves material information 
which may or will be relied upon by the United States government for 
purposes of enforcement of the provisions of this subpart;
    (vi) State that false or inaccurate information may lead to civil 
or criminal penalties or sanctions under the provisions of 18 U.S.C. 
1001 or other provisions of law.
    (6)(i) If any such certifying party has not purchased the tobacco 
from a domestic producer or the price support inventory of the 
applicable association, the certifying party shall be required in lieu 
of the requirements of paragraph (a)(5)(ii) of this section to attach a 
certification from the party from whom the certifying party obtained 
the tobacco. Such sub-certification shall conform to the provisions of 
paragraph (a)(5)(i) through (a)(5)(vi) of this section. Additional sub-
certifications shall be required as needed to trace the tobacco back to 
the domestic producer.
    (ii) In the event that such certifications as are otherwise 
required in order to treat tobacco as domestic tobacco cannot be 
reasonably obtained, the Director may relieve the domestic manufacturer 
from such requirements based on such representations of the origin 
category of the tobacco as the Director finds sufficient to serve the 
purposes of this subpart.
    (7) The domestic manufacturer shall be required to maintain all 
records as may be needed to establish the origin of tobacco taken into 
inventory including any certifications regarding such origin.
    (8) Any tobacco having lost its identity with respect to its origin 
category during the manufacturing process but which in the normal 
course of business is recaptured and reused by the same manufacturer to 
manufacture cigarettes in the United States and any tobacco in any 
cigarettes returned to the manufacturer of the cigarettes which is 
reused by the same manufacturer to manufacture new cigarettes in the 
United States shall not be counted toward the domestic content 
calculations made under this subpart. The domestic manufacturer shall 
maintain such records that show the quantity of tobacco so reclaimed or 
reused in the manufacturing of cigarettes for the calendar year. 
However, any tobacco reused by a manufacturer different than the 
original manufacturer shall be counted toward the domestic use 
calculations for both manufacturers.
    (b) Year-end reports required to be made by manufacturers. (1) In 
addition to any other reports required by this subpart, beginning with 
the 1994 calendar year, a domestic manufacturer of cigarettes shall 
report to the Director, for each calendar year, the following 
information:
    (i) The total quantity of tobacco used by the manufacturer to 
produce cigarettes in the United States during such calendar year.
    (ii) The total quantity of imported tobacco used by the 
manufacturer in the production of cigarettes in the United States 
during such calendar year.
    (iii) The total quantity of domestic tobacco used by the 
manufacturer in the production of cigarettes in the United States 
during such calendar year.
    (iv) The total quantity of tobacco reused in the production of 
cigarettes during such calendar year that was reclaimed from the 
manufacturing process or from returned cigarettes and is exempt from 
counting toward the total final domestic use calculation for the 
manufacturer under paragraph (a)(8) of this section.
    (v) The total number of individual cigarettes produced during such 
calendar year.
    (2) For purposes of the information required to be reported by 
paragraphs (b)(1)(i) through (b)(1)(iii) of this section, the 
quantities reported shall be based on the packed, redried weight of the 
tobacco when it is removed from inventory for immediate entry into the 
manufacturing process for making cigarettes. The weights required for 
paragraph (b)(1)(iv) of this section shall be the actual weight of the 
reclaimed tobacco.
    (c) Where and when to report. The reports required by this subpart 
shall, unless otherwise specified in this subpart, be mailed or 
otherwise delivered in hard copy to the Director, Tobacco and Peanuts 
Division, Agricultural Stabilization and Conservation Service, USDA, P. 
O. Box 2415, Washington, DC 20013-2415 by February 15 of the year after 
the calendar year to which the report applies. The Director may specify 
the form in which any report required by this subpart shall be made and 
may make other requests for information as may be necessary to 
effectively enforce the provisions of this subpart.
    (d) Failure to report. A manufacturer who fails to report the 
quantities of domestic and imported tobacco used for manufacturing 
cigarettes shall be presumed to have used only imported tobacco in such 
cigarettes. In addition, with respect to any recordkeeping or reporting 
requirement imposed by this subpart, the failure to file any report 
timely or to supply any required information shall permit the Director 
to determine that the information not timely filed or supplied is 
adverse to the party responsible for the submission and to make 
determinations under this subpart accordingly by any method determined 
reasonable by the Director. If the correct and verifiable information 
is later submitted, the Director may, in lieu of drawing such 
conclusions, assess the costs incurred as a result of the failure to 
supply the information in a timely manner.


Sec. 723.503  Domestic content marketing assessment.

    (a) General. Effective beginning with the 1994 calendar year, each 
domestic manufacturer of cigarettes with a domestic assessment tobacco 
use shortage for a calendar year shall pay to CCC a non-refundable 
domestic marketing assessment under this section in an amount which 
equals the product calculated by multiplying the amount in pounds of 
the shortage by the assessment rate per pound calculated under 
paragraph (b) of this section.
    (b) Assessment rate. The domestic marketing assessment rate for 
purposes of this section shall be determined separately for each 
calendar year. The assessment rate shall be the difference per pound 
between:
    (1) One-half the sum of the average prices per pound received by 
domestic producers of burley tobacco and flue-cured tobacco, 
respectively, for their respective marketing years preceding the 
calendar year of the domestic assessment use shortage, and,
    (2) The average price per pound of unmanufactured imported 
cigarette tobacco for the calendar year preceding the year of the 
shortage.
    (c) Data used to calculate market prices. The Director may use data 
published by NASS for purposes of making market price determinations 
under this section and may use a weighted average price of 
unmanufactured cigarette tobacco which was imported during the previous 
calendar year, as calculated from Bureau of Census data, for such 
calendar year. The Director may make adjustments in the average prices 
or weights used to determine the domestic marketing assessment rate as 
determined appropriate by the Director to ensure that the average 
prices used for both domestic and imported tobacco are on an equivalent 
basis to the extent practical. Such adjustments, if any, shall be based 
on historical conversion yields common to the tobacco trade and may 
include the exclusion of cigar tobacco from the calculation of the 
average import price or the exclusion of other non-cigarette tobacco 
from such calculation.
    (d) Time for paying assessment. The domestic manufacturer shall pay 
the domestic marketing assessment provided for in this section within 
30 calendar days after demand for payment. However, if the manufacturer 
timely requests reconsideration or timely appeals the determination, 
the time for payment of the amount in dispute may be extended by the 
Director to a date no later than 30 calendar days after the final 
determination is rendered. Such extensions shall be subject to such 
conditions as the Director may impose and shall be subject to a 
continued accrual of interest, unless otherwise specified by the 
Director. The rate for such interest shall be the rate charged on any 
obligation owing to CCC at the time of the assessment, as determined by 
the Director.
    (e) Failure to timely pay assessment. If a domestic manufacturer 
fails in a timely manner to pay any assessment under this section, such 
manufacturer shall be subject to a penalty in an amount equal to twice 
the amount of the initial assessment in addition to any interest that 
has accrued on such obligations and in addition to any other charges or 
obligations that may apply.
    (f) Interest. All sums due to CCC under this subpart shall accrue 
interest at a rate of interest which the Director determines is 
currently being assessed for any other obligations due CCC. Such 
charges shall be in addition to any other charges due.


Sec. 723.504  Required purchases from tobacco loan stocks.

    (a) General. In addition to paying a domestic marketing assessment, 
each domestic manufacturer of cigarettes who for any calendar year 
beginning with the 1994 calendar year has a domestic assessment use 
shortage shall purchase a quantity of burley and flue-cured tobacco 
from the loan stocks of the producer owned cooperative marketing 
associations for burley and flue-cured tobacco in the amounts 
prescribed in this section.
    (b) Purchase quantity. The amount of tobacco that must be purchased 
shall be an amount equal to the amount, in pounds, of the 
manufacturer's domestic assessment use shortage. The total amount of 
required purchases shall be divided equally between burley and flue-
cured tobacco. If it is determined that the required amount of 
purchases by all manufacturers would reduce the inventories of burley 
or flue-cured tobacco below the reserve stock level, the Director may 
reduce the required purchase quantity on a proportional basis. Required 
purchases under this section shall not be considered as purchases for 
purposes of meeting the manufacturer's purchase intentions under 
section 320B of the 1938 Act.
    (c) Purchase price. In order to receive credit for a purchase to 
satisfy a purchase required by this section, the purchase price must 
not be less than the published offer list price of the applicable 
producer owned cooperative marketing association which shall be a price 
available to all qualified buyers. Credit for required purchases shall 
not be allowed if discounts, rebates, or other special incentives have 
been offered and received in connection with purchases of tobacco loan 
stocks from association inventories.
    (d) Failure to purchase required amount. Each manufacturer shall 
have 60 calendar days from date of notification of the required 
purchase amount to complete the purchases required under this section. 
The producer owned cooperative marketing associations shall report to 
the Director the quantities of required purchases that have been made. 
A manufacturer who fails to purchase, within the allotted time, the 
required quantity of burley or flue-cured tobacco shall be liable for 
penalty on each pound of tobacco for which there has been a failure to 
make a timely purchase. The penalty rate shall be the amount determined 
to be equal to 75 percent of the average market price for the kind of 
tobacco required to be purchased for the marketing year that ends in 
the calendar year of the manufacturer's domestic assessment use 
shortage.


Sec. 723.505  Reduction of domestic content nonassessment percentage.

    (a) General. The Director, in consultation with the appropriate 
producer owned cooperative marketing associations, may reduce the 
domestic content nonassessment percentage for a calendar year to a 
percentage below 75 percent for any calendar year with respect to which 
the Director determines that the production of burley or flue-cured 
tobacco for the preceding year was substantially reduced because of 
natural disaster or other conditions beyond the control of producers 
and the loan stock inventory for the kind of tobacco is effectively 
depleted.
    (b) Expected production. For purposes of this section, the Director 
may determine, but shall not be required to determine, the expected 
amount of production of tobacco based on the planted acreage as 
reported by NASS for the respective kind of tobacco multiplied by the 
simple average of the five most recent years' average yields per acre 
for the respective kind of tobacco. The Director may take into account 
such other factors as the Director may deem to be relevant and 
appropriate, including changes in the national quota set by the USDA 
for the kind of tobacco involved.
    (c) Deadline for determination. The Director shall announce the 
reduced percentage by November 30 of the year preceding the calendar 
year to which the reduced percentage will apply.


Sec. 723.506  Required records and reports; burden of proof.

    (a) Required records. Each domestic manufacturer, for all 
manufacturing plants producing cigarettes covered under this subpart, 
shall maintain records on a calendar year basis for each lot of 
unmanufactured tobacco taken into inventory that shows for each lot 
the:
    (1) Kind or type of tobacco,
    (2) Form of tobacco, such as leaf, strips, scrap, stems, 
reconstituted, reclaimed, etc.,
    (3) Origin category of the tobacco (domestic or imported); and
    (4) Weight of the tobacco.
    (b) Record retention period. Records shall be retained for at least 
3 calendar years after the calendar year to which the records apply. 
The minimum period of record retention may be extended upon written 
notification by the USDA Office of Inspector General or the Director. 
Nothing in this paragraph shall relieve the domestic manufacturer of 
the burden of establishing compliance with the provisions of this 
subpart.
    (c) Required reports. (1) In addition to any other report or 
recordkeeping that may be required under this subpart or otherwise, 
each domestic manufacturer shall for each calendar year file a report 
with the Director showing, with the same particularity and categories 
of data required under paragraph (a) of this section, the quantity of 
unmanufactured tobacco that the manufacturer:
    (i) Acquired during the calendar year,
    (ii) Used to manufacture covered cigarettes during the calendar 
year,
    (iii) Used, or otherwise disposed of, other than to manufacture 
covered cigarettes during the calendar year, and
    (iv) Has in inventory at end of the calendar year.
    (2) In addition, a one-time report containing the same 
particularity and categories of data required under paragraph (a) of 
this section shall be made by each domestic manufacturer setting out 
the total amount of unmanufactured tobacco in the manufacturer's 
inventory as of January 1, 1994. Such report shall be submitted within 
15 calendar days after publication of this rule in the Federal 
Register.
    (3) The information provided in the reports required in paragraph 
(c) of this section may be obtained from reports prepared and submitted 
to USDA for other purposes. The resubmission of such information shall 
constitute a current affirmation of the accuracy of such data or 
information.
    (4) Reports required by this section shall be mailed or otherwise 
delivered in hard copy to the Director, Tobacco and Peanuts Division, 
Agricultural Stabilization and Conservation Service, USDA, P. O. Box 
2415, Washington, DC 20013-2415 by February 15 of the year after the 
calendar year for which the report applies except with respect to the 
one-time report required by paragraph (c)(2) of this section, which 
shall be submitted by the date specified in paragraph (c)(2) of this 
section.
    (d) Variances in reports and recordkeeping and deadlines. The 
Director may grant variances from the report, recordkeeping, and 
deadlines required by this section or subpart but only in writing and 
only to the extent that it is determined that such variances are 
justified, taking into account the overall purposes of this subpart and 
the desire to avoid undue interference with commerce.
    (e) Burden of proof. The burden of proof on all issues arising 
under this subpart regarding compliance with the provisions of this 
subpart shall be on the domestic manufacturer of cigarettes.


Sec. 723.507  False reports; failure to file reports; examination of 
records; and records for events occurring prior to the publication of 
the final rule.

    (a) False reports, failure to file report. In addition to any other 
sanction or remedy or presumption that may apply, a person shall be 
subject to all other remedies provided for by law including, but not 
limited to, those that apply under section 320C of the Agricultural 
Adjustment Act of 1938, as amended (7 U.S.C. 1314i), and 18 U.S.C. 1001 
for any:
    (1) False or inaccurate report, certification, or statement, or
    (2) Failure to provide required information.
    (b) Examination of records. The Director, the Office of Inspector 
General, or any authorized representative of the United States may 
examine such records, books, computer files, or any other material to 
determine the correctness of any report or information provided to the 
Director or to obtain relevant information. Reasonable costs incurred 
with respect to any such audit may be charged to the domestic 
manufacturer which is the subject of the audit or examination.
    (c) Records for events occurring prior to the publication of the 
final rule. No person shall be penalized or otherwise adversely 
affected for a failure to comply with any recordkeeping requirements in 
this rule as concerns records that would have been required to be 
generated prior to the publication of the final rule implementing the 
program provided for in this subpart. However, all persons shall be 
required to maintain and submit on request, all records generated prior 
to the publication of the final rule which are relevant to the 
provisions of this subpart and shall be required, to the full extent 
possible, for all uses of tobacco relevant to this subpart. Nothing in 
this paragraph shall be justification for the destruction of records or 
information, or for refusing a request for relevant information.


Sec. 723.508  Reconsideration and appeal.

    A domestic manufacturer of cigarettes may request that the Director 
reconsider any adverse determination with respect to such manufacturer 
under this subpart. A request for reconsideration shall be made within 
15 calendar days after the date of the notification of failure to 
comply except that the manufacturer for cause may request that the time 
for such filing be extended. The Director may grant such requests and 
may set conditions for such extensions. Unless otherwise specified by 
the Director, an extension of the time for reconsideration, or the 
pendency of reconsideration or appeal, shall not toll the time for 
payment of any amount due, nor toll the accrual of interest. If the 
domestic manufacturer is dissatisfied with the reconsideration 
determination rendered, such manufacturer may appeal the determination 
to the Director, National Appeals Division in accordance with part 780 
of this title.

    Signed at Washington, DC, on May 24, 1994.
Bruce R. Weber,
Acting Administrator, Agricultural Stabilization and Conservation 
Service.
[FR Doc. 94-13318 Filed 5-26-94; 2:48 pm]
BILLING CODE 3410-05-P