[Federal Register Volume 63, Number 44 (Friday, March 6, 1998)]
[Rules and Regulations]
[Pages 11101-11104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5771]


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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1496

RIN 0560-AF09


Procurement of Processed Agricultural Commodities for Donation 
Under Title II, Public Law 480

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Final rule.

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SUMMARY: This final rule clarifies the regulations governing Commodity 
Credit Corporation's (CCC) procedures for purchasing processed 
agricultural commodities for donation overseas under Title II of the 
Agricultural Trade Development and Assistance Act of 1954 (Pub. L. 
480), and implements recent amendments to the Merchant Marine Act, 
1996, regarding shipments through Great Lakes ports.

EFFECTIVE DATE: This final rule will become effective April 6, 1998.

FOR FURTHER INFORMATION CONTACT: Jeffrey Jackson, Program Manager, 
USDA/FSA, Procurement and Donations Division, STOP 0551, 1400 
Independence Avenue, SW., Washington, DC 20250-0551; telephone (202) 
720-3995.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This final rule has been determined to be significant for the 
purposes of Executive Order 12866 and therefore has been reviewed by 
the Office of Management and Budget (OMB).

Regulatory Flexibility Act

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

Paperwork Reduction Act

    The amendments to 7 CFR part 1496 set forth in this final rule do 
not contain additional information collections that require clearance 
by OMB under the provisions of 44 U.S.C. Chapter 35, OMB Control Number 
0560-0177, 5 CFR part 1320.

[[Page 11102]]

Executive Order 12372

    This final rule 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 46 FR 29115 (June 24, 1983).

Executive Order 12988

    This final rule has been reviewed under the Executive Order 12988, 
Civil Justice Reform. The final rule would have pre-emptive effect with 
respect to any State or local laws, regulations, or policies which 
conflict with such provisions or which otherwise impede their full 
implementation.
    The final rule would not have retroactive effect. Administrative 
proceedings are not required before parties may seek judicial review.

Background

General

    Pursuant to Title II of the Agricultural Trade Development and 
Assistance Act of 1954 (Pub. L. 480), the United States donates 
agricultural commodities overseas to foreign governments, 
intergovernmental organizations, or private relief agencies (commonly 
referred to as ``cooperating sponsors'') to meet famine or other relief 
requirements, combat malnutrition, and promote economic development. 
These donations are pursuant to agreements between cooperating sponsors 
and the Agency for International Development (AID). Commodity Credit 
Corporation (CCC), an agency within the Department of Agriculture, is 
responsible for providing the donated commodities. CCC provides the 
commodities either from its inventory or by purchases in the market.

Commodity Procurement

    When purchasing packaged commodities for Title II, Public Law 480, 
CCC will solicit offers to sell on a ``free alongside ship (f.a.s.)'', 
or ``intermodal bridge-point'' basis. F.A.S. sale terms call for the 
commodity seller to deliver the commodities free alongside a vessel at 
a U.S. port for subsequent loading onboard an ocean going vessel. The 
ocean carrier takes custody of the cargo when it is in an f.a.s. 
position. Under intermodal sales terms, the seller delivers the 
commodities at a cargo handling facility or other transfer point. The 
ocean carrier takes custody of the cargo at the intermodal bridge-point 
and is responsible for moving the cargo to a U.S. port for loading on 
board an ocean vessel. Intermodal shipments involve the use of more 
than one means of conveyance, such as truck, rail, container vans, and 
barges. The ocean carrier may move the cargo from the intermodal-
bridge-point to a port in the same conveyance as delivered, or may move 
the cargo from one conveyance to another at the intermodal bridge-
point, such as from rail cars into container vans or barges and then 
transport the cargo to a port where it is loaded onto an ocean going 
vessel.
    Under Title II, Public Law 480, either the cooperating sponsor or 
AID will issue an invitation for bids for the procurement of ocean 
transportation for the donated commodities and contract with the ocean 
carrier. AID pays for the freight charges incurred by it or a 
cooperating sponsor from funds advanced to AID by CCC.
    Regulations governing the bid evaluation process for the 
procurement of processed agricultural commodities for Title II, Public 
Law 480 appear at 7 CFR part 1496. Generally, CCC evaluates offers to 
sell commodities for Title II, Public Law 480 on the general principle 
of ``lowest landed cost.'' This simply means that, in deciding which 
commodity sale offer to accept, CCC will consider both the price it 
would have to pay to acquire the commodity and the anticipated freight 
charges to ship the commodity to the foreign destination. By way of 
simplified example, if AID notifies CCC that it requires wheat flour 
for donation to Costa Rica, CCC will invite offers to sell flour to 
CCC. As a result of this solicitation, CCC receives two commodity 
offers--$100/mt f.a.s. New Orleans and $110/mt f.a.s. Houston. CCC will 
also review the available ocean freight services. If CCC receives ocean 
freight rate quotations of $90/mt from New Orleans and $75/mt from 
Houston, CCC will award the commodity sale to the party offering to 
deliver at Houston because that sale represents the lowest landed cost.
    The ocean carriage of Title II, Public Law 480 commodities is 
subject to sections 901(b) and 901b of the Merchant Marine Act, 1936, 
46 U.S.C. App. sections 1241(b) and 1241f, commonly referred to as the 
``cargo preference laws.'' These provisions generally require that 
agencies administering certain export programs, including Title II, 
Public Law 480, must assure that at least 75 percent of such ocean 
shipments each year are carried on U.S.-flag vessels to the extent they 
are available at fair and reasonable rates. CCC will decide if the 
commodity purchased is to be shipped on a U.S.-flag vessel after 
reviewing the various lowest landed cost options indicating the most 
economical means to achieve cargo preference requirements. Since U.S.-
flag vessel rates are, as a general matter, higher than foreign-flag 
vessel rates, CCC generally would use only U.S.-flag vessel rates in 
the lowest landed cost analysis for that portion of the cargo to be 
shipped on U.S.-flag vessels.

Maritime Security Act of 1996

    Section 17 of the Maritime Security Act of 1996 (MSA), Public Law 
104-239, amended section 901b(c) of the Merchant Marine Act, 1936 (46 
App. 1241f(c)) to mandate that CCC follow certain procedures in its 
purchasing process for packaged commodities. Now, CCC must initially 
evaluate all commodity offers received in response to a particular 
invitation on a lowest landed cost basis without regard to the flag of 
the vessels offering service. Following that evaluation, ``there shall 
be allocated to the Great Lakes port range any cargoes for which it has 
the lowest landed cost under that calculation.'' (46 U.S.C. App. 
1241f(c)(3)(B)). In other words, if this overall lowest landed cost 
evaluation demonstrates that a commodity sale offered for delivery at a 
Great Lakes port represents the lowest landed cost, CCC must accept 
that commodity sale offer. This purchasing requirement is applicable 
for up to 25 percent of the total annual tonnage of bagged, processed 
or fortified commodities furnished under Title II, Public Law 480.
    On February 12, 1997, CCC published a proposed rule (62 FR 6497) 
regarding implementation of section 17 of the MSA. The proposed rule 
suggested that the applicability of section 17 of the MSA be limited to 
f.a.s. offers. That is, only commodity offers specifying delivery to a 
vessel at a Great Lakes port would be considered as a Great Lakes offer 
to which the purchasing requirement applied. Intermodal bridge-point 
offers could not be considered as a Great Lakes offer under the 
proposed rule. The preamble to the proposed rule explained that it was 
limited in this way because of difficulties in defining what would 
constitute an intermodal bridge-point offer at a Great Lakes port and 
concerns regarding both disruption of normal trade practices and 
discouraging vessel calls at the Great Lakes. CCC invited the public to 
submit written comments on the proposed rule and, on March 13, 1997, 
held a public hearing to promote further discussion and comment.
    CCC received a total of 47 comments in response to the proposed 
rule. They included submissions from

[[Page 11103]]

representatives from Great Lakes port authorities, ports from other 
coastal ranges, shipping and transportation industries, vendors 
supplying commodities to the Public Law 480 program, other Governmental 
Agencies, labor unions, port city mayors, cargo handling facilities, 
and several Members of Congress and U.S. Senators.

Analysis of Comments

    Comment: The great majority of comments (41 responses including the 
Maritime Administration) suggested that, by limiting the proposed rule 
to f.a.s. offers, CCC too narrowly construed section 17 of the MSA. 
They suggested that CCC should consider intermodal bridge-point offers 
in the Great Lakes area as an offer to deliver commodities at the Great 
Lakes port range although the cargoes may not be placed on board a 
vessel at a Great Lakes port. Some comments stated that section 17 
required that intermodal offers at bridge points be considered as Great 
Lakes offers.
    Response: CCC agrees that the term ``Great Lakes port range'' is 
broad enough to encompass intermodal bridge point offers. Section 17 of 
the MSA does not define that term. The word ``port'' need not 
necessarily be limited to the area where ships load cargo. In common 
parlance, a port may refer to a city or geographic region servicing the 
location where ships load.
    Furthermore, the legislative history of section 17 shows a clear 
intent to correct a perceived negative impact on this region of the 
country from the cargo preference requirements. It is argued that CCC's 
purchase of commodities on the basis of lowest landed cost utilizing 
only U.S.-flag vessel rates for the purpose of economically meeting 
cargo preference requirements draws cargo away from Great Lakes ports. 
This is because currently no U.S.-flag carriers offer service at Great 
Lakes ports for packaged cargo. Therefore, commodity offers for 
delivery to Great Lakes ports are not considered at that point in the 
procurement process. To place Great Lakes ports on an equal footing 
with other coastal ranges, yet maintain cargo preference requirements, 
section 17 of the MSA mandates a change in our purchasing process.
    Including intermodal bridge-point shipments within the scope of 
section 17 of the MSA, would further the goals of that legislation to 
counter perceived inequities of the cargo preference requirements.
    Comment: Almost all the comments opposing the proposed rule stated 
that intermodal bridge-point offers should be included to promote their 
use in U.S. Government food aid programs. Commenters stated that 
intermodal bridge-point movements are efficient, rapid and economical. 
This service could benefit the food aid programs by lowering 
transportation costs and improving timeliness of deliveries, while 
securing commodities from theft, damage, and infestation.
    Response: The U.S. transportation industry and shippers rely upon 
intermodalism as an integral and important component to transport goods 
efficiently. Further efficiencies may be realized from the use of 
intermodal bridge-point shipments. For example, containers are often 
transported empty when returned overseas to be packed again with 
imports to the United States. These containers could be returned 
overseas with Title II cargoes at competitive ``lowest landed cost'' 
rates from the Great Lakes area. CCC agrees that broadening the 
definition of a Great Lakes offer to include intermodal-bridge-point 
service will allow CCC the opportunity to select from a greater range 
of transportation services. Therefore, more program dollars can be 
spent on the procurement of agricultural commodities for food aid.
    Comment: Comments suggested a functional rather than a geographical 
definition of ``Great Lakes port range'' to avoid arbitrary 
distinctions if CCC decided to include intermodal bridge-point offers 
in addition to f.a.s. delivery. Under this approach, to be considered 
as a Great Lakes port offer, comments suggested that a commodity offer 
must be either for delivery f.a.s. at a Great Lakes port or intermodal 
bridge-point at a marine cargo-handling terminal physically serving 
vessels and capable of loading ocean going conveyances.
    Response: In the preamble to the proposed rule, CCC indicated that 
broadening the rule to include intermodal bridge-point offers could 
lead to arbitrary distinctions as to which facilities would be 
considered geographically as part of the Great Lakes port range. CCC 
agrees that this functional definition avoids this problem. CCC had 
considered defining a ``Great Lakes port'' as the geographical boundary 
of the local Port Authority. However, this approach might have 
eliminated certain facilities simply because they were not within those 
boundaries. Some facilities may be located within the confines of a 
Port Authority, while others may only be a few miles away. Requiring 
that the facility actually serve vessels will assure that the facility 
is not so remote from the geographic port area as to undermine the 
purpose of the new legislation.
    Comment: One commenter stated that the intent of Section 17 was to 
promote vessel service in the Great Lakes and to support Great Lakes 
ports and labor. Therefore, intermodal bridge-point service should only 
be considered if ocean going vessel service is not available.
    Response: CCC does not agree to adopt this approach because it 
could restrict competition among ocean carriers offering different 
types of service and result in higher costs to the program.
    Comment: One port interest commented that broadening the definition 
of Great Lakes port to include intermodal bridge-point shipments would 
be detrimental to ports other than Great Lakes ports.
    Response: CCC does not agree with the comment. As other port 
interests noted, intermodal shipments involve carriers determining the 
actual port of loading to an ocean going vessel. Such decisions are 
based upon commercial factors. The cargo that is purchased at an 
intermodal bridge-point will move through one of any number of coastal 
ports as determined by the carrier.
    Comment: Some comments noted, in connection with this functional 
definition, that intermodal bridge-point offers may not include any 
handling at Great Lakes port areas. As stated above, some ocean 
carriers take possession of cargo at a transfer point and simply move 
the trains to another area closer to the port where vessels load. For 
example, cargo delivered at Chicago may be railed to New York and 
loaded into a conveyance at that terminal. Commenters stated that this 
type of movement should not be considered as a Great Lakes port range 
allocation because section 17 of the MSA is intended to eliminate any 
discriminatory or unfair treatment of Great Lakes ports in the 
administration of the Title II program and to ensure that the cargo 
preference laws do not negatively affect Great Lakes ports and port 
labor. To allow allocations where a rail car merely moves through a 
Great Lakes port and is handed off from commodity supplier to the ocean 
carrier and railed to another port for cargo handling and vessel 
loading would knowingly pervert the intent of Section 17.
    Response: CCC agrees that Section 17 intended that Great Lakes 
ports derive an economic benefit from Title II commodity allocations 
made to the Great Lakes port range. Accordingly, the final regulation 
requires that cargo be handled at marine cargo-handling facilities to 
be considered as an intermodal bridge-point Great Lakes

[[Page 11104]]

offer under section 17. In this regard, the regulation will require 
that commodities must be moved from one transportation conveyance to 
another at such a facility.
    Comment: Two respondents (representing one port and one port 
association) stated that the proposed rule is somewhat ambiguous and, 
regardless of intent, may be construed as a set-aside for the Great 
Lakes and therefore in violation of Article 1, section 9, clause 6 of 
the Constitution of the United States prohibiting any regulation of 
commerce or revenue giving a preference to the ports of one State over 
those of another.
    Response: Any comments regarding the constitutionality of section 
17 of the MSA are beyond the scope of this rulemaking.
    Comment: One commodity supplier suggested that the 25 percent limit 
in section 17 of the MSA be administered on a monthly basis.
    Response: CCC does not have the option of administering the 25 
percent limitation on a monthly basis. Section 17 specifically states 
that a 25 percent cap applies to the total annual tonnage of processed, 
bagged and fortified commodities furnished under Title II, Public Law 
480. CCC will monitor tonnage allocated to Great Lakes ports over the 
year to ensure that it does not exceed the cap.
    Comment: One commenter stated that the proposed rule was deficient 
because it did not set out any ``reasonable requirements for financial 
and operational integrity'' to be applicable to vessel operators 
interested in carrying Title II, Pub. L. 480 cargo. Section 
901b(c)(3)(C)(I) of the Merchant Marine Act, 1936, as amended by 
section 17 of the MSA, provides that ``[I]n awarding any contract for 
the transportation by vessel from the Great Lakes port range * * * each 
agency * * * shall consider expressions of freight interest for any 
vessel from a vessel operator who meets reasonable requirements for 
financial and operational integrity * * *.''
    Response: Section 17 of the MSA does not have direct application to 
CCC because CCC does not award ocean transportation contracts. In any 
event, CCC does impose requirements with regard to financial, 
operational, and performance integrity of carriers submitting rate and 
service quotations. CCC now requires that carriers possess (1) a 
satisfactory performance record, (2) a satisfactory record of integrity 
and business ethics, (3) adequate financial resources, and (4) the 
ability to comply with the required delivery schedule, taking into 
consideration all existing commercial and governmental business 
commitments. We have evaluated the written comments received in 
response to CCC's proposed rule, along with comments recorded in the 
public forum held on March 13, 1997. For purposes of meeting 
requirements of section 17 of MSA, CCC has decided to adopt, as a final 
rule, a procedure to permit Great Lakes intermodal bridge-port offers 
at facilities capable of loading ocean going vessels as a Great Lakes 
port range allocation.
    To properly assess the impact that section 17 of the MSA has upon 
the Title II program and the manner in which CCC has implemented it, a 
cost benefit evaluation will be made within 3 years of the effective 
date of this rule. Collection of data after implementation of this rule 
is of particular importance to the evaluation, since no ocean going 
service and limited intermodal service has been available in the Great 
Lakes for Public Law 480 shipments.
    No comments were received concerning CCC's clarification of 
Sec. 1496.5(b)(1) and the amendment proposed is being adopted as final 
without any substantive change.

List of Subjects in 7 CFR Part 1496

    Agricultural commodities; Exports.
    Accordingly, 7 CFR part 1496 is amended as follows:

PART 1496--PROCUREMENT OF PROCESSED AGRICULTURAL COMMODITIES FOR 
DONATION UNDER TITLE II, PUBLIC LAW 480

    1. The authority citation for part 1496 is revised to read as 
follows:

    Authority: 7 U.S.C. 1721-1726a; 1731-1736g-2; 46 U.S.C. App. 
1241(b), and 1241(f).

    2. In Sec. 1496.5, paragraphs (b)(1) and (f) are revised to read as 
follows:


Sec. 1496.5  Consideration of bids.

 * * * * *
    (b)(1) Availability of ocean service. Prior to receipt of offers 
from commodity suppliers, CCC will review ocean freight information 
from available sources including, but not limited to, trade journal 
newspapers, port publications, and steamship publications to determine 
the availability of appropriate ocean service.
 * * * * *
    (f) Great Lakes ports. (1) Commodities offered for delivery ``free 
alongside ship'' (f.a.s.) Great Lakes port range or intermodal bridge-
port Great Lakes port range that represent the overall (foreign and 
U.S. flag) lowest landed cost will be awarded on that basis. Such 
offers will not be reevaluated on a lowest landed cost U.S.-flag basis 
unless CCC determines that 25 percent of the total annual tonnage of 
bagged, processed or fortified commodities furnished under Title II of 
Public Law 480 has been, or will be, transported from the Great Lakes 
port range during that fiscal year.
    (2) CCC will consider commodity offers as offers for delivery 
``intermodal bridge-port Great Lakes port range'' only if:
    (i) The offer specifies delivery at a marine cargo-handling 
facility that is capable of loading ocean going vessels at a Great 
Lakes port, as well as loading ocean going conveyances such as barges 
and container vans, and
    (ii) The commodities will be moved from one transportation 
conveyance to another at such a facility.
 * * * * *
    Signed at Washington, DC, on February 26, 1998.
Keith Kelly,
Executive Vice President, Commodity Credit Corporation.
[FR Doc. 98-5771 Filed 3-5-98; 8:45 am]
BILLING CODE 3410-05-U