[Federal Register Volume 63, Number 54 (Friday, March 20, 1998)]
[Rules and Regulations]
[Pages 13481-13482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-7171]



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  Federal Register / Vol. 63, No. 54 / Friday, March 20, 1998 / Rules 
and Regulations  

[[Page 13481]]


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DEPARTMENT OF AGRICULTURE

Office of the Secretary

7 CFR Part 6


Dairy Tariff-Rate Import Quota Licensing

AGENCY: Office of the Secretary, USDA.

ACTION: Determination on historical license reductions.

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SUMMARY: The Department of Agriculture has determined that provisions 
of the Dairy Tariff-Rate Import Quota Licensing Regulation with respect 
to the issuance of reduced historical import licenses based on license 
surrenders of more than 50 percent will be suspended, in light of 
market conditions, and shall not apply for a period of five years.

DATES: Effective March 20, 1998, 7 CFR 6.25(b)(1)(i) and (b)(1)(ii) are 
suspended.

FOR FURTHER INFORMATION CONTACT: Diana Wanamaker, Group Leader, Import 
Policies and Programs Division, Foreign Agricultural Service, 1400 
Independence Avenue, SW., Stop 1029, Washington, DC 20250-1029 or 
telephone (202) 720-2916.

SUPPLEMENTARY INFORMATION:
    Determination: The Foreign Agricultural Service (FAS), under a 
delegation of authority from the Secretary of Agriculture, 7 CFR 2.43, 
has determined pursuant to 7 CFR 6.25(b)(2), to suspend the historical 
license reduction provisions of 7 CFR 6.25(b)(1)(i) and 6.25(b)(1)(ii) 
for a five-year period, in light of U.S. import market conditions for 
cheese. At the end of the five-year suspension, beginning in quota year 
2004, if more than 50 percent of a historical license is surrendered in 
each of the three prior quota years (i.e., 2001-2003), that license 
will be issued in an amount equal to the average amount entered in 
those years. Beginning in quota year 2006, if more than 50 percent of a 
historical license is surrendered in at least three of the five prior 
quota years (i.e., 2001-2005), that license will be issued in an amount 
equal to the average amount entered in those years. FAS has determined 
that a principal underlying cause of changing U.S. import market 
conditions is the European Union's (the EU's) progressive 
implementation of its Uruguay Round export subsidy reduction commitment 
which, in quota year 1997, began to have a direct impact on trade flows 
of EU cheese to the U.S. market resulting in reduced U.S. imports and 
increased historical license surrenders. FAS has further determined 
that a five-year suspension of the historical license reduction 
requirement, until the Uruguay Round export subsidy reductions are 
completed in the year 2000, is warranted under Sec. 6.25(b)(2) to allow 
time for historical licensees to adjust to changing U.S. import market 
conditions.

Backgound

    The Dairy Tariff-Rate Import Quota Licensing Regulation at 7 CFR 
6.25(b)(2) provides that prior to 1999, the Secretary of Agriculture 
may determine that the requirements in Secs. 6.25(b)(1)(i) and 
6.25(b)(1)(ii) to reduce permanently the quantity of historical license 
based on license surrenders of more than 50 percent in three 
consecutive quota years or three out of five quota years, ``shall not 
apply in light of market conditions.'' The Department requested public 
comments in a notice of proposed rulemaking published on October 15, 
1997 (62 FR 53580-81 and 62 FR 55184), on possible options for the 
implementation of the historical license reduction requirement, 
including possible recision, suspension, or delay of this requirement, 
and requested comments on current dairy import market conditions that 
should be considered with respect to implementation of Sec. 6.25(b)(2). 
Public comments were submitted by 37 entities during the comment period 
from October 15, 1997, to November 28, 1997.
    Historical License Surrenders and Market Conditions: In 1997, 
surrenders of historical licenses for cheese, in which the quantity 
surrendered exceeded 50 percent of a license amount, reached 12,302 
metric tons; compared to 1,980 metric tons in 1996, and 5,163 metric 
tons in 1995. Surrenders of historical licenses for EU cheese accounted 
for over 60 percent of 1997 historical license surrenders of 12,302 
metric tons. In previous years, historical license surrenders were 
based, in part, on supply shortages and currency situations. However, 
the 1997 increase in historical license surrenders can be attributed 
principally to the EU's implementation of its Uruguay Round commitment 
to reduce the quantity of cheese exported under subsidy.
    Under Uruguay Round export subsidy disciplines, the EU's export 
subsidy ceiling for cheese is scheduled to decrease each fiscal year 
(FY) from 426,500 tons in FY 1995 (July-June) to 321,300 tons in FY 
2000. The EU administers its export subsidy reduction program by 
setting monthly export subsidy allocations equal to prorated amounts of 
the annual export subsidy ceiling, and issuing export licenses for 
subsidized cheese shipments by destination. In October 1997, to avoid 
exceeding its export subsidy limit, the EU adjusted subsidies for 
various cheeses and lowered subsidies by 20 percent for cheese exports 
destined for the United States. EU subsidy cuts during the 1997 quota 
year were sufficient to raise EU prices of various cheeses to levels 
that impeded EU cheese sales to U.S. historical licenses. In 
particular, prices of EU industrial-grade cheeses rose above U.S. 
prices for comparable cheese (i.e., domestic barrel Cheddar cheese), 
thereby removing the economic incentive to import. In addition to EU 
export subsidy reductions, the 1998 merger of the license allocations 
for Austria, Finland, and Sweden into an EU-15 allocation added 
approximately 21,000 metric tons of EU historical licenses for cheese.
    In view of rapid and significant changes in U.S. import market 
conditions for EU cheeses beginning in 1997, FAS has determined that 
temporary suspension of the historical license reduction requirement is 
justified through the year 2000. The overriding purpose of the five-
year suspension is to provide adequate time for historical licensees of 
EU cheeses to adjust to changing market conditions, to find alternative 
suppliers of cheese in the EU, and to develop new markets to enable 
importers to fully utilize their historical licenses for EU cheese. The 
suspension is consistent with the intent of the U.S.-EU Uruguay Round 
bilateral

[[Page 13482]]

agreement on maximizing utilization of U.S. licenses for EU cheese.
    Summary of Public Comments: Comments, views, and recommendations 
were submitted by 32 importers holding historical licenses; three 
members of Congress; and two trade associations. Submissions by most 
historical licensees stressed that substantial business investments 
rely on historical import licenses, and permanent reductions can cause 
significant harm to employees, distributors, customers, and the 
survival of many businesses. Most historical licensees supported 
immediate elimination of the historical license reduction requirement. 
Certain other historical licensees supported either: (1) the permanent 
reduction and reallocation of historical licenses in order to provide 
new entrants and growing businesses a greater opportunity to import 
cheese; or (2) postponement of the historical license reduction 
requirement to provide time for adjustment to and analysis of changing 
market conditions. Comments submitted by the members of Congress and 
trade associations favored elimination of the historical license 
reduction requirement based on market conditions.
    With respect to market conditions, the members of Congress stated 
that, under current circumstances, surrenders of historical licenses 
result from market conditions beyond an importer's control. Historical 
licensees and the trade associations identified the following market 
conditions as causes of historical license surrenders: (1) lack of 
exportable supply; (2) non-competitive foreign prices (resulting in 
some cases from foreign export administration decisions, and currency 
fluctuations); (3) low-quality or high-priced foreign products; and (4) 
foreign export monopolies which can affect license utilization through 
supply and price controls.

    Signed at Washington, D.C. on March 13, 1998.
Timothy J. Galvin,
Acting Administrator, Foreign Agricultural Service.
[FR Doc. 98-7171 Filed 3-19-98; 8:45 am]
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