[Federal Register Volume 63, Number 100 (Tuesday, May 26, 1998)]
[Proposed Rules]
[Pages 28488-28495]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13819]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 63, No. 100 / Tuesday, May 26, 1998 / 
Proposed Rules  

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DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 735

RIN 0560-AF13


Amendment to Cotton Warehouse Regulations for the Purpose of 
Defining ``Unnecessary Delay''

AGENCY: Farm Service Agency.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Farm Service Agency (FSA) of the United States Department 
of Agriculture (USDA) gives notice that, as a result of two Federal 
District Court Orders and the cotton industry's continued 
encouragement, it is presently contemplating the issuance of a proposed 
rule that would address the statutory phrase ``without unnecessary 
delay'' contained in sections 17 and 21 of the United States Warehouse 
Act (USWA) (7 U.S.C. 259 and 262). In developing the proposed rule, FSA 
would consider all distinct options that would satisfy and complement 
the cotton industry's diverse segments in forging a national weekly 
minimum cotton flow standard. FSA requests comments and suggestions 
from the public on the issues and alternatives that would be addressed 
in developing such a proposal, including, but not limited to those 
issues specifically mentioned in this notice. Upon receipt and review 
of all comments timely received in response to this advance notice of 
proposed rulemaking, FSA will develop a proposed rule regarding the 
implementation and administration of a national cotton flow standard, 
which provides yet another opportunity for the public to comment before 
the USDA would implement a final cotton flow standard.

DATES: Comments should be submitted on or before July 27, 1998 to be 
assured of consideration.

ADDRESSES: Interested persons are invited to submit written comments on 
this advance notice of proposed rulemaking to: Steve Gill, Director, 
Warehouse and Inventory Division, U.S. Department of Agriculture, Farm 
Service Agency, Stop 0553, 1400 Independence Avenue, SW, Washington, DC 
20250-0553; telephone (202) 720-2121; fax (202) 690-3123; also E-mail 
comments may be sent to: [email protected]. Additionally, 
comments may be sent via the Internet through the National Cotton 
Flow's (NCF) homepage at: http://www.fsa.usda.gov/ncf.
    All written comments received in response to this advance notice 
will be available for public inspection in Room 5968, South Agriculture 
Building, U.S. Department of Agriculture, 1400 Independence Avenue, SW, 
Washington, DC, between 8:00 a.m. and 4:30 p.m., Monday through Friday, 
except holidays.

FOR FURTHER INFORMATION CONTACT: Steve Mikkelsen, Deputy Director, 
Warehouse and Inventory Division, U.S. Department of Agriculture, Farm 
Service Agency, Stop 0553, 1400 Independence Avenue, SW, Washington, DC 
20250-0553; telephone (202) 720-2121, fax (202) 690-3123.

Background

    Since the early 1960's, the timely delivery of stored cotton has 
been an issue throughout the cotton industry. While cotton shippers and 
cotton merchants required timely delivery to meet the demands of the 
marketplace, warehousemen contended that the delivery demands placed on 
them by shippers and merchants were unreasonable and exceeded warehouse 
capabilities. Over the last 30 years, the cotton industry has made two 
valid attempts to address the cotton flow issue, and in 1969, USDA 
issued a proposed rule concerning cotton flow for warehouses licensed 
under the USWA. Comments received in response to that proposed rule 
discouraged USDA from implementing a cotton flow standard through its 
regulatory process and, as a result, a final rule was never issued. 
Continued discussions throughout the various segments of the cotton 
industry also have failed to bring about an endorsement of a single 
standard that was acceptable throughout the cotton industry.
    During the 1995/96 cotton season, the Coalition for Cotton Flow 
Standards (CCFS), an organization created by the National Cotton 
Council (NCC) with the approval of all segments of the cotton industry, 
instituted a one-year voluntary cotton flow standard. Initially, this 
standard appeared acceptable to all segments of the cotton industry. 
The voluntary standard (1) contained weekly minimum flow requirements 
for warehousemen; (2) levied penalties for nonperformance by either the 
warehouseman or shipper; and (3) incorporated an arbitration system to 
settle disputes that arose over cotton flow issues. Approximately 90 
percent of all cotton shippers and 52 percent of all cotton 
warehousemen agreed to comply with this voluntary, one-year standard. 
However, many warehousemen agreed to abide by the standard only if at 
least 90 percent of all cotton shippers and warehousemen also agreed to 
comply.
    When shipment delays began to occur during the 1995/96 crop year, 
rather than exercising the arbitration rights incorporated in the 
voluntary standard implemented by the CCFS, several cotton shippers 
filed complaints with FSA. These shippers requested FSA to investigate 
the cotton flow situation, and suspend the federal license of those 
warehouses that had not delivered cotton without unnecessary delay 
pursuant to the USWA.
    FSA personnel contacted and made several on-site visits to 
warehouses about which FSA had received complaints. FSA reached no 
ultimate conclusion, but the findings suggested that the unacceptable 
delays experienced by the cotton shippers and merchants may have been 
due, in part, to the lack of a standard method for requesting services 
and a lack of uniform definitions for common terms used to request 
these services throughout the cotton industry. For example, it appears 
that shippers and warehousemen begin recording time from different 
starting points, and there may be several days difference between a 
shipper's ``request date'' and warehouseman's ``confirm date.'' The 
lack of a standard method for requesting services and of uniform common 
terms may have led to an appearance of a longer delivery delay than 
actually existed.
    In addition to filing complaints with FSA, several shippers also 
filed lawsuits in United States District Court against

[[Page 28489]]

two cotton warehousemen, alleging that these warehousemen were delaying 
cotton deliveries to increase storage earnings. In each of these cases, 
lack of determination by USDA in the use and meaning of the USWA 
statutory phrase ``without unnecessary delay'' was a key issue for the 
courts. Ultimately, the shippers elected to dismiss their suits after 
the warehousemen agreed to join them in requesting that the cases be 
remanded to USDA to determine the definition of the statutory phrase 
``without unnecessary delay.'' The Courts agreed and remanded the 
matter of defining ``without unnecessary delay'' to USDA.
    In June 1997, the Cotton Warehouse Association of America (CWAA) 
and the American Cotton Service Warehouse Association (ACSWA) reached 
an unprecedented mutual agreement for a cotton flow standard that would 
expedite the shipment of U.S. cotton into marketing trade channels and 
enhance the prices received by producers while reducing the cost of 
handling cotton. These two associations, along with the American Cotton 
Shippers Association (ACSA) and textile mill segments, petitioned USDA 
requesting that FSA facilitate the needs of the entire cotton industry 
through an expeditious establishment and implementation of a uniform 
cotton flow standard. These associations recommended to USDA that a 
weekly minimum flow standard should be as follows:

Except when prevented from doing so by Act of God or force majeure, 
a mandatory, non-cumulative, weekly minimum standard for bales to be 
shipped or made ready for scheduled delivery that week would be not 
less than 4.5% of CCC licensed capacity of a warehouse in effect 
during the week of shipment.

    As a result of these events, USDA has decided to define, through 
the rulemaking process, the statutory phrase ``without unnecessary 
delay'' and establish a weekly minimum cotton flow standard that would 
be national in scope.

Using the USWA as the Tool for Implementing the Cotton Flow Standard

    Section 21 of the USWA (7 U.S.C. 262) mandates that federally 
licensed warehousemen, ``in the absence of some lawful excuse, shall, 
without unnecessary delay, deliver the agricultural products stored 
therein upon a demand made by either the holder * * * or depositor. * * 
*'' In addition, section 17 of the USWA (7 U.S.C. 259) mandates that 
all non-federally licensed warehousemen who issue electronic warehouse 
receipts, ``in the absence of a lawful excuse, shall, without 
unnecessary delay, deliver the cotton stored in the warehouse on demand 
made by the person named in the record in the central filing system as 
holder of the receipt.''
    USDA believes that the standard should be based on the USWA rather 
than the Cotton Storage Agreement (CSA). For the 1997 crop, more than 
15.5 million bales of cotton were receipted with electronic warehouse 
receipts under the USWA through its federally licensed warehouse system 
and its approved electronic receipt providers that service non-
federally licensed warehousemen, shippers, merchants, receipt holders, 
and other segments of the cotton industry. This represented more than 
80 percent of the total 1997 cotton production. In contrast, less than 
20 percent of the 1997 cotton production was associated with CCC's 
Cotton Storage Agreement (CSA) during this period. In addition, a 
standard based on the CSA would apply only to CCC-owned or loan bales 
and not to another storage bale, warehouse, or industry segment. Given 
CSA's applicability to CCC-interest cotton only, USDA perceives that 
the USWA's influence would embody the bulk of cotton handled and 
merchandised.

General Provision and Options

    FSA is seeking comments from the public regarding a weekly minimum 
cotton flow standard that would address the statutory phrase ``without 
unnecessary delay.'' While the public is free to comment on all aspects 
of this notice, two options for administering the cotton flow standard 
are being presented in this notice. The two options differ in the level 
of USDA involvement in ensuring compliance with the standard and in 
regulating the cotton industry regarding the standard.
    FSA is considering the following cotton flow standard that would 
apply to the statutory phrase ``without unnecessary delay.'' For the 
purpose of this advance notice of proposed rulemaking, this standard 
would be applicable to both options:

Cotton Flow Standard

Except when prevented from doing so by force majeure, a mandatory, 
non-cumulative, weekly minimum shipping standard for bales delivered 
or staged for a scheduled delivery during that week shall be not 
less than 4.5% of the licensed or approved storage capacity of a 
warehouse in effect during the week of shipment, or as determined by 
the Secretary.

    Option I. Under Option I, USDA would establish a cotton flow 
standard to address the statutory phrase ``without unnecessary delay'', 
but would have minimal involvement in administering and ensuring 
compliance with the established standard. Option I would include 
provisions for private non-governmental dispute resolution and would 
define USDA's limited regulatory role in administering the cotton flow 
standard.
    (a) Cotton Flow Standard. As stated above.
    (b) Dispute Resolution. Unresolved claims for noncompliance with 
the national cotton flow standard would be resolved through arbitration 
administered by the cotton industry.
    (1) Arbitration.
    (i) Disputes between warehousemen, merchants, receipt holders, and 
shippers, who are members of the same trade association with an 
established arbitration system, would resolve their disputes through 
that association.
    (ii) Parties that are members of different trade associations each 
with established arbitration systems would mutually negotiate about 
which association's arbitration system would be utilized. No split 
arbitrations would be allowed, only one association's arbitration 
system could be used.
    (iii) When the parties cannot mutually agree upon, which 
association's arbitration system to utilize in resolving the dispute, 
they would enter into a contract a with private arbitrator adhering to 
the American Arbitration Association's (AAA) Standards and Procedures.
    (iv) Private arbitrators following AAA's Standards and Procedures 
would resolve those disputes between parties belonging to trade 
associations without an established arbitration system, or who are not 
members of any trade association, and/or with a party who is a member 
of a trade association with an established arbitration system when the 
other party does not agree to use that association's arbitration 
system.
    (v) The noncomplying party would be responsible for all costs and 
expenses associated with the arbitration.
    (c) USDA's Regulatory Role.
    (1) USDA would not hear complaints or settle unresolved disputes 
between a shipper and a warehouseman involving a national cotton flow 
standard violation or associated damages.
    (2) No arbitrator's rendered determination or award would affect, 
obligate, or restrict USDA's authority to administer and regulate the 
issuance of USWA licenses, USWA receipts, contractual agreements, or 
the electronic warehouse receipt provider system.
    Option II. Under Option II, USDA would establish a cotton flow 
standard to address the statutory phrase ``without

[[Page 28490]]

unnecessary delay'' and would be involved in the daily administration 
of the cotton flow standard. Option II includes regulatory definitions 
and procedures for the timely delivery and acceptance of cotton that 
are applicable to cotton flow standard compliance determination, 
dispute resolution, and reporting requirements.
    (a) Definitions and Terms. The definitions and terms stated in this 
section are applicable for the purposes of administering the regulation 
under Option II. The following definitions are proposed. The public is 
free to comment on these definitions, including their inclusion or 
exclusion in the regulation:
    (1) Confirmed Shipment Date. A warehouseman's scheduled delivery 
date for a specific bale, confirmed in writing or by any other rapid 
written communication method physically notifying the receipt holder.
    (2) Delivery. A warehouseman's physical act placing a scheduled 
bale in some type of conveyance or otherwise making the bale available 
according to the receipt holder's instructions.
    (3) Force majeure. Severe weather conditions, fire, explosion, 
flood, earthquake, insurrection, riot, strike, labor dispute, act of 
civil or military authority, non-availability of transportation 
facilities, or any other cause beyond the control of the warehouseman 
or receipt holder, which renders performance impossible.
    (4) Scheduled Bales. Specific bales that a warehouseman schedules 
with written confirmation for delivery on a specified date.
    (5) Shipping Order. A warehouseman's unique document that 
identifies and confirms each specific bale scheduled for delivery and 
references a receipt holder's original delivery request.
    (6) Timely Delivery. An act by which a warehouseman makes available 
to the receipt holder a scheduled bale on or before the ``confirmed 
shipment date'', or within fourteen (14) calendar days after receiving 
the receipt holder's written delivery request.
    (7) Timely Acceptance. An act by which a receipt holder takes 
possession and removes scheduled bales from a warehouse on or before 
the ``confirmed shipment date.''
    (8) Unnecessary Delay. A receipt holder's failure to take ``timely 
acceptance'' or a warehouseman's failure to make ``timely delivery'' of 
a scheduled bale on or before the ``confirmed shipment date'' in 
absence of force majeure. Also, a warehouseman's failure to meet or 
exceed the weekly minimum cotton flow standard.
    (9) Week. Seven (7) consecutive calendar days, beginning 12:00 a.m. 
Saturday morning and ending 11:59 p.m. Friday night, or as determined 
by the Secretary.
    (b) Cotton Flow Standard. As stated above.
    (c) Delivery of Cotton from Storage.
    (1) The Secretary expects cotton warehousemen who issue electronic 
warehouse receipts and/or who are USWA licensed to schedule delivery as 
close as possible to a receipt holder's requested delivery date for 
cotton stored in their warehouse.
    (2) Warehouseman must schedule delivery of all bales at the request 
of the receipt holder.
    (3) A scheduled bale not delivered during any week would be the 
first bale delivered the following week. When delivered, this bale 
would count towards the weekly minimum cotton flow standard during the 
week delivered.
    (4) Each individual bale within a non-segregated lot, that a 
warehouseman receives, stores, and redelivers under a multiple bale 
warehouse receipt, such bales would count toward the weekly minimum 
cotton flow standard upon delivery.
    (5) When a warehouseman receives, stores, and redelivers bales as 
an unbroken non-segregated lot, without receipting them under a 
multiple bale or as a single warehouse receipt(s), such bales would not 
count toward the weekly minimum cotton flow standard upon delivery.
    (6) In the absence of force majeure, warehousemen that fail to 
``timely deliver'' scheduled bales and receipt holders that fail to 
``timely accept'' scheduled cotton will be deemed as not complying with 
the weekly minimum cotton flow standard.
    (d) Dispute Resolution. Unresolved claims for noncompliance with 
the national cotton flow standard would be first resolved by mediation 
and finally by arbitration.
    (1) Mediation. Disputes in which one or more of the affected 
parties belong to a trade association(s) without an established 
arbitration system, or who are not members of any trade association, or 
who are members of separate associations and cannot agree on which 
association's arbitration system to utilize, would be resolved through 
the following alternative dispute resolution process:
    (i) The parties would, in good faith, attempt to resolve the 
dispute through a mediation process administered by an independent 
mediator recommended by AAA and conducted in accordance with current 
AAA Mediation Rules and Procedures before resorting to binding 
arbitration.
    (ii) The parties would faithfully observe all applicable AAA rules, 
procedures, and abide by and execute any agreement or determination 
recommended by the mediator.
    (iii) When good faith mediation fails to resolve the dispute, both 
parties would submit their dispute to binding arbitration administered 
by an independent arbitrator recommended by AAA.
    (2) Arbitration.
    (i) Disputes between warehousemen, merchants, receipt holders, and 
shippers, who are members of the same trade association with an 
established arbitration system, would resolve their disputes through 
that association.
    (ii) The parties would mutually negotiate about which association's 
arbitration system would be utilized, when the parties are members of 
different trade associations with established arbitration systems. No 
split arbitrations would be allowed, only one association's can be 
used.
    (iii) When parties cannot mutually agree, which association's 
arbitration system to utilize in resolving the dispute, they would 
enter into a contract with private arbitrators adhering to AAA's 
standards and procedures.
    (iv) Private arbitrators who follow AAA's standards and procedures 
would resolve those disputes between parties who belong to trade 
associations without an established arbitration system, or who are not 
members of any trade association, and/or with a party who is a member 
of a trade association with an established arbitration system when the 
other party does not agree to use that association's arbitration 
system.
    (v) In the event a party refuses to submit to arbitration or fails 
to abide by any determination or award rendered by the arbitrators, the 
party desiring arbitration or enforcement of the determination or award 
may notify USDA of the party's unwillingness to resolve a cotton flow 
standard dispute or comply with an arbitrator's rendered determination 
or award.
    (vi) The noncomplying party would be responsible for all costs and 
expenses associated with the arbitration and any costs incurred by 
USDA.
    (vii) Any controversy or claim arising from or related to the 
arbitrator's rendered determination or award may be enforced by any 
federal or state court having jurisdiction thereof.
    (e) USDA's Regulatory Role.
    (1) USDA would not hear complaints or settle unresolved disputes 
between a shipper and a warehouseman involving

[[Page 28491]]

a national cotton flow standard violation or associated damages.
    (2) No arbitrator's rendered determination or award would affect, 
obligate, or restrict USDA's authority to administer and regulate the 
issuance of USWA licenses, USWA receipts, contractual agreements, or 
the electronic warehouse receipt provider system.
    (3) Under the authority of the USWA and its regulations, USDA may 
independently administer all regulatory actions, arbitration proceeding 
determinations, and rendered awards when such action is necessary for 
the effective administration of the national cotton flow standard.
    (4) USDA will require USWA licensed warehousemen and non-federally 
licensed warehousemen, receipt holders, and shippers who utilize the 
electronic warehouse receipt system to:
    (i) Meet the weekly minimum cotton flow standard.
    (ii) ``Timely deliver'' and ``timely accept'' scheduled bales.
    (5) USDA would reserve the right to take action against the 
noncomplying party, including:
    (i) Suspension or termination of licenses issued in accordance with 
the USWA.
    (ii) Suspension or termination of access to the electronic receipt 
provider system.
    (f) Program Operations and Maintenance. Congress requires USDA to 
collect sufficient fees for the operation and maintenance of all USWA 
related operations. USDA is considering funding the cost of 
administering a national cotton flow standard through an assessment on 
each bale of cotton.
    (1) Warehousemen would collect an assessment on each individually 
receipted bale and each individual bale represented by a multiple bale 
receipt that is delivered or redelivered for shipment.
    (2) The assessment would be collected along with other 
warehouseman's tariff charges in the final settlement of each shipping 
order.
    (3) The warehouseman would forward the collected assessments to 
USDA quarterly.
    (g) Reports and Reporting. Each week, warehousemen would 
electronically transmit a report to USDA that would be comprised of 
warehouse information that the cotton industry considers essential for 
improving global marketing opportunities, enhancing cotton values, and 
encouraging timely delivery and acceptance of stored cotton. USDA would 
collectively merge this information into a ``National Cotton Flow 
Standard Status Report'' that USDA would publish electronically on the 
Internet.

Comments

    The information collected in response to this advance notice of 
proposed rulemaking will be used to determine the cotton industry's 
overall needs regarding a ``National Cotton Flow Standard''. Appendix I 
provides interested parties an opportunity to respond to specific 
questions on the issue of a national cotton flow standard. Respondents 
may simply cut out or duplicate the stated issues/questions furnished 
in Appendix I of this notice. Respondents may submit their comments to 
the address shown above. Respondents may also access these same issues/
questions and submit comments via the Internet through the NCF homepage 
address at: http://www.fsa.usda.gov/ncf.

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    Alternative suggestions, ideas and comments will be considered 
fully. When providing comments regarding this advance notice of 
proposed rulemaking, the respondent should provide the FSA with a 
complete description of the details of the alternative method or issue, 
along with supporting data.

    Signed at Washington, D.C., on May 19, 1998.
Keith Kelly,
Administrator, Farm Service Agency.
[FR Doc. 98-13819 Filed 5-22-98; 8:45 am]
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