[Federal Register Volume 66, Number 171 (Tuesday, September 4, 2001)]
[Proposed Rules]
[Pages 46310-46343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-21852]



[[Page 46309]]

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Part II





Department of Agriculture





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Farm Service Agency



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7 CFR Parts 735, 736, et al.



Implementation of the United States Warehouse Act; Proposed Rule

  Federal Register / Vol. 66 , No. 171 / Tuesday, September 4, 2001 / 
Proposed Rules  

[[Page 46310]]


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DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Parts 735, 736, 737, 738, 739, 740, 741 and 742

RIN 0560-AG45


Implementation of the United States Warehouse Act

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule with request for comments.

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SUMMARY: The Department of Agriculture (USDA) is proposing a revision 
of the regulations administering the United States Warehouse Act to 
implement the provisions of the Grain Standards and Warehouse 
Improvement Act of 2000 (2000 Act). The 2000 Act, enacted on November 
9, 2000, amended the United States Warehouse Act (USWA) in its 
entirety. The 2000 Act updates Federal warehouse licensing operations, 
authorizes electronic warehouse receipts for all commodities, and 
authorizes the Secretary of Agriculture (Secretary) to establish 
regulations for voluntary systems for other electronic documents 
related to sales and transfers of agricultural products. Further 
information about the USWA and copies of the 2000 Act, the official 
transcript of January 23, 2001's public meeting, and this proposed rule 
may be found at http://www.fsa.usda.gov/daco/uswa.htm.

DATES: Comments concerning this rule must be received on or before 
October 4, 2001 to be assured of consideration. Comments regarding the 
information collection requirements of the Paperwork Reduction Act must 
be received October 4, 2001 to be assured of consideration.
    Comments: For complete consideration and evaluation, commenters are 
asked to include with each of their comments the specific page, 
subpart, section, sub-section, etc., of the proposed rule. Comments 
that suggest alternate or replacement language may be considered. 
Commenters may submit their comments by mail, fax, e-mail or internet 
to the applicable address below.

ADDRESSES: Comments should be sent to Roger Hinkle, Chief, Licensing 
Authority Branch, Warehouse and Inventory Division, Farm Service Agency 
(FSA), United States Department of Agriculture, STOP 0553, 1400 
Independence Avenue, SW., Washington, DC 20250-0553, telephone (202) 
720-2121, FAX (202) 690-3123, e-mail address, [email protected], or 
USWA's internet web page at http://www.fsa.usda.gov/daco/uswa.htm. 
Persons with disabilities who require alternative means for 
communication of regulatory information (braille, large print, 
audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600 
(voice and TDD).

FOR FURTHER INFORMATION CONTACT: Roger Hinkle, (202) 720-7433 or e-mail 
[email protected].

SUPPLEMENTARY INFORMATION:   

Executive Order 12866

    This proposed rule is issued in conformance with Executive Order 
12866 and has been determined to be significant and has been reviewed 
by the Office of Management and Budget.
    A Regulatory Impact Analysis (RIA) was prepared. The USWA does not 
mandate participation by those it regulates; it simply offers warehouse 
operators and service providers an alternative means for servicing 
their depositors and other customers. The fees charged USWA users are 
intended to offset the administration of the Act. The RIA summarized 
the cost and benefit impact of the rule as follows:
    The rule offers current and potential warehouse operators a 
voluntary means to license warehouses used to store agricultural 
products. It also uniformly provides for the issuance of warehouse 
receipts, including electronic warehouse receipts, for agricultural 
products stored or handled in licensed warehouses, and for other 
purposes.
    Implementation of the USWA and the establishment of associated 
standards and protocols will help: (1) Maintain the competitiveness in 
domestic and world markets; (2) improve the prices that producers 
receive; and (3) eliminate any disruption in commerce.
    Copies of the RIA are available upon request at the address listed 
above.

Regulatory Flexibility Act

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this rule because USDA 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.

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 program is not subject to the provisions of Executive Order 
12372, which require 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).

Unfunded Mandates Reform Act of 1995

    The provisions of Title II of the Unfunded Mandates Reform Act of 
1995 are not applicable to this rule because the USDA 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.

Executive Order 12612

    It has been determined that this proposed rule/activity does not 
have sufficient Federalism implications to warrant the preparation of a 
Federalism Assessment. The provisions contained in this proposed rule 
will not have a substantial direct effect on States or their political 
subdivisions or on the distribution of power and responsibilities among 
the various levels of government.

Background

    The 2000 Act, enacted on November 9, 2000, provides for the 
revision of the USWA. The 2000 Act amendments provide for licensing and 
inspection of warehouses used to store agricultural products, issuance 
of warehouse receipts, including electronic warehouse receipts, for 
agricultural products, and for other purposes.
    The USWA, originally enacted in 1916, authorized the Secretary to 
license warehouse operators who stored agricultural products and 
persons to sample, weigh, inspect and grade agricultural products. The 
USWA licensing program has always been voluntary and regulated 
licensees in order to protect depositors.
    In 1990, the USWA was amended to direct the Secretary to establish 
EWRs for the cotton industry. Since the first issuance of EWRs in 1995, 
the number of banks, cooperatives, gins, merchants and warehouse 
operators participating in USWA's electronic-based program has more 
than doubled. The percentage of EWRs issued increased from 45 percent 
of the 15 million bales in 1995-1996 crop year to more than 95 percent 
of the 17 million bales in 1999-2000 crop year.
    The 2000 Act amendments include several provisions that thoroughly 
modernize the program and reflect the current technology advancements

[[Page 46311]]

within the agricultural marketing systems. The new provisions will make 
U.S. agriculture more competitive in both domestic and foreign markets 
through efficiencies and cost savings provided by today's computer 
technology and information management systems. These new provisions 
include: (1) Extending the USWA's authority to all agricultural 
products including a processed product of an agricultural commodity; 
(2) granting the Secretary the power to establish regulations governing 
one or more electronic systems under which EWRs or other electronic 
documents related to the shipment, payment and financing of domestic 
and foreign agricultural products may be issued or transferred; (3) 
allowing licensees or providers to provide a bond or other financial 
assurance as the Secretary determines appropriate; (4) allowing 
warehouse operators to allocate storage space to a depositor; (5) 
requiring warehouse operators to issue warehouse receipts only when 
requested by the depositor; and (6) allowing for arbitration.
    The proposed rule redesigns the structure of the warehouse 
licensing regulations by removing the eight commodity-specific 
regulations and replacing them with one general regulation. The 
commodity-specific requirements have been moved to the applicable 
licensing (See Exhibits A and B for cotton and grain, respectively) or 
provider agreements. The proposed rule updates and modifies the 
regulatory language, merges all similar language from the specific 
commodity regulations and at the same time removing redundancies, but 
does not substantively changing the program operations. Public comments 
are requested regarding the new regulatory format, including the 
consolidation of the specific commodity regulations into one broad, 
generic regulatory package; and the placement of the specific commodity 
requirements in the licensing agreements or the provider agreements.
    As a result of the merger of all the specific-commodity warehouse 
regulations into one generic regulation, the cotton flow standard 
previously codified at 7 CFR part 735.201, is not included in these 
regulations. The cotton flow standard has been included in the cotton-
specific licensing and EWR provider agreements.
    The operation of the licensing program for warehouse operators, 
inspectors, samplers, classifiers, and weighers is not substantively 
changed by the proposed rule. The proposed general licensing program 
requirements are furnished in subparts B and C with the more specific 
requirements stated in the licensing agreements. Public comments are 
requested on the continuation of the current licensing program, 
including any licensing requirements that should be changed.
    Section 3(h) of the USWA allows the Secretary to issue regulations 
governing one or more electronic systems under which EWRs may be issued 
and transferred and other electronic documents relating to the 
shipment, payment, and financing of the sale of agricultural products. 
Previously, EWRs were only authorized for cotton. The authority for 
electronic conveyance of other business documents (such as grade and 
weight certificates, phytosanitary certificates, bills of lading, 
export evidence certificates or letters of credit) is a new authority. 
The proposed regulation in subparts D and E provides for a system where 
FSA will establish regulatory guidelines for systems for the electronic 
conveyance of these and other electronic documents that will authorize 
and standardize electronic documents and allow their transfer from 
buyer to seller across state and international boundaries. This new 
paperless flow of agricultural products from farm gate to end-user will 
provide savings and efficiencies for America's farmers. Public comments 
are requested on the system for electronic conveyance as provided in 
the proposed rule, including the use of service providers, and the 
involvement of FSA in standardizing the electronic document formats.
    The structure will mirror that structure established for cotton 
EWRs consisting of independent providers who have signed an agreement 
with FSA. Section 735.300 provides the general warehouse requirements 
applicable to all warehouse receipts whether paper or electronic for 
any agricultural product. Requirements specific to EWRs are found in 
section 735.302. FSA has developed two provider agreements. The EWR 
provider agreement for EWRs and electronic USWA documents will cover 
all approved agricultural products (See Exhibit C). Separate addenda 
will be developed to cover the commodity-specific EWRs (See Exhibit D 
and E for cotton and grain, respectively). FSA has developed a second 
provider agreement that will cover all other electronic documents (See 
Exhibit F). Separate addenda may be developed for each specific 
document. FSA decided to increase both the net worth and the insurance 
requirement for providers of EWRs. The net worth requirement was 
increased from $25,000 to $100,000 and the insurance coverage required 
was increased to $4 million. These changes are codified at Section 
735.401. Public comments are requested on these increases in financial 
requirements.
    Section 11(e)(4) of the USWA provides that ``an electronic receipt 
issued or other electronic document transferred, in accordance with 
this Act shall not be denied legal effect, validity, or enforceability 
on the ground that the information is generated, sent, received, or 
stored by electronic or similar means.'' Accordingly, this proposed 
rule in subpart E sets forth the manner in which a private person may 
be approved to establish a system that accomplishes these functions. 
Under the provider agreement for these functions, in addition to other 
activities, a party will be able to take a paper document relating to 
the shipment, payment, and financing of the sale of an agricultural 
product to an approved provider and the provider may generate an 
identical electronic document for electronic transmission. This aspect 
of the USWA will allow parties to conduct all aspects of these 
agricultural transactions in an electronic manner whereas currently, in 
many instances, necessary documents are in a paper format and must be 
physically delivered to another party.
    Entities involved in transactions which are anticipated to be 
conducted under such a system are anticipated to be primarily those 
which are involved in international shipments in which the financing of 
the sale will be through the use of various commercial instruments 
including letters of credit issued by foreign entities. The value of 
the commodity and associated cargo costs involved in these transactions 
will often exceed $10 million. Unlike those providers which are 
authorized to administer an electronic system with respect to warehouse 
receipts, the providers which are approved by the Secretary to operate 
this broader system which, encompasses all financial and shipping 
activities, are authorized to ``generate'' a document for use by 
parties to a transaction. Accordingly, the liability of these providers 
is significantly greater and FSA has determined that the financial net 
worth requirements for these providers should be significantly greater 
in order to ensure, in the event there are errors committed by the 
providers, that affected parties have the ability to recoup any losses 
which they may incur as a result of the provider's conduct. The 
financial requirements for providers of other electronic documents are 
found in Section 735.402 and require a provider to have a net worth of 
$10 million and maintain 2 insurance

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policies for a total coverage of $50 million. Public comments are 
sought regarding the net worth and insurance requirements for the 
provider of other electronic documents including the reasonableness of 
the requirements, and alternative levels for consideration.
    Section 11(e) also provides that in establishing this electronic 
document system, the Secretary may act ``notwithstanding any other 
provision of Federal or State law. * * *'' In order to provide a 
uniform system in developing documents for inclusion in this system and 
to provide for a uniform resolution of disputes that arise in the 
administration of this system, the proposed rule provides that the law 
of New York State will govern all transactions entered into with the 
use of the system except for laws relating to the legal doctrines of 
the choice of law and determination of venue. FSA has determined that, 
taking into account the large body of commercial law which has 
developed in the State of New York, especially laws relating to complex 
financing agreements involving international transactions which utilize 
letters of credit, such an approach would: (1) Make clear to all users 
of the system the law that would be applied regardless of the location 
of the provider, the location of the various parties to the transaction 
and the location of the actual activity that is the focus of the 
transaction; (2) assist in the development of uniform documents by more 
than one approved provider; and (3) reduce transactional costs as a 
result of the uniformity in documents, especially in the case of 
international transactions. Public comments are requested on the 
decision to use the law of the State of New York to govern all 
transactions under the electronic system.
    The Secretary is authorized to assess and collect fees from 
Federally-licensed warehouse operators, approved providers and other 
users of the USWA. The fees are intended to offset the cost of 
operating the revised USWA. The fee schedule is included as an addendum 
to the licensing and provider agreement and is available from the 
Deputy Administrator for Commodity Operations, located in Washington, 
D.C.
    Section 202 of the 2000 Act imposes certain deadlines for the 
regulations and on the effectiveness of the existing USWA. Final 
regulations are required to be in place no later than 180 days after 
the date of enactment. The USWA as it previously existed terminates not 
later than August 1, 2001. This proposed rule has been issued with a 
30-day comment period, and FSA intends to issue the final rule as soon 
as possible after comments have been received and evaluated.

Paperwork Reduction Act

    Title: 7 CFR 735, United States Warehouse Act.
    OMB Control Number: 0560-0120.
    Expiration Date: March 31, 2003.
    Type of Request: Request for approval of a revised information 
collection.
    Abstract: USDA will collect information from those individuals who 
voluntarily apply for warehouse licensing under the USWA and meet the 
minimum requirements for licensing for the applicable agricultural 
product. The USWA also provides for the voluntary approval and 
governing of one or more electronic provider systems under which 
farmers and merchants transfer electronic receipts or documents 
relating to the shipment, payment, and financing of the sale of 
agricultural products. Applicants must voluntarily certify that they 
will abide by the provisions of the USWA.
    Information secured voluntarily from interested warehouse operators 
forms the basis for the issuance, suspension, reinstatement, or 
revocation of a license.
    Likewise, information secured voluntarily from an interested 
electronic provider forms the basis for approval under the USWA, which 
allows for the use of electronic warehouse receipts for all 
agricultural products and the use of other electronic documents.
    The provider agreement entered into by a private person and the FSA 
sets forth the manner in which this person may be approved to establish 
a system that accomplishes how information is generated, sent, 
received, or stored by electronic or similar means.
    Approved providers must have a signed agreement with FSA, comply 
with the terms of that agreement, maintain specific financial and 
bonding requirements, pay user fees, establish and retain 
contemporaneous records of each EWR entry and access, be liable to the 
Secretary for issues associated with system failure or malfunction, 
furnish annual audit level financial statements, and submit to FSA an 
electronic data processing audits. This audit encompasses the 
provider's fiscal year and must evidence current computer operations, 
security, disaster recovery capabilities of the system, and other 
related systems. Information maintained to accommodate requirements 
under the provider agreement are considered to be normal operating 
practices for those private individuals who become approved providers 
and adds no additional burden to their day-to-day operations.
    Estimate of Respondent Burden: The estimated average public 
reporting burden for the collection of information is 30 minutes per 
response;
    Respondents: Warehouse operators and electronic providers;
    Estimated Number of Respondents: 4,600;
    Estimated Number of Responses per Respondent: One response per 
year;
    Estimated Annual Number of Responses: 25,937 and
    Estimated Total Annual Burden Hours on Respondents: 14,701 hours.
    In addition to commenting on the substance of the regulation, the 
public is invited to comment on the information collection. Proposed 
topics include the following: (a) Whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information will have practical 
utility; (b) the accuracy of the agency's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used; (c) ways to enhance the quality, 
utility, and clarity of the information technology; or (d) ways to 
minimize the burden of the information collection on those who are to 
respond (such as through the use of appropriate automated, electronic, 
mechanical, or other technological collection techniques) or other 
forms of information technology; e.g., permitting electronic submission 
response. The information collection package may be obtained from Steve 
Gill, at the address listed below. Comments regarding the information 
collections may be sent to the Desk Officer for Agriculture, Office of 
Information and Regulatory Affairs, OMB, Washington, DC 20503, and to 
Steve Gill, Director, Warehouse and Inventory Division, FSA, USDA, STOP 
0553, 1400 Independence Avenue, SW., Washington, DC 20250-0553.

List of Subjects in 7 CFR Part 735

    Administrative practice and procedure, Agricultural commodities, 
Beans, Cotton, Cottonseeds, Grain, Nuts, Sugar, Surety Bonds, Tobacco, 
Warehouses, Wool.
    For the reasons stated in the preamble, FSA proposes to amend 7 CFR 
Chapter 700 as follows:

PART 735--COTTON WAREHOUSES

    1. Part 735 is revised to read as follows:

PART 735--REGULATIONS FOR THE UNITED STATES WAREHOUSE ACT

Subpart A--General Provisions

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Sec.
735.1  Applicability.
735.2  Administration.
735.3  Definitions.
735.4  Fees.
735.5  Penalties.
735.6  Suspension and revocation.
735.7  Return of suspended or revoked license or provider agreement.
735.8  Appeals.
735.9  Dispute resolution and arbitration of private parties.
735.10  Posting of license, certificate of approval or other USWA 
documents.
735.11  Lost or destroyed licenses or agreements.
735.12  Safe keeping of records.
735.13  Information of violations.
735.14  Bonding and other financial assurance requirements.
Subpart B--WArehouse Licensing
735.100  Application.
735.101  Financial records and reporting requirements.
735.102  Financial assurance requirements.
735.103  Amendments to license.
735.104  Insurance requirements.
735.105  Care of agricultural products.
735.106  Excess storage and transferring of agricultural products.
735.107  Warehouse charges and tariffs.
735.108  Inspections and examinations of warehouses.
735.109  Disaster loss to be reported.
735.110  Conditions for delivery of agricultural products.
735.111  Fair treatment.
735.112  Terminal and futures contract markets
Subpart C--Inspectors, Samplers, Classifiers, and Weighers
735.200   Service licenses.
735.201  Inspection certificate; form.
735.202  Standards of grades for other agricultural products.
Subpart D--Warehouse Receipts
735.300  Warehouse receipt requirements.
735.301  Notification requirements.
735.302  Electronic warehouse receipts.
Subpart E--Electronic Providers
735.400  Administration.
735.401  Electronic warehouse receipt and USWA electronic document 
providers.
735.402  Providers of other electronic documents.
735.403  Audits.
735.404  Fees.
735.405  Choice of law.

    Authority:  7 U.S.C. 241 et seq.

Subpart A--General Provisions


Sec. 735.1  Applicability.

    (a) The regulations of this part set forth the terms and conditions 
under which the Farm Service Agency (FSA) will administer the United 
States Warehouse Act (the Act). These regulations set forth the 
standards and the terms and conditions a participant or provider must 
meet to be eligible for licensing or approval under the Act.
    (b) Additional terms and conditions may be set forth in applicable 
licensing agreements, provider agreements and other documents.


Sec. 735.2  Administration.

    (a) FSA will administer all provisions of the Act under the general 
direction and supervision of the FSA's Deputy Administrator, Commodity 
Operations, (DACO), or designee.
    (b) DACO may waive or modify program requirements or deadlines in 
cases where lateness or failure to meet such other requirements does 
not adversely affect the programs operated under the Act.


Sec. 735.3  Definitions.

    Words used in this part in the singular form will be deemed to 
import the plural, and vice versa, as the case may demand. For the 
purposes of this part, unless the context otherwise requires; and will 
be applicable to the program authorized by this part and will be used 
in all aspects of administering this program:
    Access means the ability when authorized, to read, change, and 
transfer warehouse receipts or other applicable document information 
retained in a central filing system.
    Agricultural product means an agricultural produced product stored 
or handled for the purposes of interstate or foreign commerce including 
a processed product of an agricultural product as determined by DACO.
    Approval means the consent provided by DACO for a person to engage 
in an activity authorized by the Act.
    Central filing system (CFS) means an electronic system operated and 
maintained by a provider approved by DACO where the information 
relating to warehouse receipts, USWA documents and other electronic 
documents are recorded and maintained in a transparent, secure, 
unbiased and anonymous condition.
    Control of the facility means ultimate responsibility for the 
operation and integrity of a facility by ownership, lease, or operating 
agreement.
    Department means the Department of Agriculture.
    Electronic document means a document that is generated, sent, 
received, or stored by electronic, optical, or similar means, including 
electronic data interchange, electronic mail, telegram, telex, or 
telecopy.
    Electronic warehouse receipt (EWR) means a warehouse receipt that 
is authorized by DACO to be issued or transmitted under the Act in the 
form of an electronic document.
    Examiner means an individual designated by DACO for the purpose of 
examining warehouses.
    Financial assurance means the surety or other financial obligation 
approved by DACO that is a condition of receiving a license or approval 
under the Act.
    Force Majeure means severe weather conditions, fire, explosion, 
flood, earthquake, insurrection, riot, strike, labor dispute, act of 
civil or military, non-availability of transportation facilities, or 
any other cause beyond the control of the warehouse operator or 
provider that renders performance impossible.
    Holder means a person that has possession in fact or by operation 
of law of a warehouse receipt or any electronic document.
    License means a license issued under the Act by DACO.
    Licensing agreement means the document and any amendment to such 
agreement executed by the warehouse operator and FSA specifying 
licensing terms and conditions specific to the warehouse operator and 
the agricultural product licensed to be stored.
    Non-stored agricultural product means an agricultural product 
received temporarily into a warehouse for conditioning, transferring, 
assembling for shipment, or lots of an agricultural product moving 
through a warehouse for current merchandising or milling use, against 
which no warehouse receipts are issued and no storage charges assessed.
    Official Standards of the United States means the standards of the 
quality or condition for an agricultural product, fixed and established 
under the United States Cotton Standards Act, the United States Grain 
Standards Act, the Agricultural Marketing Act of 1946, or other 
applicable official United States Standards.
    Other electronic documents means those electronic documents, other 
than an EWR, related to the shipment, payment or financing of 
agricultural products that DACO has approved for inclusion in a 
provider's CFS.
    Person means a person as set forth in 1 U.S.C. 1.; a State; and a 
political subdivision of a State.
    Provider means a person that maintains one or more electronic 
systems that has been approved by DACO.
    Provider Agreement means the document and any amendment to such 
agreement executed by the provider and FSA that sets forth the 
provider's responsibilities concerning the provider's maintenance of a 
CFS.
    Receipt means a warehouse receipt issued in accordance with the 
Act,

[[Page 46314]]

including an electronic warehouse receipt.
    Schedule of fees means the fees charged for services provided under 
the Act.
    Service license means the document and any amendment to such 
agreement executed by a person licensed under the Act to perform 
required services such as inspection, sampling, grading, classifying, 
or weighing services for the licensed warehouse.
    Stored agricultural products means all agricultural products 
received into, stored within, or delivered out of the warehouse which 
is not classified as a non-storage agricultural product under this 
part.
    User means a person that uses a provider's CFS.
    Warehouse means a structure or other approved storage facility, as 
determined by DACO, in which any agricultural product may be stored or 
handled.
    Warehouse capacity means the maximum quantity of an agricultural 
product that the warehouse will accommodate when stored in a manner 
customary to the warehouse as determined by DACO.
    Warehouse Operator means a person lawfully engaged in the business 
of storing or handling agricultural products.


Sec. 735.4  Fees.

    (a) Warehouse operators, licensees, applicants or providers must 
pay:
    (1) An annual fee as provided in the applicable licensing or 
provider agreement.
    (2) Fees that FSA assesses for examinations and audits.
    (b) The schedule showing the current fees or any annual fee changes 
will be provided as an addendum to the applicable licensing or provider 
agreement or is available at:
    (1) DACO's USWA website, or
    (2) May be requested at the following address: Deputy 
Administrator, Commodity Operations, Farm Service Agency, United States 
Department of Agriculture, STOP 0550, 1400 Independence Avenue, SW., 
Washington, D.C. 20250-0550.
    (c) At the sole discretion of DACO, these fees may be waived.


Sec. 735.5  Penalties.

    If a person fails to comply with any requirement of the Act, the 
regulations set forth in this part or any applicable licensing or 
provider agreement, DACO may assess after an opportunity for a hearing 
as provided in Sec. 735.8, a civil penalty:
    (a) Of not more than $25,000 per violation, if an agricultural 
product is not involved in the violation; or
    (b) Of not more than 100 percent of the value of the agricultural 
product, if an agricultural product is involved in the violation.


Sec. 735.6  Suspension and revocation.

    (a) DACO may, after an opportunity for a hearing as provided in 
Sec. 735.8, suspend or revoke any license or agreement issued under the 
Act, for any violation of or failure to comply with any provision of 
the Act, regulations or any applicable licensing or provider agreement.
    (b) The reasons for a suspension or revocation under this part 
include, but are not limited to:
    (1) Failure to perform licensed or approved services as provided in 
this part or in the applicable licensing or provider agreement;
    (2) Failure to maintain minimum financial requirements as provided 
in the applicable licensing or provider agreement; and
    (3) Failure to submit a proper annual financial statement within 
the established time period as provided in the applicable licensing or 
provider agreement.


Sec. 735.7  Return of suspended or revoked license or provider 
agreement.

    When a license issued to a warehouse operator or an agreement to a 
provider ends or is suspended or revoked by DACO, such license and 
applicable licensing agreement or provider agreement and certificate of 
approval must be immediately returned to DACO.


Sec. 735.8  Appeals.

    (a) Any person who is subject to an adverse determination made 
under the Act may appeal the determination by filing a written request 
with DACO at the following address: Deputy Administrator, Commodity 
Operations, Farm Service Agency, United States Department of 
Agriculture, STOP 0550, 1400 Independence Avenue, SW., Washington, D.C. 
20250-0550.
    (b) Any person who believes that they have been adversely affected 
by a determination under this part must seek review with DACO within 
twenty-one business days of such determination, unless provided with 
notice by DACO of a different deadline.
    (c) Appeals procedure. The appeal process set forth in this part is 
applicable to all licensees and providers under any provision of the 
Act, regulations or any applicable licensing agreement as follows:
    (1) DACO will notify the person in writing of the nature of the 
suspension or revocation action.
    (2) The person must notify DACO of any appeal to its action within 
twenty-one business days.
    (3) The appeal and request must state whether:
    (i) A hearing is requested;
    (ii) The person will appear in person at such hearing; or
    (iii) Such hearing will be held by telephone.
    (4) DACO will provide the person a written acknowledgment of their 
request to pursue an appeal.
    (5) When a person requests an appeal and does not request a hearing 
DACO will allow that person:
    (i) To submit in writing the reasons why they believe DACO's 
determination to be in error.
    (ii) Twenty-one business days from the receipt of the 
acknowledgment, to file any statements and documents in support of 
their appeal.
    (iii) An additional fifteen business days to respond to any new 
issues raised by DACO in response to the person's initial submission.
    (6) If the person requests to pursue an appeal and requests a 
hearing, DACO will:
    (i) Notify the person of the date of the hearing.
    (ii) Determine the location of the hearing, when such a person 
requests to appear in person.
    (iii) Notify the person of the location of the hearing.
    (iv) Afford the person twenty-one business days from the receipt of 
the notification of the scheduling of the hearing to submit any 
statements and documents in support of the appeal.
    (v) Allow the person an additional fifteen days from the date of 
the hearing to submit any additional material.
    (7) Determinations of DACO will be final and no further appeal 
within USDA will be available except as may be specified in the final 
determination of DACO.
    (8) A person may not initiate an action in any court of competent 
jurisdiction prior to the exhaustion of the administrative appeal 
process set forth in this section.


Sec. 735.9  Dispute resolution and arbitration of private parties.

    (a) Any claim for noncompliance or unresolved dispute between a 
warehouse operator or provider and another party with respect to 
activities authorized under the Act may be resolved by the parties 
involved through mutually agreed upon arbitration procedures or as may 
be prescribed in the applicable licensing agreement. The arbitration 
procedures must be nondiscriminatory and provide each

[[Page 46315]]

party equal access and protection relating to the disputed issue. No 
arbitration determination or award will affect DACO's authority under 
this part.
    (b) In the event a party requests arbitration assistance from DACO 
the initiating party will be responsible for all costs incurred by 
DACO.


Sec. 735.10  Posting of license, certificate of approval or other USWA 
documents.

    (a) The warehouse operator must post, in a conspicuous place in the 
principal place where warehouse receipts are issued, a statement 
approved by DACO that the warehouse operator is an approved licensee 
under the Act.
    (b) Immediately upon receipt of their service license or any 
modification or extension thereof under the Act, the licensee and 
warehouse operator must jointly post the same, and thereafter, except 
as otherwise provided in the regulations in this part or as prescribed 
in the applicable licensing agreement, and keep such license 
conspicuously posted in the office where all or most of the services 
are done, or in such place as may be designated by FSA.


Sec. 735.11  Lost or destroyed licenses or agreements.

    FSA will replace a lost or destroyed license or agreement upon 
satisfactory proof of loss or destruction. FSA will mark such license 
or agreement as a duplicate.


Sec. 735.12  Safe keeping of records.

    Each warehouse operator or provider must store all records, books, 
and papers pertaining to the licensed warehouse or provider system in a 
fireproof safe, vault, compartment or other place approved by FSA in 
which to keep such documents when not in actual use.


Sec. 735.13  Information of violations.

    Every person licensed or approved under the Act must immediately 
furnish DACO any information which comes to the knowledge of such 
person that indicates that any provision of the Act or the regulations 
in this part has been violated.


Sec. 735.14  Bonding and other financial assurance requirements.

    (a) As a condition of receiving a license or approval under the 
Act, the person applying for the license or approval must execute and 
file with DACO a bond, or provide such other financial assurance as 
DACO determines appropriate, to secure the person's compliance with the 
Act.
    (b) Such bond or assurance must be for a period of not less than 
one year and in such amount as required by DACO.
    (c) Failure to provide for, or renew, a bond or a financial 
assurance instrument will result in the immediate and automatic 
revocation of the warehouse operator's license or provider's agreement.
    (d) If DACO determines that a previously approved bond or other 
financial assurance is insufficient, DACO may immediately suspend or 
revoke the license or approval covered by the bond or other financial 
assurance if the person that filed the bond or other financial 
assurance does not provide such additional bond or other financial 
assurance as DACO determines appropriate.
    (e) To qualify as a suitable bond or other financial assurance, the 
entity issuing the bond or other financial assurance must be subject to 
service of process in suits on the bond or other financial assurance in 
the State in which the warehouse is located.

Subpart B--Warehouse Licensing


Sec. 735.100  Application.

    (a) An applicant for a license must submit to DACO information and 
documents determined by DACO to be sufficient to determine that the 
applicant can comply with the provisions of the Act. Such documents 
must include a current review or an audit level financial statement 
prepared according to generally accepted accounting standards as 
defined by the American Institute of Certified Public Accountants, and 
for any entity that is not an individual, a current copy of each 
applicable organization document that establishes proof of the 
existence of the entity, such as:

For a Partnership.........................  Executed partnership
                                             agreement.
For a Corporation.........................  (1) Articles of
                                             incorporation certified by
                                             the secretary of state of
                                             the applicable state of
                                             incorporation; (2) Bylaws;
                                             and (3) Declaration of
                                             Corporate Principal.
For a Limited Partnership.................  (1) Executed limited
                                             partnership agreement.
For a Limited Liability Company...........  (1) Articles of Organization
                                             or similar documents; and
                                             (2) Operating Agreement or
                                             similar agreement.
------------------------------------------------------------------------

    (b) The warehouse facilities of an operator licensed under the Act 
must, as determined by DACO, be:
    (1) Physically and operationally suitable for proper storage of the 
applicable agricultural product or agricultural products specified in 
the license;
    (2) Operated according to generally accepted warehousing practices 
in the industry for the applicable agricultural product or agricultural 
products stored in the facility; and
    (3) Subject to the control of the warehouse operator including all 
contiguous storage space with respect to such facilities.
    (c) As specified in individual licensing agreements a warehouse 
operator must:
    (1) Meet the basic financial requirements determined by DACO; and
    (2) Meet the net worth requirements determined by DACO;
    (d) In order to obtain a license, the warehouse operator must 
correct any exceptions made by the warehouse examiner at the time of 
the original warehouse examination.
    (e) DACO may issue a license for the storage of two or more 
agricultural products in a single warehouse as provided in the 
applicable licensing agreements. The amount of the bond or financial 
assurance, net worth, and inspection and license fees will be 
determined by DACO in accordance with the licensing agreements 
applicable to the specific agricultural product, based upon the 
warehouses' total capacity storing such product, which would require:
    (1) The largest bond or financial assurance;
    (2) The greatest amount of net worth; and
    (3) The greatest amount of fees.


Sec. 735.101  Financial records and reporting requirements.

    (a) Warehouse operators must maintain complete, accurate, and 
current financial records that must be available to DACO for review or 
audit at DACO's request as may be prescribed in the applicable 
licensing agreement.
    (b) Warehouse operators must, annually, present a financial 
statement as may be prescribed in the applicable licensing agreement to 
DACO.


Sec. 735.102  Financial assurance requirements.

    (a) Warehouse operators must file with DACO financial assurances 
approved by DACO consisting of:
    (1) A warehouse operator's bond; or
    (2) Obligations that are unconditionally guaranteed as to both 
interest and principal by the United States, in a sum equal at their 
par value to the amount of the bond otherwise required to be furnished, 
together with an irrevocable power of attorney authorizing DACO to 
collect, sell, assign

[[Page 46316]]

and transfer such obligations in case of any default in the performance 
of any of the conditions required in the licensing agreement; or
    (3) An irrevocable letter of credit issued in the favor of DACO 
with a term of not less than two years; or
    (4) A certificate of participation in, and coverage by, an 
indemnity or insurance fund as approved by DACO, established and 
maintained by a State, backed by the full faith and credit of the 
applicable State, which guarantee's depositors of the licensed 
warehouse full indemnification for the breach of any obligation of the 
licensed warehouse operator under the terms of the Act. If a warehouse 
operator files a bond or financial assurance in the form of a 
certification of participation in an indemnity or insurance fund, the 
certification may only be used to satisfy any deficiencies in assets 
above the minimum net worth requirement as prescribed in the applicable 
licensing agreement. A certificate of participation and coverage in 
this fund must be furnished to DACO annually; or
    (5) Other forms of financial assurance as may be approved by DACO 
as provided in the applicable licensing agreement.
    (b) The warehouse operator may not withdraw obligations required 
under this section until one year after license termination or until 
satisfaction of any claims against the obligations whichever is later.


Sec. 735.103  Amendments to license.

    The FSA will issue an amended license upon:
    (a) Receipt of forms prescribed and furnished by DACO outlining the 
requested changes to the license;
    (b) Payment of applicable licensing and examination fees;
    (c) Receipt of bonding or other financial assurance if required in 
the applicable licensing agreement; and
    (d) Receipt of a report on the examination of the proposed 
facilities pending inclusion or exclusion, if determined necessary by 
DACO.


Sec. 735.104  Insurance requirements.

    Each warehouse operator must comply fully with the terms of 
insurance policies or contracts covering their licensed warehouse and 
all products stored therein, and must not commit any acts, nor permit 
others to do anything, which might impair or invalidate such insurance.


Sec. 735.105  Care of agricultural products.

    Each warehouse operator must at all times, including during any 
period of suspension of their license, exercise such care in regard to 
agricultural products in their custody as required in the applicable 
licensing agreement.


Sec. 735.106  Excess storage and transferring of agricultural products.

    (a) If at any time a warehouse operator stores an agricultural 
product in a warehouse subject to a license issued under the Act in 
excess of the capacity for which it is licensed, such warehouse 
operator must immediately notify DACO of such excess storage and the 
reason for the storage.
    (b) A warehouse operator who desires to transfer stored 
agricultural products to another warehouse may do so either by physical 
movement, or by other methods as may be provided in the applicable 
licensing agreement.


Sec. 735.107  Warehouse charges and tariffs.

    (a) A warehouse operator will not make any unreasonable or 
exorbitant charge for services rendered.
    (b) A warehouse operator must follow the terms and conditions for 
each new or revised warehouse tariff or schedule of charges as 
prescribed in the applicable licensing agreement.


Sec. 735.108  Inspections and examinations of warehouses.

    Warehouse operators must permit any agent of the Department, to 
enter and inspect or examine, on any business day during the usual 
hours of business, any licensed warehouse, the offices of the warehouse 
operator, the books, records, papers, and accounts.


Sec. 735.109  Disaster loss to be reported.

    If at any time a disaster or loss occurs at or within any licensed 
warehouse, the warehouse operator must report immediately the 
occurrence of the disaster or loss and the extent of damage, to DACO.


Sec. 735.110  Conditions for delivery of agricultural products.

    (a) In the absence of a lawful excuse, a warehouse operator will, 
without unnecessary delay, deliver the agricultural product stored or 
handled in the warehouse on a demand made by:
    (1) The holder of the warehouse receipt for the agricultural 
product; or
    (2) The person that deposited the product, if no warehouse receipt 
has been issued.
    (b) Prior to delivery of the agricultural product, payment of the 
accrued charges associated with the storage of the agricultural 
product, including satisfaction of the warehouse operator's lien, if 
owed, must be made if requested by the warehouse operator.
    (c) When the holder of a warehouse receipt requests delivery of an 
agricultural product covered by the warehouse receipt, the holder must 
surrender the warehouse receipt to the warehouse operator, in the 
manner prescribed by DACO, to obtain the agricultural product.
    (d) A warehouse operator must cancel each warehouse receipt 
returned to the warehouse operator upon the delivery of the 
agricultural product for which the warehouse receipt was issued.
    (e) For the purpose of this part, unless prevented from doing so by 
force majeure, a warehouse operator will deliver or ship such 
agricultural products stored or handled in their warehouse as 
prescribed in the applicable licensing or provider agreement.


Sec. 735.111  Fair treatment.

    (a) Contingent upon the capacity of a warehouse, a warehouse 
operator will deal, in a fair and reasonable manner, with persons 
storing, or seeking to store, an agricultural product in the warehouse 
if the agricultural product--
    (1) Is of the kind, type, and quality customarily stored or handled 
in the area in which the warehouse is located;
    (2) Is tendered to the warehouse operator in a suitable condition 
for warehousing; and
    (3) Is tendered in a manner that is consistent with the ordinary 
and usual course of business.
    (b) Nothing in this section will prohibit a warehouse operator from 
entering into an agreement with a depositor of an agricultural product 
to allocate available storage space.


Sec. 735.112  Terminal and futures contract markets.

    (a) DACO may issue service licenses to weigh masters or their 
deputies to perform services relating to warehouse receipts which are 
deliverable in satisfaction of futures contracts in such contract 
markets or as may be prescribed in any applicable licensing agreement.
    (b) DACO may approve, as registrar of warehouse receipts issued for 
an agricultural product in a warehouse licensed under the Act which 
operates in any terminal market or in any futures contract market, the 
official designated by officials of the State in which such market is 
located if such individual is not:
    (1) An owner or employee of licensed warehouse;
    (2) The owner of, or an employee of the owner of, such agricultural 
product deposited in any such licensed warehouse; or
    (3) As may be prescribed in any applicable licensing or provider 
agreement.

[[Page 46317]]

Subpart C--Inspectors, Samplers, Classifiers, and Weighers


Sec. 735.200  Service licenses.

    (a) FSA may issue to a person a license for:--
    (1) Inspection of any agricultural product stored or handled in a 
warehouse subject to the Act;
    (2) Sampling of such an agricultural product;
    (3) Classification of such an agricultural product according to 
condition, grade, or other class and certify the condition, grade, or 
other class of the agricultural product;
    (4) Weighing of such an agricultural product and certify the weight 
of the agricultural product; or
    (5) Performing two or more services specified in paragraphs (a)(1), 
(2), (3) or (4) of this section.
    (b) Each person seeking a license to perform activities described 
in this section must submit an application on forms furnished by DACO 
which contain, at a minimum, the following information:
    (1) The name, location and license number of the warehouses where 
the applicant would perform such activities;
    (2) A statement from the warehouse operator that the applicant is 
authorized to perform such activities at these locations; and
    (3) Evidence that the applicant is competent to inspect, sample, 
classify, according to grade or weigh the agricultural product;


Sec. 735.201  Inspection certificate; form.

    Each inspection certificate issued under the Act by a licensee to 
perform such services must be on a form prescribed by DACO.


Sec. 735.202  Standards of grades for other agricultural products.

    Official standards of the United States for any kind, class or 
grade of an agricultural product to be inspected must be used if such 
standards exist. Until official standards of the United States are 
fixed and established for the kind of agricultural product to be 
inspected, the kind, class and grade of the agricultural product must 
be stated, subject to the approval of DACO. If such standards do not 
exist for such an agricultural product, the following will be used:
    (a) State standards established in the State in which the warehouse 
is located,
    (b) In the absence of any State standards, in accordance with the 
standards, if any, adopted by the local board of trade, chamber of 
commerce, or by the agricultural product trade generally in the 
locality in which the warehouse is located, or
    (c) In the absence of the standards set forth in paragraphs (a) and 
(b) of this section, in accordance with any standards approved for the 
purpose by DACO.

Subpart D--Warehouse Receipts


Sec. 735.300  Warehouse receipt requirements.

    (a) Warehouse receipts may be:
    (1) Negotiable or non-negotiable; and
    (2) In a paper or electronic format, which besides complying with 
the requirements of the Act, must be in a format approved by DACO.
    (b) At the request of a depositor of an agricultural product stored 
or handled in a warehouse licensed under the Act, the warehouse 
operator:
    (1) Will issue a warehouse receipt to the depositor;
    (2) May not issue a warehouse receipt for an agricultural product 
unless the agricultural product is actually stored in their warehouse 
at the time of issuance;
    (3) May not issue a warehouse receipt until the quality, condition 
and weight of such an agricultural product is ascertained by a licensed 
inspector and weigher;
    (4) May not directly or indirectly compel or attempt to compel the 
depositor to request the issuance of a warehouse receipt omitting the 
statement of quality or condition;
    (5) Must, when issuing a warehouse receipt and purposely omits any 
information for which a blank or field is provided in the form, notate 
the blank to show such intent;
    (6) May not deliver any portion of an agricultural product for 
which they have issued a negotiable warehouse receipt until the 
warehouse receipt has been returned to them and canceled;
    (7) May not deliver an agricultural product for which they have 
issued a non-negotiable warehouse receipt until such warehouse receipt 
has been returned or the depositor or the depositor's agent has 
provided a written order for the agricultural product and the warehouse 
receipt upon final delivery; and
    (8) Must deliver, upon proper presentation of a warehouse receipt 
for any agricultural product, and payment or tender of all advances and 
charges, to the depositor or lawful holder of such warehouse receipt 
the agricultural product of such identity, quantity, quality and 
condition as set forth in such warehouse receipt.
    (c) In the case of a lost or destroyed warehouse receipt, a new 
warehouse receipt upon the same terms, subject to the same conditions, 
and bearing on its face the number and the date of the original 
warehouse receipt may be issued.


Sec. 735.301  Notification requirements.

    Warehouse operators must file with DACO the name and genuine 
signature of each person authorized to sign warehouse receipts for the 
licensed warehouse operator, and will promptly notify DACO of any 
changes with respect to persons authorized to sign.


Sec. 735.302  Electronic warehouse receipts.

    (a) Warehouse operators licensed under the Act have the option of 
issuing Electronic Warehouse Receipts (EWRs) instead of paper warehouse 
receipts for the agricultural product stored in their warehouse. 
Warehouse operators licensed under the Act must:
    (1) Only issue EWRs through a provider whom FSA has approved;
    (2) Inform DACO of the identity of their provider, when they are a 
first time user of EWRs, 60 calendar days in advance of issuing an EWR 
through that provider. DACO may waive or modify this 60-day requirement 
as set forth in Sec. 735.2(b);
    (3) Before issuing an EWR, request and receive from FSA a range of 
consecutive warehouse receipt numbers which the warehouse will use 
consecutively for issuing their EWRs;
    (4) When using an approved provider, issue all warehouse receipts 
initially as EWRs;
    (5) Cancel an EWR only when they are the holder of the warehouse 
receipt;
    (6) Correct information on the EWR only with written notification 
to the provider;
    (7) Receive written approval from FSA at least 30 calendar days 
before changing providers. Upon approval they may request their current 
provider to transfer their EWR data from its Central Filing System 
(CFS) to the CFS of the approved provider whom they select. Warehouse 
operators may only change providers once a year; and
    (8) Notify all holders of EWRs by inclusion in the CFS at least 30 
calendar days before changing providers, unless otherwise required or 
allowed by FSA.
    (b) An EWR establishes the same rights and obligations with respect 
to an agricultural product as a paper warehouse receipt, and possesses 
the following attributes:
    (1) The person identified as the 'holder' of an EWR will be 
entitled to the same rights and privileges as the holder of a paper 
warehouse receipt;
    (2) Only the current holder of the EWR may transfer the EWR to a 
new holder;
    (3) The identity of the holder must be included as additional 
information for every EWR;

[[Page 46318]]

    (4) An EWR may only designate one entity as a holder at any one 
time;
    (5) An EWR may not be issued for a specific identity-preserved or 
commingled agricultural product lot if another warehouse receipt 
representing the same specific identity-preserved or commingled lot of 
the agricultural product is outstanding. No two warehouse receipts 
issued by a warehouse operator may have the same warehouse receipt 
number or represent the same agricultural product lot;
    (6) An EWR may only be issued to replace a paper warehouse receipt 
if requested by the current holder of the paper warehouse receipt;
    (7) Holders and warehouse operators may authorize any other user of 
their provider to act on their behalf with respect to their activities 
with this provider. This authorization must be in writing, and 
acknowledged and retained by the provider; and
    (8) A depositor or current EWR holder may request a paper warehouse 
receipt in lieu of an EWR.
    (c) A warehouse operator not licensed under the Act may, at the 
option of the warehouse operator, issue EWRs in accordance with this 
subpart, except this option does not apply to a warehouse operator that 
is licensed under State law to store agricultural products in a 
warehouse if the warehouse operator elects to issue an EWR under State 
law.

Subpart E--Electronic Providers


Sec. 735.400  Administration

    This subpart sets forth the regulations under which DACO may 
approve one or more electronic systems under which:
    (a) Electronic documents relating to the shipment, payment, and 
financing of the sale of agricultural products may be issued or 
transferred; or
    (b) Electronic receipts may be issued and transferred.


Sec. 735.401  Electronic warehouse receipt and USWA electronic document 
providers.

    (a) Application for a provider agreement to establish a system to 
issue and transfer EWR's and USWA electronic document's may be made to 
FSA upon forms prescribed and furnished by DACO. Each provider 
operating pursuant to this section must meet the following 
requirements:
    (1) Have and maintain a net worth of at least $100,000;
    (2) Maintain two insurance policies; one for `errors and omissions' 
and another for `fraud and dishonesty'. Maximum deductible amounts will 
be prescribed in the applicable provider agreement. Each policy must 
have a minimum coverage of $4 million. Each policy must contain a 
clause requiring written notification to FSA 30 days prior to 
cancellation;
    (3) Meet any additional financial requirements as set forth in the 
applicable provider agreement.
    (4) Pay user fees annually to FSA, as set and announced annually by 
FSA prior to April 1 of each calendar year.
    (b) The provider agreement will contain, but not be limited to, the 
following basic elements:
    (1) Minimum document and warehouse receipt requirements;
    (2) Liability;
    (3) Transfer of records;
    (4) Records;
    (5) Conflict of interest requirements;
    (6) USDA common electronic information requirements;
    (7) Terms of insurance policies or assurances;
    (8) Provider's integrity statement;
    (9) Security audits; and
    (10) Submission, approval, use and retention of documents.
    (c) DACO may suspend or terminate a provider's agreement for cause 
at any time.
    (1) Hearings and appeals will be conducted in accordance with 
procedures as set forth in Secs. 735.6 and 735.8.
    (2) Suspended or terminated providers may not execute any function 
pertaining to USWA documents or EWRs during the pendency of any appeal 
or subsequent to this appeal if the appeal is denied except as 
authorized by DACO.
    (3) The provider or DACO may terminate the provider agreement 
without cause solely by giving the other party written notice 60 
calendar days prior to termination.
    (d) Each provider agreement will be automatically renewed annually 
on April 30th as long as the provider complies with the terms contained 
in the provider agreement, the regulations in this subpart and the Act.


Sec. 735.402  Providers of other electronic documents.

    (a) Application for a provider agreement to establish a system to 
issue and transfer other electronic documents may be made to FSA upon 
forms prescribed and furnished by DACO. Each provider operating 
pursuant to this section must meet the following requirements:
    (1) Have and maintain a net worth of at least $10 million;
    (2) Maintain two insurance policies; one for `errors and omissions' 
and another for `fraud and dishonesty'. Maximum deductible amounts will 
be prescribed in the applicable provider agreement. Each policy must 
have a minimum coverage of $25 million. Each policy must contain a 
clause requiring written notification to FSA 30 days prior to 
cancellation;
    (3) Meet any additional financial requirements as set forth in the 
applicable provider agreement; and
    (4) Pay user fees annually to FSA, as set and announced annually by 
FSA prior to April 1 of each calendar year.
    (b) The provider agreement will contain, but not be limited to, the 
following basic elements:
    (1) Minimum document requirements;
    (2) Liability;
    (3) Transfer of records;
    (4) Records;
    (5) Conflict of interest requirements;
    (6) USDA common electronic information requirements;
    (7) Terms of insurance policies or assurances;
    (8) Provider's integrity statement;
    (9) Security audits; and
    (10) Approval, use and retention of documents.
    (c) DACO may suspend or terminate a provider's agreement for cause 
at any time.
    (1) Hearings and appeals will be conducted in accordance with 
procedures as set forth in Secs. 735.6 and 735.8.
    (2) Suspended or terminated providers may not execute any function 
pertaining to any electronic document during the pendency of any appeal 
or subsequent to this appeal if the appeal is denied except as 
authorized by DACO.
    (3) The provider or DACO may terminate the provider agreement 
without cause solely by giving the other party written notice 60 
calendar days prior to termination.
    (d) Each provider agreement will be automatically renewed annually 
on April 30th as long as the provider complies with the terms contained 
in the provider agreement, the regulations in this subpart and the Act.
    (e) In addition to audits prescribed in this section the provider 
must submit a copy of any audit, examination or investigative report 
prepared by any Federal governmental regulatory agency with respect to 
the provider including agencies such as, but not limited to, the 
Comptroller of the Currency, Department of the Treasury, the Federal 
Trade Commission, and the Commodity Futures Trading Commission.


Sec. 735.403  Audits.

    (a) No later than 120 days following the end of the provider's 
fiscal year, the provider approved under Secs. 735.401

[[Page 46319]]

and 735.402 must submit to FSA an annual audit level financial 
statement and an electronic data processing audit that meets the 
minimum requirements as provided in the applicable provider agreement. 
The electronic data processing audit will be used by DACO to evaluate 
current computer operations, security, disaster recovery capabilities 
of the system, and compatibility with other systems approved by DACO.
    (b) Each provider will grant the Department unlimited, free access 
at any time to all records under the provider's control relating to 
activities conducted under this part and as specified in the applicable 
provider agreement.


Sec. 735.404  Fees.

    (a) A provider approved under Secs. 735.401 or 735.402 must furnish 
FSA with copies of its current schedule of fees for all services and 
charges as they become effective.
    (b) Fees charged any user by the provider must be in effect for a 
minimum period of one year.
    (c) Providers must furnish the FSA and all users a 60-calendar day 
advance notice of their intent to change any fee.


Sec. 735.405  Choice of law.

    All disputes arising under any transaction conducted through the 
use of a provider approved under Sec. 735.402 shall be determined by 
the application of the laws of New York State except that the laws of 
New York relating to the legal doctrines of the choice of law and 
determination of venue shall not be applicable.
    2. Parts 736 through 742 are removed and reserved.

    Note: The following exhibits A through F are being published for 
informational purposes and they will not become part of the codified 
regulations.


    Signed at Washington, D.C., on August 24, 2001.
Carolyn B. Cooksie,
Acting Administrator, Farm Service Agency.

Exhibit A--Draft

License Number________

Effective________

Licensing Agreement for Cotton

Contents

I. Definitions
II. Financials
    A. Financial Requirements
    B. Financial Reporting
    C. Accepting Other Financial Statements
    D. Special Cases: Assets and Liabilities
    E. Financial Special Conditions--Public Debt Obligations
III. Financial Assurance
    A. Financial Assurance Requirements Computation
    B. Financial Assurance Acceptable Forms
IV. Duties of Warehouse Operator
    A. General
    B. Insurance
    C. Records to be kept in a Safe Place
    D. Scales and Weighing
    E. Warehouse Charges
    F. Business Hours
    G. System of Accounts
    H. Excess Storage and Transferring Cotton
    I. Reports Required
    J. Inspections, Examinations of Warehouse
    K. Arrangement of Stored Cotton
    L. Removal of Cotton from Storage
    M. Drawing of Samples
    N. Warehouse Receipts
V. Paper Warehouse Receipts
    A. Issuance
    B. Form
    C. Persons Authorized to Sign Warehouse Receipts
    D. Copies of Warehouse Receipts
    E. Printing of Warehouse Receipts
    F. Return of Warehouse Receipts Prior to Delivery
    G. Balance Warehouse Receipts
    H. Lost or Destroyed Warehouse Receipts
VI. Service Licenses
    A. The Applicant
    B. Examination of Application
    C. Classification Certificates
    D. Weight Certificates
    E. Classification and Weight Certificates
    F. Duties of Sampler, Classifier and Weigher
VII. Cotton Classification
    A. Official Cotton Standards of the United States
    B. Access to the Cotton Standards
VIII. Fees

Licensing Agreement for Cotton

    As a condition of licensing under the United States Warehouse Act 
(the Act), the warehouse operator agrees to the conditions set forth in 
this agreement and the regulations found at 7 CFR 735:

I. Definitions

    Current assets. Assets, including cash, that are reasonably 
expected to be realized in cash or sold or consumed during the normal 
operating cycle of the business or within one year if the operating 
cycle is shorter than one year.
    Current liabilities. Those financial obligations which are expected 
to be satisfied during the normal operating cycle of the business or 
within one year if the operating cycle is shorter than one year.
    Licensed sampler, classifier and weigher. A person licensed under 
the Act to sample, classify and/or weigh and certificate the grade or 
other class and weight of cotton stored at a cotton warehouse licensed 
under the Act.
    Net Worth. When liabilities are subtracted from allowable assets, 
it is the balance amount. In determining allowable assets, credit may 
be given for appraisal of real property less improvements and for the 
appraisal of insurable property such as buildings, machinery, 
equipment, and merchandise inventory only to the extent that such 
property is protected by insurance against loss or damage by fire, 
lightning, and other risk. Such insurance must be in the form of lawful 
insurance policies issued by insurance companies authorized to do such 
business and subject to service of process in the State in which the 
warehouse is located. The Farm Service Agency will determine what 
assets are allowable and under what conditions appraisals may be used.

II. Financials

A. Financial Requirements
    1. The warehouse operator agrees to have and maintain:
    a. Total net worth of at least the amount obtained by multiplying 
$10.00 by the maximum number of bales that the warehouse accommodates 
when stored in the manner customary to the warehouse as determined by 
the Farm Service Agency; however, no person may be licensed or remain 
licensed as a warehouse operator unless that person has allowable net 
worth of at least $25,000.00 (Any deficiency in net worth above the 
$25,000.00 minimum may be supplied by an increase in the amount of the 
financial assurance). The maximum total allowable net worth required 
need not exceed $250,000.00.
    b. Total allowable current assets equal to or exceeding total 
current liabilities or evidence acceptable to the Farm Service Agency 
that funds will be and remain available to meet current obligations.
    2. If a warehouse operator is licensed or is applying for licenses 
to operate two or more warehouses, the maximum capacity of all licensed 
warehouses, as determined by the Farm Service Agency, will be the 
capacity considered in determining whether the warehouse operator meets 
the net worth requirements.
B. Financial Reporting
    1. The warehouse operator agrees to provide annually, within 90 
days of the fiscal year end, or more frequently if required, to the 
Farm Service Agency, financial statements from the warehouse operators 
records prepared according to generally accepted accounting principles. 
The Farm Service Agency may grant one 30 day extension to provide a 
financial statement.
    2. These financial statements must include but not be limited to:
    a. Balance sheet,

[[Page 46320]]

    b. Statement of income (profit and loss),
    c. Statement of retained earnings, and
    d. Statement of cash flows.
    3. An authorized representative for the warehouse operator must 
certify under penalty of perjury that the statements, as prepared, 
accurately reflect the financial condition of the warehouse operator as 
of the date designated and fairly represent the results of operations 
for the period designated.
    4. The warehouse operator must have the financial statements 
required audited or reviewed by a certified public accountant or an 
independent public accountant. Audits and reviews by independent 
certified public accountants and independent public accountants must be 
made in accordance with standards established by the American Institute 
of Certified Public Accountants. The accountant's certification, 
assurances, opinion, comments, and notes on this statement, must be 
furnished along with the financial statements. The Farm Service Agency 
may also require an on-site examination and an audit by an authorized 
officer or agent of the United States Department of Agriculture and 
request other pertinent information.
C. Accepting Other Financial Statements
    1. Financial statements of a parent company which separately 
identify the financial position of the warehouse operator as a wholly 
owned subsidiary and which meet the basic requirements of financial 
statements, may be accepted by the Farm Service Agency in lieu of the 
warehouse operator meeting such requirements.
    2. Guaranty agreements from a parent company submitted on behalf of 
a wholly owned subsidiary may be accepted by the Farm Service Agency as 
meeting the basic requirements of financial statements if the parent 
company submits a financial statement which meets the financial 
requirements and financial reporting requirements.
D. Special Cases: Assets and Liabilities
    Subject to such terms and conditions as the Farm Service Agency may 
prescribe and for the purposes of determining allowable assets and 
liabilities, appraisals of the value of fixed assets in excess of the 
book value claimed in the financial statement submitted by a warehouse 
operator to conform with the requirements may be allowed if:
    1. Prepared by independent appraisers acceptable to the Farm 
Service Agency, and
    2. The assets are fully insured against casualty loss.
E. Financial Special Conditions--Public Debt Obligations
    The warehouse operator agrees that if they file a bond in the form 
of either a deposit of public debt obligations of the United States or 
other obligations which are unconditionally guaranteed as to both 
interest and principal by the United States:
    1. The obligation deposited will not be considered a part of the 
warehouse operator's asset.
    2. A deficiency in total allowable net worth as computed may be 
offset by the licensed warehouse operator furnishing acceptable 
financial assurance for the difference;
    3. The deposit may be replaced or continued in the required amount 
from year to year; and
    4. The deposit will not be released until one year after 
cancellation or revocation of the license that it supports or until 
satisfaction of any claim against the deposit, whichever is later.

III. Financial Assurance

A. Financial Assurance Requirements Computation
    The warehouse operator agrees:
    1. To furnish financial assurance computed at the rate of ten 
dollars ($10.00) per bale for the maximum number of bales that the 
warehouse accommodates when stored in the manner customary to the 
warehouse as determined by the Farm Service, but not less than twenty-
five thousand dollars ($25,000.00) nor more than two hundred fifty 
thousand dollars ($250,000.00).
    2. When applying for licenses to operate two or more warehouses in 
the same State, or multiple states, and at the warehouse operator's 
election, they may provide financial assurance meeting the requirements 
of the Act and the regulations to cover all these warehouses within the 
multiple states and the maximum of two hundred fifty thousand dollars 
($250,000.00) of financial assurance will apply for each State covered.
    3. In case of a deficiency in net worth above the twenty-five 
thousand dollars ($25,000.00) minimum required, to add to the amount of 
financial assurance determined in accordance with paragraph (1) of this 
section an amount equal to that deficiency. If a letter of credit is 
used for the amount of the deficiency, it must be issued for a period 
of not less than two years to coincide with the period of any deposit 
of obligations. Any letter of credit must be clean, irrevocable, issued 
by a commercial bank payable to the Farm Service Agency by sight draft 
and insured as a deposit by the Federal Deposit Insurance Corporation. 
The deposit will not be considered an asset of the company.
    4. If the Farm Service Agency finds that conditions exist which 
warrant requiring additional financial assurance, to add to the amount 
of financial assurance a further amount to meet such conditions.
B. Financial Assurance--Acceptable Forms
    The warehouse operator may offer as financial assurance any of the 
following:
    1. A warehouse operators bond, or
    2. In the form of a deposit with the Farm Service Agency, United 
States bonds, United States Treasury notes, or other public debt 
obligations of the United States or obligations that are 
unconditionally guaranteed as to both interest and principal by the 
United States, or
    3. In the form of a letter of credit issued to the Agency for a 
period of not less than two years to coincide with the period of any 
deposit of obligations, or
    4. In the form of a certificate of participation in and coverage by 
an indemnity or insurance fund as approved by the Farm Service Agency, 
established and maintained by a State, backed by the full faith and 
credit of the applicable State, and which guarantees depositors of the 
licensed warehouse full indemnification for the breach of any 
obligation of the licensed warehouse operator under the terms of the 
Act and regulations, or
    5. Other forms of financial assurance as may be prescribed in the 
applicable licensing agreement and related addenda deemed acceptable by 
the Farm Service Agency.

IV. Duties of Warehouse Operator

A. General
    The warehouse operator agrees to:
    1. At all times exercise such care in regard to cotton in custody 
as a reasonably careful owner would exercise under the same 
circumstances and conditions and not handle or store it in a manner 
that would damage or degrade it.
    2. To not differentiate among depositors regarding use of and 
access to services, except that available storage space may be 
allocated.
    3. If handling non-licensed cotton, to keep it separate in storage 
from the licensed cotton.
    4. Upon acceptance of baled cotton for storage, immediately attach 
(if not already present) an identification tag of

[[Page 46321]]

a quality approved by Farm Service Agency. These tags will contain a 
number, be attached in an orderly manner and clearly distinguishable 
from one another.
    5. Not accept for storage any bale of cotton that is excessively 
wet. Fire damaged cotton is not to be stored in contact with cotton 
that has not been so damaged.
    6. Keep the warehouse reasonably clean at all times and free of 
loose cotton, except in containers separate and apart from other cotton 
and provide a safe environment in and around the warehouse and provide 
all necessary assistance in the execution of inspections and 
examinations by representatives of the Farm Service Agency.
    7. Unless prevented from doing so by force majeure, to deliver 
stored cotton without unnecessary delay. A warehouse operator will be 
considered to have delivered cotton without unnecessary delay, if for 
the week in question, the warehouse operator has delivered or staged 
for scheduled delivery at least 4.5 percent of either their licensed 
storage capacity or Commodity Credit Corporation-approved storage 
capacity or other storage capacity as determined by the Farm Service 
Agency to be in effect during the relevant week of shipment.
    8. To resolve any claim for noncompliance with the cotton shipping 
standard through established industry, professional, or mutually agreed 
upon arbitration procedures. The arbitration procedures will be 
nondiscriminatory and provide each person equal access and protection 
relating to the cotton shipping standard.
    9. License all facilities controlled by them at a specific 
location, unless those facilities are specifically exempted by the Farm 
Service Agency.
B. Insurance
    1. Requirements. The warehouse operator agrees to:
    a. Secure, in their own name, insurance on stored cotton against 
loss or damage by fire, lightning, and other risk under forms of 
policies which automatically attach for the full replacement value of 
stored cotton, as soon as such cotton is placed in their legal custody, 
and continue such insurance in effect so long as the cotton remains in 
their legal custody. The warehouse operator also agrees to keep a 
general insurance account showing the policy number, issuing company, 
amount binding, and expiration dates of all insurance policies and in 
each instance show the property covered by such policies. This 
insurance will be lawful policies issued by one or more insurance 
companies. The warehouse operator must submit such reports to 
underwriters as may be required under the terms of such policies, and 
submit copies of such reports to the Farm Service Agency as required.
    b. Show, in the tariff to be posted at all delivery points, the 
conditions under which the cotton will be insured against loss or 
damage by fire, lightning, and other risk.
    c. Require that the warehouse operator's insurance company give 30 
days advance notice to the Farm Service Agency of intent to cancel the 
stock (inventory) coverage.
C. Records To Be Kept in a Safe Place
    The warehouse operator agrees to:
    1. Provide a fireproof safe, a fireproof vault, or a fireproof 
compartment in which to keep, when not in use, all records, books, and 
papers pertaining to the licensed warehouse, including a current 
warehouse receipt book, copies of warehouse receipts issued, and 
canceled warehouse receipts or microfilm copies of canceled receipts, 
except that, with the written consent of the Farm Service Agency, upon 
a showing by the warehouse operator that it is not practicable to 
provide such fireproof safe, vault, or compartment, may keep such 
records, books, and papers in some other place of safety, approved by 
the Farm Service Agency.
    2. Retain each canceled receipt for a period of six years after 
December 31 of the year in which the warehouse receipt is canceled and 
for such longer period as may be necessary for the purposes of any 
litigation which the warehouse operator knows to be pending, or as may 
be required by the Farm Service Agency in particular cases to carry out 
the purposes of the Act.
    3. Arrange canceled warehouse receipts in numerical order and 
otherwise in such manner as may be directed, for purposes of audit, by 
authorized officers or agents of the United States Department of 
Agriculture and the Farm Service Agency.
D. Scales and Weighing
    The warehouse operator agrees to:
    1. Be equipped with suitable scales in good order, and so arranged 
that all cotton can be weighed in and out, if required, of the 
warehouse. The scales in any warehouse must be subject to examination 
by authorized officers or agents of the United States Department of 
Agriculture and to disapproval by the Farm Service Agency. If 
disapproved, any weighing apparatus must not thereafter be used in 
ascertaining the weight of cotton for the purposes of this Act, until 
such disapproval is withdrawn.
    2. Weigh, by a weigher licensed under the authority of the United 
States Warehouse Act, the cotton that comes into the warehouse unless 
warehouse weights are established at the gin. These weights must be 
certified by the licensed weigher.
    3. Assume full responsibility for the weights established at the 
gin for warehouse receipt purposes. In order to use these weights, the 
licensed warehouse must maintain control of the scales used to weigh 
cotton. They must be inspected and certified as accurate by a State 
agency or a qualified scale company and a copy of the inspection report 
must be maintained at the warehouse office for the warehouse examiner's 
review. The scale must be checked by the warehouse operator for 
accuracy on a routine basis. Point of origin weights may be used for 
single bale or lot stored cotton by agreement with the depositor. Any 
point of origin weights shown on a warehouse receipt will be the 
official warehouse bale or lot weight. Lot cotton tendered for storage 
on which a multiple bale warehouse receipt is issued must be maintained 
so as to preserve its individual and collective identity during storage 
and shipment, provided that if such lot is broken at the warehouse, for 
the issuance of new receipts, each bale will be weighed at the 
warehouse by a licensed weigher before single bale warehouse receipts 
are issued.
E. Warehouse Charges
    The warehouse operator:
    1. Must not make any unreasonable or exorbitant charge for services 
rendered.
    2. Must, before a license to conduct a warehouse is granted under 
the Act, file, with the Farm Service Agency, a copy of their rules and 
a schedule of charges to be assessed depositors.
    3. Must, at or before the beginning of each season, file an amended 
schedule of charges with Farm Service Agency along with the rules, if 
any, and of our schedule of charges for the ensuing season. The cotton 
season will commence not later than September 1 of each year, as the 
operator of the warehouse will select, and will notify Farm Service 
Agency in writing not less than 5 days preceding the date selected.
    4. Must file an amended schedule, if making changes other than the 
beginning of the season, showing the contemplated changes will be filed 
with Farm Service Agency. No increase in the storage rate shown in such 
an amended schedule will apply to cotton in storage at the time the 
changes become effective.

[[Page 46322]]

    5. May demand payment of all accrued charges at the close of each 
cotton season. If, upon demand, the owner of the cotton refuses to pay 
such charges at the end of a season, action may be taken to enforce 
collection of its charges as is permitted by the laws of the State in 
which the warehouse is located.
F. Business Hours
    The warehouse operator agrees to:
    1. Be open for the purpose of receiving cotton for storage and 
delivering cotton out of storage and for settlement purposes every 
normal business day for a period of not less than six hours between the 
hours of 8 a.m. and 6 p.m. The warehouse operator must post their 
business hours at the public entrance to the office and to their 
licensed warehouse.
    2. In case the warehouse is not to be kept open as required, state, 
in the posted notice, the period during which the warehouse is to be 
closed and the name, the address, and telephone number of the person 
who will be authorized to receive and deliver cotton stored in the 
warehouse.
G. System of Accounts
    The warehouse operator agrees to:
    1. Have and maintain a system of accounts approved for the purpose 
by the Farm Service Agency. These records must include:
    a. Bale tag numbers,
    b. Distinguishing mark or identifier,
    c. Weight,
    d. Class when required and/or ascertained,
    e. Location in the warehouse,
    f. Date received for storage,
    g. Date delivered out of storage, and
    h. Receipts issued and canceled.
    2. Maintain a detailed set of records of money received and 
disbursed and, if applicable, all insurance policies taken out and 
canceled on request of each depositor. These records will be maintained 
accurately and concisely as activity occurs. The warehouse operator 
must retain these records for a period of six years after December 31 
of the year in which they were created, and for such longer period as 
may be necessary for the purposes of any litigation which the warehouse 
operator knows to be pending, or as may be required by the Farm Service 
Agency in particular cases to carry out the purposes of the Act.
H. Excess Storage and Transferring Cotton
    The warehouse operator agrees that:
    1. If at any time cotton stored in the warehouse exceeds the 
capacity for which the warehouse is licensed, the warehouse operator 
will immediately notify the Farm Service Agency of the fact and the 
location of excess storage.
    2. If they desire to transfer, at their own expense, depositor 
cotton to another warehouse (receiving), the warehouse operator may do 
so.
    a. The transferring (shipping) warehouse operator's accepted rules 
or schedule of charges must contain notice that the warehouse operator 
may transfer cotton according to conditions prescribed by the Farm 
Service Agency.
    b. The warehouse operator must request permission in writing to the 
Farm Service Agency.
    3. For purposes of transferring cotton, a receiving warehouse means 
a warehouse operated by a warehouse operator who holds an un-suspended, 
un-revoked cotton license under the Act, or a warehouse operated by a 
warehouse operator who holds an effective warehouse license for the 
public storage of cotton issued by a State that has financial, bonding 
and examination requirements for the benefit of all depositors or, in 
the case of warehouses operating in a State without licensing 
authorities, warehouses with an approved Cotton Storage Agreement with 
the Commodity Credit Corporation.
    4. The shipping warehouse operator must transfer all identity-
preserved cotton in lots and must list on a Bill of Lading all 
forwarded bales by receipt number and weight. The receiving warehouse 
operator will promptly issue a non-negotiable warehouse receipt for 
each lot of cotton stored and will attach a copy of the corresponding 
bill of lading to each receipt and return the receipt promptly to the 
shipping warehouse operator. The receiving warehouse operator will 
store each such lot intact, and will attach a header card to the lot 
showing the receipt number, number of bales, and a copy of the Bill of 
Lading with the individual tag numbers, marks, or identifiers to the 
stored lot. Such non-negotiable warehouse receipts issued for forwarded 
cotton will have printed or stamped diagonally in large bold outline 
letters across the face of the receipt the words: ``NOT NEGOTIABLE.''
    5. The shipping warehouse operator's financial assurance will be 
increased to consider the addition of the transferred cotton to the 
licensed capacity of the warehouse with the net asset requirements 
based on the total of the licensed capacity and the forwarded cotton. 
The amount of financial assurance need not exceed $250,000.00 unless 
necessary to cover a deficiency in net worth. The receiving warehouse 
operator must not incur storage obligations that exceed the licensed or 
approved capacity of the receiving warehouse;
    6. The shipping warehouse operator continues to retain storage 
obligations to the owners of all cotton deposited in the warehouse for 
storage whether forwarded or retained and is, except as otherwise 
agreed upon under paragraph (g) of this section.
    7. The owner of cotton deposited for storage at the warehouse must 
make settlement and take delivery at the warehouse where the cotton was 
first deposited for storage, unless the owner of the cotton, with the 
consent of both the shipping warehouse operator and the receiving 
warehouse operator, elects to take delivery at the warehouse to which 
cotton was transferred under this section.
    8. Nothing in this section diminishes the right of the owner of the 
cotton to receive or the obligation of the warehouse operator of a 
licensed warehouse from which the product is transferred, to deliver to 
the owner the same cotton, identity preserved, called for by the 
warehouse receipt or other evidence of storage;
    9. Recording and retention of non-negotiable warehouse receipts 
received as a result of forwarding cotton under this section will be 
subject to the requirements for warehouse receipts specified elsewhere 
in these regulations; and
    10. If it is the shipping warehouse operator's obligation by terms 
of the warehouse receipt or otherwise to insure the cotton subject to 
the transfer, they must keep such cotton insured in their own name or 
transfer the cotton only to a warehouse where the cotton is fully 
insured
    11. A receiving warehouse operator must not transfer or offset to 
another warehouse, in any manner, their obligation to the shipping 
warehouse operator.
I. Reports Required
    The warehouse operator agrees to:
    1. When requested by the Farm Service Agency, make such reports, on 
forms prescribed and furnished for the purpose by the Farm Service 
Agency, concerning the condition, contents, operation, and business of 
the warehouse.
    2. Keep on file, as a part of the records of the warehouse, for a 
period of three years after December 31 of the year in which submitted, 
an exact copy of each report submitted.

[[Page 46323]]

J. Inspections, Examinations of Warehouse
    The warehouse operator agrees to permit any officer or agent of the 
United States Department of Agriculture, authorized by the Farm Service 
Agency, to enter and inspect or examine on any business day during the 
usual hours of business, any warehouse for which they hold a license, 
the office, the books, records, papers, and accounts relating, and the 
contents thereof and will furnish that officer or agent the assistance 
necessary to enable making any inspection or examination.
K. Arrangement of Stored Cotton
    The warehouse operator agrees to:
    1. Store each bale of cotton for which a receipt under the Act has 
been issued in a manner acceptable to Farm Service Agency.
    2. For cotton tendered for storage, by any one depositor, of the 
same grade and staple in such quantity that efficiency of operation 
dictates that such cotton should be stored in a lot or lots without 
regard to visibility of all tags on all bales within any lot, may store 
such cotton in lots if each lot originally contained two or more bales. 
If a negotiable multiple bale receipt is issued each bale entering into 
a lot must bear an individual bale identification, and must be stored 
so that the number of bales within the lot may be accurately 
determined.
    3. For lot cotton, an individual lot identification tag showing the 
lot number and the number of bales in the lot to each lot of cotton 
will be affixed. An office record showing the bale or tag number, mark, 
or identifier of each bale in the lot and the location of the lot in 
the warehouse will be maintained. Each lot will be so arranged as to be 
readily distinguishable from each and every other lot. When requested 
by a proper representative of Farm Service Agency engaged in making an 
examination of the warehouse, stacks or lots of cotton, as the examiner 
deems necessary to a proper examination, will be torn or broken down at 
the warehouse operator's expense.
    4. Block piling of cotton for which single bale receipts have been 
or are to be issued is permitted, with the written permission of DACO, 
provided the warehouse operator is willing to tear or break down the 
blocks at the request of a representative of the Farm Service Agency 
when making an examination of the warehouse.
    5. Notify the insurance underwriter of block piling and they must 
have consented to insuring it.
    6. To arrange the cotton so as not to obstruct free access and the 
proper operation of the sprinkler or other fire protection equipment.
L. Removal of Cotton from Storage
    Except as may be permitted by law or the regulations in this part, 
the warehouse operator must not remove any cotton, from storage, from 
the licensed warehouse or a part thereof designated in the receipt for 
such cotton, if by such removal the insurance thereon will be impaired, 
without first obtaining the consent in writing of the holder of the 
receipt, and indorsing on such receipt the fact of such removal. Under 
no other circumstances, unless it becomes absolutely necessary to 
protect the interests of holders of receipts, will cotton be removed 
from the warehouse, and immediately upon any such removal the warehouse 
operator will notify the Farm Service Agency of such removal and the 
necessity therefor.
M. Drawing of Samples
    The warehouse operator agrees:
    1. That persons will be licensed to draw samples from any cotton 
stored or to be stored in the licensed warehouse if the owner of such 
cotton or any person having a legal right to have such cotton sampled 
requests that samples be drawn.
    2. When directed by Farm Service Agency, such requests will be in 
writing.
    3. Samplers will perform their duties under its supervision and the 
samples will be drawn in accordance with Agricultural Marketing Service 
or other procedures recognized by Farm Service Agency.
    4. Each sample will be appropriately marked to show the tag number, 
mark, or identifier of the bale of cotton from which it was drawn.
N. Warehouse Receipts
    1. The warehouse operator when choosing the option to issue 
Electronic Warehouse Receipts (EWRs) instead of paper warehouse 
receipts for the agricultural product(s) stored in their warehouse 
agrees to:
    a. Only issue EWRs through a provider whom the Farm Service Agency 
has approved.
    b. Receive written approval from the Farm Service Agency at least 
30 calendar days before changing providers. Upon approval a warehouse 
operator may request their current provider to transfer their EWR data 
from its Central Filing System (CFS) to the CFS of the approved 
provider whom they select. Warehouse operators must notify all holders 
of EWRs by inclusion in the CFS at least 30 calendar days before 
changing providers, unless otherwise required or allowed by the Agency. 
Warehouse operators may only change providers once a year.
    c. Cancel EWRs only when they are the holder of the receipt(s).
    d. Correct information on the EWR only with written notification to 
the provider.
    e. Before issuing EWRs, request and receive from the Farm Service 
Agency a range of consecutive warehouse receipt numbers which the 
warehouse operator will use consecutively for issuing their EWRs.
    f. Issue warehouse receipts initially as EWRs.
    g. Inform the Farm Service Agency of the identity of their provider 
60 calendar days in advance of issuing EWRs through that provider. The 
Farm Service Agency may waive or modify this 60-day requirement as set 
forth under 7 CFR 735.2(b).
    2. The warehouse operator will ensure that an issued EWR 
establishes the same rights and obligations with respect to an 
agricultural product as a paper warehouse receipt, and possess the 
following attributes that:
    a. The person identified as the `holder' of a EWR will be entitled 
to the same rights and privileges as the holder of a paper warehouse 
receipt.
    b. Only the current holder of the EWR may transfer the EWR to a new 
holder.
    c. The identity of the holder must be included as additional 
information for every EWR.
    d. An EWR will only designate one entity as a holder at any one 
time.
    e. An EWR will not be issued for a specific identity preserved or a 
commingled agricultural product lot if another receipt, whether paper 
or electronic, representing the same specific identity preserved or 
commingled lot of agricultural product is outstanding. No two warehouse 
receipts issued by a warehouse operator may have the same receipt 
number or represent the same agricultural product lot.
    f. An EWR may only be issued to replace a paper receipt if 
requested by the current holder of the paper warehouse receipt.
    g. Allows a `holder' the option to authorize any other user of a 
provider to act on their behalf with respect to their activities with 
their provider. This authorization must be in writing, acknowledged, 
and retained by the provider.
    h. Provisions of 7 CFR 735.300(c) will be applicable to lost or 
destroyed EWRs.
    i. Only the current EWR holder may request a paper warehouse 
receipt in lieu of a EWR with respect to an agricultural product.

[[Page 46324]]

V. Paper Warehouse Receipts

A. Issuance
    The warehouse operator agrees to:
    1. Issue warehouse receipts for any cotton stored in a warehouse at 
the request of a depositor.
    2. Except when an expiration date authorized by Farm Service Agency 
is shown on the face of the receipt, every negotiable receipt issued 
for cotton stored in a licensed warehouse will be effective until 
surrendered for delivery of the cotton, and every non-negotiable 
receipt will be effective until surrendered for delivery of the cotton 
or until all cotton covered by the receipt has been delivered in 
response to proper delivery orders of the person rightfully entitled to 
the cotton:
    3. Nothing contained in this section will prohibit the warehouse 
operator from legally selling the cotton when the accrued storage and 
other charges equals or exceeds the current market value of the cotton.
    4. Every negotiable receipt issued for cotton stored in a licensed 
warehouse will embody within its written or printed terms a statement 
that the cotton covered by such receipt was classified by a licensed 
classifier or a board of cotton examiners when such cotton is so 
classified.
    5. Whenever the grade or other class of the cotton is stated in a 
receipt issued for cotton stored in a licensed warehouse, such grade or 
other class will be determined by a licensed classifier or a board of 
cotton examiners upon the basis of a sample drawn, and will be stated 
in the receipt.
B. Form
    1. Every warehouse receipt, whether negotiable or non-negotiable, 
issued for cotton stored in a licensed warehouse must, in addition to 
complying with the requirements of section 11 of the Act, embody within 
its written or printed terms the following:
    a. The name of the warehouse operator and the designation, if any, 
of the warehouse,
    b. The warehouse operator's license number,
    c. The Commodity Credit Corporation contract code number, if 
applicable,
    d. A statement whether the warehouse operator is incorporated or 
unincorporated, and if incorporated, under what laws,
    e. In the event the relationship existing between the warehouse 
operator and any depositor is not that of a strictly disinterested 
custodianship, a statement setting forth the actual relationship,
    f. The tag identifier given to each bale of cotton,
    g. A statement conspicuously placed, whether or not the cotton is 
insured, and, if insured, to what extent, by the warehouse operator 
against loss by fire, lightning, or other risk,
    h. A blank space designated for the grade and/or other 
classification may be stated,
    i. The words ``Not Negotiable,'' or ``Negotiable,'' according to 
the nature of the receipt, clearly and conspicuously printed or stamped 
thereon.
    j. A statement indicating that the weight was determined by a 
weigher licensed under the Act, except that if at the request of the 
depositor, the weight is not so determined or if the point of origin 
weight was determined as permitted, the receipt will contain a 
statement to that effect.
    k. Licensed receipts issued to cover linters will be clearly and 
conspicuously marked ``Linters''
    l. If the warehouse operator a receipt under the Act omitting any 
information not required to be stated, for which a blank space is 
provided in the form of the receipt, a line will be drawn through such 
space to show that such omission has been made by the warehouse 
operator.
    m. A warehouse receipt may contain additional information, provided 
that this information does not interfere with the information required.
    2. If the warehouse operator issues a warehouse receipt omitting 
the statement of grade on request of the depositor, such receipt will 
have clearly and conspicuously stamped or written in the space provided 
for the statement of grade the words ``Not graded on request of 
depositor''
    3. If the warehouse operator issues a warehouse receipt under the 
Act omitting any information not required to be stated, for which a 
blank space is provided in the form of the receipt, a line will be 
drawn through such space to show that such omission has been made 
purposely.
C. Persons Authorized to Sign Warehouse Receipts
    The warehouse operator must file with the Farm Service Agency, the 
name and genuine signature of each person authorized to sign warehouse 
receipts for the warehouse operator, promptly notify Farm Service 
Agency of any changes as to persons authorized to sign, file the 
signatures of such persons, and will be bound by such signatures the 
same as if the warehouse operator, had personally signed the receipt.
D. Copies of Warehouse Receipts
    The warehouse operator agrees that at least one copy of all 
warehouse receipts must be made and, except skeleton and microfilm 
copies, have clearly and conspicuously printed or stamped on the face 
the words ``Copy {time}  Not Negotiable''.
E. Printing of Warehouse Receipts
    The warehouse operator agrees to issue only warehouse receipts 
that:
    1. Are in a form prescribed by the Farm Service Agency.
    2. Are on distinctive paper or card stock specified by the Farm 
Service Agency;
    3. Printed by a printer with whom the United States has an 
agreement and bond for such printing; and
    4. On paper and/or card stock tinted with ink in the manner 
prescribed by the agreement.
F. Return of Warehouse Receipts Prior to Delivery
    The warehouse operator agrees to:
    1. Not deliver any cotton for which they have issued a negotiable 
receipt until the receipt has been returned to the warehouse operator 
and canceled; and
    2. Not deliver cotton for which they have issued a non-negotiable 
receipt until such receipt has been returned, or they have obtained 
from the holder or agent, a written order and a receipt upon delivery 
of 90% (ninety percent) of the quantity.
G. Balance Warehouse Receipts
    The warehouse operator, upon request of the holder, may issue a 
warehouse receipt for previously warehouse receipted cotton, the 
receipt for which has been canceled. The balance warehouse receipt must 
show the number and issuance date of the original warehouse receipt.
H. Lost or Destroyed Warehouse Receipts
    1. The warehouse operator may issue a new warehouse receipt subject 
to the same terms and conditions, and bearing on its face the number 
and the date of the original receipt when presented with the case of a 
lost or destroyed warehouse receipt.
    2. Before issuing a replacement warehouse receipt, the warehouse 
operator must require the holder or other person applying therefore to 
make and file with the warehouse operator:
    a. An affidavit showing that the holder is lawfully entitled to the 
possession of the original warehouse receipt; that the holder has not 
negotiated or assigned it; how the original receipt was lost or 
destroyed; and, if lost, that diligent effort has been made to find the 
warehouse receipt without success.

[[Page 46325]]

    b. A bond in an amount double the value, at the time the bond is 
given, of the agricultural product represented by the lost or destroyed 
warehouse receipt. This bond will be in a form approved for the purpose 
by the Farm Service Agency, and will be conditioned to indemnify the 
warehouse operator against any loss sustained by reason of the issuance 
of this warehouse receipt. The bond will have as surety a surety 
company which is authorized to do business, and is subject to 
administration of process in a suit on the bond, in the State in which 
the warehouse is located, unless a variance is granted by the Farm 
Service Agency.
    3. Auditing Canceled Warehouse Receipts. The warehouse operator 
agrees to forward canceled receipts for auditing, as requested, to the 
Farm Service Agency.

VI. Service Licenses

A. The Applicant
    1. The applicant must make application for license to sample, 
classify and weigh cotton to the Farm Service Agency on forms furnished 
by the Farm Service Agency. Each application must:
    a. Be signed by the applicant.
    b. Contain or be accompanied by a statement from the warehouse that 
the applicant is acceptable to such warehouse operator.
    c. If seeking sampling, classification licensing, certification 
that the applicant can correctly sample, classify cotton in accordance 
with the Official Standards of the United States.
    d. If seeking weighing licensing, certification that the applicant 
can correctly weigh cotton.
    e. Furnish such additional information as requested by the Farm 
Service Agency.
B. Examination of Applicant
    As a service license applicant, submit to an examination or test to 
show ability to properly sample, classify and/or weigh cotton, as the 
case may be, and also make available for inspection copies of the 
standards of classification or the weighing apparatus as the case may 
be, used or to be used.
C. Classification Certificates
    1. Each class certificate issued under the Act by a licensed 
classifier must be in a form approved by the Farm Service Agency, and 
include the following information within its terms:
    a. The caption ``United States Warehouse Act Cotton Class 
Certificate,''
    b. Whether it is an original, a duplicate, or other copy, and that 
it is not negotiable,
    c. The name and location of the warehouse in which the cotton is or 
is to be stored,
    d. The date of the certificate,
    e. The consecutive number of the certificate,
    f. The location of the cotton at the time of classification,
    g. The identification of each bale of cotton by the tag number 
given to the bale in accordance with this agreement or if there is no 
such tag number by other marks or numbers,
    h. The grade or other class, except length of staple, of each bale 
covered by the certificate in accordance with the regulations or this 
agreement, as far as applicable, and the standard or description in 
accordance with which the classification is made,
    i. A blank space designated for the purpose in which the length of 
staple may be stated,
    j. A statement that the certificate is issued by a licensed 
classifier under the Act, and
    k. The signature of the licensed classifier.
    2. In addition to the provisions of paragraph 1, the class 
certificate may include any other matter not inconsistent with the Act 
or the regulations in this part, provided the approval of the Farm 
Service Agency is first secured.
    3. In lieu of a class certificate in the form prescribed in 
paragraph 1, Form A memorandums and Form C certificates issued by a 
board of cotton examiners and class certificates issued by licensed 
classers under the United States Cotton Standards Act shall be deemed 
sufficient for the purposes of the Act and the regulations in this 
part, if the samples on which they are based were approximately six 
ounces in weight, not less than three ounces of which are to be drawn 
from each side of the bale. Each sample must be representative of the 
bale from which drawn.
D. Weight Certificates
    1. Each weight certificate issued under the Act by a licensed 
weigher must be in a form approved for the purpose by the Farm Service 
Agency, and include the following information within its terms:
    a. The caption ``United States Warehouse Act, Cotton Weight 
Certificate,''
    b. Whether it is an original, a duplicate, or other copy, and that 
it is not negotiable,
    c. The name and location of the warehouse in which the cotton is or 
is to be stored,
    e. The date of the certificate,
    f. The consecutive number of the certificate,
    g. The location of the cotton at the time of weighing,
    h. The identification of each bale of cotton by the tag number 
given to the bale in accordance with this agreement or if there is no 
such tag number by other marks or numbers,
    i. The gross, or net and tare, weight of the cotton and, if the 
cotton be excessively wet or otherwise of a condition materially 
affecting its weight, a statement of such fact to which may be added 
the weigher's estimate of the number of pounds which should be allowed 
for such condition,
    j. A statement that the certificate is issued by a weigher licensed 
under the Act, and
    k. The signature of the licensed weigher.
    2. In addition to the provisions of paragraph 1, the weight 
certificate may include any other matter not consistent with the Act or 
the regulations in this part provided the approval of the Farm Service 
Agency is first secured.
E. Classification and Weight Certificate
    The class and weight of any cotton, ascertained by a classifier and 
a weigher, may be stated on a certificate meeting the combined 
requirements of subsections C and D: provided the form of the 
certificate is approved for the purpose by the Farm Service Agency.
F. Duties of Sampler, Classifier and Weigher
    Each sampler, classifier and weigher whose license remains in 
effect must:
    1. Without discrimination, as soon as practicable, upon reasonable 
terms, classify or weigh and certificate the class or weight, 
respectively, of cotton stored or to be stored in the licensed 
warehouse to which the license applies, if such cotton is offered under 
such conditions as permit the proper performance of such functions; 
except that no class or weight certificate need to be issued when the 
class or weight so determined is entered on a receipt by the licensed 
classifier or weigher making the determination.
    2. Sample cotton stored or to be stored in a licensed warehouse for 
which holding a license, in accordance with the standards. No class or 
weight certificate will be issued under the Act, for cotton not in the 
custody of a licensed warehouse operator for purposes of storage. 
Cotton not in the custody of such a warehouse operator for such purpose 
be sampled by a licensed sampler.

[[Page 46326]]

    3. Keep their license conspicuously posted where all or most of the 
classifying is done, and each licensed sampler and/or weigher will keep 
their license conspicuously posted in the warehouse office or in such 
place as may be designated for the purpose by a representative of the 
Farm Service Agency.
    4. From time to time, when requested by the Farm Service Agency, 
make reports, on forms furnished for the purpose by the Farm Service 
Agency, bearing upon activities as a licensed sampler, classifier and/
or weigher.
    5. Permit any authorized officer or agent of the United States 
Department of Agriculture or the Farm Service Agency or their designee 
to inspect or examine, on any business day during the usual hours of 
business, their books, papers, records, and accounts relating to the 
performance of their duties under the Act and, with the consent of the 
warehouse operator concerned, assist any such officer or agent in the 
inspection or examination as far as it relates to the performance of 
the duties of such sampler, classifier or weigher under the Act.
    6. Keep for a period of one year, in a place accessible to 
interested parties, a copy of each certificate issued and file the 
certificate with the warehouse in which the cotton covered by the 
certificates is stored.
    7. No person will in any way represent themselves to be a sampler, 
classifier, and/or weigher licensed under the Act unless holding an un-
suspended and un-revoked license issued under the Act.

VII. Cotton Classification

A. Official Cotton Standards of the United States
    The official cotton standards, established and promulgated under 
the United States Cotton Standards Act of March 4, 1923, within their 
scope, are hereby adopted as the official cotton standards for the 
purposes of the Act and the regulations.
B. Access to the Cotton Standards
    The warehouse operator and each licensed classifier will keep 
themselves provided with, or have access to, a set of practical forms 
of the official cotton standards of the United States, or such parts 
thereof as the Farm Service Agency may deem necessary for use in the 
locality in which the licensed warehouse is located.

VIII. Fees

    The Farm Service Agency is authorized, by the enabling legislation, 
to assess and collect fees to cover the administration of the program. 
A schedule showing the current fees or any annual fee changes will be 
provided as an addendum to the licensing agreement.
    The fees for cotton warehouses are detailed in the attached 
Addendum No. 1.
This agreement forms a part of the (License Number) __________for 
(Warehouse Operator) __________at (Licensed Location)__________and 
is effective (Date)__________.

----------------------------------------------------------------------
Warehouse Operator

----------------------------------------------------------------------
By

----------------------------------------------------------------------
Date

----------------------------------------------------------------------
For the Farm Service Agency.
BILLING CODE 3410-05-P

[[Page 46327]]

[GRAPHIC] [TIFF OMITTED] TP04SE01.000

BILLING CODE 3410-05-C

[[Page 46328]]

Exhibit B--Draft

License Number________

Effective________

Licensing Agreement for Grain

Contents

I. Definitions
II. Financials
    A. Financial Requirements
    B. Financial Reporting
    C. Accepting Other Financial Statement
    D. Special Cases: Assets and Liabilities
    E. Financial Special Conditions--Public Debt Obligations
III. Financial Assurance
    A. Financial Assurance Requirements--Computation
    B. Financial Assurance--Acceptable Forms
IV. Duties of Warehouse Operator
    A. General
    B. Insurance
    C. Records to be kept in a Safe Place
    D. Scales and Bin Numbers
    E. Warehouse Charges
    F. Business Hours
    G. System of Accounts
    H. Excess Storage and Transferring Grain
    I. Reports Required
    J. Inspections, Examinations of Warehouse
    K. Loading Out Without Weighing
    L. Storage of Identity Preserved Grain
    M. Containerized Grain Storage
    N. Delivery of Fungible Grain
    O. Storage Obligations
    P. Out of Condition and Damaged Grain
    Q. Reconditioning Grain
    R. Warehouse Receipts
I. Paper Warehouse Receipts
    A. Issuance
    B. Form
    C. Persons Authorized to Sign Warehouse Receipts
    D. Copies of Warehouse Receipts
    E. Printing of Warehouse Receipts
    F. Return of Warehouse Receipts Prior to Delivery
    G. Balance Warehouse Receipts
    H. Lost or Destroyed Warehouse Receipts
VI. Service Licenses
    A. Applicant
    B. Examination of Applicant
    C. Inspection Certificate
    D. Weight Certificates
    E. Grade and Weight Certificate
    F. Duties of Inspector and Weigher
VII. Grain Grading
    A. Official Grain Standards of the United States
    B. Standards of Grade for Other Grain
VIII. Grain Appeals
    A. Appeal Procedure
    B. Request for Appeal
    C. Appeal Sampling, Preservation, Delivery and Examination
    D. Freedom of Appeal
    E. Owner Not Compelled to Store Grain
IX Fees

Licensing Agreement for Grain

    As a condition of licensing under the United States Warehouse Act 
(the Act), the warehouse operator agrees to the conditions set forth in 
this agreement and the regulations found at 7 CFR 735:

I. Definitions

    Bin. A bin, tank, interstice, or other container in a warehouse in 
which bulk grain may be stored.
    Current assets. Assets, including cash, that are reasonably 
expected to be realized in cash or sold or consumed during the normal 
operating cycle of the business or within one year if the operating 
cycle is shorter than one year.
    Current liabilities. Those financial obligations which are expected 
to be satisfied during the normal operating cycle of the business or 
within one year if the operating cycle is shorter than one year.
    Dockage. Dockage in grain as defined by the official grain 
standards of the United States.
    Grain. All products commonly classed as grain such as wheat, corn, 
oats, barley, rye, flaxseed, rough, brown, and milled rice, sunflower 
seeds, field peas, soybeans, emmer, sorghum, safflower seed, triticale, 
millet and such other products as are ordinarily stored in grain 
warehouses, subject to the disapproval of the Farm Service Agency.
    Licensed inspector and/or weigher. A person licensed under the Act 
to sample, inspect and/or weigh grain and certificate the grade and/or 
weight of grain stored at a grain warehouse licensed under the Act.
    Net Worth. When liabilities are subtracted from allowable assets, 
it is the balance amount. In determining allowable assets, credit may 
be given for appraisal of real property less improvements and for the 
appraisal of insurable property such as buildings, machinery, 
equipment, and merchandise inventory only to the extent that such 
property is protected by insurance against loss or damage by fire, 
lightning, and other risk. Such insurance must be in the form of lawful 
insurance policies issued by insurance companies authorized to do such 
business and subject to service of process in the State in which the 
warehouse is located. The Farm Service Agency will determine what 
assets are allowable and under what conditions appraisals may be used.
    Non-storage grain. Grain received temporarily into a warehouse for 
conditioning, transferring, assembling for shipment, or lots of grain 
moving through a warehouse for current merchandising or milling use, 
against which no warehouse receipts are issued and no storage charges 
assessed. The merchandising or milling stocks held in storage as 
reserve stocks, or stored for use at an indefinite future date, may not 
be treated as non-storage grain.
    Storage grain. All grain received into, stored in, or delivered out 
of the warehouse which is not classified as non-storage.

II. Financials

A. Financial Requirements
    1. The warehouse operator agrees to have and maintain:
    a. Total net worth of at least the amount obtained by multiplying 
$0.25 by the warehouse capacity in bushels; however, no person may be 
licensed or remain licensed as a warehouse operator unless that person 
has allowable net worth of at least $50,000.00 (Any deficiency in net 
worth above the $50,000.00 minimum may be supplied by an increase in 
the amount of the financial assurance).
    b. Total allowable current assets equal to or exceeding total 
current liabilities or evidence acceptable to the Farm Service Agency 
that funds will be and remain available to meet current obligations.
    2. If a warehouse operator is licensed or is applying for licenses 
to operate two or more warehouses, the maximum capacity of all licensed 
warehouses, as determined by the Farm Service Agency, will be the 
capacity considered in determining whether the warehouse operator meets 
the net worth requirements.
B. Financial Reporting
    1. The warehouse operator agrees to provide annually, within 90 
days of the fiscal year end, or more frequently if required, to the 
Farm Service Agency, financial statements from the warehouse operator's 
records prepared according to generally accepted accounting principles. 
The Farm Service Agency may grant one 30 day extension to provide a 
financial statement.
    2. These financial statements must include but not be limited to:
    a. Balance sheet,
    b. Statement of income (profit and loss),
    c. Statement of retained earnings, and
    d. Statement of cash flows.
    3. An authorized representative for the warehouse operator must 
certify under penalty of perjury that the statements, as prepared, 
accurately reflect the financial condition of the warehouse operator as 
of the date designated and fairly represent the results of operations 
for the period designated.
    4. The warehouse operator must have the financial statements 
required audited or reviewed by a certified public accountant or an 
independent public accountant. Audits and reviews by independent 
certified public accountants and independent public

[[Page 46329]]

accountants must be made in accordance with standards established by 
the American Institute of Certified Public Accountants. The 
accountant's certification, assurances, opinion, comments, and notes on 
this statement, must be furnished along with the financial statements. 
The Farm Service Agency may also require an on-site examination and an 
audit by an authorized officer or agent of the United States Department 
of Agriculture and request other pertinent information.
C. Accepting Other Financial Statements
    1. Financial statements of a parent company which separately 
identify the financial position of the warehouse operator as a wholly 
owned subsidiary and which meet the basic requirements of financial 
statements, may be accepted by the Farm Service Agency in lieu of the 
warehouse operator meeting such requirements.
    2. Guaranty agreements from a parent company submitted on behalf of 
a wholly owned subsidiary may be accepted by the Farm Service Agency as 
meeting the basic requirements of financial statements if the parent 
company submits a financial statement which meets the financial 
requirements and financial reporting requirements.
D. Special Cases: Assets and Liabilities
    1. Subject to such terms and conditions as the Farm Service Agency 
may prescribe and for the purposes of determining allowable assets and 
liabilities, appraisals of the value of fixed assets in excess of the 
book value claimed in the financial statement submitted by a warehouse 
operator to conform with the requirements may be allowed if
    a. prepared by independent appraisers acceptable to the Farm 
Service Agency and
    b. the assets are fully insured against casualty loss.
    2. All grain purchased from and remaining in-store at another 
warehouse must be fully paid for and a warehouse receipt issued in the 
name of the purchasing warehouse operator for such quantity and quality 
as the warehouse operator's records or assets may state.
E. Financial Special Conditions--Public Debt Obligations
    The warehouse operator agrees that if they file a bond in the form 
of either a deposit of public debt obligations of the United States or 
other obligations which are unconditionally guaranteed as to both 
interest and principal by the United States:
    1. The obligation deposited will not be considered a part of the 
warehouse operator's assets.
    2. A deficiency in total allowable net worth as computed may be 
offset by the licensed warehouse operator furnishing acceptable 
financial assurance for the difference.
    3. The deposit may be replaced or continued in the required amount 
from year to year; and
    4. The deposit will not be released until one year after 
cancellation or revocation of the license that it supports or until 
satisfaction of any claim against the deposit, whichever is later.

III. Financial Assurance

A. Financial Assurance Requirements--Computation
    The warehouse operator agrees:
    1. To furnish financial assurance computed at the rate of twenty 
cents ($0.20) per bushel for the first million bushels of storage 
space, fifteen cents ($0.15) for the second million bushels of storage 
space, and ten cents ($0.10) for the balance of storage space that the 
warehouse accommodates when stored in the manner customary to the 
warehouse as determined by the Farm Service Agency, but not less than 
fifty thousand dollars ($50,000.00) nor more than five hundred thousand 
dollars ($500,000.00).
    2. When applying for licenses to operate two or more warehouses in 
the same State, or multiple states, and at the warehouse operator's 
election, they may provide financial assurance meeting the requirements 
of the Act and the regulations to cover all these warehouses within the 
multiple states and the maximum of five hundred thousand dollars 
($500,000.00) of financial assurance will apply for each State covered.
    3. In case of a deficiency in net worth above the fifty thousand 
dollars ($50,000.00) minimum required, to add to the amount of 
financial assurance determined in accordance with paragraph (1) of this 
section an amount equal to that deficiency. If a letter of credit is 
used for the amount of the deficiency, it must be issued for a period 
of not less than two years to coincide with the period of any deposit 
of obligations. Any letter of credit must be clean, irrevocable, issued 
by a commercial bank payable to the Farm Service Agency by sight draft 
and insured as a deposit by the Federal Deposit Insurance Corporation. 
The deposit will not be considered an asset of the company.
    4. If the Farm Service Agency finds that conditions exist which 
warrant requiring additional financial assurance, to add to the amount 
of financial assurance a further amount to meet such conditions.
B. Financial Assurance--Acceptable Forms
    The warehouse operator may offer as financial assurance any of the 
following:
    1. A warehouse operator's bond, or
    2. In the form of a deposit with the Farm Service Agency, United 
States bonds, United States Treasury notes, or other public debt 
obligations of the United States or obligations that are 
unconditionally guaranteed as to both interest and principal by the 
United States, or
    3. In the form of a letter of credit issued to the Agency for a 
period of not less than two years to coincide with the period of any 
deposit of obligations, or
    4. In the form of a certificate of participation in and coverage by 
an indemnity or insurance fund as approved by the Farm Service Agency, 
established and maintained by a State, backed by the full faith and 
credit of the applicable State, and which guarantees depositors of the 
licensed warehouse full indemnification for the breach of any 
obligation of the licensed warehouse operator under the terms of the 
Act and regulations, or
    5. Other forms of financial assurance as may be prescribed in the 
applicable licensing agreement and related addenda deemed acceptable by 
the Farm Service Agency.

IV. Duties of Warehouse Operator

A. General
    The warehouse operator agrees to:
    1. At all times exercise such care in regard to grain in custody as 
a reasonably careful owner would exercise under the same circumstances 
and conditions.
    2. To not differentiate among depositors regarding use of and 
access to services, except that available storage space may be 
allocated.
    3. Accept all storage and non-storage grain and, at the request of 
the depositor, deliver out all storage and non-storage grain, other 
than specially-binned grain, in accordance with the grades of that 
grain as determined by a person duly licensed to inspect that grain and 
to certificate the grade and the weight of that grain under the Act and 
the regulations; or
    4. If an appeal from the determination of an inspector has been 
taken, that grain will be accepted for and delivered out of storage in 
accordance with the grades as finally determined in the appeal.

[[Page 46330]]

    5. Keep the warehouse reasonably clean at all times and free from 
straw, detritus, rubbish, or accumulations of materials that will 
create a hazard or interfere with the handling of grain and provide a 
safe environment in and around the warehouse and will provide all 
necessary assistance in the execution of inspections and examinations 
by representatives of the Farm Service Agency.
    6. Maintain sufficient inventory of grain in licensed storage with 
respect to quality and quantity as evidenced by the outstanding storage 
obligations (warehouse receipted and not warehouse receipted) and, in 
case the grades of stored grain should get out of balance with grades 
represented by outstanding storage obligations, to effect the necessary 
corrective actions to regain the quality and quantity equity.
B. Insurance
    1. Requirements. The warehouse operator agrees to:
    a. Secure, in their own name, insurance on stored grain against 
loss or damage by fire, lightning, and other risk under forms of 
policies which automatically attach for the full replacement value of 
stored grain, as soon as such grain is placed in their legal custody, 
and continue such insurance in effect so long as the grain remains in 
their legal custody. The warehouse operator also agrees to keep a 
general insurance account showing the policy number, issuing company, 
amount binding, and expiration dates of all insurance policies and in 
each instance show the property covered by such policies. This 
insurance will be lawful policies issued by one or more insurance 
companies. The warehouse operator must submit such reports to 
underwriters as may be required under the terms of such policies, and 
submit copies of such reports to the Farm Service Agency as required.
    b. Show, in the tariff to be posted at all delivery points, the 
conditions under which the grain will be insured against loss or damage 
by fire, lightning, and other risk.
    c. Require that the warehouse operator's insurance company give 30 
days advance notice to the Farm Service Agency of intent to cancel the 
stock (inventory) coverage.
C. Records To Be Kept in a Safe Place
    The warehouse operator agrees to:
    1. Provide a fireproof safe, a fireproof vault, or a fireproof 
compartment in which to keep, when not in use, all records, books, and 
papers pertaining to the licensed warehouse, including a current 
warehouse receipt book, copies of warehouse receipts issued, and 
canceled warehouse receipts or microfilm copies of canceled receipts, 
except that, with the written consent of the Farm Service Agency, upon 
a showing by the warehouse operator that it is not practicable to 
provide such fireproof safe, vault, or compartment, may keep such 
records, books, and papers in some other place of safety, approved by 
the Farm Service Agency.
    2. Retain each canceled receipt for a period of six years after 
December 31 of the year in which the warehouse receipt is canceled and 
for such longer period as may be necessary for the purposes of any 
litigation which the warehouse operator knows to be pending, or as may 
be required by the Farm Service Agency in particular cases to carry out 
the purposes of the Act.
    3. Arrange canceled warehouse receipts in numerical order and 
otherwise in such manner as may be directed, for purposes of audit, by 
authorized officers or agents of the United States Department of 
Agriculture and the Farm Service Agency.
D. Scales and Bin Numbers
    The warehouse operator agrees to:
    1. Be equipped with suitable scales in good order, and so arranged 
that all grain, whether for storage or for non-storage purposes, can be 
weighed in and out of the warehouse. The scales in any warehouse must 
be subject to examination by authorized officers or agents of the 
United States Department of Agriculture and to disapproval by the Farm 
Service Agency. If disapproved, any weighing apparatus must not 
thereafter be used in ascertaining the weight of grain for the purposes 
of this Act, until such disapproval is withdrawn
    2. Cause both bulk grain bins and compartments for sacked grain of 
all warehouses licensed under the Act to be identified by means of 
clearly discernible numbers securely affixed. The series of numbers to 
be used must be approved by the Farm Service Agency. Bulk grain bins 
must be numbered so as to be easily identified at the openings on top 
and also on or near the outlet valves underneath. Compartments must be 
numbered in such a manner as clearly showing the space covered by each 
number.
    3. Apply for licensing at all facilities controlled by them at a 
specific location, among which grain may be transferred without 
weighing, unless those facilities are specifically exempted by the Farm 
Service Agency. The warehouse operator must not select, randomly, the 
bins to be licensed unless specifically exempted by the Farm Service 
Agency.
E. Warehouse Charges
    The warehouse operator must:
    1. not make any unreasonable or exorbitant charge for services 
rendered.
    2. before a license to conduct a warehouse is granted under the 
Act, file, with the Farm Service Agency, a copy of their rules and a 
schedule of charges to be assessed depositors.
    3. before making any change in such rules or schedule of charges, 
file with the Farm Service Agency a new rule statement or schedule of 
charges.
    4. post conspicuously where the depositor may access it at all 
delivery points, a copy of the current rules and schedule of charges.
F. Business Hours
    The warehouse operator agrees to:
    1. be open for the purpose of receiving grain for storage and 
delivering grain out of storage and for settlement purposes every 
normal business day for a period of not less than six hours between the 
hours of 8 a.m. and 6 p.m. The warehouse operator must post their 
business hours at the public entrance to the office and to their 
licensed warehouse.
    2. in case the warehouse is not to be kept open as required, state, 
in the posted notice, the period during which the warehouse is to be 
closed and the name, the address, and telephone number of the person 
who will be authorized to receive and deliver grain stored in the 
warehouse.
G. System of Accounts
    The warehouse operator agrees to:
    1. Have and maintain a system of accounts approved for the purpose 
by the Farm Service Agency. This system of accounts must include an 
accurate and concise daily position record showing, as activity occurs, 
the total quantity of each kind and class (and the subclass white club 
wheat) of grain in licensed space:
    a. Total grain unloaded into the warehouse,
    b. Total grain loaded out of the warehouse,
    c. Total grain adjustments,
    d. Total grain remaining in the warehouse at the close of each 
business day,
    e. Total obligations transferred to another warehouse,
    f. Total negotiable and non-negotiable warehouse receipts issued, 
canceled, and balance outstanding,
    g. Total increase, decrease, and outstanding un-receipted 
obligations belonging to others including grain bank,

[[Page 46331]]

    h. Total grain owned by the warehouse operator for which warehouse 
receipts have not been issued, and
    i. Total grain obligations.
    2. Maintain a separate set of records for each depositor showing 
the kind, class (and the subclass white club wheat), grade, and 
quantity of grain deposited or redelivered which must include a 
detailed record of all money received and disbursed and, if applicable, 
all insurance policies taken out and canceled on request of each 
depositor. These records will be maintained accurately and concisely as 
activity occurs. The warehouse operator must retain these records for a 
period of six years after December 31 of the year in which they were 
created, and for such longer period as may be necessary for the 
purposes of any litigation which the warehouse operator knows to be 
pending, or as may be required by the Farm Service Agency in particular 
cases to carry out the purposes of the Act.
    3. Maintain similar records and information for any non-storage 
grain handled through the warehouse. Records required with respect to 
non-storage grain must be retained, as a part of the records of the 
warehouse, for a period of one year after December 31 of the year in 
which the lot of non-storage grain is delivered from the warehouse.
H. Excess Storage and Transferring Grain
    The warehouse operator agrees that:
    1. If at any time grain stored in the warehouse exceeds the 
capacity for which the warehouse is licensed, the warehouse operator 
will immediately notify the Farm Service Agency of the fact and the 
location of excess storage.
    2. If they desire to transfer stored grain to another warehouse 
(receiving), the warehouse operator may do so either by physical 
movement of the stored grain or by other methods accepted as standard 
industry practice subject to the following terms and conditions:
    a. The transferring (shipping) warehouse operator's accepted rules 
or schedule of charges must contain notice that the warehouse operator 
may transfer grain according to conditions prescribed by the Farm 
Service Agency.
    b. The warehouse operator must request permission in writing to the 
Farm Service Agency.
    c. For purposes of transferring grain, a receiving warehouse means 
a warehouse operated by a warehouse operator who holds an un-suspended, 
un-revoked grain license under the United States Warehouse Act, or a 
warehouse operated by a warehouse operator who holds an effective 
warehouse license for the public storage of grain issued by a State 
that has financial, bonding and examination requirements for the 
benefit of all depositors or, in the case of warehouses operating in a 
State without licensing authorities, warehouses with approved Uniform 
Grain and Rice Storage Agreements with the Commodity Credit 
Corporation.
    d. Non-negotiable warehouse receipts must be obtained promptly by 
the shipping warehouse operator from the receiving warehouse operator 
for all warehouse receipted or open storage transferred grain. Such 
warehouse receipts must have printed or stamped in large bold or 
outline letters diagonally across the face and covering the face from 
corner to corner the words ``NOT NEGOTIABLE''. In the case of grain 
shipped to a warehouse in a State that doesn't allow issuance of non-
negotiable warehouse receipts, the receiving warehouse operator will 
issue an affidavit specifying the kind, class (and the subclass white 
club wheat), grade and quantity of the grain received from the shipping 
warehouse operator. These receipts and affidavits are not valid for 
collateral purposes. They must be retained by the shipping warehouse 
operator to be presented to and used by authorized officers and agents 
of the United States Department of Agriculture, and the Farm Service 
Agency in lieu of an on-site inventory. The grain covered by these 
warehouse receipts and affidavits is not the property of either the 
receiving or shipping warehouse operator but held in trust by both 
solely for the benefit of the depositors whose bailed grain was 
transferred individually or collectively and which the depositor or the 
depositor's transferee retains title.
    e. The shipping warehouse operator's financial assurance amount 
must be increased to consider the addition of the transferred grain to 
the licensed capacity of the warehouse with the net worth requirements 
based on the total of the licensed capacity and the transferred grain. 
The receiving warehouse operator must not incur storage obligations 
that exceed the licensed or approved capacity of their warehouse.
    f. The shipping warehouse operator retains storage obligation to 
the owners of all grain deposited in the warehouse for storage, whether 
transferred or retained, and is, except as otherwise agreed upon under 
paragraph (g), required to redeliver the grain upon demand to the 
depositor or the depositor's transferee at the warehouse where the 
grain was first deposited for storage.
    g. The owner of grain deposited for storage at the warehouse must 
make settlement and take delivery at the warehouse where the grain was 
first deposited for storage, unless the owner of the grain, with the 
consent of both the shipping warehouse operator and the receiving 
warehouse operator, elects to take delivery at the warehouse to which 
grain was transferred.
    h. Nothing in this agreement will in any way diminish the right of 
the owner of the grain to receive on delivery, or the obligation of the 
warehouse operator of a licensed warehouse from which the product is 
transferred, to deliver to the owner, grain in the quantity, and of the 
kind, quality, class (and the subclass white club wheat) and grade, 
called for by the warehouse receipts or other evidence of storage.
    i. Recording and retention of non-negotiable warehouse receipts 
received as a result of transferring grain under this section will be 
subject to the requirements for warehouse receipts.
    j. A receiving warehouse operator must not transfer or offset to 
another warehouse, in any manner, their obligation to the shipping 
warehouse operator.
I. Reports Required
    The warehouse operator agrees to:
    1. When requested by the Farm Service Agency, make such reports, on 
forms prescribed and furnished for the purpose by the Farm Service 
Agency, concerning the condition, contents, operation, and business of 
the warehouse.
    2. Keep on file, as a part of the records of the warehouse, for a 
period of three years after December 31 of the year in which submitted, 
an exact copy of each report submitted.
J. Inspections, Examinations of Warehouse
    The warehouse operator agrees to permit any officer or agent of the 
United States Department of Agriculture, authorized by the Farm Service 
Agency, to enter and inspect or examine on any business day during the 
usual hours of business, any warehouse for which they hold a license, 
the office, the books, records, papers, and accounts relating, and the 
contents thereof and will furnish that officer or agent the assistance 
necessary to enable making any inspection or examination.
K. Loading Out Without Weighing
    The warehouse operator may:
    1. Load out identity-preserved grain without weighing for which the 
owner has agreed to assume all shortages, provided that the warehouse 
receipts

[[Page 46332]]

covering this grain have been surrendered to the warehouse operator.
    2. At the request of the owner, load out fungible grain without 
weighing. Destination weights are to be obtained and posted as soon as 
possible. Any interim weight certificate issued by the shipping 
warehouse operator must clearly show the weight as an estimate.
L. Storage of Identity Preserved Grain
    1. The warehouse operator may elect not to accept and store 
identity preserved grain.
    2. If electing to accept and store bulk identity-preserved grain, 
the warehouse operator agrees to:
    a. Clearly mark with identification each bag or container.
    b. Maintain records that clearly show the location of all identity-
preserved grain stored in the warehouse.
M. Containerized Grain Storage
    The warehouse operator agrees to keep containerized grain stored in 
an orderly manner so as to permit easy access to all lots and to 
facilitate inspecting, sampling, counting and identification of each 
lot.
N. Delivery of Fungible Grain
    The warehouse operator must:
    1. Upon proper presentation of a warehouse receipt for any grain, 
other than identity-preserved grain, and, if requested by the warehouse 
operator, payment of all accrued charges associated with the storage of 
the grain, deliver to the depositor or lawful holder of the warehouse 
receipt, grain in the quantity, and of the kind, quality, class (and 
the subclass white club wheat) and grade, called for by the warehouse 
receipts or other evidence of storage; or
    2. Upon proper presentation of a warehouse receipt for any 
identity-preserved grain and, if requested by the warehouse operator, 
payment of all accrued charges associated with the storage of the 
grain, deliver to the person lawfully entitled thereto, the identical 
grain stored in the warehouse.
O. Storage Obligations
    The warehouse operator, while authorized to commingle grain in 
store, is liable to each depositor for the care and delivery of grain 
stored as if the grain were separately stored. The warehouse operator 
is free to store in any manner that results in their ability to produce 
grain, as a bailee for hire, that meets or exceeds the quantity and 
quality specifications of the warehouse receipt or the original 
delivery receipt (scale ticket).
P. Out of Condition and Damaged Grain
    The warehouse operator may refuse to accept grain offered for 
storage if its condition is such that it will affect the condition of 
existing grain in the warehouse unless the warehouse operator chooses 
to separately bin and condition the grain.
Q. Reconditioning Grain
    The warehouse operator agrees to:
    1. Immediately notify the owners and the Farm Service Agency when 
grain is going out of condition and where the warehouse operator is 
unable to condition the grain and stop the deterioration, and
    2. Follow instructions received.
R. Warehouse Receipts
    1. The warehouse operator when choosing the option to issue 
Electronic Warehouse Receipts (EWRs) instead of paper warehouse 
receipts for the agricultural product(s) stored in their warehouse 
agrees to:
    a. Only issue EWRs through a provider whom the Farm Service Agency 
has approved.
    b. Receive written approval from the Farm Service Agency at least 
30 calendar days before changing providers. Upon approval a warehouse 
operator may request their current provider to transfer their EWR data 
from its Central Filing System (CFS) to the CFS of the approved 
provider whom they select. Warehouse operators must notify all holders 
of EWRs by inclusion in the CFS at least 30 calendar days before 
changing providers, unless otherwise required or allowed by the Agency. 
Warehouse operators may only change providers once a year.
    c. Cancel EWRs only when they are the holder of the receipt(s)
    d. Correct information on the EWR only with written notification to 
the provider.
    e. Before issuing EWRs, request and receive from the Farm Service 
Agency a range of consecutive warehouse receipt numbers which the 
warehouse operator will use consecutively for issuing their EWRs.
    f. Issue warehouse receipts initially as EWRs.
    g. Inform the Farm Service Agency of the identity of their provider 
60 calendar days in advance of issuing EWRs through that provider. The 
Farm Service Agency may waive or modify this 60-day requirement as set 
forth under 7 CFR 735.2(b).
    2. The warehouse operator will ensure that an issued EWR 
establishes the same rights and obligations with respect to an 
agricultural product as a paper warehouse receipt, and possess the 
following attributes that:
    a. The person identified as the 'holder' of a EWR will be entitled 
to the same rights and privileges as the holder of a paper warehouse 
receipt.
    b. Only the current holder of the EWR may transfer the EWR to a new 
holder.
    c. The identity of the holder must be included as additional 
information for every EWR.
    d. An EWR will only designate one entity as a holder at any one 
time.
    e. An EWR will not be issued for a specific identity preserved or a 
commingled agricultural product lot if another receipt, whether paper 
or electronic, representing the same specific identity preserved or 
commingled lot of agricultural product is outstanding. No two warehouse 
receipts issued by a warehouse operator may have the same receipt 
number or represent the same agricultural product lot.
    f. An EWR may only be issued to replace a paper receipt if 
requested by the current holder of the paper warehouse receipt.
    g. An EWR allows a ``holder'' the option to authorize any other 
user of a provider to act on their behalf with respect to their 
activities with their provider. This authorization must be in writing, 
acknowledged, and retained by the provider.
    h. Provisions of 7 CFR 735.301(c) will be applicable to lost or 
destroyed EWRs.
    i. Only the current EWR holder may request a paper warehouse 
receipt in lieu of a EWR with respect to an agricultural product.

V. Paper Warehouse Receipts

    A. Issuance
    The warehouse operator agrees to:
    1. Issue warehouse receipts for any grain stored in a warehouse at 
the request of a depositor.
    2. Prior to issuing any warehouse receipt under the Act, obtain a 
copy of the original weight certificate, original inspection 
certificate or original inspection and weight certificate representing 
the grain. The warehouse operator's records must identify the 
certificate (s) used as the basis for issuing the receipt and retained 
for a period of three years after December 31 of the year in which 
issued. Certificates filed in the office of an independent inspection 
or weighing agency or with a U. S. Registrar meet this requirement.
B. Form
    1. Every warehouse receipt, whether negotiable or non-negotiable, 
issued for grain stored in a licensed warehouse must, in addition to 
complying with the

[[Page 46333]]

requirements of section 11 of the Act, embody within its written or 
printed terms the following:
    a. The name of the warehouse operator and the designation, if any, 
of the warehouse,
    b. The warehouse operator's license number,
    c. The Commodity Credit Corporation contract code number, if 
applicable,
    d. A statement whether the warehouse operator is incorporated or 
unincorporated, and if incorporated, under what laws,
    e. In the event the relationship existing between the warehouse 
operator and any depositor is not that of a strictly disinterested 
custodianship, a statement setting forth the actual relationship,
    f. A statement conspicuously placed, whether or not the grain is 
insured, and, if insured, to what extent, by the warehouse operator 
against loss by fire, lightning, or other risk,
    g. The net weight, including dockage, if any, of the grain.
    h. In the case of grain the identity of which is to be preserved, 
its identification or location in accordance with the regulations.
    i. The words ``Not Negotiable,'' or ``Negotiable,'' according to 
the nature of the receipt, clearly and conspicuously printed or stamped 
thereon.
    2. Every negotiable warehouse receipt issued must, in addition to 
conforming with the requirements of paragraph (a), embody within its 
written or printed terms, a form of endorsement which may be used by 
the depositor, or their authorized agent, for showing the ownership of, 
and liens, mortgages, or other encumbrances on the grain covered by the 
receipt.
    3. The grade stated in a warehouse receipt must be stated as 
determined by the inspector who last inspected and graded the grain or, 
if an appeal has been taken, the grade will be stated on such receipt 
in accordance with the grade as finally determined in such appeal.
    4. If the warehouse operator issues a warehouse receipt omitting 
the statement of grade on request of the depositor, such receipt will 
have clearly and conspicuously stamped or written in the space provided 
for the statement of grade the words ``Not graded on request of 
depositor''.
    5. If the warehouse operator issues a warehouse receipt under the 
Act omitting any information not required to be stated, for which a 
blank space is provided in the form of the receipt, a line will be 
drawn through such space to show that such omission has been made 
purposely.
C. Persons Authorized to Sign Warehouse Receipts
    The warehouse operator must file with the Farm Service Agency, the 
name and genuine signature of each person authorized to sign warehouse 
receipts for the warehouse operator, promptly notify Farm Service 
Agency of any changes as to persons authorized to sign, file the 
signatures of such persons, and will be bound by such signatures the 
same as if the warehouse operator, had personally signed the receipt.
D. Copies of Warehouse Receipts
    The warehouse operator agrees that at least one copy of all 
warehouse receipts must be made and, except skeleton and microfilm 
copies, have clearly and conspicuously printed or stamped on the face 
the words ``Copy--Not Negotiable''.
E. Printing of Warehouse Receipts
    The warehouse operator agrees to issue only warehouse receipts 
that:
    1. Are in a form prescribed by the Farm Service Agency.
    2. Are on distinctive paper or card stock specified by the Farm 
Service Agency;
    3. Printed by a printer with whom the United States has an 
agreement and bond for such printing; and
    4. On paper and/or card stock tinted with ink in the manner 
prescribed by the agreement.
F. Return of Warehouse Receipts Prior to Delivery
    The warehouse operator agrees to:
    1. Not deliver any grain for which they have issued a negotiable 
receipt until the receipt has been returned to the warehouse operator 
and canceled; and
    2. Not deliver grain for which they have issued a non-negotiable 
receipt until such receipt has been returned, or they have obtained 
from the holder or agent, a written order and a receipt upon delivery 
of 90% (ninety percent) of the quantity.
G. Balance Warehouse Receipts
    The warehouse operator, upon request of the holder, may issue a 
warehouse receipt for previously warehouse receipted grain, the receipt 
for which has been canceled. The balance warehouse receipt must show 
the number and issuance date of the original warehouse receipt.
H. Lost or Destroyed Warehouse Receipts
    1. The warehouse operator may issue a new warehouse receipt subject 
to the same terms and conditions, and bearing on its face the number 
and the date of the original receipt when presented with the case of a 
lost or destroyed warehouse receipt.
    2. Before issuing a replacement warehouse receipt, the warehouse 
operator must require the holder or other person applying therefore to 
make and file with the warehouse operator
    a. An affidavit showing that the holder is lawfully entitled to the 
possession of the original warehouse receipt; that the holder has not 
negotiated or assigned it; how the original receipt was lost or 
destroyed; and, if lost, that diligent effort has been made to find the 
warehouse receipt without success.
    b. A bond in an amount double the value, at the time the bond is 
given, of the agricultural product represented by the lost or destroyed 
warehouse receipt. This bond will be in a form approved for the purpose 
by the Farm Service Agency, and will be conditioned to indemnify the 
warehouse operator against any loss sustained by reason of the issuance 
of this warehouse receipt. The bond will have as surety a surety 
company which is authorized to do business, and is subject to 
administration of process in a suit on the bond, in the State in which 
the warehouse is located, unless a variance is granted by the Farm 
Service Agency.
    3. Auditing Canceled Warehouse Receipts. The warehouse operator 
agrees to forward canceled receipts for auditing, as requested, to the 
Farm Service Agency.

VI. Service Licenses

A. The Applicant
    The applicant for service licensing under the Act:
    1. Must make application for license to inspect and/or weigh grain 
to the Farm Service Agency on forms furnished by the Agency. Each 
application must:
    a. Be signed by the applicant.
    b. Contain or be accompanied by a statement from the warehouse that 
the applicant is acceptable to such warehouse operator.
    c. If seeking inspection licensing, certification that the 
applicant can correctly inspect grain in accordance with the official 
standards of the United States, or in the absence of such standards, in 
accordance with any standards approved by the Farm Service Agency.
    d. If seeking weighing licensing, certification that the applicant 
can correctly weigh grain.
    e. Furnish such additional information as requested by the Farm 
Service Agency.

[[Page 46334]]

B. Examination of Applicant
    As a service license applicant, submit to an examination or test to 
show ability to properly inspect, grade and/or weigh grain, as the case 
may be, and also make available for inspection copies of the standards 
of inspection and grading and the weighing apparatus as the case may 
be, used or to be used.
C. Inspection Certificate
    1. Each inspection certificate issued under the Act by an inspector 
must be in a form approved by the Farm Service Agency, and include the 
following information within its terms:
    a. The caption ``United States Warehouse Act, Grain Inspection 
Certificate,''
    b. Whether it is an original, a duplicate, or other copy, and that 
it is not negotiable,
    c. The name and location of the warehouse in which the grain is or 
is to be stored,
    d. A statement showing whether the inspection covers grain moving 
into or out of the warehouse,
    e. The date of the certificate,
    f. The consecutive number of the certificate,
    g. The approximate quantity of grain covered by the certificate,
    h. The kind of grain covered by the certificate,
    i. The grade of the grain, as determined by such duly licensed 
inspector, in accordance with official standards and, in the case of 
grain for which no official standards of the United States are in 
effect, the standards or description in accordance with which such 
grain is graded.
    j. A statement that the certificate is issued by an inspector 
licensed under the U.S. Warehouse Act and the regulations thereunder,
    k. A statement conspicuously placed to the effect that the 
certificate is not valid for the purposes of the United States Grain 
Standards Act, and
    l. The signature of the inspector who inspected and graded the 
grain.
    2. In addition to the provisions of paragraph 1, the inspection 
certificate may include any other matter consistent with the Act or the 
regulations, provided the approval of the Farm Service Agency is first 
secured.
    3. In lieu of an inspection certificate in the form prescribed in 
paragraph one, an official inspection certificate issued pursuant to 
the provisions of the United States Grain Standards Act, or the 
Agricultural Marketing Act of 1946 on grain which is stored or to be 
stored in a warehouse licensed under the Act will be acceptable for 
purposes of the Act and the regulations.
D. Weight Certificates
    1. Each weight certificate issued under the Act by an inspector 
must be in a form approved for the purpose by the Farm Service Agency, 
and include the following information within its terms:
    a. The caption ``United States Warehouse Act, Grain Weight 
Certificate,''
    b. Whether it is an original, a duplicate, or other copy, and that 
it is not negotiable,
    c. The name and location of the warehouse in which the grain is or 
is to be stored,
    d. Whether the grain is weighed into or out of the warehouse,
    e. The date of the certificate,
    f. The consecutive number of the certificate,
    g. The net weight, including dockage, if any, of the grain.
    h. A statement that the certificate is issued by a weigher licensed 
under the U.S. Warehouse Act and the regulations thereunder, and
    i. The signature of the weigher.
    2. In addition to the provisions of paragraph 1, the weight 
certificate may include any other matter consistent with the Act or the 
regulations in this part provided the approval of the Farm Service 
Agency is first secured.
    3. In lieu of a weight certificate in the form prescribed in 
paragraph 1 of this section, an official weight certificate issued 
pursuant to the provisions of the United States Grain Standards Act, or 
an official weight certificate issued pursuant to the Agricultural 
Marketing Act of 1946 on grain which is stored or to be stored in a 
warehouse licensed under the Act is acceptable for purposes of the Act.
E. Grade and Weight Certificate
    The grade and weight of any grain, ascertained by an inspector and 
a weigher, may be stated on a certificate meeting the combined 
requirements of subsections C and D provided the form of the 
certificate is approved for the purpose by the Farm Service Agency.
F. Duties of Inspector and Weigher
    Each inspector and weigher whose license remains in effect must:
    1. When given grain to inspect, grade and/or weigh under conditions 
which permit proper inspection and weighing, without discrimination, as 
soon as practicable and upon reasonable terms, perform the requested 
services for which licensed.
    2. Issue a certificate of grade for any grain only if the 
inspection and grading thereof is based upon a correct and 
representative sample of the grain.
    3. As soon as possible after grading any grain and not later than 
the close of business on the next following business day, make 
accessible to the parties interested in a transaction in which the 
grain is involved at the location of the license, a copy of the 
inspection certificate issued by the licensed inspector.
    4. Keep the license to inspect, grade and/or weigh conspicuously 
posted at the place where those duties are performed or as directed by 
the Farm Service Agency.
    5. Permit any authorized officer or agent of the United States 
Department of Agriculture or the Farm Service Agency or their designee 
to inspect or examine, on any business day during the usual hours of 
business, their books, papers, records, and accounts relating to the 
performance of their duties under the Act and, with the consent of the 
warehouse operator concerned, assist any such officer or agent in the 
inspection or examination as far as it relates to the performance of 
the duties of such inspector or weigher under the Act.
    6. Keep for a period of one year, in a place accessible to 
interested parties, a copy of each certificate issued and file the 
certificate with the warehouse in which the grain covered by the 
certificates is stored.

VII. Grain Grading

A. Official Grain Standards of the United States
    The Official Grain Standards of the United States are hereby 
adopted as the official grain standards for the purposes of the Act and 
the regulations.
B. Standards of Grade for Other Grain
    Until Official Standards of the United States are fixed and 
established for the kind of grain to be inspected, the grade of the 
grain will be stated, subject to the approval of the Farm Service 
Agency:
    1. In accordance with the State standards, if any, established in 
the State in which the warehouse is located,
    2. In the absence of any State standards, in accordance with the 
standards, if any, adopted by the local board of trade, Chamber of 
Commerce, or by the grain trade generally in the locality in which the 
warehouse is located, or
    3. In the absence of the standards mentioned in paragraphs 1 and 2 
of this section, in accordance with any standards approved for the 
purpose by the Farm Service Agency.

[[Page 46335]]

VIII. Grain Appeals

A. Appeal Procedure
    The depositor, holder of the warehouse receipt or the warehouse 
operator may make an appeal as to the grade of a lot of grain stored or 
to be stored in a warehouse. If the original grade certificate was 
issued by an inspector licensed under, or authorized by, the United 
States Grain Standards Act or the Agricultural Marketing Act, the 
appeal, including the amount of fees, will be governed by the 
regulations issued under those Acts respectively; otherwise, the 
appeal, including fees will be governed by paragraphs B and C of this 
section.
B. Request for Appeal
    1. The warehouse operator agrees to accept a request for an appeal 
inspection by a depositor or holder of the warehouse receipt made by 
written notice to the warehouse operator before the identity of the lot 
of grain has been lost and not later than the close of business on the 
first business day following furnishing of the statement of original 
grade.
    2. If the appeal is requested by the warehouse operator, notice 
must be given promptly to the owner of the grain. Oral notice may be 
made if followed by written notice.
    3. Where it is not practical for the warehouse operator to maintain 
the identity of all grain being received for storage until depositors 
receive a statement of grade and consequently opportunity for appeal, 
any depositor or agent before or at the time of delivery of grain may 
request that the warehouse operator retain the identity of such lot 
until depositor has been furnished with a statement of grade for the 
lot and has waived or requested and received an appeal inspection 
grade.
    4. The warehouse operator need not preserve the identity of the lot 
in the original conveyance; but with the knowledge and consent of the 
depositor or agent may use other means to preserve such identity. 
Further, if compliance with such request would adversely affect 
receiving, storing or delivering the grain of other depositors, the 
warehouse operator may defer unloading the grain until such time as 
would not disrupt service to other depositors but without unnecessary 
delay to the party making such request.
C. Appeal Sampling, Preservation, Delivery and Examination
    1. The lot of grain for which an appeal is requested must be re-
sampled in such manner and quantity as the depositor or holder of the 
warehouse receipt and the warehouse operator agree results in a 
representative sample of the lot acceptable to each for appeal 
purposes. If the parties are unable to agree on such a sample, a sample 
drawn by a duly licensed inspector in the presence of the interested 
parties must be deemed binding. In no case will the sample be of less 
than 2000 grams by weight.
    2. The sample must be packaged, to the satisfaction of the 
interested parties, so as to preserve its original condition.
    3. Delivery.
    a. For grains for which there are official U.S. Standards, the 
sample will be secured and delivered to the nearest office charged with 
providing official inspection service under the United States Grain 
Standards Act or the Agricultural Marketing Act of 1946. At this point, 
procedures to determine the grade of the grain will be as set forth in 
regulations issued under the United States Grain Standards Act or under 
the Agricultural Marketing Act of 1946, as is applicable.
    b. For grain for which there are no official U.S. Standards, the 
party requesting the appeal will apply directly to the Farm Service 
Agency for relief. The Farm Service Agency will determine the appeal 
based on approved standards and set the required fees. Such 
determination will be binding on all interested parties.
    4. The sample must be accompanied by:
    a. A copy of the written request for appeal,
    b. The grain inspection certificate originally issued, and
    c. An agreement to pay the costs of such inspection as prescribed 
by the United States Grain Standards Act, the Agricultural Marketing 
Act or the Farm Service Agency.
    5. The sample of the grain involved in the appeal must be examined 
as soon as possible. Such tests must be applied as are necessary. 
Unless the appeal is dismissed, a grade certificate must be issued by 
the person determining the grade, showing the grade assigned by them to 
such grain. The certificate will supersede the inspection certificate 
originally issued for the grain involved. The original or a copy of the 
new grade certificate will be sent to the depositor or holder of the 
warehouse receipt, the warehouse operator and the licensed inspector 
making the original determination of grade.
D. Ability To Appeal
    1. No person licensed under the Act, will, directly or indirectly 
by any means whatsoever, deter or prevent or attempt to deter or 
prevent any party from taking an appeal.
    2. No rule, regulation, bylaw, or custom of any market, board of 
trade, Chamber of Commerce, exchange, inspection department or similar 
organization nor any contract, agreement or understanding, will be 
grounds for refusing to determine any appeal.
E. Owner Not Compelled To Store Grain
    Nothing in this agreement will require the owner or agent to store 
such grain with the warehouse operator after the appeal inspection, but 
if the grain is stored it will be accepted for and delivered out of 
storage in accordance with the grade as finally determined in such 
appeal.

IX. Fees

    The Farm Service Agency is authorized, by the enabling legislation, 
to assess and collect fees to cover the administration of the program. 
A schedule showing the current fees or any annual fee changes will be 
provided as an addendum to the licensing agreement.
    The fees for grain warehouses are detailed in the attached Addendum 
No. 1.
    This agreement forms a part of the (License Number__________for 
(Warehouse Operator)__________(Licensed Location)__________and is 
effective (Date)__________.

Warehouse Operator

----------------------------------------------------------------------
By

----------------------------------------------------------------------
Date

----------------------------------------------------------------------
For the Farm Service Agency.
BILLING CODE 3410-05-P

[[Page 46336]]

[GRAPHIC] [TIFF OMITTED] TP04SE01.001

BILLING CODE 3410-05-C

[[Page 46337]]

Exhibit C--Draft

Farm Service Agency

Provider Agreement to Electronically File and Maintain Electronic 
Warehouse Receipts and United States Warehouse Act Documents

[WA-141; 0560-0120]

    This Provider Agreement (hereafter ``Agreement'') between__________ 
(hereafter ``Provider'') and the Farm Service Agency (hereafter 
``FSA'') authorizes the Provider to establish and maintain a database 
and system for the purpose of electronically filing warehouse receipts 
and documents issued under the United States Warehouse Act (hereafter 
``USWA'') in a central data filing system (hereafter ``central filing 
system'' or ``CFS'') and permits the Provider to accept the filing of 
warehouse receipts from other than USWA licensed warehouse operators in 
such electronic data filing system. Such electronically filed warehouse 
receipts and electronically filed USWA documents are hereafter referred 
to herein as ``electronic warehouse receipts'' and ``electronic USWA 
documents'' respectively.
    The purpose of this Agreement is to ensure that:
    A. Electronic warehouse receipts and electronic USWA documents 
issued and filed in accordance with this Agreement meet the 
requirements of the USWA and 7 CFR Part 735,
    B. Providers meet the applicable requirements of the USWA and 7 CFR 
Part 735,
    C. The Provider as a U. S. Department of Agriculture 
representative, operates a system that is independent in action and 
appearance of bias or influences other than those which serve the best 
interest of the users, and
    D. Data kept in the Provider's CFS is secured, not changed 
inappropriately and only released to authorized parties. Only the 
issuer may change, cancel or void the USWA documents.
    The terms of the Agreement are:

I. Incorporation of Regulations

    The regulations promulgated by FSA and published in the Federal 
Register and annually codified at 7 CFR Part 735 relating to the 
issuance of electronic warehouse receipts and electronic USWA documents 
are incorporated herein and made a part hereof by reference, including 
regulations published after execution of this agreement.

II. Access

    A. Provider shall make the CFS operative and accessible to users 
and FSA for a period of not less than 18 hours per day Monday through 
Friday and not less than 12 hours per day on Saturday and Sunday. 
Provider shall offer a continuous period of access to the CFS during 
the hours of 7:00 AM to 6:00 PM for the local time zone where the CFS 
is located. Routine maintenance shall be performed without disruption 
of services.
    B. If, for extraordinary maintenance or for reasons beyond the 
Provider's control, the Provider cannot furnish access to the CFS as 
described in paragraph A of this section, the Provider shall furnish 
notice to FSA as follows:
    1. For extraordinary maintenance, an advance notice of at least 5 
calendar days setting out the reasons and expected duration of the 
maintenance; and
    2. If unforeseen circumstances cause the CFS to be inaccessible 
during operating hours for more than a 1 hour period, Provider shall 
immediately notify the FSA contact person of the access problems.
    If a Provider's shutdowns interfere with FSA activities under this 
Agreement, FSA may immediately suspend this Agreement pending 
completion of the activities or may immediately terminate this 
Agreement.
    C. Provider shall give FSA unrestricted access to the CFS and all 
related and backup files, at no charge, for purposes of administering 
this Agreement. The Provider shall also give FSA unrestricted access to 
the physical site where the CFS and off-site records are retained. All 
FSA requested information from the Provider shall be available in 
either electronic or printed format or both at FSA discretion.

III. Fees and Charges

    A. Fees charged to Providers by FSA.
    1. Providers shall pay fees to FSA as shown in Addendum No. 1. This 
fee schedule may be changed by FSA annually. Such changes will be 
announced by April 1st and will become effective as of the following 
May 1st.
    2. Each applicant requesting approval shall submit the current non-
refundable application fee. Upon approval applicant shall pay the 
current non-refundable annual fee.
    3. Each year the Agreement is in effect the Providers shall pay FSA 
the annual fee for that year. Providers will be invoiced by FSA for 
each annual payment. Providers shall pay FSA the annual fee for that 
year by May 30.
    B. Provider's Schedule of fees for Users.
    1. Any fee charged a user by the Provider shall be filed with FSA. 
Provider shall make its fees available to the public, upon demand.
    2. Fees for the use of the CFS shall not be assessed to users in a 
discriminatory manner.
    3. Providers may, after notification to FSA, restrict a user's 
access to the CFS when fee payments are more than 60 days overdue.

IV. Financial, Insurance and Audit Requirements

    A. Each Provider shall maintain complete, accurate, and current 
financial records. The Provider must submit to FSA an annual audit 
level financial statement. This audit shall encompass the Provider's 
fiscal year and shall be submitted to FSA no later than four calendar 
months following the end of the Providers fiscal year.
    B. Provider shall furnish insurance coverage payable to system 
users and FSA as required by 7 CFR Part 735. Deductible provisions for 
each policy shall not exceed $10,000. Each policy shall contain a 
clause requiring written notification to FSA 30 days prior to 
cancellation.
    C. The Provider must submit to FSA an electronic data processing 
audit that encompasses the Provider's fiscal year and must be submitted 
to the FSA no later than four calendar months following the end of the 
Providers fiscal year. The audit must evidence current computer 
operations, security, disaster recovery capabilities of the system, and 
other related systems.

V. Liability

    Providers shall be strictly liable to FSA under this agreement for 
any losses and costs incurred by FSA associated with system failure or 
lost, damaged, or improperly destroyed electronic warehouse receipts or 
electronic USWA documents.

VI. Records

    A. Provider shall maintain a continuous log capable of producing an 
audit trail of all electronic warehouse receipts and all electronic 
USWA documents activities as follows:
    1. Each Provider shall establish a contemporaneous log and 
accompanying set of records that shall allow for a reconstruction of 
the files, activities, and events pertaining to each electronic 
warehouse receipt and each electronic USWA document issued, canceled, 
converted to paper, converted from paper, or changed in anyway. The log 
and records maintained for this reconstruction shall be kept in secure 
storage for a period of 6 years after December 31 of the year in which 
the electronic warehouse receipt was

[[Page 46338]]

canceled and 6 years after the electronic USWA document was issued, 
unless FSA requires that the data be retained for a longer period. The 
log at a minimum shall capture a before and after field, the date of 
change, the time of the change, and the identity of the user making the 
change.
    2. The log shall include details of any attempts to make 
unauthorized changes or access to electronic warehouse receipt or 
electronic USWA document data.
    3 . Provider shall furnish reports as requested by FSA to ensure 
compliance with this Agreement and the USWA.
    B. Each Provider shall create, daily, two complete sets of disaster 
recovery records. These records shall be kept in a fireproof chamber 
and retained until a new set of disaster recovery records are created 
and stored. One set of the disaster recovery records shall be kept off-
site.
    C. Providers shall not delete or alter any of the FSA required 
electronic warehouse receipts, electronic USWA documents or related 
data in the CFS, including the holder unless such actions are 
authorized by this Agreement or by FSA.
    D. Provider shall notify FSA immediately if any data related to an 
electronic warehouse receipt or electronic USWA document has been lost 
due to a system malfunction. Provider shall furnish a written 
explanation of the events which occurred and any other documentation as 
requested by FSA.

VII. Security

    A. Provider shall ensure on-site security of the computer hardware, 
software, and data. Security shall be designed to prevent the 
destruction, accidental or intentional, of facilities and data along 
with preventing the unauthorized distribution of electronic warehouse 
receipt or electronic USWA document information. Unless authorized by 
FSA, the data may only be given to a party who has the right to access 
it.
    B. Provider shall have a comprehensive disaster recovery procedure 
approved by FSA of all computerized and non-computerized functions and 
data. Provider shall perform a comprehensive test of the disaster 
recovery plan twice a year and report the results of those tests to 
FSA. The comprehensive test is to be performed at a different location 
using hardware not used in the normal production program. A complete 
backup of production data is to be restored.
    C. FSA may require alternative or additional security requirements 
if FSA determines that the security procedures submitted by the 
Provider or actually implemented by the Provider are insufficient.

VIII. System Termination

    If the Provider intends to terminate its operations under this 
Agreement, the Provider must give FSA and users thirty days advance 
notice of such termination. FSA will perform a closeout audit or advise 
the Provider in writing that such an audit is waived prior to 
termination. Any termination of operations under this Agreement by the 
Provider or by anyone operating in the place or instead of the operator 
will render the Provider or the Provider's insurance company, or both 
liable to FSA and the users for any damages resulting from such 
termination.

IX. Transferring Receipts or Documents

    A. A Provider may transfer electronic warehouse receipts or 
electronic USWA documents from its CFS to the CFS of another FSA 
approved Provider, when the Provider has received a request from the 
warehouse operator or other authorized party, defined in the applicable 
Addendum, and approval from FSA. These warehouse operators and other 
authorized parties may only change Providers once a year. FSA may waive 
or modify this limitation of allowing the changing of Providers only 
once a year.
    1. The current Provider must:
    a. Provide the new Provider and the warehouse operator, a list of 
current holders of all open electronic warehouse receipts and 
electronic USWA documents that were issued within the past 1 year for 
that warehouse 45 days prior to the transfer date. The list should 
contain the following information about each holder: holder ID, name, 
complete mailing address, phone number, fax number, and contact person.
    b. Invoice the warehouse operator fourteen days prior to the 
transfer date for the transfer charges. The invoice amount will be 
determined according to the current Provider's tariff and the number of 
open electronic warehouse receipts and electronic USWA documents that 
were issued within the past 1 year for the warehouse or holder on the 
date of invoice.
    c. Before 12:00 noon on the day of transfer:
    1. Terminate access by all holders to the electronic warehouse 
receipts and electronic USWA documents records of the subject 
warehouse.
    2. Produce a file of all data in each of the electronic warehouse 
receipts and electronic USWA documents records for the subject 
warehouse. This file is to include only open electronic warehouse 
receipts and electronic USWA documents issued within the past 1 year.
    3. Provide the new Provider a list of current holders of open 
electronic warehouse receipts and electronic USWA documents issued 
within the past 1 year for that warehouse (new holders could have shown 
up since the notification date). The list should contain the same 
information about each holder as required in subparagraph A.1.a.
    4. Initiate the connection to the new Provider's system and 
transmit the files of electronic warehouse receipts and electronic USWA 
documents records. Each Provider agrees to maintain a designated 
transfer site for purpose of transferring these files.
    5. Notify FSA/Kansas City Commodity Office/Licensing Branch (FSA/
KCCO/LB of the transfer.
    2. The warehouse operator must:
    a. Notify FSA/KCCO/LB, current Provider, and their Licensing 
Authority, if applicable, 60 days prior to the transfer date. 
Notification must include an exact date for the transfer.
    b. Send notification of the change to the holders of open 
electronic warehouse receipts and electronic USWA documents issued 
within the past 1 year 30 days prior to the transfer date. The 
notification must inform the holders that access to their electronic 
warehouse receipts and electronic USWA documents will not be available 
on the transfer date. The notification should also clearly state the 
last day the current Provider will be utilized, and the first day the 
new Provider will be effective.
    c. Pay all charges due the current Provider prior to the transfer 
of electronic warehouse receipts and electronic USWA documents to the 
new Provider. This includes the transfer charges. Failure to pay could 
delay the transfer of data files to the new Provider.
    3. The new Provider must:
    a. Perform necessary data conversions and make the electronic 
warehouse receipts and electronic USWA documents records available on 
their system and open access to all holders and authorized users not 
later than 7:00 a.m., the day after the transfer date.
    b. Notify the warehouse operator that the conversion is complete.
    c. Notify FSA/KCCO/LB that the conversion is complete.
    4. FSA/KCCO/LB will:
    a. Contact the current Provider and new Provider to determine if 
the requested transfer date is acceptable. If the requested transfer 
date is not

[[Page 46339]]

acceptable to both Providers, negotiate an acceptable transfer date 
with both Providers and the warehouse operator.
    b. Determine the notification date (at least 30 days prior to the 
transfer date).
    5. FSA/KCCO/LB may accept a transfer date that is less than 60 days 
from the date of notification of change, if agreed to by FSA/KCCO/LB, 
both Providers and the warehouse operator. The 60 day requirement is to 
allow for proper notification to all holders of the electronic 
warehouse receipts and electronic USWA documents.
    B. A Provider may transfer electronic warehouse receipts and 
electronic USWA documents from its CFS to the CFS of another FSA 
approved Provider when the Provider has received written permission 
from FSA and has notified all users of the electronic warehouse 
receipts and electronic USWA documents being transferred, at least 30 
days prior to the transfer.

X. System Requirements

    A. Transmission procedures for FSA used by the Provider shall be 
approved by FSA.
    B. FSA may deny or withdraw approval of this Agreement if it 
determines that the prospective Provider's software or hardware are not 
capable of fulfilling the requirements of this Agreement.
    C. Upon request by FSA all transmissions of data shall be secured 
and transmitted via telecommunications hardware and software according 
to the requirements described in the applicable Addendum for the 
electronic warehouse receipts and electronic USWA documents the 
Provider is authorized to maintain in the CFS.

XI. Record Data Requirements

    The Provider shall adhere to the requirements as described in the 
applicable Addendum for the electronic warehouse receipts and 
electronic USWA documents that they are authorized to maintain in the 
CFS.

XII. Suspension or Termination

    A. FSA may immediately suspend or terminate this Agreement for 
cause at any time if FSA determines the Provider is in default.
    B. Once suspended and before the Provider is reinstated, FSA may 
conduct an on-site examination and may assess a reinstatement fee. The 
reinstatement fee shall equal the annual fee provided for in Addendum 
No. 1. This reinstatement fee may be waived if it is determined that 
the Provider was not in default of the terms of this Agreement.
    C. Once this Agreement is terminated, all related electronic files 
and paper records shall be immediately surrendered to FSA.

XIII. Effective Date, Renewal, Amendments, and Correspondence

    A. This Agreement shall become effective upon the date signed by 
FSA.
    B. Unless terminated, this Agreement shall automatically renew for 
a period of one year, effective April 30, if the provisions of this 
Agreement, the applicable provisions of 7 CFR Part 735 and the 
applicable provisions of the USWA are complied with. The Agreement will 
automatically renew each April 30 thereafter under the same terms and 
conditions, unless amended.
    C. The Provider shall designate a contact person or alternate 
person as the person to be contacted by FSA regarding this Agreement. 
Notice required by this Agreement delivered to the address of the 
contact person or the person's alternate shall be notice to the 
Provider hereunder.
    D. FSA may amend this Agreement for any reason. If the Agreement is 
so amended, the Provider may refuse to accept such amendment and 
terminate this Agreement in accordance with paragraph E of this 
section. During the 60 day notice period the Provider will continue to 
operate under the terms of the Agreement in effect prior to the 
amendment.
    E. Either FSA or the Provider may terminate this Agreement without 
cause, provided the terminating party gives the other party written 
notice at least 60 days in advance.
    F. Unless otherwise notified, the Provider shall direct all 
contacts in connection with this Agreement to the FSA contact person: 
Chief, Licensing Branch, Warehouse Licensing and Examination Division, 
Kansas City Commodity Office, P.O. Box 419205; Kansas City, Missouri; 
64141-6205, Phone: 816-926-6474; Fax: 816-926-1774.
Provider:-------------------------------------------------------------
Signature:------------------------------------------------------------
Title:----------------------------------------------------------------
Date:-----------------------------------------------------------------
Director, Kansas City Commodity Office, FSA:--------------------------
Date:-----------------------------------------------------------------

Addendum No. 1: Fees

    Schedule of fees charged Electronic Warehouse Receipt Providers for 
services rendered.

United States Warehouse Act--Provider Schedule of Fees

    The fees shown below shall remain effective from:
    May 1,____ through April 30,____.
    Application Fee: $9,000.00.
    Annual Renewal Fee: $9,000.00.

Exhibit D--Draft

Farm Service Agency

Addendum to the Provider Agreement to Electronically File and 
Maintain Cotton Warehouse Receipts

[WA-141-1; 0560-120]

    This Addendum between__________(hereafter ``Provider'') and the 
Farm Service Agency (hereafter ``FSA'') authorizes the Provider to 
establish and maintain a database and system for the purpose of 
electronically filing cotton electronic warehouse receipts issued under 
the United States Warehouse Act (hereafter ``USWA'') in a central data 
filing system (hereafter ``central filing system'' or ``CFS'') and 
permits the Provider to accept the filing of electronic warehouse 
receipts from other than USWA licensed warehouse operators in such 
electronic data filing system. Such electronically filed warehouse 
receipts for cotton are hereafter referred to herein as ``electronic 
warehouse receipts (EWRs).''
    This Addendum sets forth the Provider's minimum requirements for 
EWR record formatting, reporting requirements and the protocols to be 
used in the transmission of such information.

I. Receipt Record Data Requirements

    FSA, in administration of the USWA, the regulations found at 7 CFR 
Part 735, the Provider Agreement To Electronically File And Maintain 
Electronic Warehouse Receipts, and this Addendum, may at any time 
require the Provider to furnish information beyond the minimum 
requirements shown in this Addendum.
A. Required Information
    The Provider shall, at a minimum make the elements listed below 
available to every USWA and non-USWA licensed warehouse operator 
issuing EWRs in the CFS. The Provider shall ensure that all of these 
fields are completed by all warehouse operators. It is each individual 
warehouse operator's responsibility to supply the necessary data to 
complete each element. This Addendum does not restrict the number of 
fields that may be made available to warehouse operators.

USWA license number, if applicable \1\
---------------------------------------------------------------------------

    \1\ Enter Federal license number, if not licensed, zero fill 
field.
---------------------------------------------------------------------------

Receipt number
Bale Tag number
Issuance date
Receipt status


[[Page 46340]]


The words ``Not Negotiable'', or ``Negotiable'' according to the nature 
of the receipt
Cancellation date
Name of warehouse
Location of warehouse (City)
Location of warehouse (State)
Warehouse operator
Location receipt issued (City)
Location receipt issued (State)
Received from
Lot identification tag (multiple bale receipts)
Cotton graded statement
State--``Not graded at request of the depositor'' or--Color grade = 
``C-25'' (4 character), fiber length = ``F-45'' (4 character), 
micronaire = ``M-3.5'' (5 character), strength = ``S-38.1'' (6 
character), leaf grade = ``L-4'' (3 character), and extraneous matter = 
``E-47'' (4 character).
Net weight
Number of bales (multiple bale receipts)
Terms and conditions (These terms and conditions that apply to each EWR 
must be furnished by the individual warehouse operators issuing the 
EWRs. Refer to Exhibit I, for USWA licensed warehouse operators)
Name of person authorized to sign warehouse receipt.
B. Additional Information
    The Provider shall, at a minimum make the elements listed below 
available to every USWA and non-USWA licensed warehouse operator 
issuing EWRs in the CFS. The Provider shall ensure that all of these 
fields are completed by all warehouse operators. It is each individual 
warehouse operator's responsibility to supply the necessary data to 
complete each element. This addendum does not restrict the number of 
fields that may be made available to warehouse operators. FSA may allow 
a user of the Provider's system to modify the elements listed below 
without being the holder of the EWR. The Provider shall notify the 
current holder of the EWR of any changes.

Holder
Warehouse Code
Receipt Type (single bale or multiple bale)
Paper receipt number (if applicable)
Compression status
Compression Paid or Unpaid
Receiving Charges Paid or Due \2\
---------------------------------------------------------------------------

    \2\ These fields may be modified by the warehouse operator 
without being the holder.
---------------------------------------------------------------------------

Rail or Truck
Gin Code \3\
---------------------------------------------------------------------------

    \3\ Note: In case of reconcentrated cotton the gin code and gin 
tag can be the previous storing warehouse code and receipt number.
---------------------------------------------------------------------------

Gin Tag \3\
License Type, US if Federally Licensed, NL if not licensed or the two 
letter Postal abbreviation if State Licensed, will precede or follow 
the warehouse receipt number
Commodity Credit Corporation (CCC) Agreement (Y or N)
Location of bale \2\
Gross and Tare weight
C. Converting Electronic to Paper
    When converting from an electronic to a paper warehouse receipt, 
the Provider shall advise the warehouse operator to print on the face 
of the paper warehouse receipt the EWR number.

II. Transmission of Data

    Upon request by FSA all transmissions of data shall be secured and 
transmitted via telecommunications hardware and software according to 
the requirements described in Attachment I Provider Specifications for 
interfacing with Warehouse Examiners' Communications Software (WECS) 
for cotton.
Provider:-------------------------------------------------------------
Signature:------------------------------------------------------------
Title:----------------------------------------------------------------
Date:-----------------------------------------------------------------
Director, Kansas City Commodity Office, FSA:--------------------------
Date:-----------------------------------------------------------------

Exhibit D-1

Terms and Conditions For USWA Licensed Warehouse Operators

    The following information must be recorded on all EWR's.
    The statements:

Incorporated or Unincorporated and if incorporated, under what laws.
Insured or Not Insured and if insured, to what extent, by the warehouse 
operator against loss by fire, lighting and other risks.
Weight was determined by a weigher licensed under the USWA or not 
weighed at the request of the depositor.
In the event the relationship existing between the warehouse operator 
and any depositor is not that of strictly disinterested custodianship, 
a statement setting forth the actual relationship.

Exhibit E--Draft

Farm Service Agency

Addendum to the Provider Agreement to Electronically File and 
Maintain Grain Warehouse Receipts

[WA-141-2; 0560-0120]

    This Addendum between __________ (hereafter ``Provider'') and the 
Farm Service Agency (hereafter ``FSA'') authorizes the Provider to 
establish and maintain a database and system for the purpose of 
electronically filing grain warehouse receipts issued under the United 
States Warehouse Act (hereafter ``USWA'') in a central data filing 
system (hereafter ``central filing system'' or ``CFS'') and permits the 
Provider to accept the filing of electronic warehouse receipts from 
other than USWA licensed warehouse operators in such electronic data 
filing system. Such electronically filed warehouse receipts for grain 
are hereafter referred to herein as ``electronic warehouse 
receipts(EWRs).''
    Grain is defined as all products commonly classed as grain such as 
wheat, corn, oats, barley, rye, flaxseed, rough, brown, and milled 
rice, sunflower seeds, field peas, soybeans, emmer, sorghum, safflower 
seed, triticale, millet and such other products as are ordinarily 
stored in grain warehouses, subject to the disapproval of the FSA.
    This Addendum sets forth the Provider's minimum requirements for 
EWR record formatting, reporting requirements and the protocols to be 
used in the transmission of such information.

I. Receipt Record Data Requirements

    FSA, in administration of the USWA, the regulations found at 7 CFR 
Part 735, the Provider Agreement To Electronically File and Maintain 
Warehouse Receipts and this Addendum, may at any time require the 
Provider to furnish information beyond the minimum requirements shown 
in this Addendum.
A. Required Information
    The Provider shall, at a minimum, make the elements listed below 
available to every USWA and non-USWA licensed warehouse operator 
issuing EWRs in the CFS. The Provider shall ensure that all of these 
fields are completed by all warehouse operators. It is each individual 
warehouse operator's responsibility to supply the necessary data to 
complete each element. This Addendum does not restrict the number of 
fields that may be made available to warehouse operators.

USWA license number, if applicable \1\
---------------------------------------------------------------------------

    \1\ Enter Federal license number, if not licensed, zero fill 
field.
---------------------------------------------------------------------------

Receipt number
Issuance date
Receipt status

The words ``Not Negotiable'' or ``Negotiable'' according to the nature 
of the receipt
Cancellation date
Name of warehouse
Location of warehouse (City)

[[Page 46341]]

Location of warehouse (State)
Warehouse operator
Location receipt issued (City)
Location receipt issued (State)
Received from
Net weight
Dockage (if any)
Grade
Commodity
Name of person authorized to sign warehouse receipt
Terms and conditions (These terms and conditions that apply to each EWR 
must be furnished by the individual warehouse operators issuing the 
EWRs. Refer to Exhibit I for USWA licensed warehouse operators).
B. Additional Information
    The Provider shall, at a minimum, make the elements listed below 
available to every USWA and non-USWA licensed warehouse operator 
issuing EWRs in the CFS. The Provider shall ensure that all of these 
fields are completed by all warehouse operators. It is each individual 
warehouse operator's responsibility to supply the necessary data to 
complete each element. This Addendum does not restrict the number of 
fields that may be made available to warehouse operators. FSA may allow 
a user of the Provider's system to modify the elements listed below 
without being the holder of the EWR. The Provider shall notify the 
current holder of the EWR of any changes.

Holder
Warehouse Code
Paper receipt number (if applicable)
License Type, US if Federally Licensed, NL if not licensed or the two 
letter Postal abbreviation if State Licensed, will precede or follow 
the warehouse receipt number
Date to which storage has been paid or storage start date \2\
---------------------------------------------------------------------------

    \2\ This field may be modified by the warehouse operator without 
being the holder.
---------------------------------------------------------------------------

Received by Truck, Rail or Barge
Amount per unit of measure of prepaid in or out charges
Commodity Credit Corporation (CCC) Agreement (Y or N)
C. Converting Electronic To Paper
    When converting from an electronic to a paper warehouse receipt, 
the Provider shall advise the warehouse operator to print on the face 
of the paper warehouse receipt the EWR number.

II. Transmission of Data

    Upon request by FSA, all transmissions of data shall be secured and 
transmitted via telecommunications hardware and software according to 
the requirements described in Attachment I Provider Specifications for 
interfacing with Warehouse Examiners' Communications Software (WECS) 
for grain.
Provider:-------------------------------------------------------------
Signature:------------------------------------------------------------
Title:----------------------------------------------------------------
Date:-----------------------------------------------------------------
Director, Kansas City Commodity Office, FSA:--------------------------
Date:-----------------------------------------------------------------

Exhibit E-1

Terms and Conditions For USWA Licensed Warehouse Operators

    The following information must be recorded on all EWR's.
    The statements:

Incorporated or Unincorporated and if incorporated, under what laws.
Insured or Not Insured and if insured, to what extent, by the warehouse 
operator against loss by fire, lighting and other risks.
Weight was determined by a weigher licensed under the USWA or not 
weighed at the request of the depositor.
In the event the relationship existing between the warehouseman and any 
depositor is not that of strictly disinterested custodianship, a 
statement setting forth the actual relationship.

Exhibit E-2 Draft

Farm Service Agency

Addendum to the Provider Agreement to Electronically File and 
Maintain United States Warehouse Act Grain Inspection and/or Weight 
Certificates

[WA-141-3; 0560-0120]

    This Addendum between __________ (hereafter ``Provider'') and the 
Farm Service Agency (hereafter ``FSA'') authorizes the Provider to 
establish and maintain a database and system for the purpose of 
electronically filing inspection and weight certificates issued under 
the United States Warehouse Act (hereafter ``USWA'') in a central data 
filing system (hereafter ``central filing system'' or ``CFS''). Such 
electronically filed certificates are hereafter referred to herein as 
``electronic inspection and/or weight certificates (EIWCs).''
    This Addendum sets forth the Provider's minimum requirements for 
EIWC record formatting, reporting requirements, and the protocols to be 
used in the transmission of such information.

I. Document Record Data Requirements

    FSA, in administration of the USWA, the regulations found at 7 CFR 
part 735, the Provider Agreement To Electronically File And Maintain 
United States Department of Agriculture Documents and this Addendum, 
may at any time require the Provider to furnish information beyond the 
minimum requirements shown in this Addendum.
A. Required Information
    The Provider shall, at a minimum make the elements listed below 
available to every USWA warehouse operator issuing EIWCs in the CFS. 
The Provider shall ensure that all of these fields are completed by all 
warehouse operator's. It is each individual warehouse operator's 
responsibility to supply the necessary data to complete each element. 
This Addendum does not restrict the number of fields that may be made 
available to warehouse operators.

License number
Certificate number

Issuance date
Name of warehouse
Location of warehouse (City)
Location of warehouse (State)
Type of certificate (Inspection, Weight or Both)
In or Out of warehouse certificate
Kind of grain
Grade
Net weight, including dockage, (Weight or combination certificate)
Approximate quantity of commodity (if not a weight or combination 
certificate)
Name of person authorized to sign certificate
Terms and conditions (These terms and conditions that apply to each 
EIWC must be furnished by the individual warehouse operator issuing the 
EIWCs. Refer to Exhibit I for required statements).
B. Additional Information
    The Provider shall, at a minimum make the elements listed below 
available to every USWA warehouse operator issuing EIWCs in the CFS. 
The Provider shall ensure that all of these fields are completed by all 
warehouse operator's. It is each individual warehouse operator's 
responsibility to supply the necessary data to complete each element. 
This Addendum does not restrict the number of fields that may be made 
available to warehouse operators. FSA may allow a user of the Providers 
system to modify the elements listed below without being the holder of 
the certificate. The Provider shall notify the current holder of the 
certificate of any changes.

Holder
Warehouse Code
Paper certificate number (if applicable)
License Type, U.S. if Federally Licensed, NL if not licensed or the

[[Page 46342]]

two letter Postal abbreviation if State Licensed, will precede or 
follow the certificate number.
C. Converting Electronic to Paper
    When converting from an electronic to a paper certificate, the 
Provider shall advise the warehouse operator to print on the face of 
the paper certificate the EIWC number.

II. Transmission of Data

    Upon request by FSA, all transmissions of data shall be secured and 
transmitted via telecommunications hardware and software according to 
the requirements described in Attachment I Provider Specifications for 
interfacing with Warehouse Examiners' Communications Software (WECS) 
for inspection and/or weight certificates.

Provider:-------------------------------------------------------------
Signature:------------------------------------------------------------
Title:----------------------------------------------------------------
Date:-----------------------------------------------------------------
Director, Kansas City Commodity Office, FSA:--------------------------
Date:-----------------------------------------------------------------

Exhibit E-3

Exhibit I

Terms and Conditions for USWA Licensed Warehouse Operators

    The following information must be shown on all EIWCs.
    The statements:

``United States Warehouse Act, Grain Inspection and/or Weight 
Certificate''
``Certificate issued by an inspector/weigher licensed under the United 
States Warehouse Act''
``Not valid for the purpose of the United States Grain Standards Act''

Exhibit F--Draft

Farm Service Agency

Provider Agreement To Electronically File And Maintain Other 
Electronic Documents

[WA-142; 0560-0120]

    This Provider Agreement (Agreement) between__________(Provider) and 
the Farm Service Agency (FSA) authorizes the Provider to establish and 
maintain a database and system for the purpose of electronically 
utilizing documents related to the shipment, payment, and financing of 
the sale of agricultural products in a central filing system (central 
filing system or CFS) as authorized by the United States Warehouse Act 
(USWA). This Agreement will become effective upon execution by FSA and 
shall remain in effect until terminated as provided for in section III 
of the Agreement.
    For the purposes of this Agreement:
    Electronic documents are documents which are generated, sent, 
received, or stored by electronic, optical, or similar means, including 
electronic data exchange, electronic mail, telegram, telex or telecopy. 
Such documents include but are not limited to: sales contracts; bills 
of lading; insurance certificates; grading and classing documents; and 
letters of credit. Once a negotiable electronic document is issued 
under this Agreement, no duplicate document in any other form may be 
transferred by any person with respect to the same agricultural product 
(or any portion of the same agricultural product).
    If a non-negotiable document in a non-electronic format is 
presented to the Provider for transmission in their CFS, the Provider 
may generate an electronic version of such document but must maintain 
custody of the original non-negotiable document except as is authorized 
by FSA.
    Agricultural products are those commodities and products of such 
commodities listed in Appendix I. Items that consist of an agricultural 
product and a non-agricultural product will be considered to be an 
agricultural product if the non-agricultural component is less than 50 
percent of the weight or volume of the item (excluding added water)

I. Terms and Conditions

    A. The regulations at 7 CFR Part 735 are incorporated by reference 
including any amendments to such regulations which are made after 
execution of the Agreement.
    B. The CFS shall be designed in a manner that allows parties to 
transfer and, if necessary to complete a transaction, generate a 
document for use by another party with respect to the shipment, payment 
or financing of a sale with respect to an agricultural commodity.
    C. The Provider will operate a CFS in a manner that does not favor 
the interests of any party over those of another party or which creates 
the appearance of operation in a manner that is biased in favor of any 
other party. The Provider will make the CFS operative and accessible to 
users and FSA for a period of not less than 18 hours per day Monday 
through Friday and not less than 12 hours per day on Saturday and 
Sunday. The Provider will offer a continuous period of access to the 
CFS during the hours of 7:00 AM to 6:00 PM for the local time zone 
where the CFS is located. Routine maintenance shall be performed 
without disruption of services. If, for extraordinary maintenance or 
for reasons beyond the Provider's control, the Provider cannot furnish 
such access to the CFS the Provider shall furnish notice to FSA as 
follows:
    1. For extraordinary maintenance, advance written notice setting 
forth the reasons and expected duration of the maintenance shall be 
provided 5 calendar days before the beginning of such maintenance; and
    2. If unforeseen circumstances cause the CFS to be inaccessible 
during operating hours for more than a 1 hour period, the Provider will 
immediately notify FSA of the access problems.
    D. The Provider will give FSA unrestricted access, without cost to 
FSA, to: the CFS; all related and backup files; and off-site records. 
Such access includes access to the location where such systems, records 
and data are maintained. The Provider will provide to FSA information 
which FSA has requested in the form, either printed or electronic or 
both, as requested by FSA.
    E. The Provider will pay to FSA fees as set forth in Appendix II by 
the dates specified in such Appendix. These fees may be changed 
annually and any changes will be provided as an amendment to Appendix 
II by April 1st of each year and will become effective May 1st of each 
year.
    F. Any fee charged a user by the Provider must be filed with FSA 
and must be approved by FSA. The Provider will make available at no 
charge a schedule of its fees to potential users. Fees assessed to 
users of the CFS must be levied in a non-discriminatory manner. The 
Provider may deny a user access to the CFS if the user has not made 
payment to the Provider for fees which are more than 60 days overdue.
    G. The Provider will maintain a financial net worth of at least $10 
million and will maintain financial records for review by FSA for the 
purposes of verifying net worth of the Provider.
    H. The Provider will furnish insurance coverage payable to users of 
the CFS as provided in 7 CFR Part 735. Deductible provisions for each 
policy may not exceed $10,000. Each policy must provide that coverage 
under the policy remains in effect until 30 days after written 
notification is made by FSA to the insurer that the Provider is 
terminating the policy.
    I. The Provider will be strictly liable for costs incurred by FSA 
as a result of action taken by FSA in the event of a failure of the CFS 
or in the event of lost, damaged, or improperly destroyed electronic 
documents.
    J. The Provider will maintain a log of all activity undertaken in 
the CFS that is capable of producing an audit trail of transactions. 
The log and accompanying

[[Page 46343]]

set of records must be sufficient to allow for a reconstruction of the 
files, activities, and events pertaining to each electronic document 
that is: issued; canceled; converted to paper; converted from paper; 
transferred; or changed in anyway. The log and records maintained for 
this reconstruction shall be kept in secure storage for a period of 6 
years after the electronic document was issued. The log must contain: a 
``before'' and ``after'' field; the date of change; the time of the 
change; the identity of the user making the change; and details of 
attempts to make unauthorized changes or access to electronic document 
data. Daily, the Provider will create two complete sets of disaster 
recovery records. These records shall be kept in a fireproof chamber 
and retained until a new set of disaster recovery records are created 
and stored. One set of the disaster recovery records shall be kept off-
site. The Provider will notify FSA immediately if any data related to 
an electronic document has been lost due to a CFS malfunction and will 
furnish a written explanation of the events which occurred and any 
other documentation as requested by FSA.
    K. The Provider shall ensure on-site security of the computer 
hardware, software, and data. Security shall be designed to prevent the 
destruction of facilities and data and the unauthorized distribution of 
electronic document information. Unless authorized by FSA, the data may 
only be given to a party who has the right to access it. The Provider 
will maintain a comprehensive disaster recovery procedure approved by 
FSA of all computerized and non-computerized functions and data. At a 
location that is not related to the CFS, the Provider will perform a 
comprehensive test of the disaster recovery plan twice a year and 
report the results of those tests to FSA. After reviewing the results 
of such a test, FSA may require alternative or additional security 
requirements if FSA determines that the security procedures of the 
Provider are insufficient to protect users of the system.
    L. The Provider will furnish reports as requested by FSA to ensure 
compliance with this Agreement and the USWA.
    M. Each Provider shall maintain complete, accurate, and current 
financial records. The Provider must submit to FSA an annual audit 
level financial statement. This audit shall encompass the Provider's 
fiscal year and shall be submitted to FSA no later than four calendar 
months following the end of the Provider's fiscal year.
    N. The Provider must submit to FSA an electronic data processing 
audit that encompasses the Provider's fiscal year and must be submitted 
to the FSA no later than four calendar months following the end of the 
Provider's fiscal year. The audit must evidence current computer 
operations, security, disaster recovery capabilities of the system, and 
other related systems.

II. System Requirements

    A. Before the Provider allows a user access to its CFS, FSA must 
have approved a written submission received from the Provider that sets 
forth in detail the manner in which the CFS will operate. The CFS must 
be operated in a manner that allows inter-action with FSA data bases 
and the CFS of another entity approved by FSA as a provider under 7 CFR 
Part 735.
    B. Upon request by FSA, all transmissions of data shall be secured 
and transmitted by using hardware and software approved by FSA.

III. Suspension or Termination

    A. The Provider or FSA may terminate this Agreement by providing 
the other party written notification 60 days prior to the effective 
date of the termination. During this 60 day period, prior to allowing a 
user to use the CFS, the Provider will notify the user of the date this 
Agreement will terminate.
    B. FSA may immediately suspend or terminate this Agreement for 
cause at any time if FSA determines the Provider has failed to comply 
with any provision of the USWA, the regulations at 7 CFR Part 735 or 
this Agreement. If this Agreement is suspended, FSA will provide the 
Provider a written statement of the basis of the suspension. Upon 
completion of the action necessary to conform to the provisions of the 
USWA, the regulations at 7 CFR Part 735 or this Agreement, the Provider 
may request reinstatement of the Agreement. As a condition of 
reinstatement, FSA may conduct an on-site examination and may assess a 
reinstatement fee. The reinstatement fee shall not exceed the annual 
fee provided for in Appendix II and may be waived if it is determined 
that the Provider was not in material violation of such provisions.
    C. Once this Agreement is terminated, all related electronic files 
and paper records shall be immediately surrendered to FSA.
    D. If the Agreement is to be terminated by the Provider, FSA will 
perform a final audit of the CFS or advise the Provider in writing that 
such an audit is waived.

IV. Amendment to this Agreement

    FSA may amend this Agreement for any reason. If the Agreement is to 
be amended, the Provider may refuse to accept such amendment and 
terminate this Agreement in accordance with section III.

V. Contact Persons

    A. The Provider shall designate a contact person or alternate 
person as the person to be contacted by FSA regarding performance of 
this Agreement. Notice required by this Agreement delivered to the 
address of the contact person or the person's alternate shall be notice 
to the Provider.
    B. Unless specified in writing by FSA, the Provider shall direct 
all inquiries regarding performance of this Agreement to: Chief, 
Licensing Branch, Warehouse Licensing and Examination Division, Kansas 
City Commodity Office, P.O. Box 419205, Kansas City, MO 64141-6205; 
Phone: 816-926-6474; Fax: 816-926-1774.

Provider:-------------------------------------------------------------
 Signature:-----------------------------------------------------------
 Title:---------------------------------------------------------------
 Date:----------------------------------------------------------------
 On behalf of FSA:----------------------------------------------------
 Date:----------------------------------------------------------------

Appendix I

    Agricultural Products covered under this agreement include but are 
not limited to:

Beans, Berry's, Coffee, Cotton, Dairy Products, Fish/Shellfish, 
Flowers, Fruits, Grain, Grass, Greens, Gourds, Herbs, Hides/Skins, 
Horticulture, Livestock, Meat, Melons, Nuts, Oilseeds, Poultry, 
Sweeteners, Vegetables, Wool, Wood Products.

Addendum No. 1: Fees

    Schedule of fees charged Providers of Other Electronic Documents 
for services rendered.

United States Warehouse Act--Provider Schedule of Fees

    The fees shown below shall remain effective from:
    May 1,____through April 30,____.
    Application Fee: $9,000.00.
    Annual Renewal Fee: $9,000.00.

[FR Doc. 01-21852 Filed 8-31-01; 8:45 am]
BILLING CODE 3410-05-P