[Federal Register Volume 68, Number 224 (Thursday, November 20, 2003)]
[Proposed Rules]
[Pages 65412-65415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-28989]


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

  Federal Register / Vol. 68, No. 224 / Thursday, November 20, 2003 / 
Proposed Rules  

[[Page 65412]]



DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation

7 CFR Part 1423

RIN 0560-AE50


Standards for Approval of Warehouses for CCC Interest Commodity 
Storage

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Proposed rule.

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SUMMARY: This proposed rule is offered to revise regulations covering 
the storage of commodities in which the Commodity Credit Corporation 
(CCC) has an interest. For the most part, those commodities are 
acquired in connection with non-recourse commodity loan programs that 
benefit farmers. This rule will consolidate the regulations for all 
commodities stored by CCC into one set of regulations. In addition, 
this rule would, in some instances, revise the substantive provisions 
that are in effect under the existing regulations.

DATES: Comments on this rule, in order to be assured of consideration, 
must be received by January 20, 2004.

ADDRESSES: Comments and request for additional information should be 
directed to Howard Froehlich, Chief, Program Development Branch, 
Warehouse and Inventory Division, Farm Service Agency, United States 
Department of Agriculture, 1400 Independence Avenue, SW., STOP 0553, 
Washington, DC 20250-0553, telephone (202) 720-7398, FAX (202) 690-
3123, e-mail [email protected]. Persons with 
disabilities who require alternative means for communication for 
regulatory information (braille, large print, audiotape, etc.) should 
contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be not significant under Executive 
Order 12866 and has not, therefore, been reviewed by the Office of 
Management and Budget (OMB).

Federal Assistance Programs

    The title and number of the Federal assistance programs, as found 
in the Catalog of Federal Domestic Assistance, to which this proposed 
rule applies are: Commodity Loans and Loan Deficiency Payments, 10.051.

Regulatory Flexibility Act

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

Environmental Assessment

    The environmental impacts of this proposed rule have been 
considered in accordance with the provisions of the national 
Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et seq., the 
regulations of the Council on Environmental Quality (40 CFR parts 1500-
1508), and FSA's regulations for compliance with NEPA, 7 CFR part 799. 
To the extent these authorities may apply, CCC has concluded that this 
rule is categorically excluded from further environmental review as 
evidenced by the completion of an environmental evaluation. No 
extraordinary circumstances or other unforeseeable factors exist which 
would require preparation of an environmental assessment or 
environmental impact statement. A copy of the environmental evaluation 
is available for inspection and review upon request.

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, Civil Justice Reform. In accordance with this Executive Order: 
(1) All State and local laws and regulations that are in conflict with 
this rule will be preempted; (2) except as specifically stated in this 
rule, no retroactive effect will be given to this rule; and (3) 
administrative proceedings in accordance with 7 CFR part 780 must be 
exhausted before seeking judicial review.

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

    Title II of the Unfunded Mandates Reform Act of 1995 does not apply 
to this rule because CCC is not required by 5 U.S.C. 553 or any other 
law to publish a notice of proposed rulemaking for the subject matter 
of this rule.

Government Paperwork Elimination Act

    CCC is committed to compliance with the Government Paperwork 
Elimination Act (GPEA) and the Freedom to E-File Act, which require 
Government agencies in general and CCC in particular to provide the 
public the option of submitting information or transacting business 
electronically to the maximum extent possible. The forms and other 
information collection activities required for the warehousing matters 
covered by this rule are not yet fully implemented for the public to 
conduct business with CCC electronically. Documents needed in this 
regard may be obtained by mail or FAX. Electronic implementation of the 
matters covered by this rule is under consideration.

Background

    Under Title I of the Farm Security and Rural Investment Act of 
2002, the Commodity Credit Corporation (CCC) makes marketing assistance 
loans to farmers that can lead to forfeiture of the commodities to CCC. 
Also, CCC can acquire commodities under other circumstances. Section 
4(h) of the CCC Charter Act (7 U.S.C. 714b(h)) precludes CCC from 
acquiring real property for storage facilities for agricultural 
commodities unless CCC determines that private facilities for the 
storage of such commodities are inadequate. Further, section 5 of the 
CCC Charter Act (7 U.S.C. 714c) requires that in purchasing, selling, 
warehousing, transporting, or handling agricultural commodities, CCC 
shall use, to the maximum extent practicable, the usual and customary 
channels, facilities, and arrangements of trade and commerce.
    CCC enters into storage agreements with private warehouse operators 
to provide for the storage of various commodities it acquires. CCC has

[[Page 65413]]

regulations covering such storage at 7 CFR 1421.5551-1421.5559, part 
1423, and 1427, subpart E. More specifically, those rules establish the 
standards a warehouse operator must meet to be approved to store CCC-
interest commodities. This rule proposes to:
    1. Consolidate the approval regulations at one location in the Code 
of Federal Regulations.
    2. Revise the fire fighting equipment requirements in the approval 
regulations to specify that warehouses must meet local standards;
    3. Reduce the financial information submission requirements for a 
warehouse seeking approval and delete the option of submitting a 
financial statement compilation report prepared by a management firm. 
All participating warehouses will now be required to submit an 
accountant's audit or review report. This will allow for standard 
filings and greater confidence in the independence of the analysis.
    4. Reduce the number of alternatives and forms of financial 
assurance allowed to document the warehouse operator's compliance with 
minimum net worth requirements. This rule proposes to delete the option 
of a legal liability insurance policy as an alternative for calculated 
net worth deficiencies and requires net worth deficiencies be met with 
bonds, cash, negotiable securities, an irrevocable letter of credit, or 
other alternative instruments. Legal liability policies are rarely used 
and including that option in the regulations is an unnecessary 
complication and distraction.
    5. Allow submission of irrevocable letters of credit from financial 
institutions subject to the Farm Credit Act of 1971. This change is in 
response to requests from warehouse operators that receive their 
financing through the Farm Credit Administration rather than through 
commercial banks insured by the Federal Deposit Insurance Corporation. 
This will allow greater flexibility, and conform regulations with 
industry practice, without compromising CCC's interests.
    6. Make technical and clarifying changes in the wording and 
structure of the regulation and other substantive changes to specify 
fees applicable to examination of approved warehouses.

List of Subjects in 7 CFR Part 1423

    Agricultural commodities, Approval of warehouses, Dairy products, 
Feed grains, Oilseeds, Price support programs, Processed commodities, 
Surplus agricultural commodities.

    For the reasons set forth in the preamble, 7 CFR part 1423 is 
revised to read as follows:

PART 1423--STANDARDS FOR APPROVAL OF WAREHOUSES FOR CCC INTEREST 
COMMODITY STORAGE

Sec.
1423.1 Applicability.
1423.2 Administration.
1423.3 Definitions.
1423.4 General requirements.
1423.5 Application requirements.
1423.6 Financial information documentation requirements.
1423.7 Net worth alternatives.
1423.8 Approval or rejection.
1423.9 Examination of warehouses.
1423.10 Exceptions for United States Warehouse Act licensed 
warehouses.
1423.11 Exemption from standards.
1423.12 Application, inspection, and annual agreement fees.
1423.13 Appeals, suspensions, and debarment.

    Authority: 15 U.S.C. 714b and 714c.


Sec.  1423.1  Applicability.

    (a) This part sets forth the terms and conditions for approval of a 
warehouse operator by the Commodity Credit Corporation (CCC) to store 
and handle CCC interest commodities.
    (b) A warehouse must be approved by CCC and a storage agreement 
must be in effect between CCC and the warehouse operator before CCC 
will consider storing or store CCC interest commodities in this 
warehouse. The approval of a warehouse by CCC or the completion of a 
storage agreement on behalf of CCC does not constitute a commitment 
that CCC will use the warehouse, and no official or employee of the 
U.S. Department of Agriculture is authorized to make such a commitment.
    (c) By entering into a storage agreement with CCC, the warehouse 
operator agrees to perform and comply with the terms and conditions 
prescribed in the storage agreement.
    (d) Warehouse operators who are under agreement with CCC shall meet 
the terms and conditions of these regulations.


Sec.  1423.2  Administration.

    (a) On behalf of CCC, the Farm Service Agency (FSA) will administer 
this part under the supervision of the Deputy Administrator, Commodity 
Operations (Deputy Administrator), FSA.
    (b) The Deputy Administrator or a designee may authorize a waiver 
or modification of deadlines and other program requirements in cases 
where lateness or failure to meet requirements does not adversely 
affect the operation of the program, and may set such additional 
requirements as will facilitate the operation of the program.


Sec.  1423.3  Definitions.

    Agreement means agreements covering storage and handling of any 
such commodity the Secretary of Agriculture may determine appropriate 
for storage.
    CCC interest commodities means commodities either pledged as 
collateral for a CCC commodity loan or owned by CCC.
    KCCO means the FSA, Kansas City Commodity Office.
    Warehouse means a building, structure, or other protected 
enclosure, in good state of repair, and adequately equipped to receive, 
handle, store, preserve, and deliver the applicable commodity.
    Warehouse operator means an individual, partnership, corporation, 
association, or other legal entity engaged in the business of storing 
or handling for hire, or both, the applicable commodity.


Sec.  1423.4  General requirements.

    (a) Unless otherwise provided in this part, approved warehouse 
operators shall have:
    (1) A current and valid license for the kind of storage operation 
for which the warehouse operator seeks approval if such a license is 
required by State or local laws or regulations;
    (2) A minimum and required net worth in such amount as is specified 
by CCC or as otherwise meets the requirements of Sec.  1423.7;
    (3) Sufficient funds to meet ordinary operating expenses;
    (4) Corrected any deficiencies in the performance of any previous 
storage agreement with CCC; and
    (5) Accurate and complete inventory and operating records.
    (b) Approved warehouses may only use pre-numbered warehouse 
receipts meeting the information requirements in the applicable 
commodity's CCC loan program regulations and requirements and may only 
use pre-numbered scale tickets, if applicable; or other documents as 
CCC may prescribe.
    (c) In addition, the warehouse must have:
    (1) Adequate and operable fire fighting equipment as required by 
the state and local fire authorities for the type of warehouse and 
stored commodity;
    (2) A work force and equipment available to provide adequate 
storage and handling services as specified in the applicable agreement 
or as otherwise determined by CCC;
    (3) Necessary experience, organization, technical qualifications, 
and skills in the warehousing business regarding the applicable 
commodities to provide proper storage and handling

[[Page 65414]]

services. This includes officials and supervisory employees of the 
warehouse operator in charge of warehouse operations;
    (4) A satisfactory record of integrity, judgment, and performance 
as determined by CCC; provided further that owners, officials, and 
supervisory employees of the warehouse operator in charge of warehouse 
operations must also have such a satisfactory record; and
    (5) No record, either itself or among its owners, officials, and 
supervisory employees, of suspension or debarment under applicable 
Federal suspension and debarment regulations.
    (d) Unless otherwise provided in this part, each approved warehouse 
used to store or handle CCC interest commodities, shall:
    (1) Be under the control of the warehouse operator at all times;
    (2) If leased, furnish a copy of the written lease agreement to CCC 
with the application. The lease agreement must be renewable and must 
provide that the lease holder cannot cancel the agreement without 
giving at least 120 days notice to the warehouse operator. All leases 
are subject to CCC approval;
    (3) At all times meet the conditions for approval; and
    (4) Not be subject to greater than normal risk of fire, flood, or 
other hazards, as determined by CCC.


Sec.  1423.5  Application requirements.

    (a) Documents required. To apply for approval under this part, a 
warehouse operator shall submit to CCC the following:
    (1) An application as prescribed by CCC for the applicable 
commodity storage agreement;
    (2) Evidence of compliance with Sec.  1423.4;
    (3) Current financial information sufficient to meet the 
requirements of Sec.  1423.6;
    (4) For State licensed or non-licensed warehouse operators, a 
sample copy of the warehouse operator's warehouse receipts or 
electronic warehouse receipt record descriptor when applicable; and
    (5) Such other documents or information as CCC may require.
    (b) Examination required. Before approval, a warehouse must be 
examined by a person designated by CCC to determine whether it meets 
the standards for approval for the storage or handling of commodities 
under this part.


Sec.  1423.6  Financial information documentation requirements.

    (a) To be approved to store CCC-interest commodities, warehouse 
operators shall submit the following to CCC:
    (1) An audit or review report by an independent Certified Public 
Accountant or an independent public accountant. The report must be 
prepared in accordance with standards established by the American 
Institute of Certified Public Accountants according to generally 
accepted auditing principles including the accountant's certifications, 
assurances, opinions, comments, and notes with respect to such audit or 
review report. The report must also include a:
    (i) Balance sheet;
    (ii) Statement of income (profit and loss);
    (iii) Statement of retained earnings; and
    (iv) Statement of cash flows.
    (2) Such other information as CCC may require.
    (b) Financial statements submitted:
    (1) May be submitted on other forms than required in paragraph (a) 
of this section when so approved by CCC;
    (2) Shall show the financial condition of the warehouse operator no 
earlier than ninety (90) days before the date of the warehouse 
operator's application, or such other date as CCC may prescribe, and 
must indicate any material changes that have occurred in the interim; 
and
    (3) Shall be updated and resubmitted annually and at such other 
times as CCC may require; and
    (c) Subject to CCC approval, the financial reporting requirements 
set forth in paragraphs (a) and (b) of this section may be met by one 
of the following:
    (1) Appraisals of the value of fixed assets in excess of the book 
value when prepared by independent appraisers acceptable to and 
approved by CCC.
    (2) A parent company of a wholly-owned subsidiary when the 
warehouse operator's financial position is separately identified on all 
applicable consolidated statements, or
    (3) A guaranty agreement from:
    (i) A parent company submitted on behalf of a wholly-owned 
subsidiary, or
    (ii) An entity with substantial interest in the warehouse operator 
when applicable financial statements are prepared at the audit level.


Sec.  1423.7  Net worth alternatives.

    Warehouse operators with net worth equal to or greater than the 
minimum net worth required, but less than the total net worth for the 
commodity involved in the particular agreement, may satisfy the net 
worth deficiency by furnishing one of the following:
    (a) A bond which:
    (1) Is executed by a surety approved by the U.S. Department of the 
Treasury so long as the surety maintains someone authorized to accept 
service of legal process in the State where the warehouse is located.
    (2) Is executed on either a bond form obtained from CCC, or which 
is furnished under State law or operational rules for non-governmental 
supervisory agencies, if approved by CCC, so long as CCC determines 
that such alternative bond:
    (i) Provides adequate protection to CCC;
    (ii) Has been executed by a surety approved by the U.S. Department 
of the Treasury or has an acceptable blanket rider and endorsement 
executed by such a surety with the liability of the surety under such 
rider or endorsement being the same as that of the surety under the 
original bond; and
    (iii) Is effective for at least 1 year and cannot be canceled 
without a one hundred twenty (120) days notice to CCC. Excess coverage 
on a bond for one warehouse will not be accepted by CCC against 
insufficient bond coverage on other warehouses;
    (b) Cash and negotiable securities. Any such cash or negotiable 
securities accepted by CCC will be returned to the warehouse operator 
when the period for which coverage was required has ended and CCC 
determines there is no liability under the storage agreement;
    (c) An irrevocable letter of credit meeting CCC requirements that 
is effective for at least 1 year and cannot be canceled without a one 
hundred twenty (120) days notice to CCC. The issuing bank must be a 
commercial bank insured by the Federal Deposit Insurance Corporation or 
a financial institution subject to the Farm Credit Act of 1971, Public 
Law 92-181, 85 Stat. 583; or
    (d) Other alternative instruments and forms of financial assurance 
as the Deputy Administrator determines appropriate to secure the 
warehouse operator's compliance with this section.


Sec.  1423.8  Approval or rejection.

    (a) CCC will notify warehouse operators approved under this part in 
writing. Approval does not relieve the warehouse operator of any 
obligation under any agreement to CCC or any other agency of the United 
States, and does not obligate CCC to use the warehouse.
    (b) CCC will notify the warehouse operator of rejection under this 
part in writing. The notification will state the cause(s) for 
rejection. Except for rejections due to the requirements of Sec.  
1423.4(c)(5), CCC may reconsider a warehouse for approval when the 
warehouse operator establishes that the reasons for rejection have been

[[Page 65415]]

remedied or requests reconsideration of the action and presents to the 
Director, KCCO, in writing, information in support of such request. The 
warehouse operator may, if dissatisfied with the Director's 
determination, obtain a review of the determination and an informal 
hearing by submitting a request with the Deputy Administrator. Appeals 
shall be as prescribed in 7 CFR part 780.


Sec.  1423.9  Examination of warehouses.

    Before approval, and while a storage agreement is in effect, a 
warehouse must be examined by a person designated by CCC periodically 
to determine compliance with this part. CCC or any other agency of USDA 
shall, at any time, have the right to inspect the warehouse storage 
facilities and any applicable records. Inspection or examination by CCC 
does not absolve the warehouse operator of any failure to comply with 
this part that CCC does not discover. Failure to allow access to 
facilities as required under this paragraph will result in rejection or 
revocation of approval.


Sec.  1423.10  Exceptions for United States Warehouse Act licensed 
warehouses.

    The financial requirements, net worth alternatives, and examination 
provisions of this part do not apply to any warehouse operator approved 
or applying for approval for the storage and handling of commodities 
under CCC programs if the warehouse is licensed under the U.S. 
Warehouse Act (USWA) for such commodities. A special examination shall 
be made of such warehouse whenever CCC determines such action is 
necessary.


Sec.  1423.11  Exemption from standards.

    The Deputy Administrator may temporarily exempt the standards of 
this part for approval of warehouses to store CCC-interest commodities 
where such exemption is considered necessary to protect the interests 
of CCC and when necessary to carry out CCC programs.


Sec.  1423.12  Application, inspection, and annual agreement fees.

    Each warehouse operator not licensed under USWA shall pay to CCC an 
application fee, as well as inspection fees, and annual agreement fees, 
for each warehouse approved by CCC or for which approval is sought. The 
terms and conditions of such fees will be set forth in the applicable 
agreement.
    (a) The application and inspection fees shall be the inspection fee 
applicable to the commodity announced by FSA for USWA warehouse 
operators; and
    (b) The annual agreement fee shall be fifty (50) percent of the 
applicable USWA annual license fee.


Sec.  1423.13  Appeals, suspensions, and debarment.

    (a) After initial approval, warehouse operators may request that 
CCC reconsider adverse actions when the warehouse operator establishes 
that the reasons for the action have been remedied or requests 
reconsideration of the action and presents to the Director, KCCO, in 
writing, information in support of such request. The warehouse operator 
may, if dissatisfied with the Director's determination, obtain a review 
of the determination and an informal hearing by submitting a request to 
the Deputy Administrator. Appeals shall be as prescribed in 7 CFR part 
780, and under such regulations, the warehouse operator shall be 
considered as a ``participant.''
    (b) Suspension and debarment actions taken under this part shall be 
conducted in accordance with part 1407 of this chapter. After 
expiration of the suspension or debarment period, a warehouse operator 
may, at any time, apply for approval under this part.

    Signed at Washington, DC, on November 14, 2003.
James R. Little,
Executive Vice President, Commodity Credit Corporation.
[FR Doc. 03-28989 Filed 11-19-03; 8:45 am]
BILLING CODE 3410-05-P