[Federal Register Volume 70, Number 235 (Thursday, December 8, 2005)]
[Notices]
[Pages 72979-72981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-7030]



[[Page 72979]]

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DEPARTMENT OF AGRICULTURE

Commodity Credit Corporation


Tobacco Transition Assessments

AGENCY: Commodity Credit Corporation, USDA.

ACTION: Notice.

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SUMMARY: This notice sets forth the interpretation the Commodity Credit 
Corporation (CCC) will use in administering the regulations set forth 
at 7 CFR part 1463 with respect to the Tobacco Transition Assessments. 
Generally, under these regulations CCC must determine the market share 
of a tobacco product manufacturer or tobacco product importer as a 
percentage of six statutorily specified sectors of the tobacco trade. 
Based upon information provided to CCC in the conduct of administrative 
hearings held pursuant to 7 CFR 1463.11, CCC has determined that the 
manner in which it calculates this percentage is subject to more than 
one interpretation and, based upon the evidence provided at these 
hearings, has determined that changes to the calculation should be made 
beginning with assessments collected under 7 CFR part 1463 after 
January 1, 2006. However, this change will not apply to invoices issued 
February 1, 2006. These invoices will reflect corrections and other 
necessary adjustments associated with fiscal year 2005.

FOR FURTHER INFORMATION CONTACT: Misty Jones, Tobacco Division, Farm 
Service Agency (FSA), United States Department of Agriculture (USDA), 
Stop 0514, 1400 Independence Avenue, SW., Washington, DC 20250-0514. 
Phone: (202) 720-7413; e-mail: [email protected]. Persons with 
disabilities who require alternative means for communication (Braille, 
large print, audio tape, etc.) should contact the USDA Target Center at 
(202) 720-2600 (voice and TDD).

Background

    Title VI of the American Jobs Creation Act of 2004 (Pub. L. 108-
357) (the 2004 Act) repealed the marketing quota and acreage allotment 
(marketing quota) and price support programs for tobacco that were 
authorized by the Agricultural Adjustment Act of 1938 and the 
Agricultural Act of 1949, effective with the 2005 and subsequent crops 
of tobacco. Sections 622 and 623 of the 2004 Act establish a 10-year 
transitional payment program for tobacco producers and owners of 
tobacco marketing quotas who were affected by the termination of the 
marketing quota and price support programs. Sections 625 through 627 of 
the 2004 Act established an assessment regime under which CCC collects 
assessments to fund the 10-year transitional payment program. 
Generally, these assessments are to be collected for 40 calendar 
quarters (2005-2014) and are based upon individual market shares of 
tobacco product manufacturers and importers within six sectors 
specified by the 2004 Act. The regulations issued by CCC with respect 
to these assessments were issued in a final rule published in the 
Federal Register on February 10, 2005 (70 FR 7007-7014). The purpose of 
this notice to advise tobacco product manufacturers and tobacco product 
importers that effective with assessment notices issued after January 
1, 2006, CCC will determine such entities' market share within a sector 
as a percentage expressed to the sixth decimal point.
    As explained below, section 625(a)(3) of the 2004 Act is ambiguous 
with respect to its directive in calculating entities' market shares. 
Section 625(b)(3) defines ``market share'' as follows:

    Market Share.--The term ``market share'' means the share of each 
manufacturer or importer of a class of tobacco product (expressed as 
a decimal to the fourth place) of the total volume of domestic sales 
of the class of tobacco product.

    In implementing this provision, CCC construed ``market share'' to 
mean an entity's percentage of the market determined, for all products 
except cigars, by dividing the volume of gross taxable removals for the 
entity by the total removals for the sector for all entities reporting 
to CCC, and, for cigars, by dividing the excise taxes paid for each 
entity by the total excise taxes paid for all cigar manufacturers and 
importers. Accordingly, under CCC's initial interpretation, if there 
were 10 entities who equally comprised all of the market of a sector, 
each market share was expressed as 0.1000. CCC recognized that in using 
its initial method of calculating a market share of an entity that 
there could be a disproportionate impact on entities with market shares 
less than .0001 that reach the ``cut-off point'' in that entities with 
market shares from .00005 to .00009 would, due to rounding, each be 
deemed to have a .0001 market share. Thus, CCC provided that once this 
determination had been made as to which entities to include in the 
assessment, CCC would calculate the actual assessment for an entity to 
the ninth decimal point.
    During the course of administrative hearings in which appellants 
contested the level of their assessments in the first two quarters, it 
was brought to CCC's attention that this was not the only 
interpretation that could be given to the concept of expressing a 
market share to the ``fourth decimal point''. Appellants argued that a 
``market share'' of 10 percent is more properly referred to in this 
example as 10.0000 percent and not .1000. The following is the written 
submission in support of this interpretation presented jointly by six 
of the entities subject to the assessment:

    FETRA (the Fair and Equitable Tobacco Reform Act) assessments 
should be allocated based on percentage market shares expressed as 
decimals to the fourth place.
    FETRA defines market share as the ``share of each manufacturer 
or importer of a class of tobacco product (expressed as a decimal to 
the fourth place) of the total volume of domestic sales of the class 
of tobacco product.'' This language, properly read, means that 
market share is to be calculated as a percentage share expressed to 
four decimal places. Accordingly, under FETRA, a manufacturer or 
importer should be required to pay an assessment unless its market 
share rounds to less than 00.0001% (which can also be written as 
.000001).
    The USDA's first three assessment notices did not adopt this 
approach. Instead, the agency has exempted from assessment liability 
any company whose market share rounds to less than 00.01% (which can 
also be written as .0001). Consequently, there is a two-decimal 
place difference between the two approaches, which means that a 
company exempted from FETRA assessments under the USDA approach 
could have a market share as much as 100 times larger than the 
largest company exempted under the correct percentage share 
approach.
    Under the USDA's approach, manufacturers and importers selling 
substantial quantities of tobacco products would avoid paying 
assessments--in direct violation of the clear statutory mandate of 
FETRA. As is explained below, if the data for the most recent 
quarterly assessment (for the April-June 2005 quarter) are 
annualized, the portion of the cigarette market, for example, that 
would be excused from paying any assessment would collectively 
amount to more than 9.5 million packs of cigarettes, representing 
sales revenues of more than $33 million.
    By contrast, the percentage share approach limits the exemption 
to companies that legitimately can be viewed as having de minimis 
market shares, thereby effectuating the legislative intent that all 
manufacturers and importers must pay assessments. As explained 
below, the percentage share approach is supported by the language of 
FETRA and by analogous precedents.
    Defining market share as a percentage expressed to the fourth 
decimal place is necessary to effectuate the clear purposes of 
FETRA.
    FETRA imposes the following clear mandate: ``The Secretary, 
acting through the Commodity Credit Corporation, shall impose 
quarterly assessments * * * on each tobacco product manufacturer and 
tobacco products

[[Page 72980]]

importer that sells tobacco products in domestic commerce in the 
United States * * *.'' 7 U.S.C. 518d(b)(1) (emphasis added). This 
language provides no discretion to exempt any manufacturers or 
importers.
    The approach taken by USDA in the initial assessments violates 
this statutory mandate because it allows companies with substantial 
sales of cigarettes to avoid FETRA assessments. This point can be 
illustrated with the following example:
    Assume a manufacturer had revenues of $850,000 in the fourth 
quarter of 2004. There is no rational basis for defining this 
company as a de minimis seller of cigarettes and exempting it from 
assessment:
     Revenue--$850,000.
     No. of packs sold (assuming $3.50 per pack) = 242,857.
     Taxes owed (FET at .39 per pack) = $94,714.23.
     Market share: [94,714/1,949,053,653] = 0.00004859486.
    Under the approach used in the initial assessments, this company 
would be exempt from the payment of assessments because its market 
share is .000049, which rounds to .0000 (00.00%). However, if the 
percentage share approach is applied, the company would have to pay 
an assessment, since its market share--00.0049%--exceeds the 
threshold of 00.0001%.
    As noted above, the approach used in the initial assessments 
will allow a significant portion of the cigarette market to remain 
exempt from assessment. On a per-company basis, this means that an 
individual manufacturer or importer could have annual sales of as 
much as 900,000 packs and revenues in excess of $3 million per year 
and still escape the payment of assessments. In contrast, under the 
approach described in this paper, the exemption would apply only to 
companies with annual sales less than approximately 9,000 packs and 
revenues less than approximately $32,000 per year--which 
appropriately can be viewed as de minimis. Id.
    More importantly, the percentage of the market that USDA is 
exempting from assessment has more than doubled from the first 
assessment for the fourth quarter of calendar 2004 (companies 
selling 1,040,638 packs of cigarettes in this quarter exempted from 
assessment) to the assessment for April-June 2005 (companies selling 
2,376,331 packs of cigarettes in this quarter exempted from 
assessment). This means that millions of packs of cigarettes per 
year will not be subject to assessment. For example, if the figures 
from the second calendar quarter of 2005 are projected on an annual 
basis, USDA's approach to FETRA will result in over 9.5 million 
packs of cigarettes, representing more than $33 million in revenue, 
being exempted from FETRA assessment. This is clearly inconsistent 
with the congressional mandate that USDA impose quarterly 
assessments on each tobacco product manufacturer and importer that 
sells tobacco products domestically in the United States. 7 U.S.C. 
518d(b)(1).
    Adopting the percentage share approach, and thus limiting any 
exemption to companies with truly de minimis market shares, achieves 
a number of important objectives by--
     More closely effectuating the statutory mandate to 
assess all manufacturers and importers;
     Leveling the playing field among competitors since no 
company with substantial sales would have the unfair advantage of an 
exemption;
     Substantially reducing the USDA's exposure in the 
likely event that companies subject to assessment are successful in 
persuading a court that USDA cannot assess them in excess of their 
true market shares to cover the shares of companies exempted from 
assessment liability; and
     Perhaps, by reducing the amount at issue, facilitating 
a resolution of the current market share cap issue short of 
litigation.
    The percentage share approach is supported by the language of 
FETRA.
    In another section of FETRA, Congress clearly uses the word 
``share'' to denote percentage share. Thus, in describing how 
assessments are to be allocated among different classes of tobacco 
products in subsequent years, FETRA states that:
    The Secretary shall periodically adjust the percentage of the 
total amount required under subsection (b) to be assessed against, 
and paid by, the manufacturers and importers of each class of 
tobacco product * * * to reflect changes in the share of gross 
domestic volume held by that class of tobacco product.
7 U.S.C. 518d(c)(2) (emphasis added). In this context, it is 
explicitly clear that the ``share'' of gross domestic volume is a 
percentage share.
    The same section of FETRA uses the same term--``share''--when it 
defines the term ``market share'' as each manufacturer's ``share * * 
* of the total volume of domestic sales of the class of tobacco 
product.'' This use of the same term is significant because ``[i]t 
is a settled principle of statutory construction that `(w)hen the 
same word or phrase is used in the same section of an act more than 
once, and the meaning is clear as used in one place, it will be 
construed to have the same meaning in the next place.' '' United 
States v. Nunez, 573 F.2d 769, 771 (2d Cir.), cert denied, 436 U.S. 
930 (1978), quoting Meyer v. United States, 175 F.2d 45, 47 (2d Cir. 
1949), quoting Lewellyn v. Harbison, 31 F.2d 740, 742 (3d Cir.), 
cert. denied, 280 U.S. 560 (1929); Arnold v. Eastern Air Lines, 
Inc., 712 F.2d 899, 904 (4th Cir. 1983).
    Thus, when FETRA is read as a whole, the proper interpretation 
of ``share'' in section 518d(a)(3)--defining ``market share''--is 
that it means a percentage share of the total market. Nothing in 
FETRA provides any basis for a different approach. Accordingly, when 
section 518d(a)(3) states that each manufacturer's or importer's 
``share'' is to be expressed as a decimal to four places, it means 
that it should be expressed as a percentage share expressed to four 
decimal places.
    Other federal agencies have interpreted statutory references to 
``market share'' to mean a percentage share of the total market.
    The Food, Drug and Cosmetic Act imposes limitations on the types 
of claims that can appear on food labels. Among other things, the 
labels on a food product cannot claim that it is low cholesterol 
unless ``the level of cholesterol is substantially less than the 
level usually present in the food or in a food which substitutes for 
the food and which has a significant market share * * *.'' 21 U.S.C. 
Sec.  343(r)(2)(A)(iii)(I) (emphasis added). The statute does not 
define market share. However, the FDA regulations define that term 
as a percentage of the total market:
    If the product meets these conditions only as a result of 
special processing, alteration, formulation, or reformulation, the 
amount of cholesterol is reduced by 25 percent or more from the 
reference product it replaces as described in Sec.  317.313(j)(1) 
and for which it substitutes as described in Sec.  317.313(d) that 
has a significant (e.g., 5 percent or more of a national or regional 
market) market share.
9 CFR 317.362(d)(1)(v) (emphasis added). Clearly, the FDA 
interpreted the term market share using its ordinary and reasonable 
meaning of a percent of the total market.
    The Federal Insecticide, Fungicide and Rodenticide Act 
(``FIFRA'') requires EPA to re-register and assess fees for all 
pesticides initially registered prior to November 1, 1984. If more 
than one party sought to register the same active ingredient, the 
EPA would allocate the $150,000 fee based on each registrant's 
market share for that active ingredient. Specifically, FIFRA stated 
that:
    [i]f two or more registrants are required to pay [a re-
registration fee] with respect to a particular active ingredient, 
the fees for such an active ingredient shall be apportioned among 
such registrants on the basis of market share in United States sales 
of the active ingredient for the three calendar years preceding the 
payment of such fee.
7 U.S.C. 136a-1(i)(7) (emphasis added). The term ``market share'' is 
not explicitly defined in the statute or in the Agency's 
regulations. However, when EPA actually assessed each registrant's 
fee, it did so based upon its percentage share of the total market.
    The courts have also interpreted the term ``market share'' to 
mean a percentage share.
    For example, under the ``market share liability'' theory used in 
mass tort cases, ``causation and damages are apportioned to 
defendants based on the percentage of the product sold by each 
defendant within the entire production of the product.'' Wood v. Eli 
Lilly & Co., 38 F.3d 510, 513 (10th Cir. 1994) (emphasis added), 
citing Sindell v. Abbott Labs., 607 P.2d 924, 937, cert. denied, 449 
U.S. 912 (1980); Martin v. Abbott Lab., 689 P.2d 368, 380 (Wash. 
1984). See also Bateman v. Johns-Manville Sales Corp., 781 F.2d 
1132, 1133 (5th Cir. 1986) (``Each defendant that could not make 
that exculpatory showing would then be held liable for a proportion 
of the judgment corresponding to its percentage share of the DES 
market'') (emphasis added).
    Similarly, in antitrust cases, when courts address market share, 
they are clearly viewing that term as a percentage of the total 
market at issue. See, e.g., Brooke Group Ltd. v. Brown & Williamson 
Tobacco Corp., 509 U.S. 209, 213-14 (1993) (describing market share 
in terms of percentages); Richter Concrete Corp. v. Hilltop Concrete 
Corp., 691 F.2d 818, 826 (6th Cir. 1982) (``Market strength is often 
indicated by market share. During the relevant period, Hilltop's 
market

[[Page 72981]]

share declined from approximately 40% to approximately 30%'').''

    As noted in the submission of the six appellants, the ambiguity in 
the 2004 Act stems from whether a ``market share'' refers to a 
``percentage share'' determined to the fourth decimal point, e.g., is a 
10 percent market share to be expressed as 10.000 or .10000?
    Accordingly, under this approach the following ``market shares'' 
would be determined with respect to an entity comprising the following 
sizes of the sector:

------------------------------------------------------------------------
                                     Market share in    Market share as
          Size of sector                 percent            fraction
------------------------------------------------------------------------
                           Assessments Levied
------------------------------------------------------------------------
All...............................          100.00000          1.0000000
One tenth.........................           10.00000          0.1000000
One hundredth.....................            1.00000          0.0100000
One thousandth....................            0.10000          0.0010000
One ten-thousandths...............            0.01000          0.0001000
One hundred-thousandths...........            0.00100          0.0000100
One millionth.....................            0.00010          0.0000010
-----------------------------------
   Assessments Not Levied For All Shares Less Than Nine Ten-millionths
------------------------------------------------------------------------
Nine ten-millionths...............            0.00009          0.0000009
------------------------------------------------------------------------

    With respect to the assessments levied by CCC in a typical quarter 
with an assessment of $237.5 million, use of the interpretation set 
forth by these six appellants would likely produce the following 
changes for each sector:

           Additional Companies Assessed Under the New Method for a Typical $237.5 Million Assessment
----------------------------------------------------------------------------------------------------------------
               Class                Cigarettes    Cigars     Snuff     Roll-own     Chew       Pipe      Total
----------------------------------------------------------------------------------------------------------------
Number of Additional Companies              20         57          4          4          1          2         88
 Paying an Assessment.............
Assessment Collected from Above       $105,928     $4,752        $45        $48         $3         $9   $110,784
 Companies........................
----------------------------------------------------------------------------------------------------------------

    Use of the interpretation set forth by these six appellants would 
also produce the following changes for two different sized companies:

  Impact of Change on Two Different Sized Tobacco Product Manufacturers
Share
Typical Quarterly Assessment: All kinds.................    $237,500,000
Cigarettes' Share.......................................         0.96331
Typical Quarterly Assessment: Cigarettes................    $228,786,125
---------------------------------------------------------
                           Big Company Example
------------------------------------------------------------------------
New Method \1\
Big Company Share.......................................        25.0000%
Big Company Quarterly Assessment........................     $57,196,653
Previous Method \2\
Big Company Share.......................................          25.00%
Big Company Share recomputed after small companies             25.00729%
 dropped out)...........................................
Big Company Quarterly Assessment........................     $57,213,210
Big Company Savings
Big Company savings per quarter.........................        -$16,557
---------------------------------------------------------
                          Small Company Example
------------------------------------------------------------------------
New Method \1\
Small Company Share.....................................         0.0040%
Small Company Quarterly Assessment......................          $9,151
Previous Method \2\
Small Company Share.....................................          0.004%
Small Company Share Rounded Up..........................          0.000%
Small Company Share recomputed after small companies                  --
 dropped out............................................
Small Company Quarterly Assessment......................              $0
Small Company Cost
Small Company cost per quarter..........................         $9,151
------------------------------------------------------------------------
\1\ Shares not recalculated after small companies drop out.
\2\ Shares recalculated to 9 decimal places after small companies drop
  out.

Interpretation

    It is CCC's position that either interpretation is possible under 
section 625(b)(3) of the 2004 Act. But, in construing this section 
within the overall framework established by Congress, CCC has 
determined that use of the approach set forth by the six appellants 
provides a more accurate representation of an individual entity's share 
in each of the six statutorily-defined tobacco sectors. Accordingly, 
after January 1, 2006, when making determinations under 7 CFR parts 
1463.1 through 1463.11 that relate to ``market share'', CCC will 
interpret such phrase to mean the percentage share of an entity's 
market position in one of the six individual tobacco product sectors 
specified in section 625(c) of the 2004 Act. In expressing this share 
to the fourth decimal point as provided in section 625(a)(3), for 
example, a market share of \1/10\ of the market will be converted to 
10.0000 percent and a market share of \1/10000\ will be converted to 
.0100 percent. In addition, this approach is also consistent with the 
manner in which Congress has addressed the six sector segments of the 
tobacco industry. In section 625(c)(3) of the 2004 Act, for example, 
the share for manufacturers and importers of cigarettes of the overall 
tobacco industry for Fiscal Year 2005 is expressed as ``96.331 
percent'' and not as .96331. As a result of this change, CCC will no 
longer further modify assessments to the ninth decimal point for 
individual companies within these six sectors.

    Signed at Washington, DC November 30, 2005.
Thomas B. Hofeller,
Executive Vice President, Commodity Credit Corporation.
[FR Doc. E5-7030 Filed 12-7-05; 8:45 am]
BILLING CODE 3410-05-P