[Federal Register Volume 65, Number 207 (Wednesday, October 25, 2000)]
[Rules and Regulations]
[Pages 63765-63767]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27346]


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DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 735

RIN 0560-AF13


Amendments to the Regulations for Cotton Warehouses Regarding the 
Delivery of Stored Cotton

AGENCY: Farm Service Agency, USDA.

ACTION: Final rule.

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SUMMARY: This final rule codifies the delivery standard for cotton 
stored in warehouses licensed under the United States Warehouse Act 
(USWA) and those warehouses issuing electronic warehouse receipts under 
the USWA (7 U.S.C. 241 et seq.). The final rule adopts, with minor 
changes based on public comments, a proposed rule published in the 
Federal Register on May 28, 1999, (64 FR 28938) and an advanced notice 
of proposed rulemaking (ANPRM) published in the Federal Register on May 
26, 1998 (63 FR 28488). The Department of Agriculture (USDA) is taking 
this action as the result of two U.S. District Court orders that 
remanded USDA to define the statutory phrase ``without unnecessary 
delay'' as set forth in the USWA. Concurrently, several segments of the 
cotton industry requested the implementation of a uniform national 
cotton shipping standard for the delivery of stored cotton. This final 
rule amends the regulations covering cotton to define the USWA 
statutory phrase ``without unnecessary delay'' as used in the USWA, and 
sets a standard for determining whether a warehouse operator delivers 
stored cotton timely by establishing a uniform cotton shipping standard 
for the delivery of stored cotton.

EFFECTIVE DATE: October 25, 2000.

FOR FURTHER INFORMATION CONTACT: Steve Mikkelsen, Deputy Director, 
Warehouse and Inventory Division, Farm Service Agency, STOP 0553, 1400 
Independence Avenue, SW., Washington, DC 20250-0553; telephone (202) 
720-2121 or FAX (202) 690-3123, e-mail: 
<a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="f9aa8d9c8f9ca6a6b49092929c958a9c97b98e9d9ad79f8a98d78c8a9d98d79e968f">[email protected]</a>. 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).

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    The Office of Management and Budget has reviewed this final rule 
and determined the rule to be significant for the purposes of Executive 
Order 12866.

Cost-Benefit Assessment

    A Cost-Benefit Assessment (CBA) was prepared. The costs associated 
with the implementation of the rule will be minimal to all parties 
involved. The CBA summarized the cost and benefit impact of the rule as 
follows:
    The cotton industry will benefit from USDA establishing a shipping 
standard that it can apply through arbitration or legal proceedings to 
determine whether a warehouse operator is delivering stored cotton 
``without unnecessary delay.'' Establishment of a uniform shipping 
standard will help: (1) Maintain the competitiveness of U.S. cotton in 
domestic and world markets; (2) improve the prices that producers 
receive in those areas affected by delivery delays; (3) eliminate any 
disruption in commerce due to uncertainty of delivery expectations; and 
(4) a standard that may be applied to arbitration or legal proceedings 
to determine whether a warehouse operator is delivering cotton 
``without unnecessary delay.''
    Copies of the CBA are available upon request from the Warehouse and 
Inventory Division, Farm Service Agency, STOP 0553, 1400 Independence 
Avenue, SW., Washington, DC 20250-0553.

Executive Order 12988

    This final rule has been reviewed in accordance with Executive 
Order 12988. The provisions of this final rule do not preempt State 
laws, are not retroactive, and do not involve administrative appeals.

Environmental Evaluation

    An environmental evaluation has determined that this action will 
not have significant impact on the quality of the human environment. 
Therefore, neither an Environmental Assessment nor an Environmental 
Impact Statement is needed.

Executive Order 12612

    It has been determined that this final rule is consistent with the 
Federalism principals espoused in Executive Order 12612, and does not 
warrant the preparation of a Federalism Assessment.

Executive Order 12372

    This program/activity is not subject to the provisions of Executive 
Order 12372, which require intergovernmental

[[Page 63766]]

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

    This final rule contains no Federal mandates under the regulatory 
provisions of Title II of the Unfunded Mandates Reform Act (UMRA) of 
1995 for State, local, and tribal governments or the private sector. 
Thus, this final rule is not subject to the requirements of sections 
202 and 205 of the UMRA.

Paperwork Reduction Act

    The amendments set forth in this rule do not affect information 
collection or record keeping requirements.

Regulatory Flexibility Act

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this final rule because this rule will not have a 
significant effect on a substantial number of small businesses. 
Licensing under the USWA is strictly voluntary upon the part of each 
warehouse operator.

Background

    Since the early 1960's, the timely delivery and shipping of stored 
cotton (cotton flow) has been a persistent problem throughout the 
cotton industry. While cotton shippers and cotton merchants require 
timely delivery and shipping to meet the demands of the marketplace, 
cotton warehouse operators contended that delivery and shipping demands 
placed on them by shippers and merchants are unreasonable and exceeded 
warehouse delivery capabilities. When delivery and shipping delays 
began to occur during the 1995/96 crop year several cotton shippers 
filed complaints with the Farm Service Agency (FSA). These shippers 
requested FSA to investigate cotton shipment delays and to suspend the 
Federal license of those warehouses that had not delivered cotton 
``without unnecessary delay'' as required by the USWA (7 U.S.C. 241 et 
seq.). FSA personnel investigated and found that a lack of common 
terminology and lack of a standard process for requesting services may 
have contributed to the confusion and appearance of longer shipping 
delays than actually occurred.
    Besides filing complaints with FSA, several shippers brought action 
in U.S. District Court against two cotton warehouse operators. In each 
case the key issue for the courts was that USDA had not issued 
regulatory guidance on the use and meaning of the statutory phrase 
``without unnecessary delay'' contained in the USWA. Ultimately, the 
shippers elected to dismiss their suits opting instead to request that 
the statutory phrase ``without unnecessary delay'' as set forth in the 
USWA be remanded to USDA for further determination under the doctrine 
of primary jurisdiction. At the same time, several segments of the 
cotton industry requested USDA to implement a national uniform cotton 
shipping standard.
    As a result of these events, on May 26, 1998, FSA published a ANPRM 
in the Federal Register (63 FR 28488). The ANPRM sought public comments 
on two options and asked specific questions regarding a proposed 
National Cotton Flow Standard. Option I contained methods for defining 
``without unnecessary delay,'' established both a uniform cotton 
shipping standard and a dispute resolution mechanism, but limited 
further government involvement in regulating the standard. In addition 
to the items contained in Option I, Option II offered standardized 
definitions, terminologies, dispute mediation, a national cotton flow 
shipping status report, and operated with user fees under a greater 
USDA regulatory role. Public comments favored Option I and strongly 
expressed a conviction that USDA should establish a cotton shipping 
standard and allow enforcement just to be handled by the cotton 
industry without; USDA involvement, assessment of user fees, or 
increased governmental costs. A complete summary of the comments 
received in response to the ANPRM can be found in the proposed rule in 
the Federal Register of May 28, 1999 (64 FR 28938).
    FSA published a proposed rule seeking public comments on setting 
forth a national cotton shipping standard that defined ``without 
unnecessary delay''. See, May 28, 1999, Federal Register (64 FR 28938). 
This standard was based upon weekly deliveries of at least 4.5 percent 
of a warehouse operator's licensed storage capacity, Commodity Credit 
Corporation (CCC) approved storage capacity, or other storage capacity 
as determined to be in effect for the week of the shipment. The 
industry presented 4.5 percent as the level that would best expedite 
the delivery and shipment of U.S. cotton. The industry also recommended 
that CCC's Cotton Storage Agreement (CSA) should be the vehicle of 
regulatory authority used by USDA to establish the cotton flow 
standard. USDA believed that a delivery and shipping standard should 
not be solely based on the CSA, because the CSA and any standard that 
grew out of it only applied to cotton in which CCC had an interest. 
USDA believed that a delivery and shipping standard based on the USWA 
would have a broader application as the industry receipted about 80 to 
90 percent of all cotton under USWA's electronic warehouse receipt 
authority and the proposed rule reflected that larger applicability.
    The proposed rule required an established cotton industry 
arbitration system to resolve all disputes and compliance without any 
USDA involvement, user fees or governmental costs. The proposed rule 
presented a provision that required any party who requested or 
initiated FSA's involvement in a shipping standard issue would be 
responsible for any cost incurred by FSA.

Summary of Public Comments Concerning the Proposed Rule

    FSA received 31 responses from four sectors of the trade-industry 
as follows: six cotton trade associations, 22 cotton warehouse 
operators, two cotton merchants, and one electronic cotton warehouse 
receipt provider. Some responses contained multiple comments. One 
respondent favored a standard based on 4.5 percent of inventory on 
hand; 23 respondents favored a standard based on weekly deliveries of 
4.5 percent of a warehouse operator's storage capacity; 18 respondents 
favored enforcement by the cotton industry with no USDA involvement; 
six respondents favored no user fees; six respondents favored no 
increased governmental costs; seven respondents favored dispute 
resolution using either a cotton industry voluntary arbitration system 
or the court system; 12 respondents suggested binding arbitration by 
the cotton industry; 12 respondents suggested that any initiating or 
requesting parties should be responsible for all costs incurred by the 
FSA regarding a shipping standard issue; nine respondents suggested 
changing the phrase ``will be'' at 7 CFR 735.202 (a) to ``may be''; two 
respondents suggested deletion of 7 CFR 735.202, Compliance and Dispute 
Resolution; and one respondent suggested that adherence to the standard 
should be a CCC condition of eligibility and opposed any restrictions 
on the issuance of electronic warehouse receipts.
    After analyzing the comments, FSA has decided to proceed with the 
issuance of this final rule, with some slight modifications from the 
proposed rule in response to the comments. Several respondents 
specifically objected to USDA's mandated

[[Page 63767]]

arbitration for disputes where the parties had not previously agreed to 
arbitration and would be required to arbitrate. These respondents 
argued that their constitutional rights would be infringed upon as they 
would not be free to choose the forum for resolving their disputes, and 
their property rights could be affected without due process of the law. 
The respondents' claims as to contra-constitutionality were overstated; 
however, USDA did believe that they should change this provision to 
indicate a permissive use of arbitration where the parties so desired. 
Accordingly, USDA has amended Sec. 735.202 (a) to change ``will be'' to 
``may be'' to indicate that where the parties are able to arbitrate the 
issue, they should be allowed to do so, but not required by regulation. 
In addition, the word ``relevant'' will be inserted into Sec. 735.201 
to clarify that a warehouseman must meet the delivery standard for the 
week of the shipment in question.
    As with the proposed rule, the final rule will define ``without 
unnecessary delay,'' through the establishment of a uniform cotton 
delivery standard based upon weekly deliveries of 4.5 percent of a 
warehouse operator's licensed storage capacity or CCC approved capacity 
or other capacity in effect for the relevant week in question. However, 
enforcement of the standard through arbitration is no longer mandatory. 
The final rule continues to include a provision that requires any party 
who requests or initiates FSA's involvement in a shipping standard 
issue to be responsible for any cost incurred by FSA.
    USDA believes this final rule provides an identifiable standard for 
the delivery and shipment of cotton with the option of arbitrating, has 
minimal FSA oversight, will best meet the trade-industry's aspirations 
to expedite the delivery and shipment of U.S. cotton into marketing 
trade channels and enhance prices paid producers while reducing the 
cost of handling cotton.
    The provisions in this final rule are applicable to cotton 
warehouse operators licensed under the USWA and any warehouse operators 
who issue electronic warehouse receipts under the USWA.

List of Subjects in 7 CFR Part 735

    Administrative practice and procedure, Cotton, Delivery, Reporting 
and record keeping requirements, Shipping, Surety bonds, Warehouses.

    Accordingly, the provisions of 7 CFR part 735 are amended as 
follows:

PART 735--COTTON WAREHOUSES

    1. The authority citation for 7 CFR part 735 continues to read as 
follows:

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


    2. Section 735.2 is amended by adding paragraph (jj).


Sec. 735.2  Terms defined.

* * * * *
    (jj) Force majeure. Severe weather conditions, fire, explosion, 
flood, earthquake, insurrection, riot, strike, labor dispute, act of 
civil or military authority, non-availability of transportation 
facilities, or any other cause beyond the control of the warehouseman 
that renders performance impossible.


Secs. 735.106-735.199  [Reserved]

    3. Sections 735.106 through 735.199 are added and reserved.

    4. Following Sec. 735.199 an undesignated center heading and 
Secs. 735.200 through 735.202 are added to read as follows:

Delivery and Shipping


Sec. 735.200  Applicability.

    The cotton shipping standard set forth in Sec. 735.201 is 
applicable to all cotton warehousemen licensed under the Act and to all 
warehousemen that issue electronic warehouse receipts through an 
authorized electronic warehouse receipt provider in accordance with 
part 735 regardless of whether the warehouse is licensed under the Act.


Sec. 735.201  Cotton shipping standard.

    Unless prevented from doing so by force majeure, a warehouseman 
identified in Sec. 735.200 shall deliver stored cotton without 
unnecessary delay. A warehouseman shall be considered to have delivered 
cotton without unnecessary delay, if for the week in question, the 
warehouseman 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 Secretary to be in effect during the relevant week 
of shipment.


Sec. 735.202  Compliance and dispute resolution.

    (a) Any claim for noncompliance with the cotton shipping standard 
may be resolved by the parties involved through established industry, 
professional, or mutually agreed upon arbitration procedures. The 
arbitration procedures shall be nondiscriminatory and provide each 
person equal access and protection relating to the cotton shipping 
standard.
    (b) No arbitration determination or award resulting from 
noncompliance with the shipping standard shall affect, obligate, or 
restrict the Service's authority to provide, administer, and regulate 
the issuance of a license, receipt, contractual agreement, or 
authorized electronic warehouse receipt provider system in accordance 
with the Act.
    (c) The Service shall not settle unresolved disputes involving the 
cotton shipping standard or associated damages.
    (d) In the event a party requests assistance from or initiates the 
involvement of the Service in a matter relating to the cotton shipping 
standard, the initiating party shall be responsible for all costs 
incurred by the Service. Before any such assistance is provided, the 
initiating party shall make payment to the Service in an amount equal 
to the Service's good faith estimate of costs and expenses that will be 
incurred in fulfilling the request. Costs incurred that exceed the 
Service's good faith estimate will be the responsibility of the 
initiating party.

    Signed at Washington, D.C., on October 19, 2000.
Keith Kelly,
Administrator, Farm Service Agency.
[FR Doc. 00-27346 Filed 10-24-00; 8:45 am]
BILLING CODE 3410-05-P


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