[Federal Register Volume 62, Number 55 (Friday, March 21, 1997)]
[Proposed Rules]
[Pages 13546-13551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6732]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

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. 62, No. 55 / Friday, March 21, 1997 / 
Proposed Rules

[[Page 13546]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 723

RIN 0560-AE96


Amendment to the Tobacco Marketing Quota Regulations

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This rule proposes improving the administration of the tobacco 
marketing quota and price support program by amending program 
regulations to: provide for making quota ``inequity adjustments'' on a 
``common ownership unit'' basis rather than strictly on a ``farm'' 
basis; eliminate unduly restrictive deadlines for the mailing of 
certain quota notices; permit, for burley and flue-cured tobacco, 
disaster transfers to be made by cash lessees, from cash rented farms, 
without the owner's signature; provide greater flexibility in the 
setting of penalty amounts for burley and flue-cured tobacco 
violations; eliminate a provision that requires yearly publication in 
the Federal Register of certain routine and noncontroversial penalty 
computations; remove regulations governing the 1994-calendar year only 
``domestic marketing assessment'', which was applicable to the use by 
certain cigarette manufacturers of set percentages of domestic tobacco; 
codify certain statutory provisions concerning, and penalties related 
to, setting burley and flue-cured tobacco quotas; and add several 
technical changes, including changes to reflect a recent reorganization 
of the Department of Agriculture.

DATES: Comments must be received by May 20, 1997 to be assured of 
consideration.

ADDRESSES: Submit comments on the proposed rule to: Director, Tobacco 
and Peanuts Division, USDA, FSA, STOP 0514, P.O. Box 2415, Washington, 
DC 20013-2415. Comments may be faxed to 202-690-2298. All written 
submissions made pursuant to this rule will be made available for 
public inspection in Room 5750 South Building, USDA, between the hours 
of 8:15 a.m. and 4:45 p.m., during regular Federal workdays.

FOR FURTHER INFORMATION CONTACT: Verner Grise, Director, Tobacco and 
Peanuts Analysis Staff, Tobacco and Peanuts Division, USDA, FSA, STOP 
0514, P.O. Box 2415, Washington, DC 20013-2415, telephone 202-720-5291.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This proposed rule has been determined to be not significant and 
therefore was not reviewed by OMB under Executive Order 12866.

Regulatory Flexibility Act

    The Regulatory Flexibility Act is not applicable to this proposed 
rule since the Farm Service Agency (FSA) is not required by 5 U.S.C. 
553 or any other provision of law to publish a notice of proposed rule 
making with respect to the subject matter of this rule.

Federal Assistance Program

    The title and number of the Federal Assistance Program, as found in 
the Catalog of Federal Domestic Assistance, to which this rule applies 
are: Commodity Loans and Purchases--10.051.

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 activity is not subject to the provisions of Executive Order 
12372, which requires 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).

Executive Order 12988

    This proposed rule has been reviewed in accordance with Executive 
Order 12988. The provisions of this proposed rule are not retroactive 
and preempt State laws to the extent that such laws are inconsistent 
with the provisions of this proposed rule. Before any legal action is 
brought regarding determinations made under provisions of 7 CFR part 
723, the administrative appeal provisions set forth at 7 CFR Part 780 
and 7 CFR Part 711, as applicable, must be exhausted.

Paperwork Reduction Act

    This proposed rule does not contain new or revised information 
collection requirements that require approval by OMB under the 
Paperwork Reduction Act (44 U.S.C. 3507 et seq). The information 
collections required in 7 CFR Part 723 have previously been cleared 
under OMB control number 0560-0058.

Background and Discussion

    The tobacco marketing quota and price support program is operated 
by the Department of Agriculture pursuant to provisions of the 
Agricultural Adjustment Act of 1938, as amended (the 1938 Act) and the 
Agricultural Act of 1949, as amended (the 1949 Act). This proposed rule 
would, as described below, modify tobacco marketing quota regulations 
in 7 CFR Part 723. Related price support regulations are codified in 7 
CFR Part 1464.

1. Allocation of Inequity Adjustments

    The 1938 Act permits the FSA, out of limited national reserves, to 
make so-called ``inequity adjustments'' in old farm allotments or 
quotas in order to alleviate quota disparities between farms in a 
county. Current rules, at Sec. 723.210, call for those adjustments to 
be made by ``farm'' as that term is defined for FSA commodity support 
purposes. However, for tobacco, there may, in effect, be ``farms'' 
within a farm when there are different common ownership units within 
the farm. For that reason, to allow for greater equity, it is proposed 
that the rules be modified to allow local FSA committees to choose, at 
their discretion, to make inequity adjustments by common ownership 
units in which case the quota adjustment would inure to the common 
ownership unit rather than to the whole farm. The rule would also add, 
in Sec. 723.104, a definition of ``common ownership unit'' to 
facilitate the administration of the proposed change for allocating 
inequity adjustments and the transfer of quota by sale.

[[Page 13547]]

2. Mailing Notices of Farm Acreage Allotments and Marketing Quotas

    Current rules, in Sec. 723.213, require that quota notices be 
mailed by a certain date if the quota is to be modified because of a 
violation, a revision or adjustment in the allotment or quota for the 
farm, or a farm reconstitution. The deadline is April 1 for farms in 
Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia. 
Otherwise, the deadline is May 1. Those dates are not suitable in all 
instances since there may be transfers affecting the quota which have 
not occurred by those dates. For that reason, and because the 
regulation is strictly a matter of agency procedure, it is proposed 
that these deadlines be removed from the regulations. Because of the 
special considerations that accompany reductions for violations, it 
would remain the agency's intention with respect to notices concerning 
reductions in quota because of violations to meet the same deadlines as 
those that are now in the regulations.

3. Approval of Disaster Lease and Transfer Agreements--Cash Rented 
Farms

    Burley and flue-cured tobacco are different from other kinds of 
tobacco in that they are subject to quotas on a poundage basis. All 
other tobaccos are limited by acreage only. Burley tobacco is limited 
by pounds only and flue-cured tobacco is limited both by acres and 
pounds. With respect to burley and flue-cured tobacco, disaster 
transfers of quota pounds can be made during the harvest season if, 
despite the producer's best efforts, the quota is not fully produced 
because of a natural disaster. Currently, all such transfers require 
the farm owner to sign the transfer documents. This rule proposes 
amending Sec. 723.216 to provide that such owner's signature is not 
needed when the farm is cash-rented or leased by the farm operator. 
This would reflect that the owner does not have an interest in the 
current year's tobacco crop or marketing quota. This would effectively 
and conclusively, presume that the farm operator or tobacco producer 
has paid for the quota for the current year to use to market the crop 
or, as the case may be, to disaster lease and transfer the unused quota 
from the farm.

4. Producer Penalty Calculations

    Penalties can be assessed against producers under the 1938 Act for 
excess marketings and other offenses. Section 314 of the 1938 Act 
provides that the penalty rate is equal to 75 percent of the average 
market price for the kind of tobacco for the immediately preceding 
marketing year. That rate is applied, then, to the penalty quantity of 
tobacco. Generally, under section 314, that quantity is the amount of 
the excess marketings. However, section 317(g) of the 1938 Act 
provides, for the poundage quota tobaccos (burley and flue-cured) only, 
that no penalty shall be due or collected until 103 percent of the 
marketing quota has been marketed except that where a producer falsely 
identifies, or fails to account for the disposition of any tobacco, the 
Secretary, in lieu of assessing and collecting penalties based on the 
actual marketings of excess tobacco, may elect to assess a penalty 
computed by multiplying the full penalty rate by an amount of tobacco 
equal to 25 percent of the farm's effective marketing quota plus the 
farm yield for the number of acres harvested in excess of the farm 
acreage allotment. Thus for burley and flue-cured tobacco, two possible 
standards exist for determining the penalty quantity: (1) The excess-
over-103-percent standard (``the 103-percent standard'') and (2) the 
25-percent-of-quota standard (``the 25-percent standard''). In some 
cases, however, the producer may have no excess marketings, but may 
have mis-marketed a small number of pounds on the farm's marketing card 
in which case the 25-percent standard may produce a penalty which a 
local FSA committee could feel is too harsh. This could lead, by use of 
the 103-percent standard, to no penalty at all which could be too 
lenient. Given that the use of the full 25-percent-of-quota standard is 
strictly discretionary, it would appear to follow that, in cases where 
the 25-percent standard could otherwise be applied, the Secretary could 
choose a penalty quantity ``up to'' 25-percent. Changing Sec. 723.409 
to add that flexibility is proposed in this notice. This would, if 
adopted, allow the penalty quantity to be, more appropriately, the 
actual amount of pounds in violation, which could better reflect the 
relative significance of different violations. This amendment will not 
affect the penalty quantity for buyers, dealers, or warehouse 
operators. Tobacco buyers, dealers, warehouse operators, and others 
will be required to collect the full penalty rate for each pound of 
invalid or suspicious marketings. In the event of an over-collection, 
the penalty can be refunded.

5. Elimination of Publication in the Federal Register of Certain 
Mathematical Computations

    Also, it is proposed, with respect to penalties, that Sec. 723.308 
be modified to remove the provision that requires publication in the 
Federal Register of the penalty rate calculations for the individual 
kinds of tobacco. Those rates are mathematical calculations based on 
market prices and the amounts should be, within a very close amount, 
well known by interested parties based on their knowledge of market 
conditions. As in the past, effective notice will be provided by press 
release. Further information, if needed, can be obtained by inquiry. 
For these reasons, publication in the Federal Register does not appear 
to be necessary.

6. Removal of Regulations Concerning the 1994 Domestic Marketing 
Assessment for Manufacturers Whose Use of Domestic Tobacco Fell Below 
75 Percent

    This rule also proposes removing the regulations that currently 
appear in Subpart E, as those regulations deal with an assessment that 
only applied with respect to activities which occurred in calendar year 
1994. Specifically, budget legislation enacted in 1993 provided for a 
``domestic marketing assessment'' (DMA) to be applied to certain 
manufacturers of cigarettes if their use of domestic tobacco did not, 
for certain cigarettes, over a calendar year, amount to 75 percent of 
their total tobacco use. Later legislation limited the application of 
the DMA to activities occurring in calendar year 1994. Accordingly, it 
does not appear worthwhile to continue the codification of the DMA 
regulations. Removal of the rules will not, however, affect liabilities 
with respect to the DMA for activities occurring in calendar year 1994.

7. Codification of Regulations Dealing With Establishing the National 
Marketing Quotas for Burley and Flue-Cured Tobacco

    It is also proposed that a new subpart be added to codify 
provisions dealing with the annual establishment of the burley and 
flue-cured tobacco national marketing quotas. The quotas for burley and 
flue-cured tobaccos, unlike the allotments for other supported 
tobaccos, are set, as provided for by statute, in a manner that takes 
into account pre-announced purchase intentions of certain cigarette 
manufacturers. Specifically, the calculation takes into account the 
purchase intentions of those cigarette manufacturers who meet the 1938 
Act definition of a ``domestic manufacturer of cigarettes'' by 
producing at least 1 percent of the cigarettes produced and sold in the 
United States. The 1938 Act provides, under section 317 for flue-cured 
tobacco, and section 319 for burley

[[Page 13548]]

tobacco, that the quota for each kind is the amount, computed 
separately which, with an allowance for the Secretary to make a 
discretionary upward or downward adjustment of up to 3 percent in the 
total, equals the sum of: (1) The aggregate, for the upcoming year, of 
the stated intentions of the manufacturers to purchase eligible tobacco 
of the relevant kind from regular auction markets, producers, or from 
the inventories of the relevant producer loan associations; (2) the 
average annual exports of that kind of domestic tobacco for the past 3 
years; and (3) the amount the Secretary deems, in his discretion, is 
needed to adjust the current inventories of the producer loan 
associations to establish stocks at the reserve stock level for the 
respective kind of tobacco. The reserve stock level is defined in 
section 301 of the 1938 Act to be, for burley tobacco, the greater of 
50 million pounds or 15 percent of the previous year's quota. For flue-
cured tobacco that level is defined to be the greater of 100 million 
pounds or 15 percent of the previous year's quota. Section 319 of the 
1938 Act provides, however, that the reserve stock level downward 
adjustment for burley tobacco may not exceed the greater of 35 million 
pounds or 50 percent of the quantity by which loan inventories exceed 
the reserve stock level. Section 320A of the 1938 Act requires that the 
statement of purchase intentions be filed by all manufacturers who meet 
the ``domestic manufacturer of cigarettes'' definition and provides 
that if a manufacturer fails to file such a statement the Secretary 
must estimate the purchases for the manufacturer based on the 
manufacturer's previous submissions. The statements of intention are 
due before the marketing year. Section 320A of the 1938 Act sets 
December 1 as the deadline for flue-cured purchase intentions. For 
burley, section 320A sets January 15 as the deadline. Also, section 
320A contains confidentiality provisions to protect the statements 
filed by manufacturers.
    Further, section 320B of the 1938 Act provides that cigarette 
manufacturers must report their tobacco purchases at the end of the 
year so that a comparison can be made with their statement of 
intentions. Under section 320B, the manufacturer must pay a per pound 
penalty, equal to twice the purchaser's share of the no-net-cost 
assessment rate for the relevant marketing year, if their purchases do 
not amount to 90 percent of their stated intentions. Section 320B 
provides that the penalty will be assessed on the full amount of the 
shortage except that 320B also provides that the statements of 
intention will be adjusted downward if producers do not, counting price 
support loan placements, produce, in the aggregate, the total national 
quota for the relevant kind of tobacco (burley or flue-cured) for the 
relevant marketing year.
    These provisions have been in place for many years. This rule 
proposes, however, to codify current policy to allow for comment and 
modification as needed. As with current practice, the rule provides for 
counting indirect and direct purchases for statement of purchase 
intentions and for calculations of compliance with those intentions. 
Also, the rule, for these purposes, as with current practice, specifies 
that purchases of leaf, stems, trimmings, and scrap tobacco for export 
should be excluded from the purchase intentions and from the purchases 
that are countable toward meeting the manufacturer's obligations.

8. Technical Changes in the Regulations

    This rule would also make certain technical changes, including 
changing references from ``ASC'' to ``FSA'' to reflect that under a 
recent reorganization, many of the functions of the former Agricultural 
Stabilization and Conservation Service are now handled by the USDA's 
Farm Service Agency.

List of Subjects in 7 CFR Part 723

    Acreage allotments, Dealers, Domestic cigarette manufacturers, 
Marketing quotas, Penalties, Tobacco

Proposed Rule

    For the reasons set forth in the preamble, it is proposed that 7 
CFR Part 723 be amended as follows:

PART 723--TOBACCO

    1. The authority citation for 7 CFR part 723 continues to read as 
follows:

    Authority: 7 U.S.C. 1301, 1311-1314, 1314-1, 1314b, 1314b-1, 
1314b-2, 1314c, 1314d, 1314e, 1314f, 1314i, 1315, 1316, 1362, 1363, 
1372-75, 1377-1379, 1421, 1445-1 and 1445-2.

    2. Section 723.104 is to be amended by adding definitions for 
``common ownership unit'', ``Farm Service Agency'', and ``FSA'' in 
their proper alphabetical order to read as follows:


Sec. 723.104  Definitions.

    Common ownership unit. A common ownership unit is a distinguishable 
part of a farm, consisting of one or more tracts of land with the same 
owners as determined by FSA.
    Farm Service Agency. An agency within the U.S. Department of 
Agriculture.
    FSA. The Farm Service Agency.
* * * * *
    3. Section 723.210 is amended by adding a new paragraph (d) to read 
as follows:


Sec. 723.210  Corrections of errors and adjusting inequities in acreage 
allotments and marketing quotas for old farms.

* * * * *
    (d) Making certain adjustments on a common ownership unit basis. 
Notwithstanding other provisions of this section, inequity adjustments 
may be allotted by common ownership unit rather than by farm when it is 
determined by the county FSA committee that the making of the 
determination on that basis provides greater equity.


Sec. 723.213  [Amended]

    4. Section 723.213 is amended by removing paragraph (c) and 
redesignating paragraph (d) as paragraph (c).
    5. Section 723.216(a) is amended by revising paragraph (a) 
introductory text and by revising paragraphs (a)(2)(ii)(A) and 
(a)(2)(iii)(A), to read as follows:


Sec. 723.216  Transfers of tobacco acreage allotment or marketing quota 
by sale, lease, or owner.

    (a) General. The allotment or quota established for a farm may be 
transferred to another farm to the extent provided for in this section. 
For transfers by sale, common ownership units on a farm may be 
considered to be separate farms. Transfers are not permitted for cigar 
binder (types 54 and 55) tobacco allotments.
* * * * *
    (2) * * *
    (ii) * * *
    (A) Leases. The owner and operator of the transferring farm and the 
owner or operator of the receiving farm. For leases made under the 
disaster provisions of this section, the signature of the owner will 
not be required if the FSA determines that the farm is cash leased for 
the current crop year and that the owner does not share in the crop.
* * * * *
    (iii) * * *
    (A) Leases. The owner of the transferring farm and the owner or 
operator of the receiving farm. For leases made under the disaster 
provisions of this section, the signature of the owner will not be 
required if the FSA determines that the farm is cash leased for the 
crop year and that the owner does not share in the crop.
* * * * *

[[Page 13549]]

Sec. 723.308  [Amended]

    6. Section 723.308 is amended by adding ``and announced annually'' 
after ``determined'' in the first sentence and removing the second 
sentence.
    7. Section 723.409 is amended by revising paragraphs (a), (b), 
(e)(1), (e)(2) introductory text, and (f) and by removing paragraph 
(g), such that the revised paragraphs in Sec. 723.409 will read as 
follows:


Sec. 723.409  Producer violations, penalties, false identification and 
related issues.

    (a) Generally--(1) Circumstances in which penalties are due. A 
penalty shall be due on all marketings from a farm which are:
    (i) in excess of the applicable quota or allotment;
    (ii) made without a valid marketing card;
    (iii) made under circumstances where the buyer or dealer, or their 
agents, know, or have reason to know, that the tobacco was, or is, 
marketed in a manner which by itself or in combination with other 
marketings is designed to, or has the effect of, defeating the purposes 
of the tobacco price support and production adjustment program, 
avoiding marketing quota limitations, or otherwise avoiding provision 
of this part or part 1464;
    (iv) falsely identified; or,
    (v) marketings for which the producer fails to make a proper 
account as required by the provisions of this part.
    (2) Amount of the penalty. The amount of the penalty shall be the 
amount computed by multiplying the penalty rate by the penalty 
quantity.
    (3) Penalty rate. The penalty rate for purposes of this section is 
that rate which is computed as the penalty rate per pound for the 
applicable kind of tobacco under Sec. 723.308, except to the extent 
that a converted penalty rate may be used as provided for in this 
section.
    (4) Penalty quantity. The quantity of tobacco that is determined by 
the county FSA committee to be subject to penalty, provided further 
that:
    (i) For burley and flue-cured tobacco, the penalty quantity for 
purposes of this section shall be the amount of marketings from the 
farm in excess of 103 percent of the farm's effective marketing quota 
for that year, except that if the violation involves false 
identification or a failure to account for tobacco, the FSA may, in its 
discretion, depending on the nature of the violations, use as the 
penalty quantity an amount up to 25 percent of the farm's effective 
marketing quota plus 100 percent of the farm yield on any excess 
acreage for the farm (acreage planted in excess of the allotted acres, 
as estimated or determined).
    (ii) For tobaccos other than burley and flue-cured tobacco, the 
penalty quantity shall be the amount of marketings from the farm in 
excess of the farm's marketing quota provided further, that in order to 
aid in the collection of the penalty the FSA shall endeavor, to the 
extent practicable, to apply the penalty to all of the farm's 
marketings by converting the full penalty rate to a converted 
proportionate penalty rate which rate may be identified on the 
producer's marketing card and collected and remitted accordingly. In 
making the calculation of the converted penalty rate, the agency shall 
take into account any carryover tobacco applicable for the farm. If an 
erroneous penalty rate is shown on the marketing card, then the 
producer of the tobacco and the producer who marketed the tobacco shall 
be liable for any balance due.
    (5) Limitations on reduced penalty quantities. No penalty shall, to 
the extent that there is discretion to do otherwise, be assessed at an 
amount which is less than the amount equal to the full penalty rate 
multiplied by the full number of pounds that are, or are estimated to 
be, subject to penalty, unless it is determined by the county FSA 
committee, with the concurrence of the State FSA committee, that all of 
the following exist with respect to such violation:
    (i) The violation was inadvertent and unintentional;
    (ii) All of the farm's production has been accounted for and there 
are no excess marketings for which there are penalties outstanding;
    (iii) The records for all involved farms have been corrected to 
show the marketings involved; and
    (iv) The false identification or failure to account did not give 
the producer an advantage under the program.
    (6) Effect of improper, invalid, deceptive or unaccounted for 
marketings on penalty quantity calculation. Any marketing made without 
a valid marketing card, falsely-identified, or unaccounted for in 
accordance with the requirements of this part, or made under 
circumstances which are designed to, or have the effect of, defeating 
the purpose of the tobacco marketing quota and price support program, 
avoiding any limitation on marketings, avoiding a penalty, or avoiding 
compliance with, or the requirements of, any regulation under this part 
or under part 1464, shall be considered an excess marketing of tobacco. 
Further, such marketings shall, unless shown to the satisfaction of the 
county FSA committee to be otherwise, be considered, where relevant, to 
be in excess of 103 percent of the applicable marketing quota for the 
farm, and shall be subject to a penalty at the full penalty rate for 
each pound so marketed.
    (7) Pledging of tobacco by an ineligible producer. In addition to 
any other circumstances in which a penalty may be assessed under this 
part, the marketing or pledging for a price support loan of any tobacco 
when the producer is not considered to be an ``eligible producer'' 
under the provisions of part 1464 of this title, shall be considered to 
be a false identification of tobacco and shall be dealt with 
accordingly. This remedy shall be in addition to all others as may 
apply.
    (8) Failures to make certain reports. If any producer who 
manufactures tobacco products from tobacco produced by or for such 
person fails to make the report required by Sec. 729.408, or otherwise 
required by this part, or makes a false report, the producer shall be 
deemed to have failed to account for the disposition of tobacco 
produced on the farms(s) involved. The filing of a report by a producer 
under Sec. 723.408 of this part which the State FSA committee finds to 
be incomplete or incorrect shall constitute a failure to account for 
the disposition of tobacco produced on the farm.
    (b) Special provisions for tobacco buyers, dealers, and warehouse 
operators and others who acquire tobacco.
    (1) Notwithstanding the provisions of paragraph (a) of this 
section, a dealer, buyer or warehouse operator shall collect an amount 
of penalty equal to the applicable per pound penalty rate times the 
quantity of tobacco acquired or handled by the buyer, dealer or 
warehouse operator when the tobacco is not identified with a valid 
producer marketing card, the tobacco is being sold under suspicious 
circumstances, or when there is any reason to suspect the tobacco may 
be subject to penalty. The provisions of this paragraph apply to all 
purchases by a dealer, buyer or warehouse operator including those from 
another dealer, buyer or warehouse operator. The dealer, buyer, 
warehouse operator, or their agent, shall also collect the full amount 
of the marketing quota penalty for each pound of tobacco involved in 
any case in which a buyer, dealer or warehouse operator knows, or has 
to reason to suspect, that the marketing is, or has been, made without 
a proper marketing card or is, or has been, made with a card which the 
dealer, buyer, warehouse operator, or their agents have reason to 
suspect, is not a valid marketing or is made under

[[Page 13550]]

circumstances which give cause to suspect that the marketing is not 
valid or is made in derogation of the tobacco marketing quota and price 
support program.
    (2) The amount of penalty collected may be deducted from the 
proceeds of the sale of the tobacco. All such penalty collections shall 
be the responsibility of each buyer dealer, or warehouse operator 
involved, and their agents, and shall be remitted to FSA as provided 
for in this part.
    (3) The collection and remittance of penalty shall be in addition 
to any other obligations that such person may have to collect other 
amounts, including other penalties or assessments due on such 
marketings.
    (4) If a penalty is collected and remitted by a buyer, dealer, or 
warehouse operator that is shown not to be due or only partially due, 
then the overpayment shall be refunded to the appropriate party. It is 
the responsibility of the person that collected the penalty and the 
person that sold the tobacco involved to show to the satisfaction of 
the FSA that such penalty is not due in the full amount collected.
* * * * *
    (e) * * *
    (1) For amounts of $100 or less, the county FSA committee, and
    (2) For amounts over $100, the county FSA committee with approval 
of the State FSA committee determines that each of the following 
conditions is applicable:
* * * * *
    (f) Refusal to contribute required assessments. A marketing penalty 
at the full rate per pound is due on each pound of tobacco marketed 
from a farm when the farm operator or producers refuse to pay no-net-
cost or marketing assessments as provided in part 1464 of this title. 
In all such cases, the farm from which the tobacco has been produced 
shall be considered to have a marketing quota of zero pounds and an 
allotment of zero acres.
    9. Part 723 subpart E is revised to read as follows:

Subpart E--Establishing Burley and Flue-Cured Tobacco National 
Marketing Quotas

Sec.
723.501  Scope.
723.502  Definitions.
723.503  Establishing the quotas.
723.504  Manufacturer's intentions; penalties.


Sec. 723.501  Scope.

    This subpart sets out regulations for setting annual national 
marketing quotas for burley and flue-cured tobacco based on the 
purchase intentions of certain manufacturers of cigarettes and on other 
factors. It also sets out penalty provisions for manufacturers who fail 
to purchase, within the tolerances set in this part, the amount of 
domestic tobacco, by kind, reflected in the stated intention as 
accounted for in accordance with this subpart.


Sec. 723.502  Definitions.

    In addition to the definitions set forth at Sec. 723.104, the 
definitions set forth in this section shall be applicable for purposes 
of administering the provisions of this subpart.
    CCC. The Commodity Credit Corporation, an instrumentality of the 
USDA.
    Domestic manufacturer. A domestic manufacturer of cigarettes.
    Domestic manufacturer of cigarettes. A manufacturer who, as 
determined by the Director, produces and sells more than 1 percent of 
the cigarettes produced and sold in the United States annually.
    Price support inventory. The inventory of tobacco which, with 
respect to a particular kind of tobacco, has been pledged as collateral 
for a price support loan made by CCC through a producer-owned 
cooperative marketing association.
    Producer-owned cooperative marketing associations. Those 
associations, or their successors, which by law act as agents for 
producers for price support loans for tobacco, and which were, as of 
January 1, 1996, for burley and flue-cured tobacco, the Burley Tobacco 
Growers Cooperative Association, the Burley Stabilization Corporation, 
and the Flue-Cured Tobacco Cooperative Stabilization Corporation.
    Unmanufactured tobacco. Stemmed and unstemmed leaf tobacco, stems, 
trimmings, and scrap tobacco.


Sec. 723.503  Establishing the quotas.

    (a) General. Subject to the 3 percent adjustment provided for in 
paragraph(b) of this section, the annual marketing quotas for burley 
and flue-cured tobacco shall be calculated for each marketing year for 
each kind separately as follows:
    (1) Domestic manufacturer purchase intentions. First, for each kind 
and year, the Director shall calculate the aggregate relevant purchaser 
intentions as declared or set under this section.
    (2) Exports. Next, the Director shall add to the total determined 
under paragraph(a)(1) of this section the amount which is equal to the 
Director's determination of the average quantity of exported domestic 
leaf tobacco of the applicable kind for the past 3 marketing years. For 
this purpose, exports include unmanufactured tobacco only, including, 
but not limited to, stemmed and unstemmed leaf tobacco, stems, 
trimmings, and scrap tobacco, and excludes tobacco contained in 
manufactured products including, but not limited to cigarettes, cigars, 
smoking tobacco, chewing tobacco, snuff and semi-processed bulk smoking 
tobacco. The quantity of exports for the most recent year, as needed, 
may be estimated.
    (3) Reserve stock level adjustment. The Director may then adjust 
the total calculated by adding the sums of paragraph(a)(1) and (a)(2) 
of this section, by making such adjustment which the Director, in his 
discretion, determines necessary to maintain inventory levels held by 
producer loan associations for burley and flue-cured tobacco at the 
reserve stock level. For burley tobacco, the reserve stock level for 
these purposes is the larger of 50 million pounds farm sales weight or 
15 percent of the previous year's national marketing quota. For flue-
cured tobacco, the reserve stock level for these purposes is the larger 
of 100 million pounds farm sales weight or 15 percent of the previous 
year's national marketing quota. Any adjustment under this clause shall 
be discretionary taking into account supply conditions; however, for 
burley tobacco no downward adjustment under this clause may exceed the 
larger of 35 million pounds (farm sales weight) or 50 percent of the 
amount by which loan inventories exceed the reserve stock level.
    (b) Additional 3 percent adjustment. The amount otherwise 
calculated under paragraph(a) of this section may be adjusted by the 
Director by 3 percent of the total. This adjustment is discretionary 
and may be made irrespective of whether any adjustment has been made 
under paragraph(a)(3), of this section and may be made to the extent 
the Director deems such an adjustment is in the best interest of the 
program.
    (c) Dates of announcement. For flue-cured tobacco, the quota 
determination should be announced by December 15 preceding the 
marketing year. For burley, the announcement should be made by February 
1 preceding the marketing year.


Sec. 723.504  Manufacturers' intentions; penalties.

    (a) Generally. Each domestic manufacturer shall, for each marketing 
year, for burley and flue-cured tobacco separately, submit a statement 
of its intended purchases of eligible tobacco

[[Page 13551]]

by the dates prescribed in paragraph (d)of this section; further, at 
the end of the marketing year, each such manufacturer shall submit a 
statement of its actual countable purchases of eligible tobacco for 
that marketing year, by kind, for burley and flue-cured tobacco. For 
these purposes, countable purchases of eligible tobacco shall be as 
defined in, and determined under, paragraph (b) of this section. If a 
domestic manufacturer fails to file a statement of intentions, the 
Director shall declare the amount which will be considered that 
manufacturer's intentions for the marketing year. That declaration by 
the Director shall be based on the domestic manufacturer's previous 
reports or such other information as is deemed appropriate by the 
Director in the Director's discretion. Notice of the amount so declared 
shall be forwarded to the domestic manufacturer. If the domestic 
manufacturer fails to file a year-end report or files an inaccurate or 
incomplete report, then the Director may deem that the manufacturer has 
no purchases to report or take such other action as the Director 
believes is appropriate to fulfill the goals of this section. 
Intentions and purchases of countable tobacco will be compared for 
purposes of determining whether a penalty is due from the domestic 
manufacturer.
    (b) Eligible tobacco for statements of intentions and countable 
purchases toward those intentions. For reports and determinations under 
this section, eligible tobacco for purposes of determining the 
countable purchases under paragraph (a) of this section will be 
unmanufactured domestic tobacco of the relevant kind for use to 
manufacture, for domestic or foreign consumption, cigarettes, semi-
processed bulk smoking tobacco, and other tobacco products. Eligible 
tobacco for these purposes does not include tobacco purchased for 
export as leaf tobacco, stems, trimmings, or scrap. Countable purchases 
of eligible tobacco shall include purchases of eligible tobacco made by 
domestic manufacturers directly from the producers, from a regular 
auction market, or from the price support loan inventory and shall also 
include purchases by the manufacturer where the manufacturer purchases 
or acquires the tobacco from dealers or buyers who purchased the 
tobacco for the domestic manufacturer during the relevant marketing 
year directly from a producer, at a regular auction market, or from the 
price support loan inventory.
    (c) Weight basis and nature of reports. The weight basis used for 
all reports and comparisons shall be a farm sales weight basis unless 
the Director permits otherwise and all reports will be considered to 
have been made on that basis unless the report clearly states 
otherwise. Submitted reports shall be deemed to cover countable 
purchases of eligible tobacco only.
    (d) Due dates and addresses for reports. For flue-cured tobacco the 
domestic manufacturer's statement of intentions shall be submitted by 
December 1 before the marketing year and the year-end report shall be 
submitted by August 20 following the end of the marketing year. Those 
dates for burley tobacco are January 15 and November 20, respectively. 
Reports shall be mailed or delivered to the Director, Tobacco and 
Peanuts Division, STOP 0514, P.O. Box 2415, Washington, DC 20013-2415.
    (e) Penalties. A domestic manufacturer shall be liable for a 
penalty equal to twice the purchaser's no-net-cost assessment rate per 
pound for the applicable kind of tobacco for the relevant marketing 
year, if the manufacturer's purchases of either burley or flue-cured 
tobacco for the marketing year do not equal or exceed, as determined by 
the Director, 90 percent of their stated purchase intentions for that 
kind of tobacco for the relevant marketing year. The Director shall 
adjust the domestic manufacturer's intentions, however, to the extent, 
that producers have not produced the full amount of the national quota 
for the relevant marketing year for the particular kind of tobacco. The 
burden of establishing all purchases shall be with the domestic 
manufacturer and the Director may, in the case of indirect purchases 
for the manufacturer, require that the manufacturer obtain verification 
of the purchases by the dealer who made the purchase from the producer, 
at a regular auction market, or from the price support loan inventory, 
in order to assure that the tobacco was countable tobacco. The Director 
may require such additional information as determined needed to enforce 
this subpart.
    (f) Penalty notice and penalty remittance. Penalties will be 
assessed after notice and an opportunity for a hearing before the 
Director. Remittances are to be made to the CCC and will be credited to 
the applicable producer loan association's no-net-cost fund or account 
as provided for in part 1464 of this title.
    (g) Maintenance and examination of records. Each domestic 
manufacturer shall keep all relevant records of purchases, by kind, of 
burley and flue-cured tobacco for a period of at least 3 years. The 
Director, Office of Inspector General, or other duly authorized 
representative of the United States may examine such records, receipts, 
computer files, or other information held by a domestic manufacturer 
that may be used to verify or audit such manufacturer's reports. The 
reasonable cost of such examination or audit may be charged to the 
domestic manufacturer who is the subject of the examination or audit. 
All records examined or received under this part by officials of the 
Department of Agriculture shall be kept confidential to the extent 
required by law.


Secs. 723.1 through 723.504  [Amended]

    10. Part 723 sections 723.1 through 723.504 are further amended by 
removing ``ASC'' wherever it appears and substituting ``FSA'' in its 
place.

    Signed at Washington, DC, on March 11, 1997.
Bruce R. Weber,
Administrator, Farm Service Agency
[FR Doc. 97-6732 Filed 3-20-97; 8:45 am]
BILLING CODE 3410-05-M