[Federal Register Volume 63, Number 100 (Tuesday, May 26, 1998)]
[Proposed Rules]
[Pages 28488-28495]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13819]
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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. 63, No. 100 / Tuesday, May 26, 1998 /
Proposed Rules
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DEPARTMENT OF AGRICULTURE
Farm Service Agency
7 CFR Part 735
RIN 0560-AF13
Amendment to Cotton Warehouse Regulations for the Purpose of
Defining ``Unnecessary Delay''
AGENCY: Farm Service Agency.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The Farm Service Agency (FSA) of the United States Department
of Agriculture (USDA) gives notice that, as a result of two Federal
District Court Orders and the cotton industry's continued
encouragement, it is presently contemplating the issuance of a proposed
rule that would address the statutory phrase ``without unnecessary
delay'' contained in sections 17 and 21 of the United States Warehouse
Act (USWA) (7 U.S.C. 259 and 262). In developing the proposed rule, FSA
would consider all distinct options that would satisfy and complement
the cotton industry's diverse segments in forging a national weekly
minimum cotton flow standard. FSA requests comments and suggestions
from the public on the issues and alternatives that would be addressed
in developing such a proposal, including, but not limited to those
issues specifically mentioned in this notice. Upon receipt and review
of all comments timely received in response to this advance notice of
proposed rulemaking, FSA will develop a proposed rule regarding the
implementation and administration of a national cotton flow standard,
which provides yet another opportunity for the public to comment before
the USDA would implement a final cotton flow standard.
DATES: Comments should be submitted on or before July 27, 1998 to be
assured of consideration.
ADDRESSES: Interested persons are invited to submit written comments on
this advance notice of proposed rulemaking to: Steve Gill, Director,
Warehouse and Inventory Division, U.S. Department of Agriculture, Farm
Service Agency, Stop 0553, 1400 Independence Avenue, SW, Washington, DC
20250-0553; telephone (202) 720-2121; fax (202) 690-3123; also E-mail
comments may be sent to: [email protected]. Additionally,
comments may be sent via the Internet through the National Cotton
Flow's (NCF) homepage at: http://www.fsa.usda.gov/ncf.
All written comments received in response to this advance notice
will be available for public inspection in Room 5968, South Agriculture
Building, U.S. Department of Agriculture, 1400 Independence Avenue, SW,
Washington, DC, between 8:00 a.m. and 4:30 p.m., Monday through Friday,
except holidays.
FOR FURTHER INFORMATION CONTACT: Steve Mikkelsen, Deputy Director,
Warehouse and Inventory Division, U.S. Department of Agriculture, Farm
Service Agency, Stop 0553, 1400 Independence Avenue, SW, Washington, DC
20250-0553; telephone (202) 720-2121, fax (202) 690-3123.
Background
Since the early 1960's, the timely delivery of stored cotton has
been an issue throughout the cotton industry. While cotton shippers and
cotton merchants required timely delivery to meet the demands of the
marketplace, warehousemen contended that the delivery demands placed on
them by shippers and merchants were unreasonable and exceeded warehouse
capabilities. Over the last 30 years, the cotton industry has made two
valid attempts to address the cotton flow issue, and in 1969, USDA
issued a proposed rule concerning cotton flow for warehouses licensed
under the USWA. Comments received in response to that proposed rule
discouraged USDA from implementing a cotton flow standard through its
regulatory process and, as a result, a final rule was never issued.
Continued discussions throughout the various segments of the cotton
industry also have failed to bring about an endorsement of a single
standard that was acceptable throughout the cotton industry.
During the 1995/96 cotton season, the Coalition for Cotton Flow
Standards (CCFS), an organization created by the National Cotton
Council (NCC) with the approval of all segments of the cotton industry,
instituted a one-year voluntary cotton flow standard. Initially, this
standard appeared acceptable to all segments of the cotton industry.
The voluntary standard (1) contained weekly minimum flow requirements
for warehousemen; (2) levied penalties for nonperformance by either the
warehouseman or shipper; and (3) incorporated an arbitration system to
settle disputes that arose over cotton flow issues. Approximately 90
percent of all cotton shippers and 52 percent of all cotton
warehousemen agreed to comply with this voluntary, one-year standard.
However, many warehousemen agreed to abide by the standard only if at
least 90 percent of all cotton shippers and warehousemen also agreed to
comply.
When shipment delays began to occur during the 1995/96 crop year,
rather than exercising the arbitration rights incorporated in the
voluntary standard implemented by the CCFS, several cotton shippers
filed complaints with FSA. These shippers requested FSA to investigate
the cotton flow situation, and suspend the federal license of those
warehouses that had not delivered cotton without unnecessary delay
pursuant to the USWA.
FSA personnel contacted and made several on-site visits to
warehouses about which FSA had received complaints. FSA reached no
ultimate conclusion, but the findings suggested that the unacceptable
delays experienced by the cotton shippers and merchants may have been
due, in part, to the lack of a standard method for requesting services
and a lack of uniform definitions for common terms used to request
these services throughout the cotton industry. For example, it appears
that shippers and warehousemen begin recording time from different
starting points, and there may be several days difference between a
shipper's ``request date'' and warehouseman's ``confirm date.'' The
lack of a standard method for requesting services and of uniform common
terms may have led to an appearance of a longer delivery delay than
actually existed.
In addition to filing complaints with FSA, several shippers also
filed lawsuits in United States District Court against
[[Page 28489]]
two cotton warehousemen, alleging that these warehousemen were delaying
cotton deliveries to increase storage earnings. In each of these cases,
lack of determination by USDA in the use and meaning of the USWA
statutory phrase ``without unnecessary delay'' was a key issue for the
courts. Ultimately, the shippers elected to dismiss their suits after
the warehousemen agreed to join them in requesting that the cases be
remanded to USDA to determine the definition of the statutory phrase
``without unnecessary delay.'' The Courts agreed and remanded the
matter of defining ``without unnecessary delay'' to USDA.
In June 1997, the Cotton Warehouse Association of America (CWAA)
and the American Cotton Service Warehouse Association (ACSWA) reached
an unprecedented mutual agreement for a cotton flow standard that would
expedite the shipment of U.S. cotton into marketing trade channels and
enhance the prices received by producers while reducing the cost of
handling cotton. These two associations, along with the American Cotton
Shippers Association (ACSA) and textile mill segments, petitioned USDA
requesting that FSA facilitate the needs of the entire cotton industry
through an expeditious establishment and implementation of a uniform
cotton flow standard. These associations recommended to USDA that a
weekly minimum flow standard should be as follows:
Except when prevented from doing so by Act of God or force majeure,
a mandatory, non-cumulative, weekly minimum standard for bales to be
shipped or made ready for scheduled delivery that week would be not
less than 4.5% of CCC licensed capacity of a warehouse in effect
during the week of shipment.
As a result of these events, USDA has decided to define, through
the rulemaking process, the statutory phrase ``without unnecessary
delay'' and establish a weekly minimum cotton flow standard that would
be national in scope.
Using the USWA as the Tool for Implementing the Cotton Flow Standard
Section 21 of the USWA (7 U.S.C. 262) mandates that federally
licensed warehousemen, ``in the absence of some lawful excuse, shall,
without unnecessary delay, deliver the agricultural products stored
therein upon a demand made by either the holder * * * or depositor. * *
*'' In addition, section 17 of the USWA (7 U.S.C. 259) mandates that
all non-federally licensed warehousemen who issue electronic warehouse
receipts, ``in the absence of a lawful excuse, shall, without
unnecessary delay, deliver the cotton stored in the warehouse on demand
made by the person named in the record in the central filing system as
holder of the receipt.''
USDA believes that the standard should be based on the USWA rather
than the Cotton Storage Agreement (CSA). For the 1997 crop, more than
15.5 million bales of cotton were receipted with electronic warehouse
receipts under the USWA through its federally licensed warehouse system
and its approved electronic receipt providers that service non-
federally licensed warehousemen, shippers, merchants, receipt holders,
and other segments of the cotton industry. This represented more than
80 percent of the total 1997 cotton production. In contrast, less than
20 percent of the 1997 cotton production was associated with CCC's
Cotton Storage Agreement (CSA) during this period. In addition, a
standard based on the CSA would apply only to CCC-owned or loan bales
and not to another storage bale, warehouse, or industry segment. Given
CSA's applicability to CCC-interest cotton only, USDA perceives that
the USWA's influence would embody the bulk of cotton handled and
merchandised.
General Provision and Options
FSA is seeking comments from the public regarding a weekly minimum
cotton flow standard that would address the statutory phrase ``without
unnecessary delay.'' While the public is free to comment on all aspects
of this notice, two options for administering the cotton flow standard
are being presented in this notice. The two options differ in the level
of USDA involvement in ensuring compliance with the standard and in
regulating the cotton industry regarding the standard.
FSA is considering the following cotton flow standard that would
apply to the statutory phrase ``without unnecessary delay.'' For the
purpose of this advance notice of proposed rulemaking, this standard
would be applicable to both options:
Cotton Flow Standard
Except when prevented from doing so by force majeure, a mandatory,
non-cumulative, weekly minimum shipping standard for bales delivered
or staged for a scheduled delivery during that week shall be not
less than 4.5% of the licensed or approved storage capacity of a
warehouse in effect during the week of shipment, or as determined by
the Secretary.
Option I. Under Option I, USDA would establish a cotton flow
standard to address the statutory phrase ``without unnecessary delay'',
but would have minimal involvement in administering and ensuring
compliance with the established standard. Option I would include
provisions for private non-governmental dispute resolution and would
define USDA's limited regulatory role in administering the cotton flow
standard.
(a) Cotton Flow Standard. As stated above.
(b) Dispute Resolution. Unresolved claims for noncompliance with
the national cotton flow standard would be resolved through arbitration
administered by the cotton industry.
(1) Arbitration.
(i) Disputes between warehousemen, merchants, receipt holders, and
shippers, who are members of the same trade association with an
established arbitration system, would resolve their disputes through
that association.
(ii) Parties that are members of different trade associations each
with established arbitration systems would mutually negotiate about
which association's arbitration system would be utilized. No split
arbitrations would be allowed, only one association's arbitration
system could be used.
(iii) When the parties cannot mutually agree upon, which
association's arbitration system to utilize in resolving the dispute,
they would enter into a contract a with private arbitrator adhering to
the American Arbitration Association's (AAA) Standards and Procedures.
(iv) Private arbitrators following AAA's Standards and Procedures
would resolve those disputes between parties belonging to trade
associations without an established arbitration system, or who are not
members of any trade association, and/or with a party who is a member
of a trade association with an established arbitration system when the
other party does not agree to use that association's arbitration
system.
(v) The noncomplying party would be responsible for all costs and
expenses associated with the arbitration.
(c) USDA's Regulatory Role.
(1) USDA would not hear complaints or settle unresolved disputes
between a shipper and a warehouseman involving a national cotton flow
standard violation or associated damages.
(2) No arbitrator's rendered determination or award would affect,
obligate, or restrict USDA's authority to administer and regulate the
issuance of USWA licenses, USWA receipts, contractual agreements, or
the electronic warehouse receipt provider system.
Option II. Under Option II, USDA would establish a cotton flow
standard to address the statutory phrase ``without
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unnecessary delay'' and would be involved in the daily administration
of the cotton flow standard. Option II includes regulatory definitions
and procedures for the timely delivery and acceptance of cotton that
are applicable to cotton flow standard compliance determination,
dispute resolution, and reporting requirements.
(a) Definitions and Terms. The definitions and terms stated in this
section are applicable for the purposes of administering the regulation
under Option II. The following definitions are proposed. The public is
free to comment on these definitions, including their inclusion or
exclusion in the regulation:
(1) Confirmed Shipment Date. A warehouseman's scheduled delivery
date for a specific bale, confirmed in writing or by any other rapid
written communication method physically notifying the receipt holder.
(2) Delivery. A warehouseman's physical act placing a scheduled
bale in some type of conveyance or otherwise making the bale available
according to the receipt holder's instructions.
(3) 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
or receipt holder, which renders performance impossible.
(4) Scheduled Bales. Specific bales that a warehouseman schedules
with written confirmation for delivery on a specified date.
(5) Shipping Order. A warehouseman's unique document that
identifies and confirms each specific bale scheduled for delivery and
references a receipt holder's original delivery request.
(6) Timely Delivery. An act by which a warehouseman makes available
to the receipt holder a scheduled bale on or before the ``confirmed
shipment date'', or within fourteen (14) calendar days after receiving
the receipt holder's written delivery request.
(7) Timely Acceptance. An act by which a receipt holder takes
possession and removes scheduled bales from a warehouse on or before
the ``confirmed shipment date.''
(8) Unnecessary Delay. A receipt holder's failure to take ``timely
acceptance'' or a warehouseman's failure to make ``timely delivery'' of
a scheduled bale on or before the ``confirmed shipment date'' in
absence of force majeure. Also, a warehouseman's failure to meet or
exceed the weekly minimum cotton flow standard.
(9) Week. Seven (7) consecutive calendar days, beginning 12:00 a.m.
Saturday morning and ending 11:59 p.m. Friday night, or as determined
by the Secretary.
(b) Cotton Flow Standard. As stated above.
(c) Delivery of Cotton from Storage.
(1) The Secretary expects cotton warehousemen who issue electronic
warehouse receipts and/or who are USWA licensed to schedule delivery as
close as possible to a receipt holder's requested delivery date for
cotton stored in their warehouse.
(2) Warehouseman must schedule delivery of all bales at the request
of the receipt holder.
(3) A scheduled bale not delivered during any week would be the
first bale delivered the following week. When delivered, this bale
would count towards the weekly minimum cotton flow standard during the
week delivered.
(4) Each individual bale within a non-segregated lot, that a
warehouseman receives, stores, and redelivers under a multiple bale
warehouse receipt, such bales would count toward the weekly minimum
cotton flow standard upon delivery.
(5) When a warehouseman receives, stores, and redelivers bales as
an unbroken non-segregated lot, without receipting them under a
multiple bale or as a single warehouse receipt(s), such bales would not
count toward the weekly minimum cotton flow standard upon delivery.
(6) In the absence of force majeure, warehousemen that fail to
``timely deliver'' scheduled bales and receipt holders that fail to
``timely accept'' scheduled cotton will be deemed as not complying with
the weekly minimum cotton flow standard.
(d) Dispute Resolution. Unresolved claims for noncompliance with
the national cotton flow standard would be first resolved by mediation
and finally by arbitration.
(1) Mediation. Disputes in which one or more of the affected
parties belong to a trade association(s) without an established
arbitration system, or who are not members of any trade association, or
who are members of separate associations and cannot agree on which
association's arbitration system to utilize, would be resolved through
the following alternative dispute resolution process:
(i) The parties would, in good faith, attempt to resolve the
dispute through a mediation process administered by an independent
mediator recommended by AAA and conducted in accordance with current
AAA Mediation Rules and Procedures before resorting to binding
arbitration.
(ii) The parties would faithfully observe all applicable AAA rules,
procedures, and abide by and execute any agreement or determination
recommended by the mediator.
(iii) When good faith mediation fails to resolve the dispute, both
parties would submit their dispute to binding arbitration administered
by an independent arbitrator recommended by AAA.
(2) Arbitration.
(i) Disputes between warehousemen, merchants, receipt holders, and
shippers, who are members of the same trade association with an
established arbitration system, would resolve their disputes through
that association.
(ii) The parties would mutually negotiate about which association's
arbitration system would be utilized, when the parties are members of
different trade associations with established arbitration systems. No
split arbitrations would be allowed, only one association's can be
used.
(iii) When parties cannot mutually agree, which association's
arbitration system to utilize in resolving the dispute, they would
enter into a contract with private arbitrators adhering to AAA's
standards and procedures.
(iv) Private arbitrators who follow AAA's standards and procedures
would resolve those disputes between parties who belong to trade
associations without an established arbitration system, or who are not
members of any trade association, and/or with a party who is a member
of a trade association with an established arbitration system when the
other party does not agree to use that association's arbitration
system.
(v) In the event a party refuses to submit to arbitration or fails
to abide by any determination or award rendered by the arbitrators, the
party desiring arbitration or enforcement of the determination or award
may notify USDA of the party's unwillingness to resolve a cotton flow
standard dispute or comply with an arbitrator's rendered determination
or award.
(vi) The noncomplying party would be responsible for all costs and
expenses associated with the arbitration and any costs incurred by
USDA.
(vii) Any controversy or claim arising from or related to the
arbitrator's rendered determination or award may be enforced by any
federal or state court having jurisdiction thereof.
(e) USDA's Regulatory Role.
(1) USDA would not hear complaints or settle unresolved disputes
between a shipper and a warehouseman involving
[[Page 28491]]
a national cotton flow standard violation or associated damages.
(2) No arbitrator's rendered determination or award would affect,
obligate, or restrict USDA's authority to administer and regulate the
issuance of USWA licenses, USWA receipts, contractual agreements, or
the electronic warehouse receipt provider system.
(3) Under the authority of the USWA and its regulations, USDA may
independently administer all regulatory actions, arbitration proceeding
determinations, and rendered awards when such action is necessary for
the effective administration of the national cotton flow standard.
(4) USDA will require USWA licensed warehousemen and non-federally
licensed warehousemen, receipt holders, and shippers who utilize the
electronic warehouse receipt system to:
(i) Meet the weekly minimum cotton flow standard.
(ii) ``Timely deliver'' and ``timely accept'' scheduled bales.
(5) USDA would reserve the right to take action against the
noncomplying party, including:
(i) Suspension or termination of licenses issued in accordance with
the USWA.
(ii) Suspension or termination of access to the electronic receipt
provider system.
(f) Program Operations and Maintenance. Congress requires USDA to
collect sufficient fees for the operation and maintenance of all USWA
related operations. USDA is considering funding the cost of
administering a national cotton flow standard through an assessment on
each bale of cotton.
(1) Warehousemen would collect an assessment on each individually
receipted bale and each individual bale represented by a multiple bale
receipt that is delivered or redelivered for shipment.
(2) The assessment would be collected along with other
warehouseman's tariff charges in the final settlement of each shipping
order.
(3) The warehouseman would forward the collected assessments to
USDA quarterly.
(g) Reports and Reporting. Each week, warehousemen would
electronically transmit a report to USDA that would be comprised of
warehouse information that the cotton industry considers essential for
improving global marketing opportunities, enhancing cotton values, and
encouraging timely delivery and acceptance of stored cotton. USDA would
collectively merge this information into a ``National Cotton Flow
Standard Status Report'' that USDA would publish electronically on the
Internet.
Comments
The information collected in response to this advance notice of
proposed rulemaking will be used to determine the cotton industry's
overall needs regarding a ``National Cotton Flow Standard''. Appendix I
provides interested parties an opportunity to respond to specific
questions on the issue of a national cotton flow standard. Respondents
may simply cut out or duplicate the stated issues/questions furnished
in Appendix I of this notice. Respondents may submit their comments to
the address shown above. Respondents may also access these same issues/
questions and submit comments via the Internet through the NCF homepage
address at: http://www.fsa.usda.gov/ncf.
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Alternative suggestions, ideas and comments will be considered
fully. When providing comments regarding this advance notice of
proposed rulemaking, the respondent should provide the FSA with a
complete description of the details of the alternative method or issue,
along with supporting data.
Signed at Washington, D.C., on May 19, 1998.
Keith Kelly,
Administrator, Farm Service Agency.
[FR Doc. 98-13819 Filed 5-22-98; 8:45 am]
BILLING CODE 3410-05-P