Classification of Foreign-Growth Cotton, 7025-7031 [2016-02461]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 81, Number 27 (Wednesday, February 10, 2016)]
[Rules and Regulations]
[Pages 7025-7031]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02461]



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Federal Register / Vol. 81, No. 27 / Wednesday, February 10, 2016 / 
Rules and Regulations

[[Page 7025]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 28

[AMS-CN-15-0051]


Classification of Foreign-Growth Cotton

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Direct final rule.

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

SUMMARY: The Agricultural Marketing Service (AMS) is amending 
regulations pertaining to administrative and operational procedures for 
the classification of foreign-growth cotton. In anticipation that 
cotton merchants may want to use AMS cotton quality determinations to 
establish foreign-growth cotton as tenderable against the World Cotton 
futures contract offered by the Intercontinental Exchange (ICE), 
representatives of the U.S. cotton industry and ICE formally requested 
that AMS make any regulatory amendments necessary to better accommodate 
the classification of foreign-growth cotton. Consequently, AMS seeks to 
clarify the existing language, update the terms and practices described 
to comply with today's industry norms and current cotton classification 
technologies, and establish procedural safeguards to the classification 
process for foreign-growth cotton that promote accuracy.

DATES: This direct final rule is effective April 11, 2016, without 
further action or notice, unless significant adverse comment is 
received by March 11, 2016. If significant adverse comment is received, 
AMS will publish a timely withdrawal of the rule in the Federal 
Register.

ADDRESSES: Written comments may be submitted to the addresses specified 
below. All comments will be made available to the public. Please do not 
include personally identifiable information (such as name, address, or 
other contact information) or confidential business information that 
you do not want publically disclosed. All comments may be posted on the 
Internet and can be retrieved by most Internet search engines. Comments 
may be submitted anonymously.
    Comments, identified by AMS-CN-15-0051, may be submitted 
electronically through the Federal eRulemaking Portal at https://www.regulations.gov. Please follow the instructions for submitting 
comments. In addition, comments may be submitted by mail or hand 
delivery to Darryl Earnest, Deputy Administrator, Cotton & Tobacco 
Program, AMS, USDA, 3275 Appling Road, Room 11, Memphis, TN 38133. 
Comments should be submitted in triplicate. All comments will be 
available for public inspection during regular business hours at Cotton 
& Tobacco Program, AMS, USDA, 3275 Appling Road, Memphis, TN 38133. A 
copy of this rule may be found at: www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Darryl Earnest, Deputy Administrator, 
Cotton & Tobacco Program, AMS, USDA, 3275 Appling Road, Room 11, 
Memphis, TN 38133. Telephone (901) 384-3060, facsimile (901) 384-3021, 
or email at darryl.earnest@ams.usda.gov.

SUPPLEMENTARY INFORMATION:

A. Background

    The U.S. cotton industry and the International Cotton Association 
(ICA) requested that Intercontinental Exchange (ICE) offer a World 
Cotton futures contract to better manage price risk in the global 
cotton market. In response, ICE began offering World Cotton futures 
contracts on November 2, 2015. With this contract offering, cotton 
grown outside the United States is allowed to participate in a U.S. 
commodity exchange for the first time.
    The new contract is intended to serve as a price discovery and risk 
management vehicle for a broad set of cotton traded internationally. 
Unlike the Cotton No. 2 futures contract, which prices the delivery of 
U.S. cotton for U.S. delivery points only, the new World Cotton futures 
contract prices the delivery of cotton regardless of growth for U.S. 
and foreign delivery points. Cotton grown in the United States, 
Australia, Brazil, India, and the west African countries of Benin, 
Burkina Faso, Cameroon, Ivory Coast and Mali will be eligible for 
deliveries against the new World Cotton futures contract.
    To facilitate the participation of foreign-growth cotton in the 
World Cotton futures contract, Congress amended the U.S. Cotton Futures 
Act (Act) (Pub. L. 114-36, July 20, 2015, 129 Stat. 435). This 
amendment allows for foreign-growth cotton to participate in U.S. 
cotton futures contracts without being subject to the provisions of the 
Act. While all cotton grown in the U.S. that is offered as tenderable 
against any cotton futures contract traded on a U.S. commodity exchange 
must continue to comply with the Act, commodity exchanges are now able 
to determine their own contract provisions for foreign-growth cotton. 
Of particular relevance are the contract provisions that establish the 
portion of the foreign-growth cotton in each lot that must have 
official quality determinations and that specify what entities are 
eligible to make such official determinations of quality for this 
foreign-growth cotton. Consequently, ICE established a provision 
requiring that at least twenty percent of the foreign-growth cotton in 
a lot meet specified quality parameters. ICE also designated AMS and 
International Cotton Association (ICA) Breman as two entities eligible 
to make official cotton quality determinations for its World Cotton 
futures contract.
    In anticipation that cotton merchants may want to use AMS cotton 
quality determinations to establish foreign-growth cotton as tenderable 
against the World Cotton futures contract, the U.S. cotton industry and 
ICE formally requested that the AMS, Cotton & Tobacco Program make any 
regulatory amendments necessary to better accommodate the 
classification of foreign-growth cotton. Since the November 2nd 
offering of the World Cotton futures contract, merchants have already 
contacted AMS, requesting that foreign-growth cotton samples be 
classified.
    With foreign-growth cotton excluded from the provisions of the U.S. 
Cotton Futures Act, AMS is no longer authorized to certify the quality 
of foreign-growth cotton as tenderable against a cotton futures 
contract as it does for U.S. cotton. However, AMS may provide cotton 
quality

[[Page 7026]]

determinations for foreign-growth cotton under the authority of Cotton 
Statistics and Estimates Act (7 U.S.C. 471-476). Regulations pertaining 
to the classification of foreign-growth cotton are found in 7 CFR part 
28 in subpart B. Upon review of these regulations, AMS determined that 
amendments to both administrative and classification procedures are 
required.
    Historically, very little foreign-growth cotton has been imported 
and, until recently, foreign-growth cotton was not able to be tendered 
against futures contracts offered by U.S. commodity exchanges. For 
these reasons, demand for AMS' foreign-growth cotton classification 
services was almost exclusively limited to providing classification 
data intended for non-commercial/research purposes only. Significant 
differences exist between the procedures and processes employed for 
generating classification data intended for commercial use and 
classification data intended for non-commercial use.
    Cotton classification data that is intended for commercial use is 
generated by a set of processes and procedures that have multiple 
safeguards that contribute to confidence in the data's accuracy. One 
prominent procedural safeguard specifically for commercial 
classification of cotton futures requires each sample submitted to be 
classed twice--an initial classification (a.k.a., set-up 
classification) and an automatic review classification (a.k.a., final 
classification). In the event that the initial and review 
classifications fail a statistical comparison, a third classification 
is performed and its measurements considered in the final quality 
measurements assigned. Furthermore, in instances where a merchant 
submits the bale's Permanent Bale Identification (PBI) number along 
with the futures sample, statistical comparisons are made between the 
original Smith-Doxey classification data and the futures classification 
data. None of these safeguards are included in the current regulations 
pertaining to foreign-growth cotton, making the quality data resulting 
from current foreign-growth cotton classification procedures unsuitable 
for commercial use. Therefore, AMS is amending regulations in 7 CFR 
part 28 to help assure that foreign-growth cotton is classified 
according to the same rigor as U.S. grown cotton.

Subpart A

    Subpart A of part 28 defines the administrative and operational 
regulations pertaining to the classification of Form A determinations, 
Form C determinations, Form D determinations, and Micronaire reading 
services. Amendments in this subpart are limited to sections that are 
referenced in subpart B and are necessary to comply with recent 
administrative changes, to be consistent with current industry norms, 
and to add clarification.
    The terms ``Division'', ``Quality Control Section'', and 
``Universal standards'' and their definitions are amended in Sec.  
28.2, paragraphs (g), (j) and (q), respectively. The terms ``Division'' 
and ``Quality Control Section'', were changed by administrative action. 
``Division'' was changed to ``Program'' at the same time the Cotton 
Division and the Tobacco Division were merged into the Cotton and 
Tobacco Program. Therefore, the term ``Division'' in paragraph (g) of 
Sec.  28.2 is replaced by ``Program'' and the term ``Cotton Division'' 
is replaced by ``Cotton and Tobacco Program'' in the definition of 
``Program''. Likewise, the term ``Division'' in Sec. Sec.  28.121 and 
28.177 is replaced by ``Program''. The ``Quality Control Section'' of 
the Cotton and Tobacco Program was changed to the ``Quality Assurance 
Division'' by administrative action. Therefore, the term ``Quality 
Control Section'' in paragraph (j) of Sec.  28.2 is replaced by 
``Quality Assurance Division''. Likewise, the term ``Quality Control'' 
in Sec.  28.32(a) subparagraph (3) is replaced by ``Quality Assurance'' 
and ``Quality Control Section'' is replaced by ``Quality Assurance 
Division'' in Sec.  28.177. The Universal Cotton Standards are the 
official cotton standards of the United States. To ensure accuracy and 
consistency within the regulatory text, the term ``Universal 
standards'' in paragraph (q) of Sec.  28.2 is replaced by ``Universal 
Cotton Standards'' and the definition is amended to include a note 
about familiar versions of this term. Likewise, Sec.  28.35 is amended 
by adding ``the Universal Cotton Standards,'' to clearly identify in 
part 28 the official cotton standards of the United States.
    Both Classing Offices and the Quality Assurance Division provide 
the services specified in part 28. Therefore, the authorities granted 
to the Area Director in Sec. Sec.  28.36 and 28.37 are extended to the 
Quality Assurance Director also. For the same reason, the term 
``Classing Office'' in Sec.  28.37 is replaced with the broader term, 
``Program''.
    It is generally accepted that the term ``grade'' specifically 
pertains to color or leaf quality measures. To more accurately reflect 
that differences in quality between two sub-samples drawn from the same 
bale may extend beyond just color or leaf grade and staple length, 
``grade'' in the heading of Sec.  28.38 is replaced with ``class'' and 
the phrase ``grade or shorter length'' in this same section is replaced 
by the more generic term, ``class''.
    The practice of reducing cotton in grade for the presence of 
extraneous matter or other irregularities was common when a ``grade'' 
reflected multiple quality characteristics. However, this practice has 
been replaced by the issuance of quality metrics for each individual 
quality characteristic. Therefore, the current language in Sec.  28.39 
is removed and the section number is held in reserve.
    Terms pertaining to cotton classification are defined in Sec.  
28.40. Since these terms were last amended, several have become 
irrelevant or are in need of updating to comply with current industry 
norms and practices. Furthermore, several new terms have become 
commonplace within the industry and need to be added to the 
regulations. Amendments are made to paragraphs (a), (c), (d), (g), and 
(h). In paragraph (a), the definition of the obsolete term, ``Cotton of 
perished staple'', is replaced by the new term ``Fire-Damaged Cotton'' 
and its definition. The definition of the obsolete term, ``Gin-cut 
cotton'', in paragraph (c) is replaced by the new term, ``Extraneous 
Matter'', and its definition. Amendments to the definition of Re-ginned 
cotton in paragraph (d) are intended to add clarity to the definition 
and specify that the owner of the cotton or owner's agent are 
responsible for identifying re-ginned cotton. The definition of 
``Mixed-packed cotton'' in paragraph (g) is updated to reflect current 
cotton classification terminology and to officially assign the 
designation for mixed-packed cotton that has become commonplace within 
the industry. ``Water-packed cotton'', which is defined in paragraph 
(h), is now more commonly called ``water-damaged cotton''. In addition 
to updating the term's name, the amendment provides additional 
instruction on how water-damaged cotton is marked on the classification 
record.
    Amendments to Sec.  28.47 reflect a change in standard operating 
procedures, which were made possible by technological advances and 
motivated to provide complete information to customers. Specifically, 
the amendment eliminates the subjective rankings of samples 
(``better,'' ``equal,'' or ``deficient'') submitted for comparison and, 
instead, provides objective quality measures for each sample being 
compared.
    The term ``Division'', used in Sec.  28.121 to represent the Cotton 
and Tobacco Program, is replaced by ``Program''. This

[[Page 7027]]

amendment more accurately reflects the current administrative 
structure, adding clarity to the language.

Subpart B

    Subpart B of part 28 defines the administrative and operational 
regulations pertaining to the classification of foreign-growth cotton. 
Amendments to this subpart seek to clarify the existing language, 
update the terms and practices described to comply with today's 
industry norms and cotton classification technologies, and add 
procedural safeguards to the classification process that promote 
accuracy.
    As previously stated, AMS is no longer authorized by the U.S. 
Cotton Futures Act to certify the quality of foreign-growth cotton as 
tenderable against a cotton futures contract as it does for U.S. 
cotton. However, AMS may provide cotton quality determinations for 
foreign-growth cotton that are robust enough for commercial purposes 
under the Cotton Statistics and Estimates Act (7 U.S.C. 471-476). 
Therefore the authority citation in subpart B is amended by adding ``7 
U.S.C. 471-476''.
    The definition of ``foreign-growth cotton'' is clarified in Sec.  
28.175 to include both cotton produced outside of the continental 
United States and U.S. cotton that is sampled while being stored at a 
location outside of the United States. Since samples stored at foreign 
locations are not drawn from bales under the jurisdiction of a USDA-
licensed warehouse, the expansion of the definition of foreign-growth 
cotton to include U.S. cotton stored at a foreign location is necessary 
to restrict the representation of classification data to the cotton 
sample submitted.
    Cotton classification terms as they pertain to section 203(h) of 
the Agricultural Marketing Act of 1946, as amended by Public Law 272, 
84th Congress, are defined in Sec.  28.176. Amendments to paragraphs 
(a), (b), (c) and (d) of this section update and clarify these 
definitions so as to reflect the classification of foreign-growth 
cotton. Paragraph (a) expands the definitions of official certificate 
to include electronic forms; replaces ``inspection, sampling, class, 
grade, quality, quantity, or conditions'' with ``fiber quality and 
conditions''; and replaces ``products'' with ``samples submitted'' to 
reflect the more limited scope of services provided under subpart B. 
Likewise, ``inspecting, or sampling'' is replaced by ``and classing'' 
throughout paragraph (b). The definition of official mark is amended in 
subsection (c) to limit the types of products ``marked'' in subpart B 
to samples submitted for classification. To reflect the more limited 
scope of services provided under subpart B in the definition of 
official identification in paragraph (d), the designation of 
``quantity'' is removed and the term ``products'' is replaced with 
``samples submitted''.
    The administrative process for requesting the classification and/or 
comparison of foreign-growth cotton is specified in Sec.  28.177. 
Amendments update these procedures, specifying that an application 
provided by the Program is to be used and applications are to be filed 
with the Quality Assurance Division or the Classing Office designated 
by the Deputy Administrator of the Cotton and Tobacco Program.
    Physical specifications for foreign-growth cotton samples and 
instructions for submitting these samples to USDA for classification 
are specified in Sec.  28.178. Amendments to this section include the 
insertion of new paragraphs (a) thru (g). New paragraphs (a) thru (f) 
are sample specifications for Form A, Form C and Form D determinations 
listed in Sec. Sec.  28.25-28.27 that have been customized to 
facilitate the process of classifying foreign-growth cotton. New 
paragraph (g) contains amendments that specify the types of information 
that must accompany foreign-growth cotton samples. Furthermore, a 
statement about financial responsibility for transportation charges is 
removed.
    New regulatory language is added to subpart B. Four new sections 
are inserted after Sec.  28.178 and, therefore, current Sec. Sec.  
28.179-28.182 are redesignated as Sec.  28.183 and Sec. Sec.  28.185-
28.187, respectively.
    New language, derived from Sec. Sec.  28.28-28.30 under subpart A, 
is added to redesignated Sec. Sec.  28.179-28.180. This language 
pertains to financial responsibility for lost or damaged samples and 
the return and subsequent ownership of U.S. cotton samples submitted 
for classification. The language was added in order to clearly state 
that the Program is not financially responsible for lost or damaged 
samples, and that samples of foreign-growth cotton submitted for 
classification/comparison become the property of the Program.
    New language, based on Sec.  28.19 under subpart A, is added to 
redesignated Sec.  28.181. It states the right of applicants to 
withdraw a request for classification/comparison before classing begins 
and the obligation of applicants to pay for requested services if the 
classification/comparison process has already begun.
    The terms for denial of services expressed in Sec.  28.31 in 
subpart A are revised and added to redesignated Sec.  28.182 in order 
to promote clarity.
    Methods of foreign-growth cotton classification and comparison are 
stipulated in redesignated Sec.  28.183 and its paragraphs. New 
paragraph (a) is a modified version of Sec.  28.8, while new paragraph 
(b) refers directly to Sec. Sec.  28.36 through 28.40 for additional 
procedures and methods pertaining to the classification of foreign-
growth cotton samples. Newly designated paragraph (c) refers to 
Sec. Sec.  28.45 through 28.47 for procedures and methods used for 
comparison of cotton samples.
    Since cotton classification results are most commonly communicated 
electronically, new Sec.  28.184 is added to define the types of 
information to be included in electronic cotton classification reports. 
Reports must identify that classification records represent only the 
samples submitted rather than a particular bale of cotton. This 
information is necessary because the sampling procedures for foreign-
growth cotton are not conducted by or under the supervision of a USDA-
licensed agent.
    Redesignated Sec.  28.185 defines the information to be included in 
an optional cotton classification memorandum. The amendment to this 
section includes the elimination of references to a Classing Office 
performing the classification. References to the Universal Cotton 
Standards are corrected in paragraph (d). New language in paragraph (e) 
explicitly states that classification data resulting from foreign-
growth classification/comparison services applies only to the sample 
submitted. The amendment to new subsection (f) requires that the 
signature of the Director of the facility providing the classification 
service be applied to the memorandum rather than just the signature of 
the Area Director of the Classing Office. This amendment is appropriate 
since all classification/comparison of foreign-growth cotton may be 
conducted under the supervision of the Quality Assurance Division.
    Amendments to redesignated Sec.  28.186 make immediate review 
classifications automatic for foreign-growth cotton. Immediate reviews 
to verify initial classifications are appropriate given that 
resubmitting samples for an optional review classification at some 
later date is cost prohibitive. The amendment also states that the cost 
of an automatic review is included in the classification fee for 
foreign-growth cotton.
    Amendments clarifying to which entity memorandum are surrendered 
and who has the authority to request the

[[Page 7028]]

surrender of memorandum are stated in the redesignated Sec.  28.187.
    Amendments to redesignated Sec.  28.188 change which sections in 
subpart A are cited, limiting citations to only those that pertain 
specifically to fee amounts. Citations of Sec. Sec.  28.115, 28.122-
28.123 are removed since they do not apply to this subpart. Citations 
of Sec. Sec.  28.120 and 28.121 are removed since they require language 
specific to foreign-growth cotton. Since similar language will exist in 
a new section of this subpart, citation of Sec.  28.125 is removed. 
Citation of Sec.  28.126 is removed since it does not exist in current 
regulations. References to ``costs'' and ``method of payment'' are 
removed from this paragraph as these issues are covered in other 
amendments. Lastly, the term ``foreign-growth cotton'' replaces the 
phrase ``cotton produced outside the continental United States'' 
because it is not consistent with previous amendments.
    New Sec.  28.189 is derived from Sec.  28.120, explicitly stating 
that expenses related to sampling and transporting samples are the 
financial responsibility of the owner of the cotton or the owner's 
agent. This section relieves the Program of any financial 
responsibility for the stated expenses.
    New Sec.  28.190 refers back to Sec.  28.121 in order to define 
when advance deposits are required for services rendered under this 
subpart.
    New Sec.  28.191 defines the acceptable methods of payment or 
advance deposit for foreign-growth cotton classification services.
    New Sec.  28.192 is the same as Sec.  28.125 in subpart A. It is 
being restated in this subpart for clarity.

B. Good Cause Finding That Proposed Rulemaking Is Unnecessary

    Rulemaking under section 553 of the Administrative Procedure Act (5 
U.S.C. 551 et seq.) ordinarily involves publication of a notice of 
proposed rulemaking in the Federal Register and the public is given an 
opportunity to comment on the proposed rule; however, an agency may 
issue a rule without prior notice and comment procedures if it 
determines for good cause that public notice and comment procedures are 
impracticable, unnecessary, or contrary to the public interest for such 
rule, and incorporates a statement of the finding with the underlying 
reasons in the final rule issued.
    As described in this Federal Register notice, regulations in 7 CFR 
part 28 pertaining to administrative and operational procedures for the 
classification of foreign-growth cotton are being amended to assure 
that foreign-growth cotton is classified according to the same rigor as 
U.S. grown cotton. For the reasons mentioned in section A of this 
preamble, AMS finds that publishing a proposed rule and seeking public 
comment is unnecessary because the U.S. cotton industry and ICE have 
made formal declaration of their support of any regulatory amendments 
necessary to better accommodate the classification of foreign-growth 
cotton. Furthermore, implementation of the rule materially enhances the 
value of U.S. cotton by allowing U.S. cotton merchants to forward 
cotton onward through the supply chain--store at locations closer to 
foreign customers--while still providing the price risk mitigating 
benefits of a futures market. Reducing the transactional costs of 
cotton marketing will help cotton compete for market share with man-
made fibers. Storing cotton closer to customers allows for U.S. 
merchants to meet demand faster, reducing competitive disadvantage with 
merchants of cotton grown in the Eastern hemisphere and with 
manufacturers of man-made synthetic fibers. Therefore, the publishing 
of a proposed rule and seeking public comment is contrary to the public 
interest.
    If AMS receives significant adverse comment during the comment 
period, it will publish, in a timely manner, a document in the Federal 
Register withdrawing this direct final rule. AMS will then address 
public comments in a subsequent direct final rule. AMS will not 
institute a second comment period on this rulemaking. Any parties 
interested in commenting must do so during this comment period.

C. Regulatory Impact Analysis

Executive Order 13175

    This action has been reviewed in accordance with the requirements 
of Executive Order 13175, Consultation and Coordination with Indian 
Tribal Governments. The review reveals that this regulation would not 
have substantial and direct effects on Tribal governments and would not 
have significant Tribal implications.

Executive Order 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to access all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health, and safety effects, distributive impacts and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
This action has been designated as a ``non-significant regulatory 
action'' under section 3(f) of Executive Order 12866, and therefore, 
review has been waived, and this action has not been reviewed by the 
Office of Management and Budget.

Executive Order 12988

    The Act provides that administrative proceedings must be exhausted 
before parties may file suit in court. Under section 12 of the Act, any 
person subject to an order may file with the Secretary of Agriculture 
(Secretary) a petition stating that the order, any provision of the 
plan, or any obligation imposed in connection with the order is not in 
accordance with law and requesting a modification of the order or to be 
exempted therefrom. Such person is afforded the opportunity for a 
hearing on the petition. After the hearing, the Secretary would rule on 
the petition. The Act provides that the District Court of the United 
States in any district in which the person is an inhabitant, or has his 
principal place of business, has jurisdiction to review the Secretary's 
ruling, provided a complaint is filed within 20 days from the date of 
the entry of the Secretary's ruling.

Regulatory Flexibility Act

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601-612), AMS has considered the economic impact of 
this action on small entities and has determined that its 
implementation will not have a significant economic impact on a 
substantial number of small businesses.
    The purpose of the RFA is to fit regulatory actions to the scale of 
businesses subject to such actions so that small businesses will not be 
disproportionately burdened. There are approximately sixty cotton 
merchant organizations of various sizes active in trading U.S. cotton. 
Cotton merchants voluntarily use the AMS cotton futures classification 
services under the Cotton Futures Act (Act) (7 U.S.C. 15b). The Small 
Business Administration defines, in 13 CFR part 121, small agricultural 
service firms as having receipts of no more than $7,500,000. Many of 
these cotton merchants are small businesses under this criterion. Some 
of these U.S. cotton merchants, along with non-U.S. cotton merchants, 
may request AMS classification services for foreign-growth cotton in 
order to use USDA's official cotton quality determinations to establish 
foreign-growth cotton as tenderable against the World Cotton

[[Page 7029]]

futures contract. Expanding cotton classification services for foreign-
growth cotton will not significantly affect small businesses as defined 
in the RFA because:
    (1) The use of foreign-growth cotton classification services would 
be voluntary;
    (2) The fee for this service will not affect competition in the 
marketplace;
    (3) The per-sample user fee for foreign-growth cotton 
classification services, determined using standardized formulas 
established by The Department of Agriculture for calculating and 
implementing the fees charged by AMS user-funded programs (79 FR 
67313), is anticipated to represent a very small portion of the cost 
per-unit currently borne by those entities that would utilize the 
service; and
    (4) The 2014 crop-year average ``A'' Index--a proxy for world price 
of cotton--was 83.90 cents per pound, making a 500 pound bale of cotton 
worth an average of $419.50. The user fee for foreign-growth cotton 
classification services is anticipated to be less than 1.5 percent of 
this average value of a bale of cotton on the world market.

Paperwork Reduction Act

    In compliance with OMB regulations (5 CFR part 1320), which 
implement the Paperwork Reduction Act (PRA) (44 U.S.C. 3501), the 
information collection requirements contained in the provisions to be 
amended by this rule have been previously approved by OMB and were 
assigned OMB control number 0581-0008, Cotton Classing, Testing, And 
Standards.
    A 30-day comment period is provided to comment on the amendments 
described herein. This period is deemed appropriate because this rule 
will enhance access to cotton marketing tools that assist cotton 
merchants in managing cotton price risk in a very competitive global 
fiber market. Reducing the transactional cost of cotton marketing will 
help cotton compete for market share with man-made fibers.

List of Subjects in 7 CFR Part 28

    Commodity futures, Cotton.

    For the reasons set forth in the preamble, 7 CFR part 28 is amended 
to read as follows:

PART 28--[AMENDED]

0
1. The authority citation for subpart A of 7 CFR part 28 continues to 
read as follows:

    Authority: 7 U.S.C. 55 and 61.


0
2. Amend Sec.  28.2 to revise paragraphs (g), (j) and (q) to read as 
follows:


Sec.  28.2  Terms defined.

* * * * *
    (g) Program. The Cotton and Tobacco Program of the Agricultural 
Marketing Service.
* * * * *
    (j) Quality Assurance Division. The national classing supervision 
office at Memphis, Tennessee performing final review of cotton 
classification.
* * * * *
    (q) Universal Cotton Standards. The official cotton standards of 
the United States for the grade of American upland cotton. May be 
referenced informally as ``Universal standards.''
* * * * *

0
3. Amend Sec.  28.32 to revise paragraph (a)(3) to read as follows:


Sec.  28.32  Misrepresentation; deceptive or fraudulent acts or 
practices; violations.

* * * * *
    (a) * * *
    (3) the making, issuing, or using of any memorandum or certificate 
of classification issued by a Classing Office or the Quality Assurance 
Division or
* * * * *

0
4. Revise Sec.  28.35 to read as follows:


Sec.  28.35  Method of classification.

    All cotton samples shall be classified on the basis of the 
Universal Cotton Standards, the official cotton standards of the United 
States in effect at the time of classification.
0
5. Revise Sec.  28.36 to read as follows:


Sec.  28.36  Order of classification.

    All samples for which classification requests are pending shall be 
classified, as far as practicable, in the order in which the samples 
are delivered for classification. When in the opinion of the Area 
Director or Quality Assurance Director there is a need to deviate from 
this order of classification, the director shall designate which 
samples will be given priority in classification.

0
6. Revise Sec.  28.37 to read as follows:


Sec.  28.37  Exposing of samples for classification.

    Classification shall not proceed until the samples, after being 
delivered to the Program, shall have been exposed for such length of 
time as in the judgment of the Area Director or Quality Assurance 
Director shall be sufficient to put them in proper condition for the 
purpose.

0
7. Revise Sec.  28.38 to read as follows:


Sec.  28.38  Lower class (of two samples) to determine classification.

    If a sample drawn from one portion of a bale is lower class than 
one drawn from another portion of such bale, except as otherwise 
provided in this subpart, the classification of the bale shall be that 
of the sample showing the lower class.


Sec.  28.39  [Removed and Reserved]

0
8. Remove and reserve Sec.  28.39.
0
9. Revise paragraphs (a), (c), (d), (g), and (h) of Sec.  28.40 to read 
as follows:


Sec.  28.40  Terms defined; cotton classification.

* * * * *
    (a) Fire-damaged cotton. In those cases where it is certain that 
the cotton is fire damaged, the classification record shall be marked 
Code 97 (Fire-Damaged Upland Cotton saw ginned) and no official color 
grade assigned to the sample.
* * * * *
    (c) Extraneous matter. Extraneous matter is any substance appearing 
in a cotton sample that is not discernible in the official cotton 
standards. Such material may consist of rough preparation, sand, dust, 
oil, grass, whole seeds, parts of seeds, motes, spindle twist, bark, 
stems, cloth and plastic.
    (d) Re-ginned cotton. Cotton that, after having been ginned and 
baled, has been subjected to a ginning process and then re-baled. 
Responsibility for identifying cotton, which has been actually re-
ginned, rests with the owner of the cotton or the owner's agent.
* * * * *
    (g) Mixed-packed cotton. Cotton in a bale which, in the sample 
taken therefrom, shows a difference of two or more color grades, and/or 
a difference of two or more color groups, or grade of the other side 
that is one color grade and one color group higher between the two 
portions of the sample. White, Light Spotted, Spotted, Tinged, and 
Yellow Stained shall each constitute a color group. The classification 
assigned will be that of the portion showing the lower color grade. The 
classification record for the bale will contain a code 75, to designate 
mixed quality.
    (h) Water-damaged cotton. Cotton in a bale that has been penetrated 
by water during the baling process, causing damage to the fiber, or a 
bale that through exposure to the weather or by other means, while 
apparently dry on the exterior, has been damaged by water in the 
interior. If such condition can be ascertained, the classification 
record shall be marked Code 98 (Water-Damaged Upland Cotton saw ginned)

[[Page 7030]]

and no official color grade will be assigned.

0
10. Revise Sec.  28.47 to read as follows:


Sec.  28.47  Statement of finding for comparisons.

    For requests to compare samples to a type, findings shall be stated 
in terms of the classification of each sample submitted, the 
classification of the type as measured by the official cotton standards 
of the United States, and other explanatory notations as needed.

0
11. Revise Sec.  28.121 to read as follows:


Sec.  28.121  Advance deposits.

    Upon request, the person from whom any payment under this subpart 
may become due shall make an advance deposit to cover such payment in 
such amount as may be necessary in the judgment of the official of the 
Program requesting the same.

Subpart B--Classification for Foreign-Growth Cotton

0
12. The authority citation for subpart B of 7 CFR part 28 is revised to 
read as follows:

    Authority: Sec. 205, 60 Stat. 1090, as amended (7 U.S.C. 1624); 
7 U.S.C. 471-476.


0
13. Revise subpart B heading to read as set forth above.
0
14. Revise Sec.  28.175 to read as follows:


Sec.  28.175  Administrative and general.

    Insofar as applicable, and not inconsistent with this subpart, the 
provisions of subpart A of this part shall likewise apply to the 
classification and comparison of foreign-growth cotton. For the 
purposes of this subpart, foreign-growth cotton is defined as either 
cotton produced outside the continental United States or cotton 
produced in the continental United States but it is stored in and 
sample submitted for classification from location outside the 
continental United States.

0
15. Amend Sec.  28.176 by revising paragraphs (a), (b), (c) and (d) to 
read as follows:


Sec.  28.176  Designation of official certificates, memoranda, marks, 
other identifications, and devices for purpose of the Agricultural 
Marketing Act.

* * * * *
    (a) Official certificate means any form of certification, either 
written, printed or electronic, used under this subpart to certify with 
respect to the fiber quality and conditions of samples submitted 
(including the compliance of submitted samples with applicable 
specifications).
    (b) Official memorandum means any initial record of findings made 
by an authorized person in the process of grading and classing, 
pursuant to this subpart, any processing or plant-operation report made 
by an authorized person in connection with grading and classing under 
this subpart, and any report made by an authorized person of services 
performed pursuant to this subpart.
    (c) Official mark, for the purposes of this subpart, means the 
grade mark, inspection mark, and any other mark associated only with 
the samples submitted to the Department for classification.
    (d) Official identification means any United States (U.S.) standard 
designation of class, grade, quality, or condition specified in this 
subpart or any symbol, stamp, label, or seal indicating that the 
submitted sample has been officially graded and/or indicating the 
class, grade, quality, or condition of the submitted sample.
* * * * *

0
16. Revise Sec.  28.177 to read as follows:


Sec.  28.177  Request for classification and comparison of cotton.

    The applicant shall make a separate request, using an application 
supplied by the Program, for each lot or mark of cotton that the 
applicant desires classified or compared separately. All requests for 
classification or comparison shall be filed with the Quality Assurance 
Division or the Classing Office designated by the Deputy Administrator 
of the Cotton and Tobacco Program.

0
17. Revise Sec.  28.178 to read as follows:


Sec.  28.178  Submission of cotton samples.

    Samples for foreign-growth cotton classification or comparison 
shall be drawn, handled, identified, and shipped according to the 
methods and procedures specified in this section. Any samples or set of 
samples which do not meet these specified requirements may be rejected 
by the Program.
    (a) Samples shall be freshly drawn.
    (b) Each sample shall consist of two portions, one drawn from each 
side of the bale. Each portion shall be at least six (6) inches (15.25 
cm) wide and approximately twelve (12) inches (30.5 cm) long and shall 
weigh at least eight (8) ounces (227 grams).
    (c) Dressing, trimming, or discarding part of the sample is 
prohibited. No part of the cotton or pieces of bagging, leaf, grass, 
dirt, sand, or any other material shall be removed from either side of 
the sample.
    (d) A barcoded coupon showing the correct location/warehouse code 
and bale number along with the name and address of owner/owner's agent 
shall be placed between the two portions of each sample.
    (e) Samples shall be identified and sacked immediately after they 
are cut without further handling prior to shipment to the Program.
    (f) Samples shall be addressed to and mailed, shipped, or delivered 
direct to the Program without being routed through the owner of the 
cotton or the owner's agent. All expenses related to the sampling and 
transportation of samples--including but not limited to any fees 
related to Customs clearance such as fumigation and/or phytosanitary 
certification--shall be prepaid by the owner of the cotton or the 
owner's agent.
    (g) All foreign-growth cotton samples submitted for classification 
and/or comparison shall be enclosed in one or more wrappers, which 
shall be labeled or marked, or both, in such manner as to show the 
location/warehouse code; name and address of the owner/owner's agent; 
the number of bales represented by the samples in each wrapper; and 
such other information as may be necessary in accordance with the 
instructions of the Deputy Administrator.

0
18. Redesignate Sec. Sec.  28.179, 28.180, 28.181, 28.182, and 28.183 
as Sec. Sec.  28.183, 28.185, 28.186, 28.187, and 28.188 respectively.
0
19. Add new Sec.  28.179 to read as follows:


Sec.  28.179  Lost or damaged samples.

    The Program is not responsible for compensating the owner or 
owner's agent of cotton samples that are lost, damaged or mutilated 
prior to the Program taking receipt of said samples. The Program shall 
inform applicants in the event that samples are lost, damaged or 
mutilated.

0
20. Add new Sec.  28.180 to read as follows:


Sec.  28.180  No return of samples.

    Samples submitted for foreign-growth classification and/or 
comparison will not be returned to the applicant. Loosed cotton samples 
shall become the property of the Program.

0
21. Add new Sec.  28.181 to read as follows:


Sec.  28.181  Withdrawal of classification request.

    Any classification or comparison request may be withdrawn by the 
applicant at any time before the classification of the cotton covered 
thereby. If the withdrawal request is communicated after the 
classification/comparison has been started, the

[[Page 7031]]

applicant shall pay the fees prescribed in Sec.  28.188.

0
22. Add new Sec.  28.182 to read as follows:


Sec.  28.182  Denial of service.

    The Deputy Administrator may for good cause, including the acts or 
practices set forth in Sec.  28.32(a) or any knowing violation of the 
regulations in this subpart, deny any person, including the agents, 
officers, subsidiaries, or affiliates of such person, from any or all 
benefits of this subpart for a specified period, after notice and 
opportunity for hearing has been afforded. Procedures outlined, or 
referred, in part 50 of this chapter (7 CFR 50.1 through 50.12) shall 
govern proceedings under this section.

0
23. Revise redesignated Sec.  28.183 to read as follows:


Sec.  28.183  Methods of cotton classification and comparison.

    (a) The classification of foreign-growth cotton samples shall be 
determined by the quality of a sample in accordance with the Universal 
Cotton Standards (the official cotton standards of the United States) 
for the color grade and the leaf grade of Upland Cotton, the length of 
staple, and fiber property measurements such as length uniformity, 
strength, and micronaire. High Volume Instruments will determine all 
fiber property measurements except the determination of the presence of 
extraneous matter, special conditions and remarks. High Volume 
Instrument colorimeter measurements will be used for determining the 
official color grade. Cotton classers certified by the Cotton and 
Tobacco Program will determine the presence of extraneous matter, 
special conditions and remarks and authorized employees of the Cotton 
and Tobacco Program will determine all fiber property measurements 
using High Volume Instruments. The classification record issued by the 
Quality Assurance Division with respect to any cotton sample shall be 
deemed to be the classification record of the Department.
    (b) Additional procedures and methods pertaining to the 
classification of foreign-growth cotton samples are outlined in 
Sec. Sec.  28.36 through 28.40.
    (c) When a comparison of such cotton samples with other actual 
samples or with a type is requested, the procedure and methods shall be 
as outlined in Sec. Sec.  28.45 through 28.47.

0
24. Add Sec.  28.184 to read as follows:


Sec.  28.184  Availability of electronic cotton classification data.

    As soon as practicable after the classification or comparison of 
cotton has been completed, electronic cotton classification data for 
each sample submitted will be made available for the owner or the 
owner's agent to retrieve. The data record transmitted is 
representative of only the sample submitted by the owner or the owner's 
agent rather than any particular cotton bale.

0
25. In redesignated Sec.  28.185, revise the introductory text and 
paragraph (d); redesignate paragraph (e) as (f); add a new paragraph 
(e); and revise redesignated paragraph (f) to read as follows:


Sec.  28.185  Issuance of cotton classification memoranda.

    Upon request, there shall be issued a cotton classification 
memorandum which shall embody within its written or printed terms:
* * * * *
    (d) A statement that any classification made has been on the basis 
of the Universal Cotton Standards (the official cotton standards of the 
United States) at the time of such classification.
    (e) A statement that any classification made applies only to the 
samples as submitted by the owner or the owner's agent and does not 
purport to represent any particular cotton bales.
    (f) The signature of the Director of the facility providing the 
classification service and the date of issuance of the memorandum.

0
26. Revise redesignated Sec.  28.186 to read as follows:


Sec.  28.186  Review of cotton classification or comparison.

    An immediate review of every classification or comparison made 
pursuant to this subpart is performed automatically. Therefore, 
separate review classification services for foreign-growth cotton are 
not offered by the Program. Costs associated with such review 
classifications are integrated into the fees established in Sec.  
28.188.

0
27. Revise redesignated Sec.  28.187 to read as follows:


Sec.  28.187  Surrender of memoranda.

    For good cause, any memorandum issued under this subpart shall be 
surrendered to the Program, upon the request of the Director of the 
Quality Assurance Division, and a new memorandum complying with this 
subpart issued in substitution therefor. If the memorandum is not 
surrendered upon such request, it shall nevertheless be invalid for the 
purpose of this subpart.

0
28. Revise redesignated Sec.  28.188 to read as follows:


Sec.  28.188  Fee amounts.

    The provisions of Sec. Sec.  28.116 through 28.119 relating to fees 
shall apply to services performed with respect to foreign-growth 
cotton.

0
29. Add Sec.  28.189 to read as follows:


Sec.  28.189  Expenses to be borne by party requesting classification.

    For any samples submitted for foreign-growth classification, all 
expenses related to the sampling and transportation of samples, which 
may include but is not limited to any fees related to Customs clearance 
such as fumigation and/or phytosanitary certification, shall be prepaid 
by the owner of the cotton or the owner's agent.

0
30. Add Sec.  28.190 to read as follows:


Sec.  28.190  Advance deposits.

    Advance deposit requirements for services rendered under this 
subpart are specified in Sec.  28.121.

0
31. Add Sec.  28.191 to read as follows:


Sec.  28.191  Payments methods.

    Acceptable methods of payment or advance deposit for fees specified 
in Sec.  28.188 are as follows:
    (a) Credit card (Visa, MasterCard, Discover, or American Express): 
For remittance of payment by credit card, cardholder's name, billing 
address, credit card number, expiration date, etc. are required.
    (b) Wire transfers/Electronic Fund Transfers (EFT): Electronic 
payments are processed through the Federal Reserve Bank. Customer/
company name and government issued identification number are required. 
All fees associated with wire transfers/EFT are the responsibility of 
the remitter. Orders will not be processed until the total amount of 
the order is collected.
    (c) Check: Checks must be drawn on a United States bank in United 
States currency and include the bank routing number on the check. 
Checks should be made payable to ``USDA, AMS, Cotton and Tobacco 
Program''.

0
32. Add Sec.  28.192 to read as follows:


Sec.  28.192  No voiding or modifying claims for payment.

    Nothing in this subpart shall be construed to void or modify any 
claim which a person or party requesting and paying for a service may 
have against any other person or party for the payment of part or all 
of such costs.

    Dated: February 3, 2016.
Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2016-02461 Filed 2-9-16; 8:45 am]
 BILLING CODE 3410-02-P