Amendments to Regulations Under the Perishable Agricultural Commodities Act (PACA) To Ensure Trust Protection for Produce Sellers When Using Electronic Invoicing or Other Billing Methods, 29837-29839 [E7-10262]

Agencies

• Agricultural Marketing Service
• DEPARTMENT OF AGRICULTURE

[Federal Register Volume 72, Number 103 (Wednesday, May 30, 2007)]
[Rules and Regulations]
[Pages 29837-29839]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-10262]



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Federal Register / Vol. 72, No. 103 / Wednesday, May 30, 2007 / Rules 
and Regulations

[[Page 29837]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 46

[Docket Number AMS-FV-07-0009; FV05-373]
RIN 0581-AC53


Amendments to Regulations Under the Perishable Agricultural 
Commodities Act (PACA) To Ensure Trust Protection for Produce Sellers 
When Using Electronic Invoicing or Other Billing Methods

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Final rule.

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

SUMMARY: The Department of Agriculture (USDA) is amending the 
regulations under the Perishable Agricultural Commodities Act (PACA) to 
ensure that the status of sellers of perishable agricultural 
commodities as trust creditors is protected when electronic data 
interchange (EDI) or other forms of electronic commerce are used to 
invoice buyers. Specifically, the amendments require that a buyer 
licensed under the PACA or its third party representative accept the 
PACA trust notice submitted to it by a seller on a paper, electronic 
invoice, or other billing statement. In addition, the buyer must allow 
sufficient data space for the required trust language regardless of the 
billing medium. Finally, any failure, act or omission inconsistent with 
this responsibility is unlawful and a violation of the PACA.

DATES: Effective Date: June 29, 2007.

FOR FURTHER INFORMATION CONTACT: Karla Whalen, Section Head, Trade 
Practices Section, or Phyllis Hall, Senior Marketing Specialist, Trade 
Practices Section, 202-720-6873.

SUPPLEMENTARY INFORMATION: 

Background of PACA and Trust Provisions

    USDA's Agricultural Marketing Service (AMS) administers and 
enforces the Perishable Agricultural Commodities Act (PACA). The PACA 
establishes a code of fair trading practices in the marketing of fresh 
and frozen fruits and vegetables in interstate and foreign commerce. 
The PACA protects growers, shippers, distributors, and retailers 
dealing in those commodities by prohibiting unfair and fraudulent trade 
practices. The law also provides a forum to adjudicate or mediate 
commercial disputes. Licensees who violate the PACA may have their 
license suspended or revoked, and principals of such a licensee are 
restricted from employment or operating in the produce industry for a 
period of time.
    The PACA also imposes a statutory trust for the benefit of unpaid 
suppliers or sellers on perishable agricultural commodities received 
and accepted but not yet paid for, and may encumber products derived 
from those commodities, and any receivables or proceeds due from the 
sale of those commodities or products.
    In the case of a business failure or bankruptcy of an entity 
subject to PACA, the debtor's inventory and receivables (PACA trust 
assets) are not property of the estate and are not available for 
general distribution until the claims of PACA creditors who have 
preserved their trust rights have been satisfied. Because of the 
statutory trust provision, PACA trust creditors who have preserved 
their trust rights with the appropriate written notices, including 
sellers outside of the United States, have a far greater chance of 
recovering the money owed to them should an entity subject to PACA go 
out of business. The PACA trust provisions protect producers and the 
majority of firms trading in fruits and vegetables as each buyer of 
perishable agricultural commodities in the marketing chain becomes a 
seller in its own turn.
    In 1995, the PACA was amended to provide that licensed sellers of 
fresh and frozen fruits and vegetables may provide notice to buyers of 
their intention to preserve trust benefits by including specific 
language on invoice and billing documentation. The required language 
reads: ``The perishable agricultural commodities listed on this invoice 
are sold subject to the statutory trust authorized by section 5(c) of 
the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499e(c)). 
The seller of these commodities retains a trust claim over these 
commodities, all inventories of food or other products derived from 
these commodities, and any receivables or proceeds from the sale of 
these commodities until full payment is received.'' (7 U.S.C. 
499e(c)(4)).

Amendment of PACA Regulations To Allow for Electronic Invoicing

    The PACA regulations (7 CFR 46.46(a)(5)) were amended in 1997 to 
state that electronic communications are considered ``ordinary or usual 
billing and invoice statements'' within the meaning of Section 5(c)(4) 
of the PACA. Under the 1997 amendments to the PACA regulations, unpaid 
PACA licensed sellers or suppliers of fresh and frozen fruits and 
vegetables have the option of providing notice to buyers of their 
intention to preserve their trust rights by including the specified 
language contained in Section 5(c)(4) of the PACA on their billing or 
invoice statements, whether those statements are paper documentation or 
electronic transmissions. Alternatively, as provided in the PACA and 
regulations, sellers (licensed or non-licensed) can also satisfy the 
notice requirement by sending the buyer a separate detailed notice of 
their intent to preserve trust benefits within thirty (30) days of 
payment default. Whichever method of providing notice is used to 
preserve trust benefits, in order to claim the benefit of the trust, 
payment terms may not exceed 30 days from date of acceptance.
    Since the amendment to the regulations, a number of produce sellers 
voiced concern that their PACA trust rights might not be preserved if: 
(1) The buyer/buyer's agent either willfully or through oversight did 
not receive the entire electronic transmission (i.e., electronic 
invoice); (2) the buyer/buyer's agent did not download the trust 
information; (3) the buyer/buyer's agent did not opt to receive the 
information; (4) the buyer/buyer's agent did not buy the data field 
that allows the inclusion of the trust language; or (5) the EDI service 
provider did not translate the field that contains the trust language. 
Additional concerns were expressed

[[Page 29838]]

that the alternate method of trust notice (i.e., separate trust notice 
letter) was not being accepted by some buyers who require electronic 
invoicing. Others in the industry expressed concern about being charged 
a fee by the buyer to accept the notice to preserve their trust 
benefits with an electronic invoice, a paper invoice, or separate trust 
notice.

Advanced Notice of Proposed Rulemaking

    AMS published an Advanced Notice of Proposed Rulemaking in the 
Federal Register on January 30, 2006, (71 FR 4831) seeking comments on 
whether, and if so, how to amend the PACA regulations to address 
industry concerns regarding electronic invoicing. The Advance Notice of 
Proposed Rulemaking invited comments on: (1) The types of problems that 
may need to be addressed by new regulatory language; (2) any 
technological barriers and solutions; (3) any additional costs likely 
to be associated with appropriate regulations, and opinions regarding 
who should bear such costs; (4) whether the Agency should by regulation 
define electronic invoicing methods that must be made available by 
licensed buyers, (e.g., creating a separate field for trust notice 
language in electronic invoices); (5) whether buyers should be required 
to accept separate notices (i.e., electronic or paper PACA trust) 
without restriction or charge; and (6) other related issues and 
suggestions. The comment period ended on March 16, 2006. AMS received 
65 comments. The vast majority of the comments favored amending the 
regulations to clarify electronic invoicing practices so that sellers 
have the same protection when using electronic invoicing as that 
afforded through traditional paper invoices. Therefore, AMS determined 
it was appropriate to issue a notice of proposed rulemaking.

Notice of Proposed Rulemaking

    AMS published a Notice of Proposed Rulemaking in the Federal 
Register on November 8, 2006, (71 FR 65426) seeking comments on 
amending the PACA regulations to ensure that the status of sellers of 
perishable agricultural commodities as trust creditors is protected 
when electronic data interchange (EDI) or other forms of electronic 
commerce are used to invoice buyers. Specifically, the amendments would 
require that a buyer licensed under the PACA or its third party 
representative accept the PACA trust notice submitted to it by a seller 
on a paper, electronic invoice, or other billing statement. In 
addition, the buyer would be required to allow sufficient data space 
for the required trust language regardless of the billing medium. 
Finally, any failure, act or omission inconsistent with this 
responsibility would be unlawful and a violation of the PACA.
    The comment period ended on January 8, 2007. We received 41 
comments. All commentors supported AMS's proposal to amend the 
regulations. The comments indicate that the proposed amendments would 
remedy a very serious potential commercial problem for shippers/
sellers, as well as adapt to industry practices of enhanced technology; 
and, thus would provide the same protections for the shippers/sellers 
when paper invoices or EDI transmissions are used. Therefore, for the 
reasons given in the proposed rule and based upon comments received, we 
are adopting the proposed rule as a final rule, without change.

Executive Orders 12866 and 12988

    This final rule has been determined to be not significant for the 
purposes of Executive Order 12866, and therefore, has not been reviewed 
by the Office of Management and Budget.
    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform, and is not intended to have retroactive effect. 
This final rule will not preempt any State or local laws, regulations, 
or policies, unless they present an irreconcilable conflict with this 
rule. There are no administrative procedures that must be exhausted 
prior to any judicial challenge to the provisions of this final rule.

Effects on Small Businesses

    Pursuant to requirements set forth in the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601 et seq.), AMS has considered the economic 
impact of this final rule on small entities. The purpose of the RFA is 
to fit regulatory actions to the scale of businesses subject to such 
actions in order that small businesses will not be unduly or 
disproportionately burdened. Small agricultural service firms have been 
defined by the Small Business Administration (SBA) (13 CFR 121.601) as 
those whose annual receipts are less than $5,000,000. There are 
approximately 15,000 firms licensed under the PACA, many of which could 
be classified as small entities.
    The final rule clarifies how to preserve the trust benefit when 
using electronic invoicing. The use of electronic invoicing will 
provide companies an electronic alternative to paper documentation to 
give notice of intent to preserve trust rights, thereby reducing the 
time and expense associated with preserving trust rights under the 
PACA.
    Given the preceding discussion, AMS has made a determination that 
the provisions of this final rule would not have a significant economic 
impact on a substantial number of small entities.

Paperwork Reduction Act

    In accordance with OMB regulations (5 CFR part 1320) that implement 
the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the 
information collection and recordkeeping requirements that are covered 
by this final rule were approved under OMB number 0581-0031 on October 
5, 2004, and expire on October 31, 2007.

E-Government Act Compliance

    AMS is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.

List of Subjects in 7 CFR Part 46

    Agricultural commodities, Brokers, Investigations, Penalties, 
Reporting and recordkeeping requirements.


0
For the reasons set forth in the preamble, AMS amends 7 CFR part 46 as 
follows:

PART 46--[AMENDED]

0
1. The authority citation for part 46 continues to read as follows:

    Authority: Sec. 15, 46 Stat. 537; 7 U.S.C. 499o.


0
2. In Sec.  46.46, paragraph (f)(3) introductory text is revised and 
new paragraphs (f)(4) and (5) are added to read as follows:


Sec.  46.46  Statutory trust.

* * * * *
    (f) * * *
    (3) Licensees may choose an alternate method of preserving trust 
benefits from the requirements described in paragraphs (f)(1) and (2) 
of this section. Licensees may use their invoice or other billing 
statement as defined in paragraph (a)(5) of this section, whether in 
documentary or electronic form, to preserve trust benefits. 
Alternately, the licensee's invoice or other billing statement, given 
to the buyer, must contain:
    (i) * * *
    (ii) * * *
    (4) If the invoice or other billing statement is in electronic 
form, the licensee has met its requirement of giving the buyer notice 
of intent to preserve trust benefits on the face of the

[[Page 29839]]

invoice or other billing statement if the electronic invoice or other 
billing statement containing the statement set forth in paragraph 
(f)(3)(i) is sent to the buyer and the electronic transmission can be 
verified. The licensee will be deemed to have given notice to the buyer 
of its intent to preserve trust benefits if the licensee can verify 
that the electronic invoice or other billing statement was sent to a 
third party electronic transaction vendor designated by the buyer. The 
licensee will have met the requirement of giving the buyer written 
notice of intent to preserve trust benefits using electronic means if 
it can verify that the electronic data invoice or other billing 
statement was transmitted to the buyer, or its designated electronic 
transaction vendor, irrespective of whether or not the buyer or third 
party vendor downloads or accepts the trust statement.
    (5) If a buyer conducts its transactions in perishable agricultural 
commodities using an electronic system, the buyer or its third party 
electronic vendor must allow sufficient space for the seller to include 
the required trust statement of intent to preserve trust benefits in 
the buyer's electronic invoices or other billing statement forms. A 
buyer or its designated third party electronic vendor must accept a 
seller's notice of intent to preserve benefits under the trust using 
the required trust statement, whether in documentary or electronic 
form, as set forth in paragraphs (d) and (f) of this section. Any act 
or omission which is inconsistent with this responsibility is unlawful 
and in violation of Section 2 of the Act (7 U.S.C. 499b).

    Dated: May 23, 2007.
Lloyd C. Day,
Administrator, Agricultural Marketing Service.
 [FR Doc. E7-10262 Filed 5-29-07; 8:45 am]
BILLING CODE 3410-02-P