[Federal Register: December 8, 2005 (Volume 70, Number 235)]
[Notices]
[Page 72979-72981]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08de05-34]
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DEPARTMENT OF AGRICULTURE
Commodity Credit Corporation
Tobacco Transition Assessments
AGENCY: Commodity Credit Corporation, USDA.
ACTION: Notice.
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SUMMARY: This notice sets forth the interpretation the Commodity Credit
Corporation (CCC) will use in administering the regulations set forth
at 7 CFR part 1463 with respect to the Tobacco Transition Assessments.
Generally, under these regulations CCC must determine the market share
of a tobacco product manufacturer or tobacco product importer as a
percentage of six statutorily specified sectors of the tobacco trade.
Based upon information provided to CCC in the conduct of administrative
hearings held pursuant to 7 CFR 1463.11, CCC has determined that the
manner in which it calculates this percentage is subject to more than
one interpretation and, based upon the evidence provided at these
hearings, has determined that changes to the calculation should be made
beginning with assessments collected under 7 CFR part 1463 after
January 1, 2006. However, this change will not apply to invoices issued
February 1, 2006. These invoices will reflect corrections and other
necessary adjustments associated with fiscal year 2005.
FOR FURTHER INFORMATION CONTACT: Misty Jones, Tobacco Division, Farm
Service Agency (FSA), United States Department of Agriculture (USDA),
Stop 0514, 1400 Independence Avenue, SW., Washington, DC 20250-0514.
Phone: (202) 720-7413; e-mail: Misty.Jones@wdc.usda.gov. Persons with
disabilities who require alternative means for communication (Braille,
large print, audio tape, etc.) should contact the USDA Target Center at
(202) 720-2600 (voice and TDD).
Background
Title VI of the American Jobs Creation Act of 2004 (Pub. L. 108-
357) (the 2004 Act) repealed the marketing quota and acreage allotment
(marketing quota) and price support programs for tobacco that were
authorized by the Agricultural Adjustment Act of 1938 and the
Agricultural Act of 1949, effective with the 2005 and subsequent crops
of tobacco. Sections 622 and 623 of the 2004 Act establish a 10-year
transitional payment program for tobacco producers and owners of
tobacco marketing quotas who were affected by the termination of the
marketing quota and price support programs. Sections 625 through 627 of
the 2004 Act established an assessment regime under which CCC collects
assessments to fund the 10-year transitional payment program.
Generally, these assessments are to be collected for 40 calendar
quarters (2005-2014) and are based upon individual market shares of
tobacco product manufacturers and importers within six sectors
specified by the 2004 Act. The regulations issued by CCC with respect
to these assessments were issued in a final rule published in the
Federal Register on February 10, 2005 (70 FR 7007-7014). The purpose of
this notice to advise tobacco product manufacturers and tobacco product
importers that effective with assessment notices issued after January
1, 2006, CCC will determine such entities' market share within a sector
as a percentage expressed to the sixth decimal point.
As explained below, section 625(a)(3) of the 2004 Act is ambiguous
with respect to its directive in calculating entities' market shares.
Section 625(b)(3) defines ``market share'' as follows:
Market Share.--The term ``market share'' means the share of each
manufacturer or importer of a class of tobacco product (expressed as
a decimal to the fourth place) of the total volume of domestic sales
of the class of tobacco product.
In implementing this provision, CCC construed ``market share'' to
mean an entity's percentage of the market determined, for all products
except cigars, by dividing the volume of gross taxable removals for the
entity by the total removals for the sector for all entities reporting
to CCC, and, for cigars, by dividing the excise taxes paid for each
entity by the total excise taxes paid for all cigar manufacturers and
importers. Accordingly, under CCC's initial interpretation, if there
were 10 entities who equally comprised all of the market of a sector,
each market share was expressed as 0.1000. CCC recognized that in using
its initial method of calculating a market share of an entity that
there could be a disproportionate impact on entities with market shares
less than .0001 that reach the ``cut-off point'' in that entities with
market shares from .00005 to .00009 would, due to rounding, each be
deemed to have a .0001 market share. Thus, CCC provided that once this
determination had been made as to which entities to include in the
assessment, CCC would calculate the actual assessment for an entity to
the ninth decimal point.
During the course of administrative hearings in which appellants
contested the level of their assessments in the first two quarters, it
was brought to CCC's attention that this was not the only
interpretation that could be given to the concept of expressing a
market share to the ``fourth decimal point''. Appellants argued that a
``market share'' of 10 percent is more properly referred to in this
example as 10.0000 percent and not .1000. The following is the written
submission in support of this interpretation presented jointly by six
of the entities subject to the assessment:
FETRA (the Fair and Equitable Tobacco Reform Act) assessments
should be allocated based on percentage market shares expressed as
decimals to the fourth place.
FETRA defines market share as the ``share of each manufacturer
or importer of a class of tobacco product (expressed as a decimal to
the fourth place) of the total volume of domestic sales of the class
of tobacco product.'' This language, properly read, means that
market share is to be calculated as a percentage share expressed to
four decimal places. Accordingly, under FETRA, a manufacturer or
importer should be required to pay an assessment unless its market
share rounds to less than 00.0001% (which can also be written as
.000001).
The USDA's first three assessment notices did not adopt this
approach. Instead, the agency has exempted from assessment liability
any company whose market share rounds to less than 00.01% (which can
also be written as .0001). Consequently, there is a two-decimal
place difference between the two approaches, which means that a
company exempted from FETRA assessments under the USDA approach
could have a market share as much as 100 times larger than the
largest company exempted under the correct percentage share
approach.
Under the USDA's approach, manufacturers and importers selling
substantial quantities of tobacco products would avoid paying
assessments--in direct violation of the clear statutory mandate of
FETRA. As is explained below, if the data for the most recent
quarterly assessment (for the April-June 2005 quarter) are
annualized, the portion of the cigarette market, for example, that
would be excused from paying any assessment would collectively
amount to more than 9.5 million packs of cigarettes, representing
sales revenues of more than $33 million.
By contrast, the percentage share approach limits the exemption
to companies that legitimately can be viewed as having de minimis
market shares, thereby effectuating the legislative intent that all
manufacturers and importers must pay assessments. As explained
below, the percentage share approach is supported by the language of
FETRA and by analogous precedents.
Defining market share as a percentage expressed to the fourth
decimal place is necessary to effectuate the clear purposes of
FETRA.
FETRA imposes the following clear mandate: ``The Secretary,
acting through the Commodity Credit Corporation, shall impose
quarterly assessments * * * on each tobacco product manufacturer and
tobacco products
[[Page 72980]]
importer that sells tobacco products in domestic commerce in the
United States * * *.'' 7 U.S.C. 518d(b)(1) (emphasis added). This
language provides no discretion to exempt any manufacturers or
importers.
The approach taken by USDA in the initial assessments violates
this statutory mandate because it allows companies with substantial
sales of cigarettes to avoid FETRA assessments. This point can be
illustrated with the following example:
Assume a manufacturer had revenues of $850,000 in the fourth
quarter of 2004. There is no rational basis for defining this
company as a de minimis seller of cigarettes and exempting it from
assessment:
Revenue--$850,000.
No. of packs sold (assuming $3.50 per pack) = 242,857.
Taxes owed (FET at .39 per pack) = $94,714.23.
Market share: [94,714/1,949,053,653] = 0.00004859486.
Under the approach used in the initial assessments, this company
would be exempt from the payment of assessments because its market
share is .000049, which rounds to .0000 (00.00%). However, if the
percentage share approach is applied, the company would have to pay
an assessment, since its market share--00.0049%--exceeds the
threshold of 00.0001%.
As noted above, the approach used in the initial assessments
will allow a significant portion of the cigarette market to remain
exempt from assessment. On a per-company basis, this means that an
individual manufacturer or importer could have annual sales of as
much as 900,000 packs and revenues in excess of $3 million per year
and still escape the payment of assessments. In contrast, under the
approach described in this paper, the exemption would apply only to
companies with annual sales less than approximately 9,000 packs and
revenues less than approximately $32,000 per year--which
appropriately can be viewed as de minimis. Id.
More importantly, the percentage of the market that USDA is
exempting from assessment has more than doubled from the first
assessment for the fourth quarter of calendar 2004 (companies
selling 1,040,638 packs of cigarettes in this quarter exempted from
assessment) to the assessment for April-June 2005 (companies selling
2,376,331 packs of cigarettes in this quarter exempted from
assessment). This means that millions of packs of cigarettes per
year will not be subject to assessment. For example, if the figures
from the second calendar quarter of 2005 are projected on an annual
basis, USDA's approach to FETRA will result in over 9.5 million
packs of cigarettes, representing more than $33 million in revenue,
being exempted from FETRA assessment. This is clearly inconsistent
with the congressional mandate that USDA impose quarterly
assessments on each tobacco product manufacturer and importer that
sells tobacco products domestically in the United States. 7 U.S.C.
518d(b)(1).
Adopting the percentage share approach, and thus limiting any
exemption to companies with truly de minimis market shares, achieves
a number of important objectives by--
More closely effectuating the statutory mandate to
assess all manufacturers and importers;
Leveling the playing field among competitors since no
company with substantial sales would have the unfair advantage of an
exemption;
Substantially reducing the USDA's exposure in the
likely event that companies subject to assessment are successful in
persuading a court that USDA cannot assess them in excess of their
true market shares to cover the shares of companies exempted from
assessment liability; and
Perhaps, by reducing the amount at issue, facilitating
a resolution of the current market share cap issue short of
litigation.
The percentage share approach is supported by the language of
FETRA.
In another section of FETRA, Congress clearly uses the word
``share'' to denote percentage share. Thus, in describing how
assessments are to be allocated among different classes of tobacco
products in subsequent years, FETRA states that:
The Secretary shall periodically adjust the percentage of the
total amount required under subsection (b) to be assessed against,
and paid by, the manufacturers and importers of each class of
tobacco product * * * to reflect changes in the share of gross
domestic volume held by that class of tobacco product.
7 U.S.C. 518d(c)(2) (emphasis added). In this context, it is
explicitly clear that the ``share'' of gross domestic volume is a
percentage share.
The same section of FETRA uses the same term--``share''--when it
defines the term ``market share'' as each manufacturer's ``share * *
* of the total volume of domestic sales of the class of tobacco
product.'' This use of the same term is significant because ``[i]t
is a settled principle of statutory construction that `(w)hen the
same word or phrase is used in the same section of an act more than
once, and the meaning is clear as used in one place, it will be
construed to have the same meaning in the next place.' '' United
States v. Nunez, 573 F.2d 769, 771 (2d Cir.), cert denied, 436 U.S.
930 (1978), quoting Meyer v. United States, 175 F.2d 45, 47 (2d Cir.
1949), quoting Lewellyn v. Harbison, 31 F.2d 740, 742 (3d Cir.),
cert. denied, 280 U.S. 560 (1929); Arnold v. Eastern Air Lines,
Inc., 712 F.2d 899, 904 (4th Cir. 1983).
Thus, when FETRA is read as a whole, the proper interpretation
of ``share'' in section 518d(a)(3)--defining ``market share''--is
that it means a percentage share of the total market. Nothing in
FETRA provides any basis for a different approach. Accordingly, when
section 518d(a)(3) states that each manufacturer's or importer's
``share'' is to be expressed as a decimal to four places, it means
that it should be expressed as a percentage share expressed to four
decimal places.
Other federal agencies have interpreted statutory references to
``market share'' to mean a percentage share of the total market.
The Food, Drug and Cosmetic Act imposes limitations on the types
of claims that can appear on food labels. Among other things, the
labels on a food product cannot claim that it is low cholesterol
unless ``the level of cholesterol is substantially less than the
level usually present in the food or in a food which substitutes for
the food and which has a significant market share * * *.'' 21 U.S.C.
Sec. 343(r)(2)(A)(iii)(I) (emphasis added). The statute does not
define market share. However, the FDA regulations define that term
as a percentage of the total market:
If the product meets these conditions only as a result of
special processing, alteration, formulation, or reformulation, the
amount of cholesterol is reduced by 25 percent or more from the
reference product it replaces as described in Sec. 317.313(j)(1)
and for which it substitutes as described in Sec. 317.313(d) that
has a significant (e.g., 5 percent or more of a national or regional
market) market share.
9 CFR 317.362(d)(1)(v) (emphasis added). Clearly, the FDA
interpreted the term market share using its ordinary and reasonable
meaning of a percent of the total market.
The Federal Insecticide, Fungicide and Rodenticide Act
(``FIFRA'') requires EPA to re-register and assess fees for all
pesticides initially registered prior to November 1, 1984. If more
than one party sought to register the same active ingredient, the
EPA would allocate the $150,000 fee based on each registrant's
market share for that active ingredient. Specifically, FIFRA stated
that:
[i]f two or more registrants are required to pay [a re-
registration fee] with respect to a particular active ingredient,
the fees for such an active ingredient shall be apportioned among
such registrants on the basis of market share in United States sales
of the active ingredient for the three calendar years preceding the
payment of such fee.
7 U.S.C. 136a-1(i)(7) (emphasis added). The term ``market share'' is
not explicitly defined in the statute or in the Agency's
regulations. However, when EPA actually assessed each registrant's
fee, it did so based upon its percentage share of the total market.
The courts have also interpreted the term ``market share'' to
mean a percentage share.
For example, under the ``market share liability'' theory used in
mass tort cases, ``causation and damages are apportioned to
defendants based on the percentage of the product sold by each
defendant within the entire production of the product.'' Wood v. Eli
Lilly & Co., 38 F.3d 510, 513 (10th Cir. 1994) (emphasis added),
citing Sindell v. Abbott Labs., 607 P.2d 924, 937, cert. denied, 449
U.S. 912 (1980); Martin v. Abbott Lab., 689 P.2d 368, 380 (Wash.
1984). See also Bateman v. Johns-Manville Sales Corp., 781 F.2d
1132, 1133 (5th Cir. 1986) (``Each defendant that could not make
that exculpatory showing would then be held liable for a proportion
of the judgment corresponding to its percentage share of the DES
market'') (emphasis added).
Similarly, in antitrust cases, when courts address market share,
they are clearly viewing that term as a percentage of the total
market at issue. See, e.g., Brooke Group Ltd. v. Brown & Williamson
Tobacco Corp., 509 U.S. 209, 213-14 (1993) (describing market share
in terms of percentages); Richter Concrete Corp. v. Hilltop Concrete
Corp., 691 F.2d 818, 826 (6th Cir. 1982) (``Market strength is often
indicated by market share. During the relevant period, Hilltop's
market
[[Page 72981]]
share declined from approximately 40% to approximately 30%'').''
As noted in the submission of the six appellants, the ambiguity in
the 2004 Act stems from whether a ``market share'' refers to a
``percentage share'' determined to the fourth decimal point, e.g., is a
10 percent market share to be expressed as 10.000 or .10000?
Accordingly, under this approach the following ``market shares''
would be determined with respect to an entity comprising the following
sizes of the sector:
------------------------------------------------------------------------
Market share in Market share as
Size of sector percent fraction
------------------------------------------------------------------------
Assessments Levied
------------------------------------------------------------------------
All............................... 100.00000 1.0000000
One tenth......................... 10.00000 0.1000000
One hundredth..................... 1.00000 0.0100000
One thousandth.................... 0.10000 0.0010000
One ten-thousandths............... 0.01000 0.0001000
One hundred-thousandths........... 0.00100 0.0000100
One millionth..................... 0.00010 0.0000010
-----------------------------------
Assessments Not Levied For All Shares Less Than Nine Ten-millionths
------------------------------------------------------------------------
Nine ten-millionths............... 0.00009 0.0000009
------------------------------------------------------------------------
With respect to the assessments levied by CCC in a typical quarter
with an assessment of $237.5 million, use of the interpretation set
forth by these six appellants would likely produce the following
changes for each sector:
Additional Companies Assessed Under the New Method for a Typical $237.5 Million Assessment
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Class Cigarettes Cigars Snuff Roll-own Chew Pipe Total
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Number of Additional Companies 20 57 4 4 1 2 88
Paying an Assessment.............
Assessment Collected from Above $105,928 $4,752 $45 $48 $3 $9 $110,784
Companies........................
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Use of the interpretation set forth by these six appellants would
also produce the following changes for two different sized companies:
Impact of Change on Two Different Sized Tobacco Product Manufacturers
Share
Typical Quarterly Assessment: All kinds................. $237,500,000
Cigarettes' Share....................................... 0.96331
Typical Quarterly Assessment: Cigarettes................ $228,786,125
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Big Company Example
------------------------------------------------------------------------
New Method \1\
Big Company Share....................................... 25.0000%
Big Company Quarterly Assessment........................ $57,196,653
Previous Method \2\
Big Company Share....................................... 25.00%
Big Company Share recomputed after small companies 25.00729%
dropped out)...........................................
Big Company Quarterly Assessment........................ $57,213,210
Big Company Savings
Big Company savings per quarter......................... -$16,557
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Small Company Example
------------------------------------------------------------------------
New Method \1\
Small Company Share..................................... 0.0040%
Small Company Quarterly Assessment...................... $9,151
Previous Method \2\
Small Company Share..................................... 0.004%
Small Company Share Rounded Up.......................... 0.000%
Small Company Share recomputed after small companies --
dropped out............................................
Small Company Quarterly Assessment...................... $0
Small Company Cost
Small Company cost per quarter.......................... $9,151
------------------------------------------------------------------------
\1\ Shares not recalculated after small companies drop out.
\2\ Shares recalculated to 9 decimal places after small companies drop
out.
Interpretation
It is CCC's position that either interpretation is possible under
section 625(b)(3) of the 2004 Act. But, in construing this section
within the overall framework established by Congress, CCC has
determined that use of the approach set forth by the six appellants
provides a more accurate representation of an individual entity's share
in each of the six statutorily-defined tobacco sectors. Accordingly,
after January 1, 2006, when making determinations under 7 CFR parts
1463.1 through 1463.11 that relate to ``market share'', CCC will
interpret such phrase to mean the percentage share of an entity's
market position in one of the six individual tobacco product sectors
specified in section 625(c) of the 2004 Act. In expressing this share
to the fourth decimal point as provided in section 625(a)(3), for
example, a market share of \1/10\ of the market will be converted to
10.0000 percent and a market share of \1/10000\ will be converted to
.0100 percent. In addition, this approach is also consistent with the
manner in which Congress has addressed the six sector segments of the
tobacco industry. In section 625(c)(3) of the 2004 Act, for example,
the share for manufacturers and importers of cigarettes of the overall
tobacco industry for Fiscal Year 2005 is expressed as ``96.331
percent'' and not as .96331. As a result of this change, CCC will no
longer further modify assessments to the ninth decimal point for
individual companies within these six sectors.
Signed at Washington, DC November 30, 2005.
Thomas B. Hofeller,
Executive Vice President, Commodity Credit Corporation.
[FR Doc. E5-7030 Filed 12-7-05; 8:45 am]
BILLING CODE 3410-05-P