[Federal Register: May 30, 2007 (Volume 72, Number 103)]
[Rules and Regulations]
[Page 29837-29839]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30my07-1]
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Rules and Regulations
Federal Register
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[[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.
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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