B-153956, MAR. 11, 1965, 44 COMP. GEN. 545

B-153956, MAR. 11, 1965, 44 COMP. GEN. 545

AGRICULTURE DEPARTMENT - PRICE-SUPPORT PROGRAM - COTTON, ETC. - WHAT CONSTITUTES RAW COTTON SINCE "BELOW GRADE SPINNABLE RAW COTTON" AND "SPINNABLE CLEANED LINT" ARE TYPES OF COTTON WHICH, BECAUSE OF IDENTIFICATION AND EVALUATION PROBLEMS, HAVE NEVER BEEN ELIGIBLE FOR BENEFITS UNDER THE PRICE SUPPORT AND EXPORT SUBSIDY PROGRAMS AND ARE TYPES WHICH ARE AVAILABLE TO BOTH THE DOMESTIC AND FOREIGN TRADE AT THE SAME PRICE, SUCH TYPES OF COTTON IN INVENTORY ON APRIL 11, 1964, WHEN SECTION 348 OF THE AGRICULTURAL ACT OF 1964, 7 U.S.C. 1348, WAS ENACTED AUTHORIZING EQUALIZATION PAYMENTS ON COTTON TO PREVENT DISCRIMINATION AGAINST DOMESTIC USERS OF COTTON BECAUSE OF INEQUITIES DUE TO DIFFERENCES IN COST BETWEEN DOMESTIC AND FOREIGN USERS, ARE NOT ELIGIBLE FOR EQUALIZATION PAYMENTS UNDER THE ACT.

TO THE SECRETARY OF AGRICULTURE, MARCH 11, 1965:

THE UNDER SECRETARY OF AGRICULTURE BY LETTER DATED NOVEMBER 2, 1964, PRESENTED FOR OUR CONSIDERATION THE QUESTION OF THE ELIGIBILITY OF "BELOW GRADE SPINNABLE RAW COTTON" AND ,SPINNABLE CLEANED LINT" IN INVENTORY ON THE DATE OF ENACTMENT OF THE AGRICULTURAL ACT OF 1964, FOR PAYMENT UNDER SECTION 348 OF THE AGRICULTURAL ADJUSTMENT ACT OF 1938, AS AMENDED BY SECTION 101 OF THE AGRICULTURAL ACT OF 1964, APPROVED APRIL 11, 1964, PUBLIC LAW 88-297, 78 STAT. 173, 7 U.S.C. 1348. THIS SECTION PROVIDES, IN PART, THAT:

IN ORDER TO MAINTAIN AND EXPAND DOMESTIC CONSUMPTION OF UPLAND COTTON PRODUCED IN THE UNITED STATES AND TO PREVENT DISCRIMINATION AGAINST THE DOMESTIC USERS OF SUCH COTTON, NOTWITHSTANDING ANY OTHER PROVISION OF LAW, THE COMMODITY CREDIT CORPORATION, UNDER SUCH RULES AND REGULATIONS AS THE SECRETARY MAY PRESCRIBE, IS AUTHORIZED AND DIRECTED FOR THE PERIOD BEGINNING WITH THE DATE OF ENACTMENT OF THIS SECTION AND ENDING JULY 31, 1966, TO MAKE PAYMENTS THROUGH THE ISSUANCE OF PAYMENT-IN-KIND CERTIFICATES TO PERSONS OTHER THAN PRODUCERS IN SUCH AMOUNTS AND SUBJECT TO SUCH TERMS AND CONDITIONS AS THE SECRETARY DETERMINES WILL ELIMINATE INEQUITIES DUE TO DIFFERENCES IN THE COST OF RAW COTTON BETWEEN DOMESTIC AND FOREIGN USERS OF SUCH COTTON, INCLUDING SUCH PAYMENTS AS MAY BE NECESSARY TO MAKE RAW COTTON IN INVENTORY ON THE DATE OF ENACTMENT OF THIS SECTION AVAILABLE FOR CONSUMPTION AT PRICES CONSISTENT WITH THE PURPOSES OF THIS SECTION. * * *

THERE HAVE BEEN FILED WITH THE DEPARTMENT OF AGRICULTURE BY BEMIS BRO. BAG CO., TALLADEGA, ALABAMA, TWO APPLICATIONS FOR PAYMENT-IN-KIND ON 2,824 BALES OF "BELOW GRADE SPINNABLE RAW OTTON" AND 2,216 BALES OF "SPINNABLE CLEANED LINT," UNDER THE DEPARTMENT'S COTTON AND COTTON WASTE EQUALIZATION PROGRAMS PROMULGATED PURSUANT TO SECTION 348 (7 CFR 1427.1950 ET SEQ.; 7 CFR 1427.1850 ET SEQ.) WE ARE ADVISED THAT UNDER YOUR DEPARTMENT'S REGULATIONS NEITHER OF THESE COMMODITIES IS INCLUDED AS ELIGIBLE FOR PARTICIPATION IN THESE PROGRAMS. THIS EXCLUSION IS BASED UPON YOUR DEPARTMENT'S CONCLUSION THAT SECTION 348 DOES NOT CONTEMPLATE THE MAKING OF SUCH PAYMENTS THEREON. SECTION 1427.1952 DEFINES "ELIGIBLE COTTON" TO MEAN "RAW UPLAND COTTON GROWN IN THE UNITED STATES WHICH IS OF GRADES NAMED IN THE UNIVERSAL STANDARDS FOR AMERICAN UPLAND COTTON AND WHICH HAS A STAPLE LENGTH OF 13/16 INCH OR LONGER * * *," AND SECTION 1427.1852 DEFINES "ELIGIBLE SPINNABLE COTTON WASTE" TO MEAN "CARD STRIPS, COMBER NOIL, SPINNERS LAPS AND ROVING WASTE, CONSISTING OF NOT LESS THAN 85 PERCENT BY WEIGHT OF UPLAND COTTON GROWN IN THE UNITED STATES, WHICH WAS BALED AND IN INVENTORY AT 12:01 A.M., APRIL 11, 1964.'

THE UNDER SECRETARY'S LETTER DISCLOSES THE FOLLOWING PERTINENT FACTS AND CIRCUMSTANCES:

"BELOW GRADE COTTON" IS DEFINED IN THE AMENDED OFFICIAL COTTON STANDARDS OF THE UNITED STATES FOR THE GRADE OF AMERICAN UPLAND COTTON (UNIVERSAL STANDARDS), AS FOLLOWS:

BELOW GRADE COTTON IS AMERICAN UPLAND COTTON WHICH IS LOWER IN GRADE THAN GOOD ORDINARY, OR LOW MIDDLING LIGHT SPOTTED, OR LOW MIDDLING SPOTTED, OR LOW MIDDLING TINGED, OR MIDDLING YELLOW STAINED, OR STRICT LOW MIDDLING GRAY. IN COTTON CLASSIFICATION, THE OFFICIAL DESIGNATION FOR SUCH COTTON IS BELOW GRADE. THE TERM BELOW GOOD ORDINARY, OR BELOW LOW MIDDLING LIGHT SPOTTED, OR BELOW LOW MIDDLING SPOTTED, OR BELOW LOW MIDDLING TINGED, OR BELOW MIDDLING YELLOW STAINED, OR BELOW STRICT LOW MIDDLING GRAY AND OTHER ADDITIONAL EXPLANATORY TERMS CONSIDERED NECESSARY TO DESCRIBE ADEQUATELY THE CONDITION OF THE COTTON MAY BE ENTERED ON CLASSIFICATION MEMORANDUMS OR CERTIFICATES. (7 CFR 28.475.)

THUS, BELOW GRADE COTTON IS LOWER IN GRADE THAN THE LOWEST GRADE OF THE APPLICABLE COLOR GROUP OF THE OFFICIAL COTTON STANDARDS. WHILE THERE MAY BE SOME INDICATION AS TO THE TYPE OR CONDITION OF SUCH COTTON, IT IS IMPRACTICABLE, IF NOT IMPOSSIBLE, TO DETERMINE THE ACTUAL CONTENTS AND CONDITION OF A BALE OF SUCH COTTON. IT COULD CONTAIN VARYING AMOUNTS OF DIRT, GRASS, BARK, OR OTHER EXTRANEOUS MATTER (OR TRASH), THE EXTENT OF WHICH COULD NOT BE ACCURATELY DETERMINED EVEN FROM THE NORMAL SAMPLING AND INSPECTION OF THE BALE.

IN RECENT YEARS THERE HAS BEEN DEVELOPED A TECHNIQUE FOR MORE EASILY OBTAINING THE "MARGINAL REAPING" OF A FIELD AFTER THE MAJOR BULK OF THE COTTON HAS BEEN PICKED FROM THE PLANTS IN THOSE AREAS WHERE MECHANICAL PICKERS ARE USED. SOME TIME AFTER THIS PICKING OF THE BULK OF THE COTTON, WHAT COTTON IS LEFT IS PICKED UP OFF THE FIELD BY OTHER MACHINES. IN THIS PROCESS, A CONSIDERABLE QUANTITY OF DEBRIS AND DIRT IS ALSO PICKED UP WITH THE COTTON LEFTOVERS, WITH THE RESULT THAT SOME OF THIS COTTON WOULD NOT QUALIFY FOR CLASSIFICATION WITHIN THE OFFICIAL STANDARDS, AND WOULD THEREFORE BE DESIGNATED AT "BELOW GRADE COTTON.'

SUCH COTTON, BY VIRTUE OF ITS LOW QUALITY AND RANGE OF VARIABLE VALUES IS SOLD AT PRICES LOWER THAN THOSE FOR COTTON OF THE SAME STAPLE LENGTH WITHIN THE STANDARDS, AND IS NOT SOLD UPON THE BASIS OF AN IDENTIFYING GRADE AND STAPLE LENGTH BUT UPON THE BASIS EITHER OF TYPES OR OF A SUFFICIENT NUMBER OF SAMPLES PULLED FROM THE BALE TO ENABLE THE BUYER TO DETERMINE WHETHER THE COTTON CONTENTS OF THE BALE CAN SERVE HIS PARTICULAR NEED. BELOW GRADE COTTON IS NOT INCLUDED IN THE PRICE SUPPORT PROGRAMS OF THE DEPARTMENT OF AGRICULTURE BECAUSE, AMONG OTHER REASONS, IT IS IMPRACTICABLE TO DETERMINE AND ASSIGN THERETO IDENTIFYING VALUE LEVELS FOR PRICE SUPPORT PURPOSES.

"CLEANED LINT" IS DERIVED FROM THE WASTE KNOWN AS "GIN MOTES" RESULTING FROM THE COTTON GINNING PROCESS. MOTES, WHICH ARE ABORTED, OR IMMATURE, SEED, RANGE IN SIZE FROM SMALL ONES WITH LITTLE OR NO LINT TO OTHERS SLIGHTLY LESS THAN FULL SIZE WITH LONG IMMATURE LINT. THEY ARE ALSO A SOURCE OF YARN AND CLOTH IMPERFECTIONS. BESIDES IMPAIRING THE APPEARANCE OF THE YARN, MOTES REPRESENT WASTE IN THE TOTAL WEIGHT OF A BALE OF COTTON. THIS TYPE OF WASTE IS TO BE DISTINGUISHED FROM THE CARD STRIPS, COMBER NOIL, SPINNERS LAPS, AND ROVING WASTE RESULTING FROM THE MILLING PROCESS OF BALED COTTON. THESE GIN MOTES MAY BE USABLE FOR THEIR FIBER CONTENT BUT FIRST MUST BE REPROCESSED OR CLEANED TO REMOVE TRASH AND FOREIGN MATTER. UNTIL RECENTLY, NOT MANY GINNERS RECLAIMED AND SOLD GIN MOTES BECAUSE THE COSTS INVOLVED IN COLLECTING AND HANDLING THEM WERE NOT WARRANTED BY THE INCOME DERIVED THEREFROM. HOWEVER, BECAUSE OF A WIDESPREAD SHIFT TO MECHANICAL HARVESTERS, AND ACCOMPANYING INCREASES IN MULTIPLE LINT CLEANING, THE QUANTITY OF MOTES REMOVED DURING GINNING HAS GREATLY INCREASED AND COLLECTING AND RECLAIMING GIN MOTES CAN BE ECONOMICALLY FEASIBLE. ANY RETURNS ABOVE THE COST OF COLLECTING THE MOTES IS NET PROFIT TO THE GINNER SINCE IT HAD BEEN COMMON PRACTICE TO BURN THEM. THE VALUE PER BALE OF MOTES IS RELATIVELY LOW, AND FIRMS THAT BUY AND SELL MOTES USUALLY HANDLE THEM AS A SIDE LINE RATHER THAN AS A FULL TIME BUSINESS. THERE IS NO PRICE SUPPORT PROVIDED FOR EITHER GIN MOTES OR THE LINT DERIVED THEREFROM. NO OFFICIAL GRADES OR STANDARDS HAVE BEEN ESTABLISHED FOR EITHER THE MOTES OR THE LINT, AND THERE IS NO WELL-DEFINED SYSTEM FOR DETERMINING THE QUALITY OF EITHER. THEREFORE, AS IS TRUE OF BELOW GRADE COTTON, THE EVALUATION OF SUCH COTTON WASTE IS LARGELY A MATTER OF JUDGMENT AND PURCHASES AND SALES ARE NORMALLY MADE ON ACTUAL SAMPLES OR PRIVATE TYPES.

AS INDICATED IN THE UNDER SECRETARY'S LETTER, SECTION 348 PROVIDES FOR "SUCH PAYMENTS AS MAY BE NECESSARY TO MAKE RAW COTTON IN INVENTORY ON THE DATE OF ENACTMENT OF THIS SECTION AVAILABLE FOR CONSUMPTION AT PRICES CONSISTENT WITH THE PURPOSES OF THIS SECTION.' IT IS CLEAR FROM THE LANGUAGE OF SECTION 348, AS WELL AS THE LEGISLATIVE HISTORY THEREOF, THAT THE BASIC PURPOSE OF THE SECTION IS TO PREVENT DISCRIMINATION AGAINST THE DOMESTIC USERS OF UPLAND COTTON BECAUSE OF INEQUITIES DUE TO DIFFERENCES IN THE COST OF DOMESTIC RAW COTTON BETWEEN DOMESTIC AND FOREIGN USERS THEREOF. NOTE IN THIS CONNECTION PAGE 3 OF H.REPT. NO. 336 ON H.R. 6196 WHERE IT IS MADE CLEAR THAT THE PAYMENTS-IN-KIND ARE "* * * TO MAKE AMERICAN COTTON AVAILABLE TO DOMESTIC MILLS AT WORLD COTTON PRICES," AND "TO ELIMINATE THE INEQUITY OF ONE PRICE FOR EXPORT COTTON AND A HIGHER PRICE FOR DOMESTIC MILLS.' SEE, ALSO, PAGE 28 S.REPT. NO. 874 ON H.R. 6196.

THE UNDER SECRETARY ADVISES THAT THREE GOVERNMENT POLICIES COMBINED TO CREATE THE SO-CALLED ,TWO-PRICE SYSTEM," NAMELY THE COTTON PRICE SUPPORT PROGRAMS IN EFFECT SINCE THE 1930-S, THE RIGID SYSTEM OF IMPORT QUOTAS ON FOREIGN COTTON AND CERTAIN COTTON WASTE SINCE THE 1930'S AND SINCE 1956 THE COTTON EXPORT PROGRAMS AUTHORIZED BY SECTION 203 OF THE AGRICULTURAL ACT OF 1956, 7 U.S.C. 1853, TO SELL AMERICAN GROWN COTTON ABROAD AT COMPETITIVE WORLD PRICES. HE POINTS OUT, HOWEVER, THAT UNDER THE PERTINENT REGULATIONS NEITHER "BELOW GRADE COTTON" NOR "SPINNABLE CLEANED LINT" HAS EVER BEEN ELIGIBLE TO RECEIVE BENEFITS UNDER THE PRICE SUPPORT AND EXPORT SUBSIDY PROGRAMS, NOR HAVE THEY EVEN BEEN PROTECTED BY THE IMPORT QUOTAS, EXCEPT POSSIBLY TO THE LIMITED EXTENT THAT SOME BELOW GRADE COTTON MIGHT BE OF A STAPLE LENGTH OF 3/4 INCH OR LONGER. THUS, HE STATES, THERE DOES NOT APPEAR TO HAVE BEEN THE DISCRIMINATION AGAINST THE DOMESTIC USERS OF "BELOW GRADE COTTON" AND "SPINNABLE CLEANED LINT" AS CONTEMPLATED BY SECTION 348; AND THAT, THEREFORE, THERE WOULD APPEAR TO BE NO COMPELLING REASON TO MAKE EQUALIZATION PAYMENTS ON EITHER TYPE OF COTTON IN ORDER TO MAKE THEM AVAILABLE TO DOMESTIC USERS AT THE SAME PRICES AS TO THE EXPORT TRADE (IF, IN FACT, SUCH TRADE EXISTS WITH RESPECT TO EITHER TYPE OF COTTON). HE ALSO POINTS OUT THAT IT WAS MADE CLEAR IN THE LEGISLATIVE HISTORY OF THE LEGISLATION INVOLVED THAT "MANY FACTORS BEARING UPON THE COMPETITIVE RELATIONSHIP BETWEEN DOMESTIC AND FOREIGN MILLS" WOULD HAVE TO BE TAKEN INTO ACCOUNT IN DETERMINING THE SIZE OF SUCH PAYMENTS AND THE RATES NECESSARY TO ELIMINATE THE INEQUITY, AND THAT THE INEQUITY IS MEASURED IN TERMS OF THE COMPETITIVE ADVANTAGE TO THE FOREIGN MILL. IN THIS CONNECTION HE REFERS TO PAGES 145, 146, 150 AND 152, HOUSE HEARINGS, SERIAL B, ON SEVERAL BILLS SUBSEQUENTLY REPLACED BY H.R. 6196.

THE UNDER SECRETARY STATES THAT SINCE GOVERNMENT PROGRAMS DID NOT CREATE A TWO-PRICE SYSTEM WITH RESPECT TO "BELOW GRADE COTTON" AND "SPINNABLE CLEANED LINT" AND SUCH COTTON WAS THEREFORE AVAILABLE TO BOTH THE DOMESTIC AND FOREIGN TRADE AT THE SAME PRICE, IT IS THE VIEW OF YOUR DEPARTMENT THAT THESE TYPES OF COTTON ARE NOT WITHIN THE PURVIEW OF SECTION 348 WHICH WAS INTENDED TO RELIEVE DISCRIMINATORY PRICES ON AMERICAN COTTON SUBJECT TO SUCH A TWO-PRICE SYSTEM.

IN VIEW OF THE PURPOSE OF SECTION 348 AS SET FORTH ABOVE, AND SINCE AMERICAN "BELOW GRADE COTTON" AND "SPINNABLE CLEANED LINT" WERE AVAILABLE TO BOTH THE DOMESTIC AND FOREIGN TRADE AT THE SAME PRICE, WE AGREE WITH THE VIEW OF YOUR DEPARTMENT THAT THESE TYPES OF COTTON ARE NOT WITHIN THE PURVIEW OF SECTION 348 AND, HENCE, NOT ELIGIBLE FOR EQUALIZATION PAYMENTS THEREUNDER. THE FACT THAT THE ENACTMENT OF SECTION 348 MAY HAVE PLACED THOSE HOLDING INVENTORIES OF SUCH COTTON ON THE DATE OF ENACTMENT OF THE AGRICULTURAL ACT OF 1964 IN AN ADVERSE COMPETITIVE SITUATION DOES NOT REQUIRE A DIFFERENT CONCLUSION.