SEPTEMBER-OCTOBER 1996
Implementation of New CRP Rules
On Sept. 23, the U.S. Department of Agriculture issued a Proposed Rule governing the administration of the Conservation Reserve Program (CRP).which has attracted quite a bit of attention. While the proposal sounds innocuous enough, millions of acres of cropland are at stake, as is the future of USDA action on conservation, environmental and wildlife concerns.
Obviously, decisions in implementing the rule could have enormous long-term environmental and economic implications across rural America. USDA's proposal effectively de-emphasizes soil erosion and places a new emphasis on environmental quality.
Wheat farmers, duck hunters, grain processors, corn growers, the Audubon Society and even members of "Pheasants Forever" have an opinion on the proposed CRP regulation. Some say the CRP has suppressed economic activity in rural communities, and others say they could not survive without CRP rental payments. Some like the wildlife benefit of idling land in the plains states, and others would prefer to direct benefits more broadly for wetland purposes and more pressing environmental needs.
Secretary of Agriculture Dan Glickman called the proposal "a major shift" in the CRP focus. "The focus ... will be to conserve and improve our natural resources' " he said. "Through the proposed rule, the Department intends to enroll land that will yield the highest environmental benefits and return to production less erodible land better suited for planting crops."
Background on the CRP
The CRP was first authorized in the 1985 farm bill (i.e. Food Security Act of 1985). It is a voluntary program for land owners and operators. The program participants enter into long-term contracts with the Commodity Credit Corporation (CCC) to establish permanent vegetative cover for land that is highly erodible or is contributing to a serious water quality or other environmental problem.
Land owners and operators interested in participating in the program submit offers. The bids that are accepted then result in CRP contracts.
The CCC provides contract participants with cost-share assistance to establish vegetation cover and annual rental payments for the term of the contract.
CR-P participants enroll in contracts for 10 to 15 years, or in some cases provide easements in return for annual rental payments and cost share assistance for installing conservation practices. CRP contracts average 100 acres per contract.
Contracts for approximately 23 million acres are scheduled to expire on Sept. 30, 1997. The Secretary of Agriculture has the authority to maintain up to 36.4 million acres in the program through the year 2002.
Erodibility Index
USDA plans to target the CRP to more environmentally sensitive acreage through the use of an "erodibility index." This index simply indicates the rate of erosion on the specific tract of land. Eligible land must have a minimum erodibility index (EI) of 8 with some exceptions. Those exempted from the 8 El requirement are cropped wetlands, land in designated conservation priority areas, and certain high priority acreage and practices, including those in the continuous sign up.
Of the 36.4 million acres now in the CRP, about 8 million acres have an erodibility index of less than 8, indicating that the land probably will be returned to crop production. Another 15 to 16 million acres have an erodibility index between 8 and 15, and the remainder have an index greater than 15.
The 1996 farm bill (FAIR Act) identified land with an El of 15 or less as being eligible for a new early-out option, at the landowner's discretion. In other words, the farm bill establishes an El of 15 as the threshold for CRP eligibility.
A new policy in the Proposed Rule provides that land with an El of less than 8 would not be eligible for CRP except under certain circumstances. Acreage with an El of less than 8 could still be eligible for CRP if there is also the need to protect wildlife habitat or wetlands.
Critics claim that strict interpretation of the El at 8 for enrollment in the CRP could result in the loss of millions of currently enrolled acres in wind-blown areas in Kansas and Texas. Others argue that an EI of 8 is too low and should be raised so good farmland may be brought back into production. Some would further argue that the Final Rule should mirror the new farm bill by establishing an El of 15 as the threshold for CRP eligibility.
Extension of CRP Contracts
Although USDA cannot extend CRP contracts that expire in 1997, acreage in expiring contracts may be re-offered under another sign up if the acreage meets the new criteria. Land owners who want to continue their participation in the CRP must re-offer that land, either for the continuous or, general sign up process when the contract expires. Continuous sign up applies only to acreage to be placed in filter strips, riparian buffers, grassed waterways, field windbreaks, shelter belts, living snow fences, salt-tolerant vegetation, shallow water areas for wildlife refuge and acreage in wellhead protection areas designated by the EPA. Acreage offered for any other CRP practices may be offered only during a general sign-up period. Eligible land must have been planted in any two of the five years from 1992-1996.
Rental Rates
The rental rates under the Proposed Rule will be based on county average cash equivalent rental rates adjusted for site-specific "soil" based productivity factors. An allowance will be made for maintenance at a rate determined by the state Farm Service Agency Committee. Producers should know in advance what the maximum rental rate will be for their county and bid at a level of their choosing. That means a bid less than the maximum rental rate increases the likelihood of bid acceptance.
Targeted CRP Policy
The new CRP policy will target all highly erodible land for enrollment, including land subject to both water and wind erosion. To encourage enrollment, the proposal targets filter strips, riparian buffers, field windbreaks, grass waterways, and acreage located in EPA-designated wellhead protection areas for financial assistance.
This assistance is offered in addition to the normal annual rental payments and cost-share assistance. Acreage used for these measures will have a more positive environmental impact than the traditional retirement of much larger acreage. Conservation Plan Requirement If the acreage meets the erodible land definition developed by USDA, a conservation plan will be required to retain eligibility for most USDA farm programs. The applicant must develop and submit a conservation plan which is acceptable to the Natural Resource Conservation Service (NRCS) and is approved by the local conservation district in order for the land to be entered in the CRR.
At stated in the Proposed Rule, "the practices included in the conservation plan and agreed to by the participant must cost-effectively achieve the reduction in soil erosion necessary to maintain the productive capability of the soil, improvement in water quality, protection for wildlife or wetlands, protection of a public wellhead, or achieve other environmental benefits as applicable."
Wetlands Enrollment
The Proposed Rule would change the existing criteria for CRP eligibility of land to include enrollment of wetlands. Wetlands act as natural filtration systems for enhancing water quality, reduce potential flood damage, help control soil erosion and are proven to provide wildlife side benefits.
If cropped wetlands are eligible for the CRP in future sign ups, full restoration to a wetland will be optional. However, an incentive will be paid in addition to the normal cost-share payment if the producer elects to restore the wetland. Restoration of the wetland would increase the likelihood of contract acceptance because of the enhanced environmental benefits.
If cropped wetlands are eligible for the CRP in future sign-ups, full restoration to a wetland will be optional. However, an incentive will be paid in addition to the normal cost-share payment if the producer elects to restore the wetland. Restoration of the wetland would increase the likelihood of contract acceptance because of the enhanced environmental benefits.
Tne CCC proposes to offer a financial incentive of up to 25% of the cost of restoring the hydrology. This incentive is in addition to any applicable annual rental or cost-share payments, and is not to exceed 50% of the land value.
Agricultural producers who want to restore wetlands' enrolled in the CRP may also elect to transfer acreage from the CRP to the Wetlands Reserve Program (WRP). Any transferred acreage will be removed from the CRP without penalty, effective the day an easement is filed.
Environmental Benefits Index
To determine the eligibility of lands for the CRP, the Farm Service Agency and NRCS will use an environmental benefits index or ranking. This ranking index recognizes additional considerations for CRP enrollment beyond the historical concerns about soil erosion. Other technical factors that will be considered include recommendations of the state technical committee, conservation priority area designation, permanent wildlife habitat, tree plantings, wetlands functions, and conservation compliance requirements.
Wildlife Habitat Criteria
While the Proposed Rule does not identify wildlife habitat benefits as a separate criteria for enrollment, it does mention wildlife habitat as a factor likely to be included in the environmental benefits index (EBI) to be constructed for ranking bids for CRP enrollment. Some argue that wildlife habitat is not given sufficient priority for acreage eligibility under the CRP. Others argue that the final rule should not designate wildlife habitat benefits as a separate criteria for CRP enrollment or re-enrollment. They further note that wildlife habitat benefits have become the latest rationale for maintaining a large CRP which includes cropland not otherwise environmentally fragile.
Partial Field Enrollment
In some previous sign ups, USDA allowed large tracts of land into the CRP without rigorous review of the land's environmental sensitivity. In the future, the CRP will need to be better targeted to portions of fields that need environmental protection, such as stream banks,, water waste, and riparian areas. A two-thirds predominance rule has been used in the past when evaluating land for CRP enrollment. If two-thirds of a field qualified for enrollment, the entire field could be enrolled. This approach allowed a large amount of productive land that could have been farmed to be enrolled.
The Proposed Rule, however, would use the weighted average EI of the field in determining whether the entire field qualifies for CRP enrollment.
Maximum County Enrollment
The proposal is consistent with the statute in providing that no more than 25% of the crop land in the county may be enrolled in the CRP and the VVRP unless it can be shown that exceeding the cap would not have an adverse impact on the local economy of the county.
Some argue that the statutory 25% cap should never be exceeded under any circumstance. They note that counties with enrollment far less than 25% have been seriously damaged economically.
Conservation Priority Areas
Prior to the 1996 farm bill, the conservation priority area mechanism applied only to the CRP. The CRP's conservation priority area authority is designed to address "actual and significant adverse water quality or habitat impacts related to agricultural production activities."
This year's farm bill, however, also authorized conservation priority areas for the CRP, the VV`RP, and the Environmental Quality Incentives Program (EQIP) to "assist ... agricultural producers ... to comply with nonpoint source pollution requirements ... and other federal and state environmental laws and to meet other conservation needs." In some cases, one or a combination of the the CRP, the WRP, and the EQIP may best address a particular environmental problem in a defined geographic area.
The Proposed Rule calls for a 10% limitation on the amount of crop land in any state that can be identified as a conservation priority area. In submitting requests for conservation priority area designation, state Farm Service Agency committees will be required to develop an evaluation and monitoring system to determine the effectiveness of designating a particular area a priority.
Use of CRP Acres for Haying & Grazing
The Proposed Rule continues to uphold that no commercial use can be made of the enrolled CRP acreage, with haying or grazing permitted during droughts or other emergency situations. USDA sought comments in regard to periodic non-emergency haying and grazing of CRP acreage. Some conservation and environmental groups believe that limited haying and grazing of CRP acreage could benefit wildlife habitat and improve ground cover quality.
Administration of the CRP
The CRP will be carried out by the CCC through the Farm Service Agency (FSA), using FSA state and county offices. State technical committees and local conservation districts will also be involved in the operation of the CRP.
Extension of CRP Contracts
This year's Agriculture Appropriations bill provides that none of the funds made available under the bill can be used to extend any existing or expiring CRP contracts. Any current participant in the program seeking continued enrollment must compete for such additional enrollment on the basis of environmental benefits and will be subject to the maximum payment rates as deten-nined by the CCC.
Wheat growers support giving the Secretary of Agriculture authority to extend contracts that expire in 1997. They argue that the extension of contracts is especially important since the CRP rules will not be finalized until next year, and the first general sign up under the new rules will take place sometime soon thereafter.
How the new rules will affect enrollment of wheat acres is unknown and may be potentially disastrous if a significant portion of the CRP wheat base gets dumped on the market.
Practical Spending Constraints on New Enrollments
Although USDA does not have spending limits on the new CRP enrollments that are expected to start in early 1997, there are Congressional guidelines that must be met. On the one hand, bids will be accepted that involve environmentally sensitive land of interest to USDA.
Funds will come from mandatory spending categories for the CCC, so whatever is spent in one fiscal year is reimbursed by Congress in the following fiscal year regardless of the total figure. But USDA will need to be frugal in its spending or it may incur the wrath of Congress.
Future CRP Enrollment
Although the Proposed Rule does not specify an acreage target for future enrollment, enrolled acres are clearly projected to decline. The type and scope of acres enrolled in the CRP will depend largely on the Final Rule that is promulgated by USDA.
Because agricultural producers need to know the longterm objectives of the CRP in order to formulate production plans for 1997, it is critical that the new CRP regulation be finalized as soon as possible. Time is also of the essence for USDA to issue a Final Rule because it faces 27 million acres of CRP contracts that expire on Sept. 30, 1997.
Mr. McLeod is a partner in the firm and practices agricultural and agribusiness law. He is a former General Counsel and Staff Director for the Senate Agriculture Committee.
Richard Pasco is an attorney in the firm specializing in legislative, environmental, agricultural, food safety, food labeling, and trade issues.
The Battle Over Tomatoes - Fair Trade or Protectionism?
The role of international trade in the agricultural economy is of ever growing importance. As the world population continues to rapidly increase and the demand for high quality food supplies increases at an even faster rate, much of American agriculture looks to export markets as the key to increased prosperity. This involves the continued liberalization of world agricultural trade and the removal of barriers to U.S. agricultural exports.
However, for some commodities where interriational competitors have a real or perceived comparative advantage, there has been an increasing use of U.S. trade laws aimed at keeping out foreign commodities. Thus U.S. agricultural trade policy is often at cross currents - pushing very hard to open markets for one commodity in a foreign nation (e.g., apples in Japan), while manipulating U.S. trade rules to strengthen the case against imports from a foreign nation (e.g., tomatoes from Mexico).
The Tomato Paradox
This paradoxical trade stance has led to an agreement between the U.S. Department of Commerce and Mexican tomato growers, that for the first time in recent history, will set the price of an imported product. Under the terms of an antidumping (AD) investigation suspension agreement signed on Oct. 28, the producers/exporters of fresh tomatoes from Mexico agreed not to sell their product in the United States below a reference price of $5.17 for a 25 pound box, or $0.2068/lb., in exchange for the United States not proceeding with an antidumping investigation in which the U.S. Department of Commerce (DOC) had preliminarily determined that the imposition of antidumping duties of 17.56% (on average) were warranted under U.S. law. See 61 Fed. Reg. 56607 and 56617.
As long as the suspension agreement remains in force and is complied with, no AD duties will be assessed on the Mexican tomato imports. Furthermore, the U.S. tomato interests that brought the AD case also agreed that they would refrain from filing any trade remedy proceedings as long as the agreement remains in effect and is honored.
It is most important to note that the Mexican government has made it very clear that it is not a party to the suspension agreement and that it has reserved the right to continue using the NAFTA and GATT legal mechanisms to defend the interests of its exporters. U.S. and Mexican officials met in Geneva on Aug. 21, pursuant to Mexico's July 1 formal request at the World Trade Organization (WTO) for formal expedited consultations on the U.S. administration of its antidumping laws in the tomato case.
Background On The Tomato Dispute
For the past several years, the Florida tomato industry has sought protection under U.S. trade laws from Mexican tomato imports. On March 29, 1995, the Florida Tomato Exchange filed a petition with the U.S. International Trade Commission (ITC) seeking relief under Section 201 of the Trade Act of 1974 (19 U.S.C. 225 1).
That provision permits the President to increase tariff rates, establish tariff rate quotas (TRQs), modify or impose quantitative restrictions, implement adjustment measures for domestic industries, or negotiate agreements to limit imports where the ITC has found, after investigation under Section 202 of the Trade Act of 1974 (19 U.S.C. 2252) that "an article is being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported article." 19 U.S.C. § 2251(a).
The 1995 petition further requested provisional relief under section 202(d) of the Act (19 U.S.C. 2252(d)) that permits interim relief in the case of perishable agricultural commodities. Sec. 202(d) would permit the President to impose increased duties on the imported goods in question while the more thorough investigation was pending. Furthermore, there is an expedited procedure available if the imported goods have been subject to ITC monitoring for at least 90 days.
In the case of tomatoes, Section 316 of the North American Free Trade Agreement (NAFTA) Implementation Act had specifically required the ITC to monitor the imports of fresh or chilled tomatoes and peppers through Jan. 1, 2009, for the very purpose of expediting an investigation concerning provisional relief under Sec. 202.
The Section 201 Standard
In order to bring a successful case under Section 201, a petitioning party must show, and the ITC must find: 1) imports of the subject article are in increased quantities; 2) the domestic industry is seriously injured or threatened with serious injury; and 3) such increased imports are a substantial cause of the serious injury or threat of serious injury.
Furthermore, in the case of provisional relief for perishable agricultural commodities, the petitioner must show and the ITC must find that either: 1) the serious injury is likely to be difficult to repair by reason of perishability of the like or directly competitive agricultural product; or 2) the serious injury cannot be timely prevented through investigation under subsection (b) [standard investigation without provisional relief] and action under section 203.
In the 1995 case on fresh winter tomatoes, the ITC made a negative determination regarding injury in that case (USITC Pub. 2881 (April 1995), Investigation No. TA-201-64) as well as negative determinations with respect to the separate tests for provisional relief.
The 1996 Tomato Strategy
In 1996, the Florida tomato industry pursued a threepronged strategy. First, on March 11, the Florida Fruit & Vegetable Association, the Florida Bell Pepper Growers Exchange, Inc., the Florida Commissioner of Agriculture, the Ad Hoc Group of Florida Tomato Growers and Packers, and individual Florida bell pepper growers petitioned the ITC to investigate whether imports of fresh tomatoes and bell peppers were in such increased quantities to be causing the U.S. industry serious injury thereby warranting relief under Section 201 of the Trade Act of 1974. Investigation No. TA-201-66 was born.
Second, on April 1, the Florida Tomato Growers Exchange, Florida Fruit & Vegetable Association, Florida Farm Bureau Federation, South CarolinaTomato Association, Gadsden County Tomato Growers Association, Accomack County Farm Bureau (VA), Florida Tomato Exchange, the Florida Commissioner ofAgriculture, and theAd Hoc Group of Florida, California, Georgia, Pennsylvania, Sou th Carolina, Tennessee, and Virginia Tomato Growers filed an antidumping petition with the ITC and the Department of Commerce under Section 732(b) of the Tariff Act of 19'30 (19 U.S.C. 1673a(b)). That petition alleged that the U.S. tomato industry was being materially injured or threatened because of less than fair value (LTFV) imports of fresh tomatoes from Mexico. The ITC launched investigation No. 73 1 -TA-747 and the DOC's IntemationalTradeAdministration (ITA) commenced Case No. A-201-820.
Third, the U.S. Representatives and Senators from Florida launched a legislative initiative to alter Sec. 201 to make it easier for its constituents to be successful under that statute. On Dec. 15, 1995, Rep. Clay Shaw (R-FL) introduced H.R. 2795 to clarify the definitions ofdomestic industry and like products. The Florida House delegation unsuccessfully attempted to attach the legislation to the continuing funding resolution finally passed in early 1996.
Sen. Bob Graham (D-FL), on behalf of himself and Sen. Connie Mack (R-FL) introduced identical legislation, S. 1463, in December as well. The Senate passed S. 1463 on Jan. 26, 1996, and sent it to the House. The House sent the bill back to the Senate on April 16, because it constituted a revenue measure (it would effect customs revenues) and all such measures must originate in the House.
While the House Ways and Means Committee held a hearing on the bill on April 25, no further action occurred on the measure. However, Sen. Graham relentlessly pursued the Administration on this issue. Several high level meetings involving Cabinet members and topWhite House officials were held to achieve some relief for the Florida tomato growers.
ITC Finds Injuryin Antidumping Case
At the same time the ITC was investigating the tomato and bell pepper industry under section 201, it also was compelled to issue a preliminary ruling with respect to injury in the parallel antidumping case on tomatoes. Thus on May 16, the ITC made an affirmative finding of injury in its preliminary review and notified the ITA of this fact (USITC Pub. 2967, May, 1996). Without such a finding, the case would have died at that stage, and the ITA never would have needed to proceed with its determination of whether, in fact, export sales of Mexican tomatoes to the U.S. were occurring at less than fair value.
A preliminary ruling on injury in an antidumping case is governed by whether, based upon the information available at the time of the preliminary determination, there is a reasonable indication that a domestic industry is materially injured or threatened with material injury because of LTFV imports. (19 U.S.C. § 1673b(a)).
ITC Finds No Injury Under Section 201
On Aug. 16, the ITC announced that it had made a negative determination with respect to any injury caused by increased tomato and bell pepper imports and ended investigation No. TA-201-66 (61 Fed. Reg. 42652, USITC Pub. 2985 (August 1996)).
The ITC commissioners did find that imports had increased in the 1991-95 period for both fresh tomatoes and bell peppers. Under section 202 of the Trade Act, this finding is based on whether there is an increase in imports "either actual or relative to domestic production." (19 U.S.C. 2252(c)(1)(C)). However, they did not find that the domestic industry (which the ITC had to define) had suffered any serious injury nor that any such injury was threatened. The commissioners stated:
In summary, there is evidence that a significant number of growersface economic difficulties. Acreage planted and harvested, however, are steady;production is steady or rising; industry employment has risen; prices, while varying with the weather and supply and demand, show no discernible trend; and there is no evidence that Mexico, the chiefsupplier ofimported tomatoes, is about to expand tomato acreage, production, or exports to the U.S. market. We conclude that this evidence, in the aggregate, does not provide a basis for us to find that growers and packers offresh tomatoes are seriously injured or threatened with serious injury.How Can Imports Be Injurious in One Instance
and Not in The Other?To the standard observer, the ITC seems to contradict itself with respect to whether Mexican imports are injuring the U.S. tomato industry. It said yes in May in the antidumping case, and it concluded no injury in August in the Sec. 201 case. While some partially attributed this to election year politics, a key to understanding this apparent contradiction can largely be found in comparing the difference between the legal standards applied in the antidumping and Sec. 201 cases.
In the antidumping case only "material" injury is required as opposed to "serious" injury. Furthermore, imports must be a "substantial cause" of the injury in the Sec. 201 case as opposed to "injury, by reason of the allegedly LTFV or by reason of sales (or the likelihood of sales) of that merchandise for importation."
Serious injury in a Sec. 201 case is defined as "a significant overall impain-nent in the position of a domestic industry," and threat is defined as "serious injury that is clearly imminent." Sec. 202(c)(6)(C) and (D) (19 U.S.C. 2252(c)(6)(C) and (13)) respectively. This is a fairly high standard. Substantial cause means "a cause which is important and not less than any other cause." Section 202(b)(1)(B) (19 U.S.C. 2252(b)(1)(B)). As is evident, a weighing of cause is required, and the imports must be of equal or greater cause of injury than all alternative causes.
Material injury in the antidumping case is defined as "harm which is not inconsequential, immaterial, or unimportant. " 19 U.S.C. 1677(7)(A). There is much more subjectivity involved in a determination of material injury. "By reason of imports" is not defined, but case law has established that while the Commission may consider causes of injury to the industry other than the allegedly less than fair value imports, it may not weigh causes. Imports -from a particular country need not be the sole, or even principal, cause of material injury but only need be a contributing cause to satisfy the causation prerequisite of 19 U.S.C. 1677(7). See British Steel Corp. v. U.S., 593 F.Supp. 405 (Ct. Int'l Trade 1984), 8 C.I.T. 86.
Thus the standard for showing injury and causation in an antidumping case is much lower than that in a Sec. 201 case. Therefore, while the ITC determined there was no injury to the tomato industry in 1996 under Sec. 20 1, it was not inconceivable to find injury under the lesser antidumping statute.
The ITA Role -- Dumping Found
The second half of the antidumping equation is the determination of whether imports are, in fact, being sold in the United States for less than fair value (LTFV). If they are being sold and the ITC has deten-nined there is injury or the threat thereof, Section 731 of the Tariff Act of 1930 (19 U.S.C. 1673) requires the imposition of an antidumping duty in addition to any other duty applicable to the good, equivalent to the difference between the normal value and the export price for the merchandise. If the normal value of the good exceeds the export price, then dumping (the sale or likely sale of goods at less than fair value) exists, and the duty is imposed to remove the effects of that unfair trade practice.
Entire sections of the Tariff Act are devoted to the determination of export price (Sec. 772, 19 U.S.C. 1677a) and non-nal value (Sec. 773,19 U.S.C. 1677b). The Uruguay Round Agreements Act (URAA, P.L. 103-465) that implemented the 1994 Uruguay Round changes to the General Agreements on Tariffs and Trade, also substantially rewrote U.S. countervailing and antidumping duty laws both to bring them into conformance with the new international agreement but in many respects also to "shore up" U.S. law to further protect U.S. industry in light of increased international competition.
The Crucial Period of Investigation Determination
Perhaps the most critical factor in determining both normal and export values is the selection of the period of investigation (POI) that governs what prices and data will be examined. This is the decision which was the most controversial in the tomato case.
One of the URAA changes made in the law was to add a definition of "extended period of time" in the determination of normal value where sales of a good might be being made below the cost of production. If there is evidence leading one to believe that sales below the cost of production are made over an extended period of time, then such sales are to be excluded in the determination of normal value, and the administering authority (ITA) is permitted to construct a normal value if there are insufficient sales at or above the cost of production.
In previous AD cases where potential sales below the cost of production were at issue, the POI was typically six months. The URANs amendment, however, established that the "extended period" is "normally 1 year, but not less than 6 months." (Sec. 224 of P.L. 103-465, 108 Stat. 4882, Sec. 773(b)(2)(B) of Tariff Act of 1930, 19 U.S.C. 1677b(b)(2)(B)).
The ITA, in adopting a one year POI in the tomato case, stated that it "has altered the period it examines in an investigation to correspond to the most recently completed four fiscal quarters before the filing of the petition," and that such a change in procedure from the previous six month POI "is appropriate in light of the statutory definition of extended period of time' for costs cases, to simplify reporting requirements and to prevent possible price manipulation by respondents after they become aware of the filing of a [antidumping] petition." 61 Fed. Reg. at 56610.
The ITA chose March 1, 1995, through February 29, 1996 - a period which contained portions of two separate growing seasons when U.S. domestic tomato prices were highest. The Mexican government has argued this 11 gerrymandering" was designed to guarantee a finding of dumping. It is also important to note that fresh tomatoes from the Mexican state of Sinaloa (the source of the vast majority of imports) are available only from January through May, and those from Baja California are available only from June through November. Florida winter tomatoes are generally available from November through May.
Implications & Ramifications
The trade implications of this dispute are significant. Essentially, the U.S. industry creatively utilized the U.S. laws to try to keep out a foreign product that eventually resulted in a price fixing arrangement with foreign prodtice growers.
On the day President Clinton arrived at the Democratic National Convention, a large coalition of U.S. commodity and farm groups placed an advertisement in the Chicago Tribune that urged the President to ignore the "misgaided" pleas of the Florida growers. These groups were fearful that should the Administration take action to support the Florida tomato growers based on the existing facts, other nations would initiate similar attacks on U.S. products entering their nations.
That ad was followed by an Oct. 3 letter to Secretary of Commerce Mickey Kantor from 14 U.S. Senators, including the Chairman and Ranking Member of the Senate Agriculture Committee, expressing their concern about the possible ramifications for international agriculture trade and U.S. export-related jobs due to the positions taken and policies adopted in the tomato antidumping case. They stated:
We are particularly concerned that the period of investigation chosen by the Department of Commerce appears not only to be biased in favor of a predetermined outcome, but also to conflict with Commerce's established practice of recognizing the seasonal nature of agricultural production.
They then urged the Department to adopt a period of investigation "that is fair and representative of conditions existing in international trade in tomatoes."
Finally, while the Administration seemed to go out of its way to satisfy the interests of Florida tomato growers, the tomato growers are not the only agriculturally related producers presently trying to utilize U.S. trade laws to fend off imports. There are ongoing or completed ITC and/or ITA investigations involving pasta from Italy and Turkey, fresh kiwifruit from New Zealand, corn brooms from Mexico and Canada, agricultural tillage tools from Brazil and crawfish tail meat from China to mention just a few.
This trend has only begun and U.S. producers probably should expect similar investigations by foreign countries under their trade laws questioning whether U.S. imports are injuring the domestic industries of foreign countries.
John E. Sheeley is an associate in the firm and has an extensive background in agriculture, trade, crop insurance, farm credit, tax, and environmental issues.
Animal Drug Availability Act Approved
Legislative reforms to Food and Drug Administration (FDA) procedures for approving animal health products was signed into law just before Congress adjourned. This legislation will speed the approval process for drugs used on animals. It is designed to provide FDA with greater flexibility in determining the effectiveness of veterinary drugs. The reforms are aimed at providing more products to treat diseases in all species of animals.
The measure preserves the current requirements for proving that a new product is safe for animals, humans and the environment while fixing some of the problems associated with FDA's animal drug review process. The legislation also allows the FDA to set certain limits for drug residues in imported meats.
FDA now will be able to use an expanded list of studies to prove a drug's effectiveness, and will have more flexibility in determining whether or not a field investigation is necessary. In addition, FDA is required to meet with a potential applicant to outline the studies that will be necessary to achieve final approval of a drug.
The Need for Animal Drug Legislation
Continually changing regulatory guidelines and additional unnecessary testing requirements had affected adversely the availability of animal health products in the United States. Impediments to new drug approvals were increasing the costs of bringing new drugs to market without increasing food safety.
Over the last decade, the entire animal drug approval process had slowed dramatically at FDA!s Center forVeterinary Medicine (CVM), the agency responsible for regulating animal drugs. In a competitive global economy, scarce capital is wasted when a regulatory review process is inefficient. U.S. livestock producers have been losing a vital edge to European competitors because many new products are available in Europe before they are available in the United States.
Livestock producers were frustrated when products to treat animal diseases were taken off the market or in other cases where conditions existed for which no animal health products were approved. In many cases, veterinarians were forced to use products outside of their label specifications (known as "extra-label drug use"), because there simply were not enough approved animal drugs to treat the animal illnesses.
FDA's own studies demonstrated that the animal drug approval law was not working efficiently. It took CVM an average of 58 months, or almost five years, to approve a new chemical entity for food producing animals. In fact, only 10 new chemical entities for food-producing animals were approved between 1987 and 1994.
Field Investigations
The CVM has traditionally required that three field investigations be used in all instances to prove a drug's effectiveness. These investigations are costly and time consuming and are primarily designed to determine how a drug affects animals in certain environments. However, it is not always necessary to conduct field investigations, such is the case for poultry drugs, because the poultry are raised in climate-controlled environments.
Removing the requirement that field investigations be used in every instance should increase the rate at which many drugs are approved. At the same time, FDA retains the authority to require a single field investigation if it believes one is needed to prove efficacy. Moreover, multiple field investigations also can be required by agreement with the pharmaceutical company seeking approval of the new drug. Combination Drugs
Drug manufacturers often seek to use two or more animal drugs or active ingredients in combination. This may be done for a number of reasons: 1) to treat or prevent multiple diseases or conditions that may appear at roughly the same time in animals, 2) to create a product that will have increased effectiveness on a single disease or condition, and 3) to simultaneously treat or prevent diseases or conditions and promote rapid and efficient animal growth.
Under prior law, the Federal Food, Drug, and Cosmetic Act did not specifically address the combination of animal drugs. Under FDAs longstanding interpretation of the act, all animal drugs intended to be used in combination were required to be approved for that particular combination use.
Poultry often need two or more drugs in combination to treat conditions that appear simultaneously. CVM received little guidance from prior law on how to deal with requests to use two individually approved drugs in combination. As a result, the combination drug approval process also become extremely cumbersome, and few combination drugs were available.
The new legislation does not change the basic approach to the regulation of animal drugs used in combination. But it does allow CVM to waive efficacy testing for approved combination drugs if the drugs already have been proven effective individually. Of course, an applicant still will have to prove the combination is safe for animals and humans. With respect to human safety, the combination applicant must demonstrate that none of the active ingredients or drugs exceeds the previously established tolerance at the relevant withdrawal time and that there is no interference with the analytical methods for detecting drug residues.
Presubmission Conference
The new law provides that any person intending to file a New Animal Drug Application (NADA) or a request for an investigational exemption is entitled to one or more conferences with FDA to reach agreement on testing requirements. Decisions made under this process are binding on both FDA and the applicant unless both parties agree to modify the requirements or unless, after such conference, FDA by written order determines that a substantiated, scientific requirement has arisen which is essential to the determination of safety or effectiveness.
During the presubmission conference both parties can agree that one field investigation is needed to support approval. If FDA decides to require more than one field investigation, within 25 calendar days after the conference FDA must provide by written order a specific scientific justification why more than one field investigation is essential.
The presubmission conference requirement is intended to provide greater certainty for both FDA and the drug applicant. It is also intended to minimize situations where new information scientifically justifies that testing requirements be changed. Unforeseen changes to the testing requirements to support applications can unnecessarily increase the time and expense of bringing a new product to the market.
"Substantial Evidence"
The new law amends the statutory definition of "substantial evidence" of effectiveness that is required to support new animal drug application (NADA) approvals. "Substantial evidence" includes one or more adequate and well-controlled investigations, such as a study in a target species, a study in laboratory animals, a bioequivalency study or an in vitro study. "Substantial evidence" also includes any required field investigation.
Minor Species and Minor Uses
The new law requires FDA to consider legislative and regulatory options for facilitating animal drug approvals for minor species and minor uses for use by veterinarians and animal owners and minimize reliance on extra-label uses of drug products. FDA must announce its proposals for legislative or regulatory changes within 18 months of the date of enactment.
Under prior law, the act did not specifically address animal drug approvals for minor species or minor uses. Those drugs typically have a very small market, and therefore, it often is difficult or impossible to design certain types of studies to determine the safety or effectiveness of the drug, or it may not be economically feasible for drug sponsors to comply with normal approval requirements.
Limitation on Residues
Prior law is revised to require denial of NADA approval if there is infonnation that any residue would exceed the safe tolerance adopted by FDA under labeled conditions of use. FDA was previously required to deny approval unless the applicant's proposed tolerances were set in relation to an optimum dose even if that "optimum dose" was well under a safe tolerance. It has been found that the theoretical optimum dose often does not perform "optimally" under field conditions. The new change assures that the safety determination is limited by the safe tolerance established, rather than some theoretical dose. This pen-nits FDA to establish tolerances solely on the basis of scientifically valid risk assessment procedures.
Import Tolerances
Section 512(a)(21 U.S.C. 360b(a)) revises prior law to permit FDA to establish a tolerance for residues of an animal drug in human food when the drug is not approved for use in the United States, but imported food products of animal origin may contain residues of that drug.
The new provision addresses those instances where food producing animals raised in other countries are treated with animal drugs that are not approved in the U.S. The provision responds to concerns about the residues of such drugs in food products derived from these animals and imported into the U.S.
Prior law contained no comparable mechanism for FDA to adopt a residue tolerance for such an animal drug, without fully conducting the burdensome procedure for approval of a new animal drug. The former procedure served as a disincentive to drug manufacturers in foreign countries from seeking United States tolerances for drug residues in food. This situation also resulted in the U.S. government being less informed about the safety of foods imported into the U.S.
In establishing an import tolerance, FDA is required to apply criteria similar to those it would apply in reviewing the human food safety aspects of an animal drug for which approval is sought in the U.S. FDA may rely on data generated by the drug manufacturer, or on data from a relevant international organization, such as the Codex Alimentarius Commission.
If an international standard changes on which FDA relied, or if new information from either experience or scientific data shows the tolerance is no longer safe, FDA may change or revoke the tolerance. The tolerance also may revoked if information shows use of the animal drug under actual use conditions results in food being imported into the U.S. with residues exceeding the tolerance.
Veterinary Feed Directive Drugs
A significant number of animal drugs are administered through animal feed. All such commercially available animal drugs were previouslyly available without the involvement of the veterinarian. CVM sought increased veterinary oversight for antibiotics used in feed, and thus they are unlikely to approve new "over-the-counter" feed antibiotics. Most feed mills, for a variety of regulatory and practical reasons, would not mix prescription medications in feed.
Section 504(a)(1) of the reform legislation solves this dilemma by creating a new class of "veterinary feed directive" (VFD) drugs. These drugs cannot be dispensed without a veterinarian's authorization, but veterinarians do not have to be directly involved in the mixing of the drugs. This means that livestock producers will not suffer from restrictions in the types of medications available in feed.
The new legislation provides that veterinary feed directive drugs and medicated feeds containing them are not "prescription" under any federal or state law. The veterinarian's participation in the decision to use one of these drugs satisfies FDA's concerns that these drugs be used only in appropriate circumstances. In addition, the labeling, distribution, holding, or use of a veterinary feed directive drug or feed in a manner inconsistent with its approval results in the drug or feed being deemed adulterated.
Section 512(a) of the legislation establishes a new regulatory system of licensing feed mills to manufacture any or all medicated feeds that were the subject of drug-specific approved Medicated Feed Applications (MFXs) under prior law. Persons holding an approved MFA were deemed to be the holders of a feed mill license. To aid FDA in the orderly maintenance of its records such persons are now required to complete a license application within 18 months after the date of enactment. Such license applications are now deemed to be approved upon receipt by FDA.
A single license for each feed mill, rather than a multitude of drug-specific MFAs, will benefit both industry and FDA by eliminating a regulatory burden that had no associated public health or animal health benefit. Under prior law, approximately 2,500 MFAs were submitted to FDA each year.
Implementation of the New Legislation
Some portions of the new law already have been implemented as of Oct. 9. For example, CVM can begin immediately waiving field investigations and can exercise increased flexibility in efficacy testing and approval ofVFD drugs. FDA is required to adopt regulations that further define the tenn "adequate and well controlled" to require that field investigations be designed and conducted in a scientifically sound manner, taking into account practical conditions in the field and differences between field conditions and laboratory conditions.
FDA must propose these regulations within six months after the date of enactment of the new law and adopt final regulations within 18 months after the date of enactment. Before such regulations become effective, FDA is directed to interpret its existing regulations in a manner consistent with the statute's provisions. All parts of the legislation must be implemented within two years of enactment. FDA must propose regulations that implement all other provisions of the statute within 12 months after the date of enactment and adopt final regulations within 24 months of the date of enactment.
It is difficult to predict which portions of the law will have the biggest initial impact or what types of new drugs will become available at first. It appears, however, that new VFD and combination drug approvals could be seen as early as next year.
Beneficiaries of the New Legislation
Livestock and poultry producers as well as owners of companion animals, such as pets and horses, will benefit from the new law. There soon will be available a wider range of medicines to treat many different animals.
Veterinarians will have a broader medical arsenal available in their practice. Commercial feed manufacturers will be able to provide customers with feed mixtures that enhance the health of their customers'animals. Animal health companies will be able to respond more quickly to their customers'need for safe, effective medications.
BURTON ELLER ENHANCES
McLEOD,WATKINSON & MILLER'S
GOVERNMENT RELATIONS PRACTICEJ. Burton Eller, veteran Washington representative for the cattle industry, has joined McLeod, Watkinson & Miller as the Senior Government Relations Consultant. Eller has more than 25 years of experience in domestic and international food and agricultural policy.
"There is no doubt that Burton Eller's wealth of experience in agricultural matters and his unsurpassed credibility as an agricultural spokesman will be a great benefit to our firm," said Mike McLeod, senior partner. "We know he will represent the interests of our clients with the same dedication, energy and knowledge that he has brought to agriculture for the past two-plus decades."
Eller said he hoped to use his extensive background inWashington to bring even more effective representation to MW&M clients in both the legislative and regulatory arenas. "Having worked in Washington for more than 25 years, I am intimately familiar with both the executive and legislative branches of government, and I can help clients get their message across to elected and appointed government officials in the most effective manner possible," he said.
From 1991 to 1996, Eller was Executive Vice President of the National Cattlemen's Association. He supervised 80 employees in both the Denver, CO, and Washington, DC, offices and administered a $12 million annual budget. From 1981 to 1991 Eller was NCA senior vice president, government affairs, after serving six years as associate director, government affairs.
He managed the cattle industry's interests in both domestic and foreign markets, thus gaining valuable expertise in both the domestic food industry and international trade. His experience includes grassroots lobbying of Congress and federal agencies and managing pubic policy, public relations, communications, producer education, and crisis management. The areas he managed included environmental, research, private and public land use, property rights and taxes.
Eller holds a bachelor's degree in animal science from Virginia Polytechnic Institute and State University, Blacksburg, VA, and a Master of Science, physiology, also from Virginia Tech. Eller also is active in his family's cattle and fanning operation near Marion, VA.
Burton Eller is a government relations professional in the firm of McLeod, Watkinson & Miller. Mr. Eller has extensive prior experience as a lobbyist and CEO, and he currently represents the interests of several trade associations before the Congress and the Administration.
The Agricultural Law Letter is published to highlight recent changes and developments in the law and public policy. As with any publication of this type, it is essential that before any action is taken based upon this information, competent, individualized, and professional advice should be obtained. Copyright 1997 by McLeod, Watkinson & Miller. Reproduction in part or in whole is permitted with permission from McLeod, Watkinson & Miller. Contact Suzanne Bucciarelli at (202) 842-2345, or write to One Massachusetts Avenue, NW, Suite 800, Washington, D.C. 20001. Subscriptions to the newsletter are $25 per year.
