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SECTION-BY-SECTION ANALYSIS OF H.R. 12322, A BILL TO PROVIDE FOR AN INDUSTRY

FINANCED COTTON RESEARCH AND PROMOTION PROGRAM

The first section of the bill specifies its short title as the “Cotton Research and Promotion Act."

Section 2 contains legislative findings and declarations of policy. Findings are made that all cotton produced in the United States is subject to the Federal commerce powers, that new or improved markets and uses are vital to cotton producers and others in the cotton industry as well as to the general economy of the Nation, that U.S.-grown cotton is confronted with intensive competition from foreign-grown cotton and from manmade fibers arising largely from extensive promotional efforts for such fibers, and that a national program for cotton research and promotion is necessary.

A finding also is made that the Congress heretofore has exercised its regulatory powers so as to adjust the supply of cotton to demand and that it is necessary to supplement that regulation with a means of increasing the demand for cotton so as to reduce or eliminate the need for restricting marketings and for supporting the price of cotton.

Section 2 then declares it is to be the policy of Congress, in the public interest, through the exercise of the powers conferred by the bill, to provide for an effective program of research and promotion designed to improve cotton's competitive position and improve markets and uses for U.S. cotton and to finance such program through assessments on all cotton harvested in the United States.

Sections 3, 4, and 5 of the bill provide for the issuance of orders applicable to handlers of cotton after notice and hearing and a finding by the Secretary, based on evidence introduced at such hearing, that the issuance of such order and all of its terms and conditions will tend to effectuate the declared policy of the act.

The substantive terms and provisions of such orders are provided for in sections 6 and 7 of the bill.

Section 6 covers permissive terms in orders and provides that they shall contain one or more of four specified terms and conditions and, except as provided in section 7, no others. Section 6(a) authorizes appropriate plans or projects for the advertising and sales promotion of cotton and its products and disbursing necessary funds for such purposes. Any such plan or project must be directed toward increasing the general demand for cotton or its products and may not refer to private brands or trade names if the Secretary determines that such reference will discriminate unduly against the cotton products of other persons. Further, such programs shall not use false or unwarranted claims in behalf of cotton or false or unwarranted statements concerning any competing product.

Section 6(b) authorizes provisions in orders for research and development projects with respect to the production, processing, distribution, or utilization of cotton and its products and for the disbursement of necessary funds for such purposes.

Section 6(c) authorizes order provisions for the maintenance by handlers of books and records and for making them available to the Cotton Board and to the Secretary in connection with the administration and enforcement of the program. Such information is to be confidential except as otherwise provided in section 6(C).

Section 6(d) provides general authority to include in orders, terms and conditions which are incidental to and not inconsistent with theterms and conditions expressly specified in the act and necessary to effecuate other provisions of such order.

Section 7 of the bill specifies terms that will be required to be included in orders. Such required terms are as follows:

Section 7(a) requires that an order provide for a Cotton Board to be established and selected by the Secretary which shall have only the powers (1) to administer such order in accordance with its terms and provisions; (2) to make rules and regulations to effectuate the terms and provisions of such order; (3) to receive, investigate, and report to the Secretary complaints of violations of such order; and (4) to recommend to the Secretary amendments to such order.

Section 7(b) directs that such Cotton Board be composed of representatives of cotton producers, to be selected by the Secretary from nominations submitted by certain producer organizations within a State, as certified pursuant to section 14

of the bill, or if the Secretary determines that such producer organizations do not adequately represent producers in the State, from nominations made by producers as otherwise specified by the Secretary. The producer representation on the Cotton Board for each cotton-producing State shall, insofar as possible, reflect the proportion of that State's marketings of cotton to total marketing of cotton in the United States, with at least one member for each cotton-producing State.

Section 7(c) provides that the Cotton Board shall, subject to the provisions of section 7(g), develop and submit to the Secretary for approval any advertising sales promotion or research and development plans or projects, which plans or projects must be approved by the Secretary before becoming effective.

Section 7(d) provides that the Cotton Board shall, subject to the provisions of section 7(g), submit to the Secretary for his approval budgets of anticipated expenses and disbursements of the Board in administering the order, including estimated costs of such projects.

Section 7(e) provides that each handler of cotton, as prescribed by the order, shall collect from the producer or other person for whom cotton is handled and shall pay to the Cotton Board, assessments as prescribed by the order for expenses and expenditures found by the Secretary to be reasonable and likely to be incurred by the Cotton Board under the order. It further provides that the initial rate of assessment under the order shall be $1 per bale of cotton handled, which rate cannot be changed except by amendment of the order, recommended by the Cotton Board, approved by the Secretary, and adopted by cotton producers in a referendum. Provision also is made that the Secretary may maintain suits against any persons subject to the order for the collection of such assessments, and jurisdiction is vested in the district courts of the United States to entertain such suits.

Section 7(f) provides for accounting by the Cotton Board for all funds entrusted to it and for the maintenance of appropriate books and records and the submission of reports by it to the Secretary.

Section 7(g) provides that the order shall require the Cotton Board, with the approval of the Secretary, to enter into contracts or agreements to develop and carry out activities authorized under sections 6(a) and 6(b), and for the payment of the costs thereof with funds collected pursuant to the order. Such contracts or agreements must be made with an organization or association governed by cotton producers selected by the cotton producer organizations to be certified under section 14 of the bill, with mandatory provision for appropriate representation by States, depending upon volumes of cotton marketed, subject to adjustments to reflect lack of participation in the program because of refunds under section 11 of the bill.

Section 7(g) further specifies that any such contract or agreement must provide that the contracting organization or association is to develop and submit, each year to the Cotton Board for its review and recommendation to the Secretary, a program of research, advertising, and promotion projects together with an estimated budget for such projects, and that such projects shall be effective upon approval by the Secretary. Any such contract or agreement must also provide that the contracting organization maintain adequate records and make annual reports to the Cotton Board concerning activities and accounting for funds received and expended and such other reports as the Secretary may require.

Under section 7(h) no funds collected by the Cotton Board may be used to influence Government policy or action, except only for the purpose of enabling the Board to make appropriate recommendations to the Secretary for amendment of the order.

Section 8 of the bill provides that no such order shall be effective unless the Secretary determines that its issuance is approved by at least two-thirds of the producers of cotton voting in a referendum, either by number or by volume of production in a representative period.

Section 9 provides for termination or suspension of an order or any provision thereof if the Secretary finds that the order or any such provision obstructs or does not tend to effectuate the declared policy of the act. It also provides for termination or suspension of the entire order upon a finding, after referendum, that a majority of cotton producers voting in a referendum, who produced more than 50 percent of the cotton of producers voting therein, favor termination or suspension of the order.

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Section 10 provides that the requirements of the act applicable to orders shall be applicable to amendments to orders.

Section 11 provides that any cotton producer who has paid an assessment under an order may demand and receive from the Cotton Board a refund of such assessment, provided that demand therefor is personally made by the producer on a prescribed form and in accordance with regulations within 30 days from the date the producer paid the assessment, which demand must be supported by a statement in writing from the handler to whom payment was made substantiating such payment. Each such demand for refund is to be a matter of public record and no producer obtaining such a refund is to be eligible to vote in subsequent referenda until the refunds have been fully repaid to the Board or unless the Board, by regulation, waives repayment.

Section 12 (a) provides that any person subject to an order may file a written petition with the Secretary contesting any order or any obligation imposed thereunder as not in accordance with law, and praying for modification or exemption therefrom. After hearing in accordance with regulations, the Secretary is to rule on the petition and such ruling is to be final, if in accordance with law.

Section 12(b) provides for appeal from the Secretary's ruling to a U.S. district court, provided appeal is taken within 20 days from the date of the entry of such ruling. If the court finds that the Secretary's ruling is not in accordance with law, it shall remand to the Secretary with instructions, or direct further proceedings. The pendency of such review proceedings before the Secretary is not to interfere with enforcement under section 13(a) of the bill.

Section 13 deals with enforcement by civil actions. Paragraph (a) vests the district courts of the United States with jurisdiction to enjoin violations and to order specific performance of any order or regulation. Paragraph (b) provides for a civil penalty of not more than $1,000 for willful violation of the order or willful failure or refusal to pay any assessment or fee due under an order.

Section 14 specifies the terms of eligibility to be met by cotton producer organizations in each cotton producing State for purposes of requesting issuance of an order and submission of nominations for membership on the Cotton Board. Each such organization would be required to submit to the Secretary a factual report specifying certain information. The Secretary would certify organizations which he finds meet the requirements of the section; such determination as to eligibility being final.

Section 15 authorizes the Secretary to make such regulations, with the force and effect of law, as may be necessary to carry out the act and the powers vested in him by the act.

Section 16 authorizes investigations by the Secretary to carry out his responsibilities under the act or to determine whether the act is being violated or about to be violated. In connection with such investigation, the Secretary would be empowered to administer oaths, subpena witnesses, and require the production of documentary evidence relevant to the inquiry. The section also provides for enforcement of subpenas by district courts and specifies that no person may refuse to testify on grounds of self-incrimination, but no individual may be prosecuted with respect to any matter concerning which he is compelled to testify or produce evidence, after claiming privilege of self-incrimination, except for perjury committed in so testifying.

Section 17 defines the terms "Secretary,” “person," "cotton," "handler," and United States."

Section 18 is the usual separability clause providing that if any provision of the act or its particular application is held invalid, the validity of the remainder of the act and its application to other persons and circumstances shall not be affected thereby.

Section 19 authorizes appropriations necessary to administer the act, but expressly provides that such appropriated funds shall not be available to pay the expenses or expenditures of the Cotton Board in administering an order.

Section 20 provides for an effective date upon enactment of the bill.

The CHAIRMAN. We want to accord everyone a full opportunity to be heard, to freely express their views, either for or against this measure. There might be some other program that may be as good, or better, but if so we are not aware of it.

We appreciate the importance of this legislation. We hope that you do, too, and that we can avoid repetition in the interest of saving

time and can conclude the hearings, certainly, not later than tomorrow afternoon. We have numerous witnesses listed who will be called.

The first one is Mr. Clarence H. Girard, Deputy Administrator, Regulatory Programs, Consumer and Marketing Service, U.S. Department of Agriculture. We will be glad to hear from you now, Mr. Girard.

STATEMENT OF CLARENCE H. GIRARD, DEPUTY ADMINISTRATOR,

REGULATORY PROGRAMS, CONSUMER AND MARKETING SERVICE; ACCOMPANIED BY CHARLES W. BUCY, ASSISTANT GENERAL COUNSEL; W. D. MACLAY, DIRECTOR OF RESEARCH PROGRAM DEVELOPMENT AND EVALUATION STAFF; FRANK LOWENSTEIN, ECONOMIST WITH THE STAFF ECONOMIST GROUP; AND JOSEPH A. MOSS, DIRECTOR OF COTTON POLICY STAFF, AGRICULTURAL STABILIZATION AND CONSERVATION SERVICE, U.S. DEPARTMENT OF AGRICULTURE

Mr. GIRARD. Mr. Chairman and members of the committee, I am accompanied by a number of specialists from the Department who will assist me, with the chairman's permission, in answering any questions the committee may care to ask with respect to this legislation.

On my far right is Mr. Frank Lowenstein, economist, with the staff economist group; next to me on my right is Dr. W. D. Maclay, who is Director of the Research Program Development and Evaluation Staff, and to my left is Mr. Charles W. Bucy, Assistant General Counsel, and to my far left is Mr. Joseph A. Moss, Director of the Cotton Policy Staff, Agricultural Stabilization and Conservation Service.

As the chairman indicated, we, too, in the Department, believe this to be a very important bill, and that is one reason why we wanted to have with us those specialists in the various fields of cotton operation who would be available to answer questions which the committee may direct to these gentlemen and myself.

It is always a pleasure to appear before this committee, and I am particularly happy to have the privilege of presenting the Department's position on this bill.

We are pleased to appear before this committee to support H.R. 12322 and recommend that it be passed.

The Department's report on the bill refers to several modifications which we believe merit consideration by the committee. These are discussed in the report.

The bill is intended to enable cottongrowers to establish, finance, and carry out a coordinated program of research and promotion to improve the competitive position of, and to expand markets for, cotton.

The bill provides for a program of advertising, trade promotion, research and development activities designed to promote the sale and use of domestic cotton. The direct costs of these activities are to be financed by industry assessments. The mechanism for effectuating the act is through cotton research and promotion orders" to be issued by the Secretary of Agriculture. H.R. 12322 further provides that the orders are to be issued after notice and hearing and following approval of cotton producers participating in a referendum. Each

order issued by the Secretary would provide for a Cotton Board with authority to administer the order, issue implementing regulations, report on violations and recommend amendments.

A private organization controlled by producer representatives selected by State producer associations is given the exclusive right to contract with Cotton Board in carrying out all advertising, promotion, and research and development projects. Under such contract, such organizations also must annually develop project programs and budgets and submit them to the board for its review and recommendation to the Secretary, such projects to be effective only upon approval by the Secretary: The orders would provide for one or more of the following:

(1) Advertising and sales promotion projects;
(2) Research and development projects;
(3) Handler reporting and recordkeeping; and

(4) Incidental terms and conditions needed to effectuate other provisions of the order. A number of facts concerning cotton, its production, marketing, uses, and the many problems associated thereto, are pertinent in the consideration of the objectives of the proposed legislation.

1. Cotton is the Nation's No. 1 cash crop: It has an annual farm value of approximately $2.5 billion. Millions of persons—workers and dependents—are involved in growing cotton and producing finished cotton products for customers.

2. Realized losses incurred by the Commodity Credit Corporation on upland cotton price support and related programs and expenditures under direct payment programs have totaled $3.006 million during the past 10 years: These have ranged from $62 million in 1956 to $601 million in 1965. In addition, losses on loan and owned inventories as of June 30, 1965, were estimated at $541 million. These losses and expenditures do not include administrative costs or costs incurred in operation of the Public Law 480 programs that have accounted for substantial volumes of cotton exports. In spite of these expenditures, the carryover of cotton has mounted steadily since 1961, reaching a near record high of 14 million bales in 1965, and a projection of about 16 million bales in 1966.

3. Cotton has been confronted with strong competition from manmade fibers in domestic outlets for the past 3 decades, but within the last 5 to 10 years the competition has become increasingly stronger. From 1930 to 1960, cotton's share of the total U.S. fiber market dropped from about 85 percent to 65 percent. Since 1960, cotton's share has declined at a much greater rate, dropping to 53 percent in 1965. In contrast, the manmade fibers' share of the U.S. fiber market increased from 3.9 percent in 1930 to 29 percent in 1960, to 41 percent in 1964, and to 42.5 percent in 1965.

Many of the noncellulosic manmades, which are rapidly claiming uses previously held by cotton, sell for two to three times more than cotton. However, they continue to win new markets. Clearly, these noncellulosics have been winning markets from cotton on the basis of some advantage other than price per pound.

Better varieties and improved production practices have resulted in increased yields of about 15 pounds per acre per year during the past 5 years.

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