CERTIFICATION OF COTTON PRODUCER ORGANIZATION

SEC. 14. The eligibility of each cotton producer organization to represent cotton producers of a cotton producing State to request the issuance of an order under section 4, and to participate in the making of nominations under section 7(b) shall be certified by the Secretary and shall be based upon a factual report submitted by the organization which shall contain information deemed relevant and specified by the Secretary for the making of such determination, including the following:

(a) Geographic territory within the State covered by the organization's active membership;

(b) Nature and size of the organization's active membership in the State, proportion of total of such active membership accounted for by farmers, a map showing the cotton-producing counties in such State in which the organization has members, the volume of cotton produced in each such county, the number of cotton producers in each such county, and the size of the organization's active cotton producer membership in each such county;

(c) The extent to which the cotton producer membership of such organization is represented in setting the organization's policies;

(d) Evidence of stability and permanency of the organization;

(e) Sources from which the organization's operating funds are derived; (f) Functions of the organization; and

(g) The organization's ability and willingness to further the aims and objectives of this Act:

Provided, however, That the primary consideration in determining the eligibility of an organization shall be whether its cotton farmer membership consists of a sufficiently large number of the cotton producers who produce a relatively significant volume of cotton to reasonably warrant its participation in the nomination of members for the Cotton Board. The Secretary shall certify any cotton producer organization which he finds to be eligible under this section, and his determination as to eligibility shall be final.

REGULATIONS

SEC. 15. The Secretary is authorized to make such regulations with the force and effect of law, as may be necessary to carry out the provisions of this Act and the powers vested in him by this Act.

INVESTIGATIONS: POWER TO SUBPENA AND TAKE OATHS AND AFFIRMATIONS: AID OF COURTS SELF-INCRIMINATION

SEC. 16. (a) The Secretary may make such investigations as he deems necessary for the effective carrying out of his responsibilities under this Act or to determine whether a handler or any other person has engaged or is about to engage in any acts or practices which constitute or will constitute a violation of any provision of this Act, or of any order, or rule or regulation issued under this Act. For the purpose of any such investigation, the Secretary is empowered to administer oaths and affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, papers, and documents which are relevant to the inquiry. Such attendance of witnesses and the production of any such records may be required from any place in the United States. In case of contumacy by, or refusal to obey a subpena issued to, any person, including a handler, the Secretary may invoke the aid of any court of the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such person resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, papers, and documents; and such court may issue an order requiring such person to appear before the Secretary, there to produce records, if so ordered, or to give testimony touching the matter under investigation. Any failure to obey such order of the court may be punished by such court as a contempt thereof. All process in any such case may be served in the judicial district whereof such person is an inhabitant or wherever he may be found.

(b) No person shall be excused from attending and testifying or from producing books, papers, and documents before the Secretary, or in obedience to the subpena of the Secretary, or in any cause or proceeding, criminal or otherwise,

based upon or growing out of any alleged violation of this Act, or of any order, or rule or regulation issued thereunder on the ground or for the reason that the testimony or evidence, documentary or otherwise, required of him may tend to incriminate him or subject him to a penalty or forfeiture; but no individual shall be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he is compelled, after having claimed his privilege against self-incrimination, to testify or produce evidence, documentary or otherwise, except that any individual so testifying shall not be exempt from prosecution and punishment for perjury committed in so testifying.

DEFINITIONS

SEC. 17. As used in this Act:

(a) The term "Secretary" means the Secretary of Agriculture.

(b) The term "person" means any individual, partnership, corporation, association, or any other entity.

(c) The term "cotton" means all upland cotton harvested in the United States, and, except as used in section 7(e), includes cottonseed of such cotton and the products derived from such cotton and its seed.

(d) The term "handler" means any person who handles cotton or cottonseed in the manner specified in the order or in the rules and regulations issued thereunder.

(e) The term "United States" means the continental United States.

SEPARABILITY

SEC. 18. If any provision of this Act or the application thereof to any person or circumstances is held invalid, the validity of the remainder of the Act and of the application of such provision to other persons and circumstances shall not be affected thereby.

AUTHORIZATION

SEC. 19. There is hereby authorized to be appropriated out of any money in the Treasury not otherwise appropriated such funds as are necessary to carry out the provisions of this Act. The funds so appropriated shall not be available fr the payment of the expenses or expenditures of the Cotton Board in administering any provisions of any order issued pursuant to the terms of this Act.

EFFECTIVE DATE

SEC. 20. This Act shall take effect upon enactment.

FEBRUARY 7, 1966.

Hon. HAROLD D. COOLEY,

Chairman, Committee on Agriculture,

House of Representatives.

DEAR MR. CHAIRMAN: This is in reply to your request for a report on, and a section-by-section analysis of, H.R. 12322, a bill to enable cotton growers 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 Department supports the bill and recommends that it be passed. There are several provisions of the bill, however, which merit special attention by the committee. These will be discussed later in this report.

The need for this legislation is ably stated in the legislative findings set forth in section 2. This need is underscored by the high and rising costs of Government cotton programs, the recent rapid increase in carryover, and the continued decline in cotton's share of the fiber market. The expanded research and promotion programs provided by the bill, if carefully conceived and responsibly carried out with complete and close coordination with existing Federal and State programs, should make a desirable contribution toward increasing the markets for cotton.

The following are some of the facts concerning the problem to which the bill is addressed:

Realized losses incurred by 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-ranging 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.

Cotton has been confronted with strong competition from manmade fibers in domestic outlets for the past two to three decades, but within the last 5 to 10 years the competition has become increasingly stronger.

Annual consumption of all fibers in the United States has increased from 6.7 in 1955 to 8.4 billion pounds in 1965. In contrast, total consumption of cotton has held fairly steady at about 4.4 in 1955 to 4.5 billion pounds in 1965. Manmade fibers have accounted for the increased consumption of all fibers in recent years. In the mid-1950's, about 2 billion pounds of manmade fibers were consumed annually, compared to about 3.6 billion pounds in 1965.

For the three decades, from 1930 to 1960, the cotton 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 fiber 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.

Per capita consumption of cotton has declined from about 26.5 pounds in 1955 to 23 pounds in 1965; whereas, per capita consumption of manmade fibers increased from 11.5 pounds in 1955 to 18.3 pounds in 1965.

Comparisons of production data also illustrate the growing competition confronting U.S. cotton. From the mid-1950's to the mid-1960's, production of manmade fibers doubled from an equivalent of about 5 to 10 million bales of cotton. Noncellulosic fibers have accounted for most of this increase, rising from less than 1.7 million bales in 1955 (cotton equivalent) to 6 million bales in 1964. Plant expansions now underway will increase capacity by another 2 million bales within the next 12 months, and industry reports indicate that noncellulosic production will probably double within the next 5 years.

Rayon production in cotton equivalents has remained fairly stable at about 4 million bales for the past several years, although the cost of cotton to mills has been greater than the cost of rayon. In contrast, many of the noncellulosic manmades, which are rapidly claiming uses previously held by cotton, sell for two to three times more than cotton. Clearly, noncellulosics have been winning markets from cotton on the basis of some advantage other than price per pound. In contrast to the hundreds of thousands of cotton producers, U.S. production of noncellulosic manmade fibers is highly concentrated in a few firms. The eight largest firms account for about 90 percent of total output of the major types of noncellulosic fibers. This concentration of production in a few firms facilitates the financing by noncellulosic producers of research for specific fibers and the promotion of their use, and hence contributes to the substantial gains noncellulosic fibers have made in uses previously held by cotton.

It has been estimated that all U.S. producers of noncellulosic fibers will spend about $135 million in 1965 on research and development. It is estimated also that another $70 million will be spent for sales promotion. Thus, manufacturers of noncellulosic fibers will spend over $200 million for developing and promoting their product. By comparison, this expenditure is about seven times greater than the combined public and private outlays for development and promotion of cotton in 1965.

Attached is the requested section by section analysis of the bill; however, its important provisions may be summarized as follows:

H.R. 12322 provides enabling legislation for a program of advertising and trade promotion and research and development to promote the sale and use of domestic cotton, with direct costs to be financed by producer assessments. This is to be done through "cotton research and promotion orders," to be issued by the Secretary after notice and hearing and following approval by two-thirds of cotton producers participating in a referendum, by number or by volume of production.

The orders would contain one or more of four permissive provisions, i.e., (1) for advertising and sales promotion projects, (2) for research and development projects, (3) for handler reporting and recordkeeping, and (4) for incidental terms and conditions needed to effectuate other provisions of the order. How

ever, any such advertising and promotion projects would be limited to improving the general demand for cotton or its products. No reference to private brand may be made if the Secretary determines undue discrimination would result, and false or unwarranted claims or statements may not be used on behalf of cotton or cotton products or in derogation of competing products.

Each order would also contain certain required terms. The order must provide for a cotton board with authority to administer the order, issue implementing regulations, report violations, and recommended other amendments. Such board must be composed of producer representatives from each cotton State, with proportionate representation reflecting relative importance of each States in cotton marketing. Representatives from each State are to be selected from nominations made by producer organizations to be certified by the secretary for each State, but nominations may otherwise be made if the Secretary determines that certified organizations do not adequately represent producers of the State. The board also must develop and submit to the Secretary for approval, all plans and projects for advertising, promotion, research or development, as well as budgets covering all anticipated costs and expenses. However, as written, this would be subject to a further requirement that such plans and budgets must originate with an exclusive contracting organization which would, in fact, develop and carry out all such plans and projects.

Under section 7(g), the cotton board, with the Secretary's approval, must enter into executive contracts with an organization or association controlled by producer representatives selected by State producer organizations certified by the Secretary under section 14 for the carrying out of all advertising, promotion, and research and development projects. Under such contract, such organization 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 upon approval by the Secretary.

The order also must provide that prescribed handlers of cotton shall collect assessments from producers and pay them over to the board. Such assessments are to meet anticipated expenses of the Board, including program disbursements. The initial rate in an order is to be $1 per bale and such rate is not to be changed except by an amendment of the order recommended by the cotton board, approved by the Secretary, and approved by producer referendum.

The order also must require records, reports, and accounting by the cotton board with respect to all funds it handles.

Despite the provision for mandatory assessments against producers, section 11 provides for refunds thereof by the cotton board to individual producers, who personally must make written request for such refund within 30 days after payment by them, upon prescribed forms and supported by statements in writing from the handlers to whom the assessment was paid. Producers requesting refund are to be ineligible to vote in subsequent referendums until all refunds are repaid or the board, by regulation, waives repayment.

Section 14 specifies the procedure and criteria for the Secretary's certification of producer organizations in each State for purposes of nominations for membership on the cotton board and selection of the governing body of the exclusive contracting organization which is actually to develop and carry out the promotion and research projects and spend the money therefor.

The bill also provides for statutory review of the lawfulness of orders or obligations thereunder; civil and criminal enforcement; the issuance of regulations by the Secretary, and power to conduct investigations, issue subpenas, etc. The Department favors the enactment of the bill, but wishes to suggest several desirable modifications that merit consideration by the committee. These are: 1. Section 7(e) appears to place the primary obligation to pay assessments on individual producers, with collection to be made by handlers for turnover to the cotton board. It also provides for suits by the Secretary to enforce collection of such assessments.

This section is susceptible to the construction that a handler's obligation to pay assessments is conditioned upon his ability to collect from producers. If this is so, then any enforcement action to collect assessments, where the handler has failed to collect from a producer, would have to be taken against the producer. This could result in numerous law suits against individual producers for the collection of relatively small amounts of money. Any such attempts to enforce collection from producers may be further complicated by the fact that the amounts so collected from producers would be subject to immediate refund under section 11.

It is our understanding that the intention of section 7(e) is to require handlers to pay assessments, irrespective of whether they collect such assessments from producers. If our understanding is correct, the committee may wish to clarify section 7(e) by placing unequivocally on handlers the primary obligation to pay assessments, as is done in marketing orders under the Agricultural Marketing Agreement Act of 1937, after which the bill is patterned. This could be coupled by a direction to handlers that they reimburse themselves by collections from producers or other persons for whom the cotton is handled.

This method of handling assessments has not proven to be too burdensome on handlers under our fruit and vegetable marketing orders. Those handlers have been able to reimburse themselves through contractual arrangements with producers. It is assumed that handlers of cotton will be able to adopt a similar approach.

Section 7(e) also provides that the initial assessment rate of $1 per bale shall not be changed except by an amendment to the order "recommended by the cotton board." Other amendments to the order can be proposed by any interested person, including the Secretary. Conceivably, important producer or other industry groups may wish to propose revisions of the assessment rate and the Secretary may find reason to believe that the proposed revisions may tend to effectuate the policy of the act. Yet, a hearing on the proposals could be blocked by the failure or refusal of the cotton board to recommend the revisions.

While the rate of assessment is important, there may be included in an order other provisions of equal importance. We are unable to ascertain a justifiable reason why the procedure for amending the assessment provision should differ from that applicable to other amendments. We therefore suggest the desirability of amending the bill to remove this difference in treatment.

If the committee should desire to modify section 7(e), this could be done by substituting the following in the place of the first two sentences of section 7(e) (p. 9, lines 14 to 24, and p. 10, lines 1 to 4):

"(e) Providing, that each handler of cotton, as prescribed by the order, shall pay to the Cotton Board such handler's pro rata share, on the basis of bales of cotton handled, including cotton of his own production, of such expenses and expenditures, including provision for a reasonable reserve, as the Secretary finds are reasonable and likely to be incurred by the Cotton Board under the order, during any period specified by him; such rate of assessment shall be fixed by the Secretary in the order. The initial rate of assessment under an order shall be $1 per bale of cotton handled, and such rate may not be changed except by amendment of the order duly approved by the Secretary on the basis of a hearing and subject to approval by cotton producers in a referendum pursuant to section 8. The order also shall provide that handlers who pay such assessments shall collect such amounts from the producer or other person from whom or on whose behalf the cotton was acquired or handled ***."

2. A technical amendment of section 12(a) also may be desirable. As the section is now written, a petition for review addressed to alleged unlawfulness of an order is limited to the entire order, but would not extend to review of a particular provision of an order. We suggest that the phrase "or any provision of such order" be inserted after "any such order" in the first sentence (p. 14, lines 18 to 19). As so modified, this section would conform more closely to section 8c (15) (A) of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 608c (15) (A)).

3. In section 14, dealing with certification of cotton producer organizations by the Secretary, it may be desirable to permit the Secretary to use information otherwise available to him outside the report in evaluating the qualifications of the applicant. Thus, records of the Department may contain valuable data pertinent to such determination. It is therefore suggested that the words "in addition to other available information," be inserted immediately after the word "based" in the first sentence of section 14 (p. 16, line 14).

Enactment of this proposed legislation wold require an initial estimated cost of $400,000 for referendum, hearings, and related items and a recurring annual cost of approximately $50,000 for Federal administration associated with the program.

The Bureau of the Budget has advised that time considerations have not permitted the determination as to the relationship of this bill to the administration's program.

Sincerely yours,

JOHN A. SCHNITTKER,
Acting Secretary.