To replace the existing Federal price support and quota programs for flue-cured and burley tobacco with a licensing program designed to assist the actual producers of flue-cured and burley tobacco, and for other purposes.

To replace the existing Federal price support and quota programs for flue-cured and burley tobacco with a licensing program designed to assist the actual producers of flue-cured and burley tobacco, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Phase III Implementation Act'.

(b) TABLE OF CONTENTS- The table of contents for this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Findings and Purpose.

TITLE I--TOBACCO PRODUCTION LICENSES

Sec. 101. Definitions of historic tobacco producer and licensed tobacco producer.

Sec. 102. National estimate of tobacco production levels.

Sec. 103. National tobacco marketing factor.

Sec. 104. Issuance of tobacco production licenses.

Sec. 105. Annual authorized tobacco production under tobacco production licenses.

Sec. 106. Termination of flue-cured and burley quota programs.

Sec. 107. Program Referenda.

Sec. 108. Effective date.

TITLE II--TOBACCO COST OF PRODUCTION SUPPORT

Sec. 201. Tobacco Cost of Production Calculation.

Sec. 202. Effective date.

SEC. 2. FINDINGS AND PURPOSE.

(a) FINDINGS- Congress finds the following:

(1) Tobacco production is conducted extensively in a number of States and generates significant income in local communities in these States, which have historically relied on such production for economic vitality.

(2) Tobacco products manufactured from tobacco grown in these States are transported in interstate commerce.

(3) Domestic trends affecting tobacco production have had a disproportionately harsh impact on small family farms and on their communities.

(4) The Federal tobacco program has become inefficient and has operated to keep a significant portion of tobacco production rights in the hands of individuals who are not directly involved in tobacco production.

(5) The continuation of a Federal tobacco supply management program is in the best interests of family farm operations that seek to continue to produce tobacco leaf.

(6) Any efforts to assist flue-cured and burley tobacco growers in making a transition to a stable future economic environment must include modernization of the Federal tobacco program.

(b) PURPOSE- It is the purpose of this Act to modernize the Federal supply management program for flue-cured and burley tobacco producers by shifting tobacco leaf production rights into the hands of active flue-cured and burley tobacco growers.

SEC. 101. DEFINITIONS OF HISTORIC TOBACCO PRODUCER AND LICENSED TOBACCO PRODUCER.

In this title:

(1) The term `historic tobacco producer' means an owner, operator, landlord, tenant, or sharecropper who bore, individually or collectively, the risk of producing a crop of flue-cured or burley tobacco on a farm for the 2003 crop year.

(2) The term `licensed tobacco producer' means an owner, operator, landlord, tenant, or sharecropper who holds a license issued under this title--

(A) to plant a crop of flue-cured or burley tobacco on a farm in a specified county for the 2004 or a subsequent crop year; and

(B) to harvest and market an authorized quantity of flue-cured or burley tobacco.

SEC. 102. NATIONAL ESTIMATE OF TOBACCO PRODUCTION LEVELS.

(a) ANNUAL CALCULATION-

(1) For the 2004 and each subsequent crop of flue-cured and burley tobacco, the Secretary of Agriculture shall determine and announce the national estimate for each type of flue-cured and burley tobacco, as calculated under this section, that the Secretary estimates will be utilized during the marketing year.

(2) Not later than December 15 of each calendar year with respect to flue-cured tobacco, and February 1 of each year with respect to burley tobacco, the Secretary shall announce the national estimate.

(3) The national estimate of flue-cured or burley tobacco for any marketing year shall be the quantity of flue-cured or burley tobacco, as determined by the Secretary, that is not more than 103 percent nor less than 97 percent of the total of--

(A) the aggregate of quantities of flue-cured or burley tobacco that domestic manufacturers of cigarettes estimate the manufacturers intend to purchase on the United States auction markets or from producers during the marketing year, as compiled and determined under subsection (b);

(B) the average annual quantity of flue-cured or burley tobacco exported from the United States during the 3 marketing years immediately preceding the marketing year for which the determination is being made; and

(C) the quantity, if any, of flue-cured or burley tobacco that the Secretary, in the discretion of the Secretary, determines is necessary to increase or decrease the inventories of the producer-owned cooperative marketing associations that have entered into loan agreements with the Commodity Credit Corporation to make price support available to producers of flue-cured or burley tobacco to establish or maintain such inventories, in the aggregate, at the reserve supply level for flue-cured or burley tobacco.

(b) MANUFACTURER PURCHASE ESTIMATES- Not later than December 1 of each calendar year with respect to flue-cured tobacco, and January 15 of each calendar year with respect to burley tobacco, each domestic manufacturer of cigarettes shall submit to the Secretary of Agriculture a statement, by kind, of the quantity of flue-cured tobacco and burley tobacco that the manufacturer intends to purchase, directly or indirectly, on the United States auction markets or from licensed tobacco producers during the next marketing year.

(c) FAILURE TO SUBMIT, OR UNDER-PURCHASE OF, PURCHASE INTENTIONS-

(1) A domestic manufacturer of cigarettes shall be subject to the penalty under paragraph (2) if such manufacturer fails to--

(A) submit to the Secretary of Agriculture purchase intentions as required under subsection (b) for a marketing year, but subsequently purchases tobacco on the United States auction markets or from licensed tobacco producers during that marketing year, or

(B) purchase during a marketing year, on the United States auction markets, from licensed tobacco producers, or from inventories of tobacco of the producer-owned cooperative marketing associations that have entered into loan agreements with the Commodity Credit Corporation to make price support available to producers of flue-cured and burley tobacco, a quantity of flue-cured or burley tobacco equal to at least ninety percent of the quantity submitted under subsection (b).

(2) The amount of any penalty to be imposed on a manufacturer under this section shall be determined by multiplying--

(A) twice the per pound assessment (as determined under Section 106A or 106B of the Agricultural Act of 1949 (7 U.S.C. 1445-1 or 1445-2)) for the kind of tobacco involved; by

(B) the quantity--

(i) of purchases described in paragraph (1)(A); or

(ii) by which the purchases by such manufacturer described in paragraph (1)(B) are less than ninety percent of the quantity of intended purchases of such kind of tobacco (as that quantity may be reduced under paragraph (3)).

(3) If the quantity of flue-cured or burley tobacco marketed during a marketing year on United States auction markets (including tobacco consigned to a producer association for a price support advance) or directly from licensed tobacco producers is less than the national estimate for that kind of tobacco for that marketing year, the quantity of intended purchases of each domestic manufacturer of cigarettes, for purposes of this subsection, shall be reduced by a percentage equal to the percentage by which the total quantity marketed is less than the national estimate for that kind of tobacco for the marketing year.

(d) ENFORCEMENT- The Secretary of Agriculture may enforce subsection (c) in the courts of the United States.

(e) RESERVE SUPPLY LEVEL-

(1) The reserve supply level for flue-cured tobacco under subparagraph (a)(3)(C) shall be the greater of--

(A) 60,000,000 pounds (farm sales weight); or

(B) 10 percent of the national estimate for flue-cured tobacco for the marketing year immediately preceding the marketing year for which the level is being determined (or for the 2004 crop of flue-cured tobacco, 10 percent of the national marketing quota for the 2003 marketing year).

(2) The reserve supply level for burley tobacco under subparagraph (a)(3)(C) shall be the greater of--

(A) 50,000,000 pounds (farm sales weight); or

(B) 15 percent of the national estimate for burley tobacco for the marketing year immediately preceding the marketing year for which the level is being determined (or for the 2004 crop of burley tobacco, 15 percent of the national marketing quota for the 2003 marketing year).

SEC. 103. NATIONAL TOBACCO MARKETING FACTOR.

(a) 2004 CROP- For the 2004 crop, the national marketing factor for flue-cured or burley tobacco shall be the ratio of the national estimate determined under section 102(a) to the national marketing quota for the 2003 marketing year.

(b) SUBSEQUENT CROPS- For the 2005 and subsequent crops, the national marketing factor for flue-cured or burley tobacco for a crop year shall be the ratio of--

(1) the national estimate determined under section 102(a); to

(2) the sum of the quantity of flue-cured or burley tobacco that is authorized to be produced pursuant to a tobacco production license for the immediately preceding year for all farms for which tobacco production licenses will be determined for such succeeding marketing year.

SEC. 104. ISSUANCE OF TOBACCO PRODUCTION LICENSES.

(a) INITIAL ISSUANCE TO HISTORIC TOBACCO PRODUCERS-

(1) ISSUANCE-

(A) ISSUANCE REQUIRED- As soon as practicable after the date of the enactment of this Act, the Secretary of Agriculture shall issue to each historic tobacco producer a tobacco production license for the purpose of ensuring sufficient production of flue-cured and burley tobacco to satisfy the national estimate determined under section 102.

(B) EXCEPTION- The Secretary shall not issue a tobacco production license to an historic tobacco producer with respect to flue-cured or burley tobacco if the historic tobacco producer does not certify to the Secretary that such producer intends to produce such type of tobacco during the 2004 crop year.

(2) TOBACCO PRODUCTION HISTORY-

(A) The tobacco production license issued to an historic tobacco producer under paragraph (1) shall specify the tobacco production history of the producer for each type of tobacco for each county in which the producer bore, individually or collectively, the risk of producing a crop of tobacco on a farm in the county for the 2003 crop year.

(B) In the case of an historic tobacco producer who bore 100 percent of the risk of producing a type of tobacco on a farm for the 2003 crop year, the tobacco production history of the historic tobacco producer for that type of tobacco in a county shall be equal to the 2003 marketing and effective quota of that type tobacco produced by the producer in the county for commercial use during the 2003 crop year.

(C) In the case of an historic tobacco producer who bore less than 100 percent of the risk of production, the Secretary of Agriculture shall adjust the tobacco production history to reflect the percentage of risk that was borne by the producer.

(D) The Secretary of Agriculture shall authorize a production level under each tobacco production license for the 2004 crop determined by multiplying the tobacco production history by the national marketing factor for the 2004 crop.

(3) ADJUSTMENT AUTHORITY- An historic tobacco producer may petition the Secretary of Agriculture to increase the tobacco production history determined under paragraph (2) for the producer for flue-cured or burley tobacco on the grounds that the producer's 2003 production under-represents the producer's historic production of that type of tobacco.

(4) CONSOLIDATION OF COUNTIES- If the initial issuance of a tobacco production license to an historic tobacco producer for flue-cured or burley tobacco would result in the producer receiving a license for that type of tobacco for more than one county, the producer may elect to consolidate the licenses in a single county in which the producer bore or shared in the risk of producing a crop of that type of tobacco for the 2003 crop year. The option to make this election shall be provided only once.

(b) SUBSEQUENT ISSUANCE-

(1) IN GENERAL- If a tobacco production license is surrendered or revoked, the Secretary of Agriculture shall transfer the license and the corresponding tobacco production history to beginning tobacco producers or licensed tobacco producers in the following order of preference:

(A) Producers in the same county as the county in which the tobacco production history was derived.

(B) Producers in the same State.

(C) Producers in counties in other States in which licensed tobacco producers are operating.

(2) RESERVATION FOR BEGINNING PRODUCERS- In all instances specified in subparagraphs (A), (B), and (C) of paragraph (1), the Secretary shall reserve for beginning tobacco producers at least five percent of the tobacco production history surrendered or revoked under this section.

(3) PRODUCERS WHO FORGO TOBACCO PRODUCTION LICENSE- The tobacco production history of an historic tobacco producer who does not certify to the Secretary that such producer intends to produce such type of tobacco during the 2004 crop year shall also be available to the Secretary for distribution as provided in paragraph (1).

(c) LIMITATIONS ON USE OF LICENSE-

(1) IN GENERAL- A tobacco production license specifying a particular type of tobacco and the county in which that type of tobacco may be grown may not be used as the basis to grow a different type of tobacco or to grow that type of tobacco in a different county.

(2) REVOCATION- Any use of a tobacco production license contrary to this subsection shall result in the revocation of the license.

(d) LIMITATIONS ON SALE, LEASE, OR TRANSFER OF LICENSE-

(1) SALE PROHIBITED- A tobacco production license and the corresponding tobacco production history may not be sold or leased.

(2) TRANSFER UNDER LIMITED CIRCUMSTANCES- A licensed tobacco producer may not transfer a tobacco production license and the corresponding tobacco production history unless--

(A) in the case of a licensed tobacco producer who is in a partnership, the transfer is among the partners; or

(B) in the case of a licensed tobacco producer who is an individual, the transfer is made to the spouse, parent, brother, sister, or natural

(3) RIGHT OF SURVIVORSHIP- In the case of the death of a person to whom a license has been issued under this section, the license shall transfer to the surviving spouse of the person or, if there is no surviving spouse, to the direct descendants of the person.

(4) HARDSHIP- In the case of the death of a person to whom a license has been issued under this section and whose descendants are temporarily unable to produce a crop of tobacco, the Secretary may hold the license in the name of the descendants for a period of not more than 18 months, at the discretion of the Secretary.

(5) LIFETIME TRANSFER- A person that is eligible to obtain a license under this section may at any time transfer all or part of the license to the person's spouse or direct descendants that are actively engaged in the production of tobacco.

(6) REVOCATION- Any sale, lease, or transfer of a tobacco production license or the corresponding tobacco production history contrary to this subsection shall result in the revocation of the license.

(e) SURRENDER OR REVOCATION OF LICENSE FOR NON-USE-

(1) SURRENDER- A licensed tobacco producer may surrender a tobacco production license and the corresponding tobacco production history to the Secretary of Agriculture at any time.

(2) REVOCATION- The Secretary of Agriculture shall revoke the tobacco production license and the corresponding tobacco production history of a licensed tobacco producer if the licensed tobacco producer--

(A) fails to share, individually or collectively, in 100 percent of the risk of producing a crop of tobacco of the type specified in the tobacco production license for any year; or

(B) fails to produce at least 75 percent of the quantity of that type of tobacco specified in the tobacco production license for two out of three years, unless that Secretary determines the failure was due to damaging weather or related condition.

SEC. 105. ANNUAL AUTHORIZED TOBACCO PRODUCTION UNDER TOBACCO PRODUCTION LICENSES.

(a) NOTIFICATION OF LICENSED TOBACCO PRODUCERS- As soon as practicable after preparing the national estimate required by section 102 for flue-cured or burley tobacco for a marketing year, the Secretary of Agriculture shall notify each licensed tobacco producer of that type of tobacco of the authorized quantity of tobacco that the producer may produce in a county in the corresponding crop year under the tobacco production license.

(b) DETERMINATION OF AUTHORIZED PRODUCTION LEVELS- For the 2005 and subsequent marketing years, the authorized tobacco production level for a licensed tobacco producer for flue-cured or burley tobacco in a county for a crop year is equal to the product of--

(1) the production level authorized for such tobacco production license during the immediately preceding marketing year; and

(2) the national tobacco marketing factor for that year determined by the Secretary of Agriculture under section 103.

(c) EXCESS PRODUCTION- Except as provided in subsection (e), if a licensed tobacco producer harvests and markets tobacco in excess of the quantity specified in the producer's tobacco production license or any other person produces tobacco without a tobacco production license, the licensed tobacco producer or other person shall be liable for a civil penalty up to an amount determined by multiplying--

(1) the quantity of tobacco involved in the violation; by

(2) price support rate for the type of tobacco involved in effect under section 106 of the Agriculture Act of 1949 at the time of the violation.

(d) ENFORCEMENT- The Secretary of Agriculture may enforce subsection (c) in the courts of the United States.

(e) LIMITED AUTHORITY TO EXCEED LICENSE- If the Secretary determines that the actual production of flue-cured or burley tobacco for a crop year will be less than 80 percent of the production authorized under all licenses issued for that type of tobacco, the Secretary may authorize a licensed tobacco producer of that type of tobacco to harvest and market tobacco in excess of the quantity specified in the producer's tobacco production license. The Secretary shall establish a mechanism under which a licensed tobacco producer may apply for the authority to exceed the quantity specified in the producer's license.

SEC. 106. TERMINATION OF FLUE-CURED AND BURLEY QUOTA PROGRAMS.

Section 312 of the Agricultural Adjustment Act of 1938 (7 U.S.C. 1312) is amended by adding after subsection (c):

`(d) INAPPLICABILITY TO 2004 AND SUBSEQUENT CROP YEARS OF BURLEY AND FLUE-CURED TOBACCO- The provisions of this section and sections 317 and 319 of this Act are not applicable to 2004 and subsequent crop years of burley and flue-cured tobacco.'.

SEC. 107. PROGRAM REFERENDA.

(a) INITIAL REFERENDUM-

(1) REFERENDUM REQUIRED- Within sixty days after the enactment of this Act, the Secretary shall conduct a referendum, by type of tobacco, among the licensees engaged in the production of flue-cured or burley tobacco to determine whether the licensees engaged in the production of that kind of tobacco are in favor of continuing the operation of the program established under this Act with respect to that kind of tobacco.

(2) PROCESS AND RESULTS- If more than one-half of the licensees voting in a referendum conducted under paragraph (1) with respect to flue-cured or burley tobacco oppose the continuation of the program, the Secretary shall announce the result and shall conduct a second referendum with respect to that kind of tobacco one year later. If more than one-half of the licensees voting in the second referendum also oppose the continuation of the program, the Secretary shall announce the result and the program shall cease to be in effect for that kind of tobacco.

(b) SUBSEQUENT REFERENDA-

(1) REFERENDUM INITIATED BY SECRETARY- The Secretary may conduct subsequent referenda from time to time as the Secretary considers appropriate to determine whether producers are in favor of continuing the program established under this Act, the use of licenses, limitations on license transfer, or any other aspect of the program.

(2) REFERENDUM INITIATED BY LICENSEES- If at least one-third of the licensees engaged in the production of flue-cured or burley tobacco request a referendum under this subsection, the Secretary shall conduct a referendum among the licensees engaged in the production of that kind of tobacco to determine whether the licensees are in favor of continuing the operation of the program established under this Act with respect to that kind of tobacco.

(3) PROCESS AND RESULTS- If more than one-half of the licensees voting in a referendum conducted under paragraph (1) or (2) with respect to flue-cured or burley tobacco oppose the continuation of the program, the Secretary shall announce the result and shall conduct a second referendum with respect to that kind of tobacco one year later. If more than one-half of the licensees voting in the second referendum also oppose the continuation of the program, the Secretary shall announce the result and the program shall cease to be in effect for that kind of tobacco.

SEC. 108. EFFECTIVE DATE.

This title and the amendments made by this title shall apply with respect to the 2004 and subsequent flue-cured and burley tobacco crops.

SEC. 201. TOBACCO COST OF PRODUCTION CALCULATION.

(a) ADJUSTMENT TO FLUE-CURED AND BURLEY TOBACCO SUPPORT LEVELS- Section 106 of the Agricultural Act of 1949 (7 U.S.C. 1445) is amended by adding at the end thereof the following:

`(h) SPECIAL SUPPORT LEVEL-

`(1) SUPPORT RATE; APPLICABILITY- Notwithstanding the foregoing provisions of this section, for the 2004 and each subsequent crop of flue-cured and burley tobacco for which tobacco production licenses are in effect or have not been disapproved by producers under title I of the Phase III Implementation Act, the support level shall be the level in cents per pound equal to the cost of production.

`(2) COST OF PRODUCTION BASIS- For purposes of paragraph (1), the cost of production for tobacco producers shall include items representing general, variable costs of producing tobacco, as determined by the Secretary, but shall not include the cost of land, risk, overhead, management, administration of production licenses, marketing contributions or assessments, and other costs not directly related to the production of tobacco.'.

(b) AMENDMENT TO QUOTA TOBACCO DEFINITION-

(1) Section 106A(a)(7) of the Agricultural Act of 1949 (7 U.S.C. 1445-1(a)(7)) is amended by striking the period at the end of the paragraph and inserting `, and shall include any kind of tobacco for which tobacco production licenses are in effect or for which tobacco production licenses are not disapproved by producers under title I of the Phase III Implementation Act.'.

(2) Section 106B(a)(5) of the Agricultural Act of 1949 (7 U.S.C. 1445-2(a)(5)) is amended by striking the period at the end of the paragraph and inserting `, and shall include any kind of tobacco for which tobacco production licenses are in effect or for which tobacco production licenses are not disapproved by producers under title I of the Phase III Implementation Act.'

SEC. 202. EFFECTIVE DATE.

This title and the amendments made by this title shall apply with respect to the 2004 and subsequent flue-cured and burley tobacco crops.