CHAPTER 18

LEGAL PHASES AND DEVELOPMENTS

I. SUMMARY OF AMENDATORY LEGISLATION

The amendments which have been made to the Agricultural Adjustment Act during 1934 can be briefly summarized under the following heads:

1. Enlargement of class of "basic agricultural commodities" to include additional commodities.

2. The enactment of a complete regulatory plan for sugar beets and sugarcane. 3. Provision of supplementary procedures with respect to the handling of cotton which the Secretary of Agriculture has acquired.

act.

4. Special amendments claryifying and expanding the tax provisions of the 5. Miscellaneous clarifying provisions.

BASIC AGRICULTURAL COMMODITY CLASS ENLARGED

By amendment, the benefit-payment and processing-tax provisions of the act can now be made effective for rye, flax, barley, grain sorghums, cattle, sugar beets and sugarcane, and peanuts, in addition to the basic agricultural commodities to which these provisions of the act had already been applicable. Sugar beets and sugarcane were added by the Jones-Costigan Sugar Act, approved May 9, 1934; all the others by the Jones-Connally Act, approved April 7, 1934.

REGULATORY PLAN FOR SUGAR ESTABLISHED

By the provisions of the Jones-Costigan Sugar Act, there were established calendar year marketing quotas for the United States sugar beet producing area, and for the States of Louisiana and Florida. The Secretary of Agriculture was to estimate the consumption requirements of sugar for continental United States for the calendar year and, on the basis of a representative standard indicated in the sugar act, allot the difference between his estimate of domestic consumption requirements, and the guaranteed quotas to the continental United States, among the insular areas of the United States and foreign countries, including Cuba. Further provision was made for the allotment of these regional quotas among processors, handlers of sugar, and others. The Jones-Costigan Sugar Act also made specific provision for the inclusion in benefit contracts and marketing agreements of provisions which would limit or regulate child labor and would fix minimum wages for workers or growers in the industry; and conferred upon the Secretary authority to adjudicate disputes. The Jones-Costigan Act makes exceptions with respect to sugar beets and sugarcane that are not duplicated for other commodities.

1. Thus, it includes a provision requiring that the Secretary set the benefit-payment and processing-tax plan in operation by the thirtieth day after the adoption of the act instead of the usual provision that the processing tax be in effect from the beginning of the marketing year next following the date of the proclamation that benefit payments are to be made.

2. The rate of processing tax had to be specially dealt with, in large measure because "first domestic processing" was specially defined, and also because the rate of tax was limited to the amount of the reduction in the rate of duty adjusted to the tariff arrangement between the United States and Cuba.

3. Although the original act was inapplicable to the Philippine Islands, the Virgin Islands, American Samoa, Canal Zone, and the Island of Guam, the President was now empowered, in the case of sugar beets and sugarcane, if he found it necessary to effectuate the declared policy, to make the provisions of the Agricultural Adjustment Act applicable to these hitherto excepted possessions of the United States.

4. While the termination of the Agricultural Adjustment Act as a whole is dependent upon the President's determination that the national economic emergency in relation to agriculture has been ended, in the case of sugar beets and sugarcane, the regulatory plan is to terminate at the end of 3 years after the adoption of the JonesCostigan Act. It is, of course, possible that the act as a whole may be terminated sooner.

5. The President is authorized to provide that part or all of the proceeds of taxes collected from the processing of sugar beets or sugarcane in the Territories of Puerto Rico and Hawaii or the insular possessions, or upon the processing within continental United States of sugar coming from these areas, shall be held as a separate fund in the name of the Territory upon the processing of sugar from which the tax was collected. This fund may be expended for the benefit of agriculture, or paid out as rental or benefit payments for sugar beets or sugarcane reduction, or used for expansion of markets and removal of surplus products in such areas.

6. Special provisions are also in force for floor stocks taxes on sugar, particularly sugar in customs custody or which is still the subject of a bona fide contract or sale.

7. The Jones-Costigan Act also made provision for the establishment of separate quotas for edible molasses and syrup of cane juice. 8. Finally, the Secretary of Agriculture was authorized to purchase not in excess of 300,000 tons of sugar (raw value) from surplus stocks of direct-consumption sugar produced in the United States beetsugar area, said sugar not to be included in the quota for such areas. The proceeds deriving from the sale or other distribution of this sugar (including distribution for unemployment relief) was to be appropriated for the general purposes of the Agricultural Adjustment Act.

SUPPLEMENTARY PROCEDURES WITH RESPECT TO HANDLING

COTTON

Section 4 of the original Agricultural Adjustment Act, dealing with the authority of the Secretary of Agriculture to borrow money upon cotton in his possession or control, has been amended to confer upon the Secretary of Agriculture an additional means of procuring money.

The original act merely provided that the Secretary of Agriculture was to have the authority to borrow money upon cotton in his possession or control and deposit warehouse receipts for such cotton as collateral for the loan. The requirement of deposit of warehouse receipts as collateral is now made discretionary with the Secretary of Agriculture. In addition, the new section authorizes the Secretary of the Treasury to advance $100,000,000 to the Secretary of Agriculture, at his request, for the purpose of paying off debts, discharging liens and paying expenses incident to carrying, handling, insuring and marketing the cotton which the Secretary may have acquired. The request for such funds is to be accompanied by a statement showing the quantity and quality of cotton held by him and its approximate aggregate market value. Funds thus acquired by the Secretary of Agriculture, may, within his discretion, be advanced to agencies which he has established for handling and marketing the cotton. Provision is also made for the disposition of the proceeds derived from the sale of cotton.

LOANS CANNOT EXCEED MARKET VALUE

The amendment to section 5 expands in general language the purpose for which the Reconstruction Finance Corporation may make loans to the Secretary of Agriculture to include the performance of any of his duties and functions under part I of the act. It contains the provision, however, that the advance of money or loan is not to be in excess of the market value of the cotton or the interest of the Secretary of Agriculture in the cotton upon which the advance or loan is being made, plus certain handling, carrying, and marketing costs. Instead of the previous provision, which provided that the Secretary was to deposit warehouse receipts as collateral security (and, in the event of the impracticability of such deposit, that the Reconstruction Finance Corporation take such other security as it considered acceptable), there was substituted a provision exonerating the Secretary from depositing any evidence of title to the cotton as security, and declared it sufficient if he gave to the corporation a written statement showing the quantity and quality of cotton against which the advance or loan was being made. Furthermore, the Secretary was instructed by Congress to dispose of all the cotton held by him by March 1, 1936.

AMENDMENTS CLARIFY AND EXPAND TAX PROVISIONS

The tax provisions of the Agricultural Adjustment Act received extensive amendment during the course of the year. In addition to the special provisions with respect to sugar which have been dealt with above, the general provisions with respect to administration were more carefully articulated and their enforcement made more explicit. 1. Thus, the original act allowed an exception to the defined rate of processing tax in the situation where such a rate of tax would reduce consumption and thereby result in the accumulation of surplus stocks or the depression of farm prices. An amendment took cognizance of the situation where the levying of a tax had such undesirable effects only when the processing was for particular uses of a commodity, and gave the Secretary authority to lower processing tax rates on processing for any designated use or uses as well as on processing of the commodity generally.

2. Processing, the definition of which is of considerable importance in connection with the levying of processing taxes, was more explicitly defined so that it would be clear that it comprehended manufacturing and the preparation of a commodity for distribution or use. It also received special definition in the case of sugar beets and sugarcane and peanuts.

3. Section 15 of the Agricultural Adjustment Act originally authorized the Secretary of Agriculture, in situations where the products of any commodity were of such low value that the levying of a processing tax would in great measure prevent the use of the commodity in the manufacture of such products, to make a certification to that effect to the Secretary of the Treasury, and then provided that the Secretary of the Treasury was to refund taxes paid with respect to the amount of the commodity used in the manufacture of the low-value products. This was clarified by amendment stating more specifically the contents of the Secretary of Agriculture's certification, and allowing the certification to contain recommendations for the suspension of processing taxes, and the making of refunds.

4. The exemption from taxes under the act, of persons delivering products to organizations for charitable distribution, was by specific enumeration clearly made to include State or Federal organizations or institutions, whether involved as givers or users of the products. In addition, refunds or credits of the tax were made dependent upon proof that the tax had not been included in the price of the product delivered to the charitable organization, or that, if so included, the processor had repaid, or agreed in writing to repay, the amount of such tax. A time limitation of refunds to 6 months after the delivery for charitable distribution or use was imposed.

5. The procedure in connection with floor-stocks taxes was also elaborated. For example, taxes on articles in customs custody or control on the effective date of the tax had to be paid prior to release from customs custody or control.

6. It was provided that whenever there is a decrease or an increase in the rate of the processing tax an adjustment shall be made with respect to floor stocks, so that all of the products of a commodity may move into channels of trade bearing an equal tax burden.

7. Refunds of taxes in connection with exportation to foreign countries and insular possessions are directed to be specifically made to the exporter or consignor named in the bill of lading under which the product is exported. Furthermore, instead of insisting that the product be processed wholly or in chief value from a commodity with respect to which a tax under the act has been paid, refunds are now allowed on the exportation of products which are partly processed from tax-paying commodities.

8. The Secretary of the Treasury's authority to permit postponement of payment of taxes for a period not exceeding 90 days has, by amendment, been extended to 180 days.

9. Furthermore, the act now concludes with provisions imposing a fine of not more than $1,000, or imprisonment for not exceeding 6 months, or both, as a penalty upon the making of false statements (written or oral), in connection with (a) purchases, (b) processing charges, or (c) settlements under contracts to buy, which would lead any person to believe that any amount deducted from the market

price, or charged for processing, or deducted from the gross sales price, respectively, consisted of a tax imposed under the Agricultural Adjustment Act, when the person making the statement knows it to be false.

MISCELLANEOUS CLARIFYING AMENDMENTS

Additional amendments enacted by Congress at the last session operated in various ways to clarify different provisions in the Agricultural Adjustment Act.

1. One such amendment clarified the operation of the marketing agreement section of the act, so as to render unmistakably clear what had already been understood. That the current of interstate commerce, the handling of commodities in which is the subject of regulation by marketing agreements, may include commodities which burden, obstruct, or in any way affect interstate or foreign commerce. 2. The Secretary of Agriculture was given power to make public such information as he deems necessary to effectuate the purposes of the act, notwithstanding any provisions of existing law.

3. The district courts of the United States were vested with jurisdiction specifically to enforce and to prevent persons from violating the provisions of the sugar act, or orders, regulations and agreements, or licenses made pursuant to the act as a whole. It was also made the duty of the district attorneys of the United States to enforce the remedies and collect the forfeitures provided for in the act.

4. The act was amended to provide that any person willfully exceeding any quota or allotment fixed for him by the Secretary pursuant to the act should forfeit to the United States a sum equal to three times the current market value of such excess, and that such forfeiture should be recoverable in a civil suit brought by the United States.

II. COURT DECISIONS ON AGRICULTURAL ADJUSTMENT ACT LITIGATION DURING 1934

SIGNIFICANT POINTS DEVELOPED IN COURT

A survey of Agricultural Adjustment Act litigation in the courts during 1934 discloses these significant points:

1. The court decisions involving the licensing section (sec. 8 (3) of the Agricultural Adjustment Act) have, with two exceptions, been based upon the question of interstate commerce under the statute; these two exceptions, as noted below, were decisions with respect to constitutionality.

2. There has been no decision by any circuit court of appeals (and of course not by the Supreme Court of the United States) on the constitutionality of any section of the Agricultural Adjustment Act statute.

3. In the lower courts there has been one decision upholding the constitutionality of the processing tax sections of the act; and this case represents the only challenge to these sections.

4. There has been one case upholding the constitutionality of the so-called "Sugar Act" (which is part of the Agricultural Adjustment Act statute); and this is the only challenge to the Sugar Act made in the courts.

5. There have been only two lower-court decisions on the constitutionality of section 8 (3) (licensing section): One in Florida by the lower Federal court holding the entire act unconstitutional, which was reversed by the circuit court of appeals (5th circuit) upon the ground that the question of constitutionality was not, upon that record, properly before the lower court; the other a decision by a lower Federal court in Chicago upholding the constitutionality of section 8 (3) and the Chicago milk license (from which decision no appeal was taken).