Appeals Court Rejects Industry s Petition Challenging OSHA s Inclusion of Combustible Dust in Hazard Communication Standard

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1 Volume 66, No. 21 October 31, 2014 ngfa.org/newsletter Inside This Issue 1 Reaction to Court s Combustible Dust Decision 4 CFTC: Open Meeting on Residual Interest 6 Trade Updates 7 CEC Early Bird Ends Nov. 7 9 Ag Groups Urge President to Prioritize Upper Mississippi River Funding 10 NGFA-NAEGA Comments on Facility Security 11 Rail Carrier Updates Appeals Court Rejects Industry s Petition Challenging OSHA s Inclusion of Combustible Dust in Hazard Communication Standard By Randy Gordon, President A U.S. appellate court on Oct. 24 denied the petition from the NGFA and three other industry organizations urging that it vacate the portion of the Occupational Safety and Health Administration s (OSHA) final regulations that included combustible dust within its new globally harmonized hazard communication standard (GHS). For the grain, feed and processing industry, the biggest practical, bottomline implication of the court ruling is that, starting June 1, 2015 (although a petition has been filed with OSHA by some other groups to delay this date), raw grains and oilseeds shipped to downstream customers will be required to comply with OSHA s requirement to issue a safety data sheet (formerly known as a material safety data sheet). The NGFA, through its Safety, Health and Environmental Quality Committee, will be working to develop and distribute to member companies guidance on how to comply with this and other requirements, including preparing generic safety data sheet(s) for grain, oilseeds, grain products and grain-based feed and feed ingredients, well in advance of the effective date. In addition, the NGFA will publish a more detailed explanation of the requirements in a question-andanswer format in an upcoming edition of the NGFA Newsletter. The OSHA final rule, issued in 2012, was designed to align its previous hazard communication standard with the U.N. Globally Harmonized System (GHS) for Classification and Labeling of Chemicals. In ruling against the industry s petition challenging the agency s action, the U.S. Court of Appeals for the District of Columbia Circuit rejected arguments that: The industry had not received adequate notice nor been provided an adequate opportunity to comment on OSHA s decision to include

2 PAGE 2 NGFA NEWSLETTER combustible dust in the GHS final rule, which the industry contended violated the requirements of the Administrative Procedure Act. On this matter, the court s written decision conceded that OSHA s advance notice of proposed rulemaking did not mention that combustible dust might be regulated as a hazardous chemical. Further, the court noted that when discussing combustible dust in its proposed rule, OSHA did not explicitly state that grain dust would be considered within this category. Nonetheless, the court ruled that OSHA had provided adequate notice that combustible dust would be regulated under the hazard communication standard when it proposed treating it as an unclassified hazard. Further, the court cited interpretive letters issued by the agency in 1986 and 1987 confirming that the previous version of the hazard communication standard covered agricultural products, and had stated in 1994 that grain dust met its definition of a hazardous chemical under the hazard communication standard. Although the final rule does treat combustible dust as a specific category of hazard, rather than as an unclassified hazard as proposed,osha indicated in the proposed rule that it was contemplating continuing to treat combustible dust as a hazardous chemical, the appellate court stated. OSHA failed to establish a uniform definition for what constitutes combustible dust, and still has not even issued a proposed rule on a separate and distinct combustible dust rulemaking first launched on Oct. 21, Concerning this matter, the appellate court accepted OSHA s argument that it had provided an operative definition of combustible dust in its National Emphasis Program, and that varying definitions of the term used in other documents by OSHA and entities like the National Fire Protection Association are not sufficiently different even though none of these have gone through formal rulemaking. In this vein, the court found that, OSHA could reasonably conclude that it was unnecessary to articulate a single, uniform definition (of combustible dust) in its GHS final rule. OSHA violated the Due Process Clause of the U.S. Constitution because the lack of a precise definition of combustible dust in the GHS final rule is unconstitutionally vague. OSHA argued that the court should not consider this contention by the industry, saying it was not ripe for consideration since the agency had not issued any combustible dustrelated enforcement action under its previous or new hazard communications standard. On this matter, the appellate court rejected OSHA s argument. But the

3 NGFA NEWSLETTER Upcoming Events Dec rd Annual Country Elevator Conference & Tradeshow Indianapolis, Ind. JW Marriott Indianapolis Downtown Additional information Registration Mar Annual Convention San Antonio, Texas Hyatt Regency July Registration open December NGFA/Grain Journal Elevator Design Conference Kansas City, Mo. Sheraton at Crown Center Registration open spring 2015 For a full listing of events, go to ngfa.org/events PAGE 3 appellate court still rejected the industry s argument based upon the judges view that the term combustible dust is clear enough to provide fair warning of enforcement.the combustible dust provisions in the final rule are, thus, not vague in all their applications, the court s decision said. NGFA s Reaction: The NGFA has provided the following statement in response to media inquiries asking for the Association s reaction to the court s decision: While we respect the court s decision, the NGFA is disappointed that it did not give greater credence to what we believe was a very strong argument that OSHA engaged in backdoor rulemaking by not clearly announcing its intent to address combustible dust when it first proposed changes to its hazard communication standard, and did not even in its final rule provide a single, concise definition of what constitutes combustible dust. We continue to believe our contention that the industry was unaware of OSHA s intent to encompass combustible dust under its hazard communication standard is substantiated by the fact the agency had not taken any enforcement action in that regard during the two decades that safety data sheets required under the standard have been issued. Instead, the court erroneously in our view apparently gave great weight to OSHA s contention that it had provided its interpretation of what combustible dust might mean by issuing a guidance document on Dec. 13, months after the GHS rule was published and a year-and-a-half after our petition for review was filed. Respectfully, we continue to believe the court s ruling undermines the notice-andcomment rulemaking required under the Administrative Procedure Act, as guidance documents such as this are not subject to such scrutiny. We also are concerned that the OSHA grain handling standard, which both the industry and OSHA have viewed as the successful guidepost for dust control in the industry for more than 25 years, could be undermined as a result of this decision. Furthermore, there is no provision on combustible dust currently included in the global hazard communication standard, with which OSHA ostensibly was trying to harmonize in this rulemaking. We believe this further reinforces our position that the agency did not provide adequate notice of its intent. We are pleased that the court specifically reserved the right of any company that may be cited in the future for violating OSHA s hazard

4 PAGE 4 NGFA NEWSLETTER communication standard to assert the vagueness of the combustible dust provisions in any enforcement proceeding or subsequent litigation seeking court review. Background NGFA filed the petition along with National Oilseed Processors Association, Corn Refiners Association and American Feed Industry Association. As described above, the organizations argued that OSHA violated several federal laws for, among other things, not seeking public comment on including combustible dust during its rulemaking process on the hazard communication standard. Subsequent settlement discussions with OSHA to resolve the matter were unsuccessful. Under the revised hazard communication standard, OSHA deems combustible dusts to be hazards "not otherwise classified." This ostensibly obligates employers to subject combustible dusts to most of the same labeling and safety-data-sheet requirements as hazardous chemicals, since shipments of products that could produce combustible dusts when subsequently used in "processing" or in other ways where dust could be generated are subject to the new rules. Specifically, it means safety data sheets will need to be developed and accompany shipments for all such "products." It also means that such "products," except for feed and feed ingredients for which the Food and Drug Administration has authority over labeling requirements, would be required to have an OSHA-approved label. For additional information, see the original article. CFTC Announces Open Meeting on Residual Interest, Other Issues; NGFA Seeks Potential Fixes to Regulatory Problems By Todd Kemp, Vice President of Marketing and Treasurer The Commodity Futures Trading Commission (CFTC) on Oct. 27 announced that it will conduct a Nov. 3 public meeting to address three issues that have been problematic to futures customers. Of particular interest to NGFA members, the meeting will include a discussion of the November 2013 approved residual interest provision, which the NGFA and a broad coalition of organizations from agribusiness and production agriculture strongly opposed. Under the current rule, the time of the residual

5 NGFA NEWSLETTER PAGE 5 interest calculation by futures commission merchants (FCMs) that determines how much of their own funds must be contributed to top up customer accounts for sufficient margin will move in November to 6 p.m. on the day following a futures trade (known as T+1). The rule further calls for that calculation time to move to the morning of T+1 in four years unless the CFTC takes action to forestall that change. Under that scenario, the NGFA has argued that FCMs likely would be compelled to require pre-margining of hedge accounts by customers for market moves that may never occur. CFTC sources have told the NGFA that a proposal to be unveiled at the Nov. 3 public meeting likely will seek to change the residual interest provision. Under the new proposal as described to NGFA, the residual interest calculation time by FCMs would remain at 6 p.m. on T+1 unless the commission takes action to change that date/time. In essence, the proposal will change the rule from a presumption that the calculation moves to morning of T+1 to a presumption that the calculation stays at 6 p.m. on T+1, which would not lead to pre-margining according to FCMs. The commission likely will publish such a proposal with a request for public comment. The same concept was included in a CFTC reauthorization bill approved earlier this year by the House of Representatives and endorsed by the NGFA. In addition to fixing the residual interest problem, the NGFA has been told that the new CFTC proposal likely will seek to formalize no-action relief pertinent to recordkeeping required by the commission under Section 1.35 of the Commodity Exchange Act. CFTC rules require extensive recordkeeping tied to futures transactions of companies that are members of an exchange. The proposal likely will allow those firms to maintain paper records, as they currently do, rather than being forced to maintain for five years electronic records of communications such as cell phone calls, searchable by customer and by transaction technology that is expensive at best and, in some cases, currently unavailable. Further, it s likely the proposal also will contain clarification of the status of cash forward contracts that contain provisions with volumetric optionality, in essence allowing the buyer to purchase additional quantities beyond volumes specified in the contract. The NGFA and others have advocated that such contracts remain cash forwards that are exempt from CFTC jurisdiction, while some regulators have argued that such transactions are swaps the CFTC should regulate. The public meeting announcement and instructions for accessing the CFTC webcast or audio feed of the meeting can be accessed online. For additional perspective on the meeting, see a statement by CFTC Chairman Timothy Massad.

6 PAGE 6 NGFA NEWSLETTER Trans-Pacific Partnership Update and Other Trade Developments By Jared Hill, Director of Legislative Affairs The week of Oct. 20 brought news out of Sydney, Australia, that Trans-Pacific Partnership (TPP) trade negotiators are making progress toward a final agreement. After this latest round of discussions, negotiators from the Office of the U.S. Trade Representative (USTR) said, We are pleased to report that, over the past weeks, we have made significant progress on both market access negotiations and negotiations on the trade and investment rules We consider that the shape of an ambitious, comprehensive, high standard and balanced deal is crystallizing. Some international trade observers believe the United States is pushing hard to get the 12 nations involved in the TPP to resolve the remaining issues so a deal can be announced before the end of the year. A few experts suggest the Obama administration would like to see the deal reached before the president s trip to Asia in early November. Despite the positive tone from USTR, certain corners of U.S. agriculture are skeptical whether the United States can move Japan off its defensive positions on key agricultural products. Reports indicate TPP negotiations have slowed in recent months due to ongoing discussions on Japanese tariffs for wheat, pork, beef, dairy and sugar. The United States has argued for lowering tariffs on these products, while Japanese farmers continue to pressure their government to keep the tariffs in place. Throughout the TPP negotiations, NGFA has collaborated with the North American Export Grain Association (NAEGA) to push for the inclusion of a rapid-response mechanism (RRM) provision in the trade agreement. A RRM provision is intended more swiftly to resolve misapplication of sanitary/phtosanitary (SPS) and technical barriers to trade (TBT) measures, limit trade friction and improve capacity to manage SPS and TBT risks in the least trade distortive manner. This type of provision is needed to better address the challenges food and agriculture imports and exports face with SPS and TBT measures in markets around the world. The organizations recently reiterated their support for the RRM in a letter to USTR Chief Agriculture Negotiator Darci Vetter.

7 NGFA NEWSLETTER PAGE 7 Other Trade News Country-of-Origin Labeling: The World Trade Organization (WTO) Compliance Panel on Oct. 20 issued its report ruling against the United States in the country-of-origin labeling (COOL) case brought by Mexico and Canada. The panel determined the way in which the U.S. Department of Agriculture implemented COOL violates WTO rules. The United States now has the opportunity to appeal the decision. However, the COOL Reform Coalition, of which NGFA is a member, is asking Congress to direct the secretary of agriculture to immediately rescind the elements of the USDA rule on COOL that have been found to be in violation of the U.S. s WTO commitments so that Canada and Mexico will not retaliate against U.S. products being exported to those markets. For more information, view the coalition letter. U.S. and Mexico Fight over Sugar: The U.S. Department of Commerce recently announced it initialed a draft agreement with Mexico over a dispute pertaining to Mexican sugar imports into the United States. U.S. sugar producers claim that cheap, subsidized sugar has been coming into the United States from Mexico, and has cost U.S. sugar producers nearly $1 billion over the last two years. As a result of the complaint by U.S. sugar producers, the U.S. Department of Commerce investigated and recommended anti-subsidy duties be placed on Mexican sugar. The U.S. International Trade Administration agreed with the U.S. Department of Commerce recommendation. However, the draft agreement reached between the United States and Mexico appears to have diffused the situation for now. If the United States had moved forward with instituting anti-subsidy duties on Mexican sugar, Mexican officials hinted they were prepared to push for retaliatory duties on U.S. fructose, possibly setting off a broader trade dispute between the two nations. Congressman Todd Young to Address Country Elevator Conference & Trade Show By Heather McElrath, Director of Communications NGFA s 43rd annual Country Elevator Conference and Trade Show (CEC) kicks off Dec 7-9 in Indianapolis. U.S. Rep. Todd Young, R-Ind., will open the meeting of the year for country elevator managers and their key employees on Dec. 8 with a look at what the elections mean for Congress in 2015.

8 PAGE 8 NGFA NEWSLETTER Importantly, the money-saving early bird registration deadline expires Nov. 7. While results of midterm elections will be known once CEC begins, as it stands today the congressional make up could change dramatically which could affect pending legislation of interest to NGFA members. According to a recent Gallup poll, only 20 percent of Americans said they approve of Congress performance, which often is reflected in a high seat turnover during mid-term elections. Young s valuable insights will help attendees see how 2015 congressional changes could impact business operations. Young, who represents the 9th district of Indiana, currently serves on the House Ways and Means Committee, which has jurisdiction over taxes, international trade, health care, Social Security, Medicare and welfare. As a member of the Ways and Means Committee, he serves on both the Select Revenue Measures and Human Resources Subcommittees. Previously, he served on the House Armed Services Committee and House Budget Committee. Registration for the conference, which is open to NGFA members only, is available online. NGFA s annual CEC is the single largest gathering of country elevator operators. Each year, more than 500 industry members and another 175 trade show personnel attend the day-and-a-half conference and trade show. Highlights from this year s conference agenda include: Biotechnology: Matt Rekeweg, industry relations leader, Dow AgroSciences, and Chris Novak, new chief executive officer of the National Corn Growers Association, will address the compatibility of biotech innovation and access to markets. Ag Transportation: Tom Brugman, immediate past deputy director of the Surface Transportation Board s Office of Public Assistance, and Jon Samson, executive director of the American Trucking Associations agricultural conference, will provide their views on addressing the challenges presented by rail service disruptions, capacity constraints and issues constraining efficient truck movements. Ag Technology: Cory Reed, senior vice president, Intelligent Solutions Group, John Deere & Co.; Dr. Richard Baker, Center for Unmanned Systems & Human Capital Development, Indiana State University; and Dr. Johnny Park, research professor, Purdue University, will address technology-based advances in efficiency and

9 NGFA NEWSLETTER PAGE 9 productivity that will impact conference registrants and their farmercustomers. Loss Prevention: Simon (Chip) Buckner, counsel, Bartlett Grain Co., and Jonathan Sandoz, counsel, CGB Enterprises, will relate their strategies for loss-prevention to real-world situations. Overview of World Grain: Dr. Parry Dixon, director of economic research, Archer Daniels Midland Co., will examine trends affecting U.S. and global demand for grains and oilseeds, and distill facts in ways attendees can take home and put to use. Enhancing Communication: Carey Bennett, director of business development, RCI Safety, will deliver practical tips that managers can use to get the most out of employees and make them feel good about it in the process. Talent Acquisition: Greg Duerksen, president of Kincannon & Reed, will provide a common-sense and humorous look at how companies can put their best foot forward when competing for talent. In addition to the sessions, at no additional cost, registrants are invited to attend a Dec. 7 workshop, New Kid on the Block - FDA Inspections of Grain Elevators, focusing on the Food and Drug Administration s expanding visits to grain handling and processing facilities. Dave Fairfield, NGFA vice president of feed services, will give an overview of the different types of FDA inspections, and provide guidance on what can be done before and during an inspection to achieve the best outcome. For more information or to register, see the full agenda and additional details at ngfa.org/cec. Ag Groups Urge President to Prioritize Funding for Upper Mississippi River By Jared Hill, Director of Legislative Affairs On Oct. 17, NGFA joined 11 other national agricultural associations in urging President Obama to prioritize construction funding for the Navigation and Ecosystem Sustainability Program (NESP) on the Upper Mississippi River System in his fiscal year 2016 budget proposal. In their letter, the groups noted Congress s recognition of the Upper Mississippi System as the only

10 PAGE 10 NGFA NEWSLETTER system designated as a nationally significant ecosystem and nationally significant commercial navigation system. There has not been an appropriation for NESP since 2011, and the program could face de-authorization if funding is not provided. However, if the president and Congress prioritize NESP construction funding, navigation efficiency improvements and upgrades to the Mississippi River lock system could be made. With more than 60 percent of U.S. grains and oilseeds exports transiting the Mississippi River, improving the river s infrastructure system remains a key NGFA focus. (More information on NGFA s efforts to improve U.S. agricultural transportation is available at ngfa.org/transportation.). For more on the NESP, view a copy of the letter to President Obama. NGFA-NAEGA Submit Joint Comments on Agroterrorism/Facility Security By Jess McCluer, Director of Safety and Regulatory Affairs NGFA and the North American Export Grain Association (NAEGA) recently submitted joint comments regarding the U.S. Department of Homeland Security s (DHS) advance notice of proposed rulemaking on chemical facility anti-terrorism standards (CFATS). Overall, NGFA-NAEGA supported making permanent the indefinite exemption for agricultural facilities to register and submit to the CFATS process. The organizations also urged DHS to consider not only the release, theft and sabotage/contamination criteria as a whole, but also examine the impacts of existing handling practices, accident history and potential risk to surrounding communities when evaluating the addition or deletion of a chemical from Appendix A of the standard. (The Appendix lists chemicals of interest that also are included in the Environmental Protection Agency s Risk Management Program, in the Chemical Weapons Convention, hazardous materials, and explosives regulated by the U.S. Department of Transportation.) Background DHS on Aug. 18 published an advance notice of proposed rulemaking

11 NGFA NEWSLETTER PAGE 11 requesting public comment on the CFATS program s attempt to streamline the compliance process. The 60-day comment period ended Oct. 17. CFATS was implemented in 2007 and establishes risk-based performance standards for securing chemical facilities. The program requires covered chemical facilities to prepare security vulnerability assessments, which identify facility security vulnerabilities. CFATS also mandates that covered facilities develop and implement site security plans, which include measures that satisfy the identified risk-based performance standards, according to DHS. In some instances, CFATS also requires covered facilities to submit Alternate Security Programs instead of a security vulnerability assessment, site security plan or both. Rail Carriers Provide Updates at National Grain Car Council Meeting Major rail carriers provided updates on both near-term outlooks and growth projections during the annual meeting of the Surface Transportation Board s National Grain Car Council conducted on Sept. 11 in Minneapolis, Minn. The following summary is based upon reports provided by NGFA member companies that participated in the half-day session: BNSF Railway provided insights on its investment to expand capacity in response to projections for expanded demand from various sectors of the U.S. economy, including grain. A major focus is on expanded track capacity. BNSF also said it remains challenged with single-car merchandise traffic, and that it likely will be about that long before service levels on singles return to what customers have experienced historically. BNSF s representative said much of the carrier s traffic growth has occurred on routes that typically handle smaller volumes, and that it expects continued volume growth across all of its product groups. BNSF also reported that currently, its major congestion is in its central corridor given heavy traffic from the interior to the west coast. Major congested corridors run through Sioux City, Iowa, Lincoln, Neb., and Kansas City, Mo. Coal traffic from the Powder River basin also continues to be heavy, and BNSF said it has reached its capacity for 110-car coal unit trains for the next 18 months.

12 PAGE 12 NGFA NEWSLETTER BNSF s representative said the carrier is cautiously optimistic that grain rail service will improve over last year, but still will lag historical service levels. BNSF said that by Oct. 31, it will have increased the number of 110-car grain shuttles to 125, after reducing them to 94 over the summer. A net 2,300 new crew members have been hired over the past year, with 500 locomotives scheduled for delivery in 2014 of which 355 currently are in service. The number of covered hopper cars remains at 27,000, unchanged from last year. But BNSF said it plans to have 900 more covered hopper cars delivered between October and December, with 900 more to be added to service in each of 2015 and 2016, respectively. As reported previously, BNSF also is investing $900 million over the next year to add 120 miles of double track in its North Dakota-Montana region. Canadian National (CN) reported it has 2,300 covered hopper cars in U.S. service. Canadian Pacific (CP) said it is working to establish different interchanges as alternatives to Chicago, and cited as an example routing western Canadian traffic over the Great Lakes to Buffalo, N.Y., and other Northeastern U.S. destinations. Its representative said CP is focusing on improving train velocity, and referenced the changes to its car-ordering system. CP also said it has 8,000 covered hopper cars operating in U.S. traffic. CSXT reported it is experiencing unprecedented growth in volumes, currently increasing 5 to 7 percent a year compared to the more traditional 2 to 3 percent. CSXT said it was committed to reinvesting 17 percent of its revenues in the railroad each year. Of its 8,600 covered hopper cars, 4,200 are in grain service. To enhance efficiency, CSXT said it planned to leave locomotives attached on 90- car trains. It said it has found that so-called express trains only dwell 15 percent of the time at origin/destination points, while nonexpress trains dell up to 30 percent. Norfolk Southern (NS) said the volume of its traffic grew 4 to 5 percent in the first quarter of 2014, before moderating during the last half of April. NS said its northern lines are experiencing the greatest traffic growth, and that it anticipates strong future growth from Chicago to the East. It noted there had been a shift in traffic on its network during the past four to five years, with single car traffic down 20 percent but trainload traffic up 60 percent across its network. There also have been geographic shifts, with coal now being sourced from the Illinois basin. NS also reported that some of its biggest

13 NGFA NEWSLETTER PAGE 13 service delays in the northern region are attributable to track work to install positive train control (PTC) signals. The NS representative also said the carrier s biggest capacity challenge is a shortage in crews. A total of 1,600 crew members are in training, it said, with those personnel expected to start entering service in October. NS also is obtaining 50 more locomotives in October, and is trying to run longer trains of 85 to 100 cars. It has 4,500 covered hopper cars in service, of which 2,500 are dedicated to grain the same as in Union Pacific (UP) said that through July 2014, it had experienced a 7 percent growth in traffic volumes year-over-year, compared to the 2 percent growth it had forecast. UP s representative said it plans to improve productivity with existing assets, while trying to add crews and power to respond if and when rail demand spikes. UP said it has 16,600 covered hopper cars in service, with none in storage. The National Grain Car Council also heard from CIT Rail and GATX Corp. concerning the demand for new rail hopper cars. It was indicated that orders for new cars are at their highest level since the first quarter of 2007, with order backlogs now stretching to the second quarter of It was projected that 7,300 covered hopper cars (all types) will be built in 2014, with production anticipated to decline from that level in 2015 and 2016.