Wednesday, August 3, 2016

Rule Writing Is Not a Job for Amateurs

I contribute the occasional post to the R-Street blog. They're all about whiskey in some capacity. The R Street Institute is a non-profit, non-partisan, public policy research organization, a 'think tank.' Their mission is to engage in policy research and outreach to promote free markets and limited but effective government.

My most recent post over there bears the headline: "Revised Rules for Whiskey Labeling? Proceed with Caution."

The essay is about something that occurred nearly 50 years ago. After booming for more than two decades, bourbon sales had suddenly stalled. Several of the industry's largest companies looked at the world whiskey market and decided bourbon was too expensive to make. Irish whiskey, Canadian whisky and scotch were all cheaper to produce, which meant everything else being equal, bourbon was at a permanent competitive disadvantage. The solution, they concluded, was to make bourbon by the cheaper foreign methods while continuing to call it bourbon. That would require a few rule changes so they petitioned the predecessor to the Treasury Department's Tax and Trade Bureau (TTB), the main federal regulator of distilled spirits products sold in the United States.

You'll have to go to R-Street to find out what happened next.

What got me thinking about this subject is that the TTB recently invited craft distillers � through their trade association the American Craft Spirits Association (ACSA) � to suggest revisions ahead of an effort this fall to update the regulations.

This has come up many times over the years, especially as the craft distillery movement has picked up steam. It is overdue. I've been a careful student of the Federal Standards of Identity for Distilled Spirits since long before I became a lawyer in 1996 and I have a suggestion for anyone who wants to rewrite the rules.


I do not mean you should not suggest changes, but writing rules at that level is a job for professionals. Instead, think about ways the current laws operate to create confusion or can be used by unscrupulous marketers to deliberately mislead consumers. Then think about what a better rule might accomplish.

For example, to most people the words 'made by,' 'manufactured by,' and 'produced by' mean the product is made, manufactured, or produced by the company whose name follows 'by;' and for most intents and purposes, 'made by,' 'manufactured by,' and 'produced by' all mean the same thing.

In reality, as the rules are now written and enforced, the company whose name follows 'by' may just be a bottler. Someone else, maybe several others, actually cooked, fermented, distilled, and aged the product. It may even be a company that had nothing to do with product manufacturing, not even bottling, but it owns the product and ships it to distributors from its licensed warehouse. What's more, the name can be an assumed business name, an alias, and not the name under which the company normally operates.

So while it seems like a 'produced by' statement on a whiskey label tells you a lot, it actually tells you next to nothing about who really made the product.

So what's the best way to fix that? You could ban those words and only allow terms that mean something, such as 'distilled by.' Maybe, but is that the best way to solve the problem and attain the desired result? I'm not sure.

If this is approached as I suggest, someone still has to do the legal research, legal analysis, and legal drafting. I don't know who that would be but I don't think volunteers are the answer. Lots of these new distillery owners are very smart people. Some of them, like Paul Hletko at FEW Spirits, are even lawyers. But every one of them already has too much to do trying to make and sell their products.

This is where a group such as ASCA comes in. They can develop a template of possible rule improvements through their committees and then, perhaps working with sympathetic legislators, find and fund the resources to have the proposed revisions professionally drafted.

Some nihilists say we should just abolish the TTB. We don't need no stinking rules. But if a word such as 'bourbon' doesn't have a legally-enforceable definition then it has no definition at all. Well-drafted and rigorously-enforced labeling rules are healthy for free markets and can be a valuable part of limited but effective government.

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