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Mr. ESSELBORN. This is his statement. Mr. John C. Bruckmann was chairman of the code authority of the brewing industry. I wish to extend to the committee his apology for not being here, and my own for any deficiency in delivering this, because I was called on very suddenly.
Mr. JENKINS. You will subscribe to this as your statement?
Mr. ESSELBORN. I will subscribe to this as my statement, except this has Mr. Bruckmann's signature.
Mr. JENKINS. The reason I wanted you to ask this was that I know Mr. Esselborn to be a man of prominence in Ohio among the men engaged in the brewery industry.
Mr. ESSELBORN. Thank you, sir. [Reading:]
As has been explained to you by the preceding witness, Mr. Nicholson, the brewers of the United States were assembled in a mass meeting at Chicago on June 18, where the news of the introduction of H. R. 8539 was received. Immediately the association wired to the chairman of this committee a protest against two features of the bill—first, the requirement that a brewer must have a Federal permit before he could engage in business, and, second, the writing into statute law the fair-trade practices which must be observed and the violation of which, according to the terms of the bill, is not only a misdemeanor, with a fine of $1,000, but also involved the suspension or revocation of the brewer's permit, and the consequent loss of his business.
I am speaking to you protesting against these provisions as a brewer, but it happens that from December 4, 1933, when the brewers' code was approved by the President, until June 16, 1935, when the code was terminated by the decision of the Supreme Court of the United States, I was chairman of the Brewers' Code Authority, and familiar with the degree of compliance secured in the enforcement of the code, which, alone of all the alcoholic codes, contained no provision requiring a permit. Furthermore, I assisted in the negotiations which led to the adoption of the voluntary brewers' code, and it was proposed while those negotiations were going on, and seriously contended for by the Government officers, that the brewers should accept a code which would authorize the Government to place the brewers under permit. The brewers refused to agree to this provision, and after considerable study, the officers of the Government came to the decision the brewers were right in their position and that control of the brewing industry could be had without subjecting the brewers to the rigors of the permit system. This is evidenced by the fact that the officers of the A. A. A. on December 4, 1933, in a letter transmitting the executive order approving the Code of Fair Competition for the Brewing Industry, made the following statement:
“The brewing industry has been legitimately engaged for some time past in the manufacture of beer of less than 3.2 percent alcoholic content by volume. The conduct of the industry has been satisfactory to those governmental agencies concerned. The provisions of the brewers' code are therefore more liberal than those of the other codes, give the industry greater control over the policing of its situation, and are not based on the theory of restricting the capacity of the industry and its activities pending legislation by Congress to the end of minimizing vested interest in the brewing industry during the interim perod. The code therefore contains no limitations upon new concerns entering the brewing industry, nor any authorization for the Federal Alcohol Control Administration to limit or reduce the productive capacity of the industry. Further, no provisions are included for placing the brewers under permit of the Federal Alcohol Control Administration as a condition of engaging in business.”
Furthermore, the director of the Federal Alcohol Control Administration stated before this committee on May 22, 1935, that in view of his experience in the administration of the brewers' code, he did not believe that an attempt should be made to place the brewers under the permit system, unless the brewers asked for it. Most emphatically the brewers of the country are not asking for a permit system and believe no occasion exists for placing the brewers under permit. I understand in his testimony before this committee last night Mr. Choate said that while it might be logical to place the brewers under a permit system other alcoholic beverage industries were to be placed under
a permit system, still he did not regard it as necessary in view of the experience that he had had with the administration of the brewers' code.
We, the brewers of the United States, would not wish this committee or the Congress to have the impression that the brewers are impatient of any necessary legitimate Federal control, but we think it has been demonstrated by the successful enforcement of the code without the permit provision that it is not necessary to apply the same provisions to the brewing industry which the Congress may deem necessary to apply to the distilled spirits industry. For example, a law regulating the manufacture and shipment of high explosives, such as TNT or dynamite, may be very salutary and sensible when applied to those products, but if it were sought to apply the same provisions to the manufacture and sale of toy firecrackers for the Fourth of July celebrations, such action would not be wanted.
Neither would we wish this committee to gather the impression that the brewers are not willing to abide by any fair trade practice provisions; what we are objecting to strenuously is the inclusion at this time of a number of fair trade practices written into a statute with which the industry has had no contact. In the administration of the code authority, of which I was chairman, it was found necessary, sometimes on the suggestion of the industry, sometimes on the suggestion of the code authority, and sometimes on the suggestion of the Government, to amend and to reamend the fair trade practice provisions, which sometimes it was found necessary to make more drastic, and sometimes necessary to relax the provisions to some extent, and in a few cases it was found wise to dispense entirely with the fair trade practice pro visions which were originally incorporated into the code.
I wish to assure you gentlemen, on behalf of the brewers of the United States, that the brewers are making every effort at the present time, as explained by Mr. Nicholson, either through association agreements or otherwise, to formulate proper fair trade practices and to secure their observance
I may say for my own State of Ohio, that while we have not drawn these up, we have agreed to abide by them.
If we are given a little time, we shall be able, say a year from now, to suggest to your body, if you then desire to write a statute making law of fair trade practices, certain concrete suggestions, which I am sure you will find helpful. Respectfully submitted,
JOHN C. BRUCKMANN, Breuer and Chairman of Former Brewers' Code Authority. The CHAIRMAN. Thank you for your appearance. Frank A. Coleman.
STATEMENT OF FRANK A. COLEMAN, PRESIDENT NATIONAL
WHOLESALE WINE AND LIQUOR DEALERS ASSOCIATION
Mr. COLEMAN. I am president of the National Wholesale Wine and Liquor Dealers' Association, former chairman of the Alcoholic Beyerage Wholesale Code Authority of the Wine and Liquor Dealers for New England, president of Massachusetts Wholesale Liquor Dealers' Association, and vice president of the Coleman-Keeting Co., of Boston, who have been engaged in the business of wholesaling of wine and liquor and rectification of same since 1854, except during the period of national prohibition.
I should like you gentlemen to remember that I am speaking from actual experience as a rectifier and wholesaler who operated prior to prohibition and since repeal and has had charge of code enforcement of the Federal Alcohol Control Administration codes, which are practically the same as this proposed bill.
I wish to call to your attention that the liquor industry at the present time is governed and must comply with the laws, rules, and regulations of the Treasury Department, Pure Food and Drug Ad
ministration, Department of Agriculture, the Federal Trade Commission, the various State alcoholic beverage commissions, as well as the local city and town governments. This proposed bill, to my mind, is a duplication of all of these and is one more burden which the legal liquor dealer will have to carry and will necessarily add to the costs of operation and distribution of the liquors he has to sell, with the resultant increase in the price to the ultimate consumer.
Please bear in mind, gentlemen, that all of these added costs make it that much easier for the bootleg industry to compete with the legal industry and deprive, thereby, the United States Government of its just revenues.
In my position as chairman of the Code Authority for the Alcoholic Beverage Wholesale Industry, Wine and Liquor Division, during this past year, I endeavored, with the support of the majority of the liquor dealers in New England, to enforce the codes as written, which are, at least as far as section 5 of this bill—which is the unfair trade practices-very similar and further that these codes worked to the disadvantage of the wholesale liquor dealers who lived up to the very letter of these codes.
In other words, the honest liquor dealer who did abide by the code was put to a disadvantage, and all his business was being taken from him by the unscrupulous man who cut corners, and his business just faded away from him.
The Supreme Court of the United States has recently handed down a momentous decision with respect to compulsory codes of fair competition, which you gentlemen are all familiar with. Our Chief Executive, President Roosevelt, has likewise stated that a voluntary code would be ineffectual, due to the fact that the approximate 10 percent chiseling fringe of any industry would render them abortive.
I ask you gentlemen if it is not evident by our experience under the National Recovery Administration and the prohibition law that prohibitory regulations worked almost solely to the detriment of the person who seeks to observe them, and I ask your attention to the further fact that virtually all of the proposed fair-trade practices in the act, section 5, are already incorporated by law in the acts of Congress setting up the Pure Food and Drug Administration of the United States Department of Agriculture and the Federal Trade Commission, which parties now have adequate power to enforce them and have been enforcing them.
Advocates of reestablishing of a Federal Alcohol Control Commission at this hearing have urged it as an economic measure; but the question arises, why should Congress set up a new body, a special personnel, at huge cost to the taxpayer, to discharge duties which are now vested in existing Government agencies?
If, in your wisdom, the entire matter of liquor control should be placed in the hands of one Government agency, common sense and regard for the taxpayer would suggest that that body be created for the purpose of coordinating the activities of the various existing Government agencies, such as Treasury Department, Pure Food and Drug Administration, and the Federal Trade Commission, which have jurisdiction over these matters, and be limited to an executive personnel appointed by the executive branch of the Government, with The resultant saving of considerable expense to the taxpayer.
There is involved also the question of the sovereign rights of the various States. The twenty-first amendment guaranteed to each State the right to govern the liquor industry within its own State borders, and each of these States has enacted into law rules and regulations for the conducting of the business where legal. Under section 4, subsection E, on page 9 of this proposed bill, on line 7, a prohibition is set up against a manufacturer, rectifier, wholesaler, and so forth, from holding an interest in a retailer's establishment; and, further, under section 5, throughout the section in various places, restrictions are placed on transactions by the wholesaler or rectifier or manufacturer in its dealings with the retailer. This is contrary to the laws of many States, specifically the laws of the State of Massachusetts, with which I am familiar, which allows a manufacturer, wholesaler, or importer to own a retail outlet for the sale of bottled goods.
That is not consumption on the premises, but the sale of bottled goods.
I suggest that wherever the word "retailer” appears in this bill there be added to it the further definition or provision for “consumption on premises."
Those words were written into the code originally so that it would not conflict with the State laws. In other words, most of the States have barred wholesalers and manufacturers from having an interest in a retail establishment for consumption on the premises, but the State of Massachusetts and many other States allows a manufacturer or wholesaler to have an interest in a retail store for purchase of bottled goods.
That is, if you wrote in the words “ for consumption on the premises ", this, I do not believe, will interfere with any State laws. There is a provision in this bill giving the Administrator the right to suspend or revoke a permit for violation of this proposed bill which, in effect, would abrogate a license issued by a State for a wholesaler to do business within that State, and the point was raised during the past year by the State officials in Massachusetts as to whether the Federal Government had the right to put out of business a person whom that State had licensed to do business within its own borders.
I refer, in that instance, to a case where action was proceeded with against a wholesaler under the code, and suit for revocation of his permit, which would automatically put him out of business, was started, and the alcoholic beverage control commission in the State of Massachusetts questioned the right of the Federal Government to put out of business a wholesaler whom they had licensed at the rate of $3,000 per year.
In order that this bill, when enacted into law, shall not cause any undue harm to the existing members of the industry, I suggest that the rules, as proposed in section 5, subsection E, on page 16, on line 17, be amended by striking out to be prescribed by the Administrator" and inserting in lieu thereof the words “as prescribed by the United States Department of Agriculture, Pure Food and Drug Administration”; and further, that on line 24, in the same section E, on page 16, that the word “Administrator " be stricken out and the words United States Department of Agriculture, Pure Food and Drug
Administration " be inserted in its stead. The effect of this will be to stabilize the industry insofar as labels are concerned. During the past year, with the constant changes made by the Federal Alcohol Control Administration in the labeling regulations and the interpretations of same, millions of dollars have been wasted by the necessity of such changes, and necessarily this loss to the industry was reflected in higher prices to the ultimate consumer. As an example of these enforced changes by the industry members, let me cite an instance in my own business: I had some labels lithographed at considerable expense, which read "Dry gin, distilled.” The Administration ruled that these labels could not be used for the reason that the wording should have read “Distilled dry gin.” There was no misrepresentation or deception intended or implied to the purchaser of this merchandise.
The ruling was merely the pedantic construction of some subordinate in the Administrator's office. These labels had to be destroyed by us and new ones printed in accordance with this ruling, from which we had no appeal. This was only one instance out of many hundreds of such abuse of discretion by subordinates in the Federal Alcohol Control Administration which cost the members of our industry millions of dollars during the last 15 months. We urge that the power to make such interpretations be returned to the United States Department of Agriculture, Pure Food and Drugs Administration, where they will be made by a personnel that has handled such problems for many years and will be guided by court decisions which form the basis for intelligent administration of such rules and regulations.
In closing, may I state that the proposed agency, with a multiplicity of rules and regulations overlapping all existing Federal and State bodies having jurisdiction over the manufacture, distribution, and sale of alcoholic beverages, would cost a huge and unnecessary additional expense to the industry, which must be passed on to the ultimate consumer. For example, every wholesale liquor dealer had to employ for the past year from one to five clerks making out reports to the Federal Alcohol Control Administration, which were in addition to and practically duplicated the reports required by and furnished to the Treasury Department, Bureau of Internal Revenue, and to the various State liquor authorities.
Commissioner D. Frederick Burnett, commissioner of alcoholic beverage control for New Jersey, at a meeting of the State administrators in Cleveland this week stated :
I wish to go on record to all boards that it is not the legitimate trade that should worry us, in the rules and regulations designed to further annoy the legitimate trade, but it is the illegal outlaw that we must get after.
If the same amount of money were expended by the Government in the Alcohol Tax Unit, or other such bodies, to get after and close down illicit distillers, smugglers, and other bootleggers handling illicit merchandise, producing no tax or revenue to the Government, then the Government, the industry, and the public would substantially benefit.
The CHAIRMAN. Thank you for your appearance.
Mr. KNUTSON. Is your organization in favor of an independent bureau to administer the liquor law, or do you want it placed in the Treasury Department ?