Nov 9 -- The Alcohol and Tobacco Tax and Trade Bureau (TTB) is seeking public comment on TTB's trade practice regulations related to the Federal Alcohol Administration Act's exclusive outlet, tied house, commercial bribery, and consignment sales prohibitions. President Biden's Executive Order 14036 (“Promoting Competition in the American Economy”), the Department of the Treasury's related February 2022 report (“Competition in the Markets for Beer, Wine, and Spirits”), and public comments related to that report have raised questions about whether these regulations could be improved. To assist the agency in formulating potential proposals to amend the regulations, TTB invites comments on the issues described in this document. Comments must be received on or before March 9, 2023.
Section 105 of the Federal Alcohol Administration Act (FAA Act) prohibits producers, wholesalers, and importers of distilled spirits, wine, or malt beverages (i.e., industry members) from engaging in certain practices (collectively referred to as “trade practices”) that threaten the independence of retailers and/or give the industry members an unfair advantage over their competitors.
See 27 U.S.C. 205. Apart from labeling and advertising (27 U.S.C. 205(e) & (f)), which are outside the scope of this document, section 105's prohibited trade practices are:
A. Exclusive outlet. It is unlawful for any industry member to require, by agreement or otherwise, that any retailer purchase alcohol beverages from the industry member to the exclusion, in whole or in part, of alcohol beverages sold or offered for sale by other persons. See 27 U.S.C. 205(a).
B. Tied house. It is unlawful for any industry member to induce any retailer to purchase alcohol beverages from the industry member to the exclusion, in whole or in part, of alcohol beverages sold or offered for sale by others, through any of the following means: (1) by acquiring or holding any interest in any license with respect to the premises of the retailer; (2) by acquiring any interest in the real or personal property owned, occupied, or used by the retailer in the conduct of its business; (3) by furnishing, giving, renting, lending, or selling to the retailer, any equipment, fixtures, signs, supplies, money, services or other thing of value, subject to exceptions prescribed by regulations; (4) by paying or crediting the retailer for any advertising, display, or distribution service; (5) by guaranteeing any loan or the repayment of any financial obligation of the retailer; (6) by extending to the retailer credit for a period in excess of the credit period usual and customary to the industry for the particular class of transactions as prescribed by regulations; or (7) by requiring the retailer to take and dispose of a certain quota of any alcohol beverages. See 27 U.S.C. 205(b).
C. Commercial bribery. It is unlawful for any industry member to induce any retailer or wholesaler to purchase alcohol beverages from the industry member to the exclusion, in whole or in part, of alcohol beverages sold or offered for sale by others, though the following means: (1) by commercial bribery; or (2) by offering or giving any bonus, premium, or compensation to any officer, employee, or representative of the retailer or wholesaler. See 27 U.S.C. 205(c).
D. Consignment sales. It is unlawful for any industry member to sell, offer for sale, or contract to sell alcohol beverages to any retailer or wholesaler, or for any retailer or wholesaler to purchase, offer to purchase, or contract to purchase any alcohol beverages on consignment or under conditional sale or with the privilege of return or on any basis otherwise than a bona fide sale, or where any part of such transaction involves, directly or indirectly, the acquisition by such person, from the retailer or wholesaler, of other distilled spirits, wine, or malt beverages. See 27 U.S.C. 205(d).
On July 9, 2021, President Biden issued an Executive Order titled “Promoting Competition in the American Economy.” See E.O. 14036, 86 FR 36987 (July 14, 2021). Section 5(j) directed the Secretary, in consultation with the Attorney General and the Chair of the Federal Trade Commission (FTC), to submit a report within 120 days “assessing the current market structure and conditions of competition [for beer, wine, and spirits], including an assessment of any threats to competition and barriers to new entrants[.]” The Order provided that the report should address unlawful trade practices that hinder smaller and independent businesses or new entrants from distributing their products; patterns of consolidation in production, distribution, or retail markets; and “any unnecessary trade practice regulations of matters such as bottle sizes, permitting, or labeling that may unnecessarily inhibit competition[.]”
Further, section 5(k) of the Order directed the Secretary, through the TTB Administrator, to consider within 240 days: (1) Initiating a rulemaking to update TTB's trade practice regulations; (2) revising or rescinding any regulations that “unnecessarily inhibit competition;” and (3) “reducing any barriers that impede market access for smaller and independent brewers, winemakers, and distilleries.”
On July 28, 2021, the Department of the Treasury (Treasury) issued a Request for Information (RFI) soliciting input from the public and industry regarding the current market structure and conditions of competition in the American markets for beer, wine, and spirits, including an assessment of any threats to competition and barriers to new entrants. See Notice No. 204, 86 FR 40678. Treasury received 827 public comments in response to this RFI (RFI Comments), including numerous comments addressing the exclusive outlet, tied house, commercial bribery, and consignment sales prohibitions.
On February 9, 2022, Treasury, in consultation with the U.S. Department of Justice and the Federal Trade Commission, released a [64-page] report titled “Competition in the Markets for Beer, Wine, and Spirits” (Report). https://home.treasury.gov/news/press-releases/jy0591
The Report analyzes the markets for beer, wine, and spirits and, while finding significant growth over the last several decades in the number of small and “craft” producers of beer, wine, and spirits, the Report also finds significant concentration in certain markets. In addition, the Report analyzes the burden that complex regulations place on small businesses and new market entrants. To help address the competitive challenges in the beer, wine, and spirits marketplace, the Report identifies several recommendations, including evaluating trade practice enforcement policies, and reform of post-Prohibition era regulations that hinder small firms and new entrants from accessing the marketplace. The Report also recommends that TTB consider rulemaking to update its trade practice regulations under the FAA Act with an eye to giving a green light to practices that are essentially harmless and inherently procompetitive.
TTB has not revised the trade practice regulations in over 20 years and recognizes that the regulations may not take into account current marketplace realities. Accordingly, in this advance notice of proposed rulemaking, TTB invites comments on updating the trade practice regulations listed in the Background section above (i.e.,27 CFR parts 6, 8, 10 and 11). To assist TTB in determining whether to proceed with developing specific regulatory proposals, TTB particularly invites comments on the following . . .