charred oak containers or re-used charred oak containers, and not subjected, in the process of distillation or otherwise, to treatment with charred wood, and also includes mixtures of such whisky. Straight whisky is an alcoholic distillate from a fermented mash of grain distilled at not exceeding 160° proof and withdrawn from the cistern room of the distillery at not more than 110° and not less than 80° proof, whether or not such proof is further reduced prior to bottling to not less than 80° proof and is (1) aged for not less than 12 calendar months if bottled on or after July 1, 1936, and before July 1, 1937; or (2) aged for not less than 18 calendar months if bottled on or after July 1, 1937, and before July 1, 1938; or (3) aged for not less than 24 calendar months if bottled on or after July 1, 1938. The term "straight whisky” also includes mixtures of straight whisky which, by reason of being homogeneous, are not subject to the rectification tax under the Internal Revenue Laws. Straight wheat whisky is straight whisky distilled from a fermenteď mash of grain of which not less than 51 percent is wheat grain. Straight malt whisky and straight rye malt whisky are straight whisky distilled from a fermented mash of grain of which not less than 51 percent of the grain is malted barley or malted rye, respectively. Blended whisky (or whisky—a blend), is a mixture which contains at least 20 percent by volume of 100-proof straight whisky and, separately or in combination, whisky or neutral spirits, if such mixture at the time of bottling is not less than 80° proof. Blended rye whisky (rye whisky—a blend), blended bourbon whisky (bourbon whisky-a blend), blended corn whisky (corn whisky-a blend), blended wheat whisky (wheat whisky--a blend), blended malt whisky (malt whiskya blend) or blended rye malt whisky (rye malt whisky--a blend) is blended whisky which contains not less than 51 percent by volume of straight rye whisky, straight bourbon whisky, straight corn whisky, straight wheat whisky, straight malt whisky, or straight rye malt whisky, respectively. Does the committee feel that this is important? I think it is because of the technical nature of the price structures. The CHAIRMAN. It might probably be helpful if there is much more of that, if you put it in the record as part of your presentation. Mr. Buck. I am about half through with the standards of the product. I can put that in the record if the committee would prefer that to be done. The CHAIRMAN. Well, we want to do what is desired by those who are presenting the hearing. Mr. Buck. Senator, I think it is important in order to understand the thing as it develops in the future. The CHAIRMAN. You may proceed. Spirit whisky is a mixture (1) of neutral spirits and not less than 5 percent, by volume of whisky, or (2) of neutral spirits and less than 20 percent by volume of straight whisky, but not less than 5 percent by volume of straight whisky, or of straight whisky and whisky, if the resulting product at the time of bottling be not less than 80° proof. Those are types of American whisky. Scotch whisky is a distinctive product of Scotland, manufactured in Scotland in compliance with the laws of Great Britain regulating the manufacture of Scotch whisky for consumption in Great Britain, and containing no distilled spirits less than 3 years old : Provided, That if in fact such product as so manufactured is a mixture of distilled spirits, such mixture is “Blended Scotch whisky” (Scotch whisky-a blend). Scotch whisky shall not be designated as straight. Irish whisky is a distinctive product of Ireland, manufactured either in the Irish Free State or in Northern Ireland, in compliance with the laws of those respective territories regulating the manufacture of Irish whisky for consumption in such territories, and containing no distilled spirits less than 3 years old: Provided, That if in fact such product as so manufactured is a mixture of distilled spirits, such whisky is "Blended Irish whisky" (Irish whisky-a blend). Irish whisky shall not be designated as straight. Canadian whisky. Canadian whisky is a distinctive product_of Canada, manufactured in Canada in compliance with the laws of the Dominion of Canada regulating the manufacture of whisky for consumption in Canada, and containing no distilled spirits less than 2 years old: Provided, That if in fact such product as so manufactured is a mixture of distilled spirits, such whisky is Blended Canadian whisky (Canadian whisky—a blend). Canadian whisky shall not be designated as straight. Blended Scotch type whisky (Scotch type whisky-a blend) is a mixture made outside of Great Britain and composed of (1) not less than 20 percent by volume of 100° proof malt whisky or whiskies distilled in pot stills at not more than 160° proof, from a fermented mash of malted barley dried over peat fire, whether or not such proof is subsequently reduced prior to bottling to not less than 80° proof, and (2) not more than 80 percent by volume of neutral spirits, or whisky distilled at more than 180° proof, whether or not such proof is subsequently reduced prior to bottling to not less than 80° proof. Blended Irish type whisky (Irish type whisky-a blend) is a product made outside Great Britain or the Irish Free State and composed of (1) a mixture of distilled spirits distilled in pot stills at not more than 171° proof, from a fermented mash of small cereal grains of which not less than 50 percent is dried malted barley, and unmalted barley, wheat, oats, or rye grains, whether or not such proof is subsequently reduced prior to bottling to not less than 80° proof; or (2) A mixture consisting of not less than 20 percent by volume of 100° proof malt whisky or whiskies distilled in pot stills at approximately 171° proof, from a fermented mash of dried malted barley, whether or not such proof is subsequently reduced prior to bottling to not less than 80° proof; and (3) Not more than 80 percent by volume of neutral spirits or whisky distilled at more than 180° proof, whether or not such proof is subsequently reduced prior to bottling to not less than 80° proof. Those standards are the standards under which American whiskies are manufactured and sold to the American consumer in this country, and they also consist of the standards under which whisky is imported into the United States and admitted into our country for distribution in commerce. As to the proposed economic data to be submitted at this hearing, I should like to make a preliminary statement in regard to the material which we propose to submit to the committee on the whiskydistilling industry and on certain aspects of the importing industry now being carried on in the United States. I, of course, am not here as a representative of the Federal Alcohol Administration, but rather as an assistant to the Trade Commission, and this committee, in studying the economics of the whisky-distilling and whisky-importing industry. The story does not involve enforcement or social or moral questions. Such a study would require much additional material. Our interest is in economic fact and behavior. The purpose of this statement is to indicate the scope of the proposed inquiry and to portray the background of the testimony which is to be given by representatives of the industry. At the very outset I wish to point out a striking characteristic of the liquor industries. Their history dates from December 5, 1933, when the twenty-first amendment to the Constitution became effective. Hence, we are dealing with a new industry, as distinguished from long-established industries with a consecutive history, such as steel, automobiles, cement, or glassware. This gives us, in one way, an incomparable advantage in the study of the liquor industry, and I may add that it is also in a measure a handicap, because of the lack of materials, because of the short life of the industry. We can see almost at a glance the growth of the industry from its commencement in 1933 through to its extraordinary development in 1938. We can study the development of its price structure, of its merchandising methods, of its advertising activities, and the position of its leading units, with an ease not possible in the study of older industries. This is an unequaled opportunity for economic study. The industry is large, touching both production and distribution in a highly integrated manner. Its rapid growth has compressed into a capsule an economic trend which might be recognizable in an older industry only after a study covering many years. The prohibition interlude enables interesting comparison between new and old forms of industry. The price mechanisms involved cover the range of regulation and private control. The methods of distribution range equally wide. I do not hope to present a complete picture. Questionnaires which were sent to the industry have not been completely analyzed, and many were not fully answered due to many causes. One was the lack of ability, apparently, of many of the larger companies to get complete answers. Certain gaps exist in our information which may be filled in only from testimony by the industry. We hope to round out the picture by a further report to the committee if that be the committee's pleasure. LEGAL BACKGROUND OF THE INDUSTRY Mr. BUCK. A survey of the legal background is essential if we are to follow the story. The distilling industry has a statutory background unlike any other industry. As far back as 1642 liquor became the subject of legislation when in that year Pennsylvania passed a law making it legal to sell alcoholic liquors to the Indians. The early colonial statutes were, of course, principally for revenue, or fell under the “blue law” classification. In 1790 the Congress for the first time took notice of liquor when it passed a law establishing a rum ration for the Army, and in 1791 levied a tax upon the sale of distilled liquors, which latter act, you will recall, brought on in Pennsylvania the Whisky Rebellion. Throughout the nineteenth century there was increased agitation to enable the States to handle their own liquor problems. In 1890 came the Wilson Act, which provided that all intoxicating liquors transported into any State or remaining therein for consumption, sale, or storage, were, upon arrival in such State, to be subject to the operation of State laws. This was followed, in 1913, by the Webb-Kenyon Act, which prohibited the shipment or transportation of intoxicating liquors into any State to be used therein in violation of the laws of such State. You will recall that the constitutionality of the Webb-Kenyon Act was sustained by the Supreme Court in 1917 in the leading case of Clark Distilling Co. v. Western Maryland Railway Company (242 U. S. 311), in which the Court held that the purpose of the WebbKenyon Act was “to prevent the immunity characteristic of interstate commerce from being used to permit the receipt of such liquor through such commerce in States contrary to their laws, and thus in effect afford a means by subterfuge and indirection to set such laws at naught.” And it was in the Clark case also that the Supreme Court emphasized the unique position of liquor as the subject for congressional legislation, when it said: In other words, the exceptional nature of the subject here regulated is the basis upon which the exceptional power exerted must rest. In 1917 came the Reed bone-dry amendment which made it a crime to order, purchase, or cause intoxicating liquors to be transported in interstate commerce into any States whose laws prohibited the manufacture or sale of intoxicating liquors for beverage purposes. Then on January 16, 1920, the eighteenth amendment became the law of the Nation and by it the manufacture, sale, or transportation of intoxicating liquors for beverage purposes was prohibited. We can pass rapidly over the prohibition era, 1919 to 1933. It is highly important to note that in those years powerful forces were at work whose effect is still felt upon the whisky industry today. By 1932 the appropriation for enforcement had reached a high of $16,000,000, and the country was flooded with illicit liquor and in many respects dominated by bootleggers or their allies. Huge stocks of whisky manufactured by Canadian and Scotch distillers found their way into this country. Distribution systems were organized with all the skill and attention to detail of vast, modern commercial enterprises. All of this necessarily had its effect upon the new industry. I may say that when the Federal Government first took upon itself, late in 1933, supervision of the alcoholic beverage industries through the Federal Alcohol Control Administration, set up under Executive order pursuant to the National Industrial Recovery Act, painstaking efforts were made to eliminate from the new industry those who had participated in the illegal production and sale of spirits. But the power at the disposal of the agency was inadequate to the task and undoubtedly a certain number of those persons entered the new industry. Since the establishment of the Federal Alcohol Administration, under the act of Congress of August 29, 1935, to which I shall refer later on, the same policy has been followed. While that statute materially limited the discretion of the Administrator in passing upon applications for permits to engage in various phases of the industry, his powers have nevertheless been upheld by court decision. For example, in a case decided in the Fifth Circuit Court of Appeals in 1937 and which the Supreme Court refused to review a permit for the wholesaling of beer was denied to an applicant corporation on the ground that the corporation was a mask to cover a articu individual who had achieved a record for disregarding the law. And finally, we come to the twenty-first amendment, which, as I mentioned before, became effective December 5, 1933. As you know, section 1 repeals the eighteenth amendment, and section 2 prohibits the transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof. The twenty-first amendment modifies the Commerce Clause of the Constitution in its application to intoxicating liquors. In other words, any State may now enact legislation in respect to intoxicating liquors whether or not such legislation places a burden upon interstate commerce in liquor. For instance, a statute adopted in California soon after repeal requires an importer of beer produced outside the State to pay a special fee of $500 for selling such beer in California. The constitutionality of this act was upheld in 1936 by the Supreme Court in the case of State Board of Equalization of the State of California v. Young's Market Co. (reported in 299 U. S. 51). This case has been followed by several others in the Supreme Court, with which you are no doubt familiar, all sustaining State laws which undoubtedly burden interstate commerce in liquor, some of which discriminate in favor of certain products to the exclusion of others, and are even frankly retaliatory in nature. STATE SYSTEMS OF LIQUOR CONTROL . a Mr. BUCK. The States, as you know, have set up different types of enforcement within their respective borders, and we have prepared a chart—I don't know whether the committee can see it to any advantage at that distance; it is in the prepared pamphlet before the committee. (The chart referred to was marked "Exhibit No. 394” and is included in the appendix on p. 2675.) Mr. BUCK. You will note from the chart that there are 15 States which maintain a monopoly over retail sales and one over wholesale sales. The CHAIRMAN. It seems to me, Mr. Buck, that you might have referred to the one first in view of the circumstances that it is my own that maintains the wholesale monopoly. Mr. BUCK. The sale of beer is now legal in every State of the Union. The sale of spirituous liquor is legal in all but 3 States. Of the 45 wet States Representative REECE (interposing). I see you have taken cognizance of Tennessee's repeal a few days ago. Mr. BUCK. I had to remake the map, as a matter of fact, to accommodate the action of the Legislature of Tennessee. The CHAIRMAN. I think that isn't the first time the map has had to be remade on account of what Tennessee does. Mr. FERGUSON. Or North Carolina and Wyoming. Each of the 45 wet States has a special statute covering the manufacture and sale of intoxicating beverages. That I might say, Chairman, is a good thing to keep foremost in our minds as we go along in a consideration of this study. In some cases these follow the pattern of the Federal law, particularly in relation to such things as labeling, advertising, and fair-trade practices. I might say there that is particularly true since the establishment of labeling provisions by the Federal Alcohol Administration. They have in a general way, I believe, been accepted by the States as more or less standard regulations for labeling of the product for consumers' benefit. Now you can see that in addition to the 45 State statutes regulating the distribution of this product you have to deal also with certain Mr. |