[Federal Register Volume 61, Number 217 (Thursday, November 7, 1996)]
[Proposed Rules]
[Pages 57597-57599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28640]


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DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and Firearms

27 CFR Parts 5 and 7

[Notice No. 844]
RIN 1512-AB50


Use of Distilled Spirits Terms in Labeling and Advertising of 
Malt Beverages; Use of the Term ``Margarita'' in Labeling Distilled 
Spirits

AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), Department of 
the Treasury.

ACTION: Notice of petition.

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SUMMARY: Heublein, Inc. (Heublein), a distilled spirits producer, has 
petitioned ATF to issue new rules relating to the labeling and 
advertising of distilled spirits and malt beverage products. ATF 
administers the Federal Alcohol Administration Act (FAA Act), 27 U.S.C. 
Secs. 205(e) and (f), which prohibits false and misleading statements 
on labels and in advertising of beverage alcohol. Specifically, 
Heublein has petitioned ATF to issue new rules to prohibit (1) the use 
of terms in the labeling of malt beverages which are the names of 
products customarily made with a distilled spirits base, (2) the 
labeling and advertising of a malt beverage in such a manner as to 
create the impression that it contains or is comparable to a distilled 
spirits product, and (3) the use of the term ``Margarita,'' or any 
other word commonly associated with tequila and Mexico, as a 
designation of any distilled spirits product which does not contain 
tequila.
    ATF has approved labels for malt-based alcohol beverages that use 
cocktail names such as ``Margarita'' provided the label clearly 
identifies the product as a malt beverage. The purpose of this notice 
is to provide the public with an opportunity to comment on the 
additional safeguards that Heublein believes are necessary in order to 
prevent consumers from being misled about the composition of these 
malt-based alcohol beverage products.

DATES: Written comments must be received by February 5, 1997.

ADDRESSES: Send written comments to: Chief, Wine, Beer, and Spirits 
Regulations Branch, Bureau of Alcohol, Tobacco and Firearms, P.O. Box 
50221, Washington, DC 20091-0221; Notice No. 844. Comments not 
exceeding three pages may be submitted by facsimile transmission to 
(202) 927-8602. Copies of written comments to this notice will be 
available for public inspection during normal business hours at: ATF 
Reading Room, Office of Public Affairs and Disclosure, Room 6300, 650 
Massachusetts Avenue, NW, Washington, DC 20226.

FOR FURTHER INFORMATION CONTACT: Charles N. Bacon, Wine, Beer, and 
Spirits Regulations Branch, Bureau of Alcohol, Tobacco and Firearms, 
650 Massachusetts Avenue, NW, Washington, DC 20226; telephone (202) 
927-8230.

SUPPLEMENTARY INFORMATION:

Background

    Under existing law, ATF is charged with the enforcement 
responsibility of sections 105(e) and 105(f) of the Federal Alcohol 
Administration Act (FAA Act), 27 U.S.C. 205(e) and (f), which vest in 
ATF the authority to regulate the labeling and advertising of alcohol 
beverages, including distilled spirits and malt beverages. These 
sections authorize the issuance of regulations that will, among other 
things, prohibit deception of the consumer with respect to the product, 
and which will provide the consumer with adequate information as to the 
identity and quality of the product.
    More specifically, section 205 makes it unlawful for any person 
engaged in

[[Page 57598]]

business as, in pertinent part, a distiller, brewer, or vintner to sell 
or introduce any distilled spirits, malt beverages, or wine in 
interstate commerce unless such products are bottled, packaged, 
labeled, and advertised in conformity with the FAA Act and regulations 
promulgated by ATF pursuant thereto. With respect to alcohol beverage 
labels, ATF is specifically tasked with ensuring that consumers are 
adequately informed and not misled by such labels.
    Under existing regulations, no person may bottle or remove for sale 
in interstate commerce distilled spirits or malt beverages until such 
person has applied for and received a certificate of label approval 
from ATF. As part of the approval process, ATF will advise applicants 
to make changes to proposed label applications in order to ensure 
compliance with the requirements of the statute and implementing 
regulations. ATF has performed this label review and approval function 
since the inception of the FAA Act in 1935, in order to ensure that 
consumers are not misled by labels of distilled spirits and malt 
beverage products.
    In recent years there has been an increase in the number of 
prepackaged low alcohol products. Many products in this low alcohol 
category are malt beverage specialty products that prominently feature 
flavors as part of their name such as ``Wild Berries'' or ``Tropical 
Punch.'' Another recent trend by producers is to use names 
traditionally associated with distilled spirits cocktails as part of 
the designation or as a fanciful name for these malt beverage specialty 
products. Thus, names such as ``Strawberry Daiquiri Flavored Cooler,'' 
``Pina Colada Flavored Cooler,'' ``Margarita Flavored Cooler,'' and so 
forth, are being used for malt-based specialties.
     Pursuant to its mandate to review alcohol beverage labels, and 
consistent with the statutory standard of review, ATF has approved malt 
beverage labels that contain names such as ``Daiquiri,'' ``Pina 
Colada,'' ``Margarita,'' ``Planter's Punch,'' and so forth when they 
describe a flavor component. ATF notes that at least some of these 
names, such as ``Pina Colada,'' are commonly used as flavor descriptors 
in other products such as foods, non-alcoholic drinks, and ice cream. 
ATF has required that the malt beverage labels must contain a statement 
of composition such as ``Malt Beverage with Natural Flavors'' as part 
of the class and type statement. ATF has approved such labels in the 
belief that this requirement is sufficient to inform the consumer as to 
the alcoholic component of such specialties, and that consumers will 
not have the impression that these products contain distilled spirits 
or are like distilled spirits.
    ATF also allows the use of the term ``Margarita'' as a flavor 
descriptor, both for malt-based specialty products and for distilled 
spirits products that do not contain tequila. In that regard, ATF notes 
there is no standard of identity for a ``Margarita'' in Part 5. ATF 
does not, however, approve malt beverage labels which contain terms 
such as ``Whiskey,'' ``Tequila,'' and so forth since these are the 
names of distilled spirits that are not contained in these malt-based 
specialty products.

Petition

    Heublein's petition states that beverage producers are marketing 
malt-based specialty products with the names of cocktails customarily 
made with distilled spirits, despite the fact that these products 
contain no distilled spirits. Heublein asserts that the use of these 
terms in labeling and advertising malt beverages misleads consumers 
into believing that these products contain distilled spirits. Heublein 
cites the existing provisions in FAA wine regulations at 27 CFR 
4.39(a)(7) and 4.64(a)(8) which prohibit use of distilled spirits terms 
in the labeling and advertising of wine, and states these same 
prohibitions should be applied to the labeling and advertising of malt 
beverages.
    Heublein asserts that the current practices result in consumers 
being misled into believing that malt beverages so labeled contain 
distilled spirits. To support their claim that consumers are being 
misled, Heublein submitted two surveys showing consumers' impressions 
of the ingredients present in two major brands of malt-based specialty 
products. Consumers were asked to indicate what they believed to be the 
alcoholic component of malt-based flavored specialty products based on 
a physical examination of bottles and packaging materials as they would 
appear in the marketplace.
    The first survey indicated that 42 percent of all respondents 
received some impression that brand ``A'' of a malt-based Margarita 
specialty product contains tequila. Sixty-nine percent of respondents 
indicated this product contained tequila after having been given a list 
of six potential alcoholic ingredients [gin, malt, rum, tequila, vodka, 
wine] to assist them. The percentage of persons who had the impression 
that this product contained tequila was slightly higher among 
respondents who knew that a Margarita is commonly made with tequila.
    Twenty percent of respondents identified malt as an ingredient in 
this brand of malt-based specialty product. This increased to 44 
percent identifying malt as an ingredient when the same list of six 
potential ingredients was presented to these respondents.
    The second consumer survey yielded similar results for brand ``B'' 
of a malt-based Margarita specialty product. Thirty percent of 
respondents received the impression that it contains tequila; this 
increased to 64 percent after respondents were given the same list of 
six potential alcoholic ingredients. Similarly, 17 percent of 
respondents indicated that this product contains malt. The percentage 
of persons who had the impression that this product contained malt 
increased to 45 percent after these respondents were shown the list of 
six potential ingredients.
    Based on these survey results, Heublein asserts that the use of the 
name of a customary distilled-spirits based cocktail on a label 
misleads consumers into believing that a malt-based specialty product 
contains distilled spirits. Heublein claims that this conclusion 
applies equally to all malt beverages which are labeled with the name 
of any cocktail customarily made with distilled spirits, and not only 
to those malt-based specialty products which contain the term 
``Margarita'' on which the surveys are based. Heublein maintains this 
conclusion regardless of the presence of labeling, advertising or other 
material that would dispel any connection that the labeled or 
advertised products might have with distilled spirits.

Discussion

    It is not clear whether the results of the consumer surveys 
submitted by Heublein regarding malt-based specialty products labeled 
as ``Margarita Flavored'' can be applied to similar products. For 
example, there is no direct evidence presented in the petition that 
consumers who view products labeled ``Strawberry Daiquiri Flavored Malt 
Beverage'' or ``Pina Colada Flavored Malt Beverage'' assume that such 
products contain rum.
    With respect to giving the term ``Margarita'' geographic 
significance, Heublein asserts that the survey shows that the term 
``Margarita'' is so closely associated with tequila that consumers are 
likely to be confused unless tequila is present in any product 
identified as ``Margarita.'' This action would create a geographic 
designation for the term ``Margarita'' and would restrict its use to 
distilled spirits products which contain tequila.

[[Page 57599]]

    Heublein also asserts that distilled spirits producers are placed 
at a competitive disadvantage by misleading malt beverage labels. 
However, no direct evidence has been proffered which would substantiate 
this claim.
    Finally, Heublein asserts that the Department of the Treasury is 
losing excise tax revenues as consumers replace distilled spirits 
products with lower-taxed malt beverages. While this may or may not be 
true, it is not relevant to our labeling authority under the FAA Act. 
Congress has chosen to tax the products at a different rate and any 
producer may choose to produce and market lower taxed malt-based 
products.

Public Participation--Written Comments

    ATF requests comments from all interested persons. All comments 
received on or before the closing date will be carefully considered. 
Comments received after that date will be given the same consideration 
if it is practical to do so, but assurance of consideration cannot be 
given except as to comments received on or before the closing date.
    We would note that ATF already has received several written 
comments regarding the issues raised in this petition. These comments 
will also receive careful consideration.
    ATF will not recognize any material in comments as confidential. 
Comments may be disclosed to the public. Any material that a respondent 
considers to be confidential or inappropriate for disclosure to the 
public should not be included in the comment. The name of any person 
submitting a comment is not exempt from disclosure.
    Comments may be submitted by facsimile transmission to (202) 927-
8602, provided the comments: (1) Are legible; (2) are 8-\1/2\''  x  
11'' in size; (3) contain a written signature; and (4) are three pages 
or less in length. Comments sent by FAX in excess of three pages will 
not be accepted. Receipt of FAX transmittals will not be acknowledged. 
Facsimile transmitted comments will be treated as originals.

Disclosure

    Copies of Heublein's full petition and written comments generated 
pursuant thereto will be available for public inspection during normal 
business hours at: ATF Reading Room, Disclosure Branch, Room 6300, 650 
Massachusetts Avenue NW, Washington, DC.
    Drafting Information. This notice was written by various personnel 
within the Bureau of Alcohol, Tobacco and Firearms.

List of Subjects

27 CFR Part 5

    Advertising, Consumer protection, Customs duties and inspection, 
Imports, Labeling, Liquors, Packaging and containers, Reporting and 
recordkeeping requirements, Trade practices.

27 CFR Part 7

    Advertising, Beer, Consumer protection, Customs duties and 
inspection, Imports, and Labeling.

    Authority. This notice is issued under the authority of 27 
U.S.C. 205.

    Dated: August 22, 1996.
John W. Magaw,
Director.
    Approved: September 5, 1996.
John P. Simpson,
Deputy Assistant Secretary, Regulatory, Tariff and Trade Enforcement.
[FR Doc. 96-28640 Filed 11-6-96; 8:45 am]
BILLING CODE 4810-31-U