[Federal Register Volume 65, Number 195 (Friday, October 6, 2000)]
[Rules and Regulations]
[Pages 59718-59724]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-25706]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and Firearms

27 CFR Part 4

[T.D. ATF-431; Ref: Notice Nos. 890 and 895]
RIN: 1512-AB86


Labeling of Flavored Wine Products (98R-317P)

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

ACTION: Final rule, Treasury decision.

-----------------------------------------------------------------------

SUMMARY: The Bureau of Alcohol, Tobacco and Firearms (ATF) is amending 
the regulations to prohibit the use of any varietal designation, type 
designation of varietal significance, semi-generic geographic type 
designation, or geographic distinctive designation in statements of 
composition for flavored wines and other wine specialty products. The 
regulations are also being amended to provide that references on labels 
to such designations in the brand name, product name, or fanciful name 
are limited to standard grape wines. ATF believes that the final 
regulations will ensure that consumers are not misled as to the 
identity of the products they purchase.

[[Page 59719]]

    ATF's proposal to amend the existing definition of ``brand label'' 
for wine will be addressed separately in the near future.

DATES: This rule is effective January 1, 2001.

FOR FURTHER INFORMATION CONTACT: James P. Ficaretta, Regulations 
Division, Bureau of Alcohol, Tobacco and Firearms, 650 Massachusetts 
Avenue, NW., Washington, DC 20226 (202) 927-8210.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 105(e) of the Federal Alcohol Administration Act (FAA Act), 
27 U.S.C. 205(e), vests broad authority in the Director of ATF, as the 
delegate of the Secretary of the Treasury, to prescribe regulations 
with respect to the bottling, packaging, and labeling of wine, 
distilled spirits, and malt beverages. The FAA Act provides that these 
regulations shall prevent deception of the consumer and provide the 
consumer with adequate information as to the identity and quality of 
the product. Regulations that implement the provisions of section 
105(e), as they relate to wine, are set forth in title 27, Code of 
Federal Regulations (CFR), part 4.
    The regulations require that all wines sold, shipped, or otherwise 
introduced into interstate commerce bear labels that contain certain 
mandatory information. Section 4.32(a)(2) provides that, among other 
things, wine labels must contain a statement relating to the class, 
type, or other designation of the wine. If the class of wine is not 
defined by the regulations, section 4.34(a) requires that a truthful 
and adequate statement of composition appear on the brand label in lieu 
of the class designation.
    Subpart C of part 4 sets forth the standards of identity for the 
several classes and types of wine. Section 4.21(a) defines ``grape 
wine'' as wine produced by the normal alcoholic fermentation of the 
juice of sound, ripe grapes. Pure condensed grape must and wine spirits 
may be added to grape wine. Section 4.21(a) also provides limitations 
on the amelioration of grape wine. Over-ameliorated grape wine may not 
be designated as ``grape wine.'' Rather, section 4.21(h) requires that 
such wine be designated as ``substandard wine'' or ``other than 
standard wine.''
    In the case of still grape wine there may appear, in lieu of the 
class designation, any varietal (grape type) designation (e.g., 
Chardonnay), type designation of varietal significance (e.g., 
Muscatel), semi-generic geographic type designation (e.g., Chablis), or 
geographic distinctive designation (e.g., Bordeaux). In general, 
section 4.23 provides that the name of a grape variety may be used as 
the type designation of a grape wine only if the wine is also labeled 
with an appellation of origin (e.g., ``California Chardonnay'') and if 
not less than 75 percent of the finished wine is derived from grapes of 
the named variety.
    In the case of still grape wine there may also appear, in lieu of 
the class designation, a type designation of varietal significance. 
This applies to American wines only. Section 4.28 provides several 
examples of type designations of varietal significance, such as 
Muscatel and Scuppernong.
    As specified in section 4.24(b), a semi-generic designation is a 
name of geographic significance that is also the designation of a class 
or type of wine determined by the Director to be semi-generic. Semi-
generic designations are also established by the Internal Revenue Code 
of 1986 (IRC), 26 U.S.C. 5388(c). Examples of semi-generic names that 
are also type designations for grape wines are Burgundy, Chablis, and 
Champagne. A semi-generic name of geographic significance may be used 
to designate wines of an origin other than that indicated by such name 
only if there appears in direct conjunction therewith an appropriate 
appellation of origin disclosing the true place of origin of the wine 
(e.g., ``California Burgundy''), and if the wine so designated conforms 
to the standard of identity for the product or, if there is no such 
standard, to the trade understanding of such class or type.
    Under section 4.24(b), a geographic distinctive designation is a 
name of geographic significance that has not been found by the Director 
to be generic or semi-generic and may be used only to designate wines 
of the origin indicated by such name. Examples of such nongeneric names 
which are also distinctive designations of specific grape wines are 
Bordeaux and Graves.
    In addition, grape wine may be vintage dated if it is made in 
accordance with the standards prescribed in section 4.27(a). Vintage 
wine is wine labeled with the year of harvest of the grapes, and made 
in accordance with classes 1, 2, or 3 of section 4.21.
    Section 4.21 does not allow for the addition of flavoring 
material(s) to wines with a standard of identity under subpart C of 
part 4. For example, a class 1, grape wine containing added flavoring 
material(s) is not entitled to a standard grape wine designation, 
appellation of origin, or vintage date since these statements only 
apply to a ``standard'' grape wine. Likewise, ``substandard wine'' or 
``other than standard wine'' under section 4.21(h)(2) does not 
specifically include wine to which flavoring material(s) have been 
added. Substandard wine or other than standard wine includes any wine 
to which has been added sugar and water solution in an amount that is 
in excess of the limitations prescribed in the standards of identity 
for these products.
    It has been ATF's long-standing policy that wines to which 
flavoring material(s) are added do not fall within any of the current 
standards of identity set forth in the wine regulations. As such, a 
truthful and adequate statement of composition is required on the brand 
label for such flavored wine products, pursuant to section 4.34(a).

II. Flavored Wine Products

    Flavored wine products are composed differently from wines made in 
accordance with the standards of identity in subpart C. Flavored wines 
may be derived from grape wine or other wines, including citrus wine 
(e.g., orange wine, grapefruit wine), fruit wine (e.g., apple wine, 
berry wine, pear wine) or other agricultural products (e.g., carrot 
wine, dandelion wine, honey wine). Such flavored wine products contain 
the addition of flavoring material(s) and may contain coloring 
material(s). Flavored wine products may also contain sugar and water in 
excess of that allowed in standard wine.
    As stated above, wines to which flavoring materials are added do 
not fall within any of the current standards of identity set forth in 
the wine regulations. As such, a truthful and adequate statement of 
composition is required on the brand label for such flavored products. 
The labels on these products have traditionally displayed statements of 
composition such as ``Grape Wine With Natural Flavors'' to describe to 
consumers the composition of these products.
    Recently, some domestic wineries have begun using varietal and 
semi-generic names in the statement of composition on their product 
labels to describe the base wine portion of their flavored wine 
products. These flavored wine products most often have an appellation 
of origin such as California'' in conjunction with the grape varietal 
or semi-generic name in the statement of composition (e.g., 
``California Chardonnay (or Chablis) With Natural Flavors''). We are 
aware that the recent appearance of these grape varietal and semi-
generic names on flavored wine products has caused a great deal of 
discussion within the wine industry. On February 26, 1998, we wrote to 
the Wine Institute, a national trade association

[[Page 59720]]

representing over 500 California winery and associate members, to 
respond to their concerns about this matter. Soon after the letter was 
sent to the Wine Institute, it was placed on our internet website as 
public information.

III. Consumer Survey

    In view of our concerns about the labeling of flavored wine 
products, we commissioned a consumer survey in July of 1998 to 
determine consumer interpretations of varietal and semi-generic claims 
on labels of flavored wine products. Among other things, the survey was 
designed to assess whether wine consumers distinguish between grape 
wine and flavored wine products based on information provided on 
product labels. The survey involved obtaining consumer reactions to 
examples of two flavored wine products: one product was portrayed as 
containing a grape wine base that qualified as a varietal wine and 
another was portrayed as a product containing a grape wine base that 
qualified as a semi-generic wine. Both products chosen for the survey 
were depicted in ``bag-in-box'' containers. Consumers were shown labels 
bearing only varietal or semi-generic designations and labels bearing a 
varietal or semi-generic type designation as part of a statement of 
composition including the term ``With Natural Flavors.'' Consumers were 
shown boxes bearing the statement of composition on the side panel 
only, and other boxes with the statement of composition prominently 
displayed on the front label. None of the labels was identical to the 
labels of wines currently marketed. The brand names, package designs, 
and label information were selected by the contractor, U.S. Research 
Company, in order to best measure consumer perceptions about the 
overall label presentations and were chosen in order to ensure that the 
results were not specific to any one particular product or brand of 
wine.
    The survey revealed that even when the ``With Natural Flavors'' 
disclosure was prominently displayed on the front panel of the product, 
a large majority (80%) of the respondents failed to distinguish between 
grape wine and flavored wine products. The survey also revealed that 
placing the term ``With Natural Flavors'' on the label had no impact on 
consumer understanding of the amount of varietal or semi-generic wine 
in the product. This is important because over fifty-five percent of 
the consumers surveyed believed that all or almost the entire product 
was composed of the varietal or semi-generic wine. Moreover, when asked 
to interpret the ``With Natural Flavors'' disclosure, more than one-
third of the consumers surveyed perceived it to convey a positive ``no 
chemicals or additives'' message. Seventeen percent indicated that they 
thought the ``With Natural Flavors'' disclosure meant that the product 
was ``natural,'' and only fourteen percent suggested that it indicated 
that flavors had been added to the product.

IV. Petition--California Association of Winegrape Growers

    ATF received a petition, dated September 15, 1999, filed on behalf 
of the California Association of Winegrape Growers (CAWG), requesting 
an amendment of the regulations to prohibit the use of any varietal, 
semi-generic, or geographic name as part of a statement of composition 
on wine specialty products. Specifically, CAWG requested an amendment 
of section 4.34(a). This section states that if the class of wine is 
not defined in the standards of identity in subpart C of part 4, ``a 
truthful and adequate statement of composition shall appear upon the 
brand label of the product in lieu of a class designation.'' The 
petitioner requested that the regulation be amended to add the 
following wording:

    A statement of composition shall include the standard of 
identity (class and type designation) of the wine used in the 
product, but shall not be permitted to include, in lieu of the class 
designation for the wine used in the product, any varietal (grape 
type) designation, type designation of varietal significance, or 
semigeneric geographic type designation, or geographic distinctive 
designation, to which the wine used in the product may otherwise be 
entitled.

    The petitioner contended that the manner in which flavored wine 
products are labeled, packaged, and marketed deceives consumers into 
thinking they are consuming varietal wine rather than flavored wine. As 
stated in the petition,

    Varietal-based specialty products appear on retailers' shelves 
next to or intermingled with traditional still wines, in packaging 
similar to traditional still wines [750 milliliter or 1.5 liter 
glass bottles sealed with a cork, or 5 liter ``bag-in-box'' 
containers] and with a varietal designation and an appellation of 
origin traditionally associated with still wines prominently 
displayed.

    The petitioner asserted that over the last 20 years, American wine 
producers and grape growers have developed an important consumer market 
for still grape wines with varietal designations and appellations of 
origin. According to the petitioner, these wines represent a large 
volume of the domestic wine sold in the United States (64 percent for 
the 52 week period ending July 18, 1999). As stated in the petition, 
``[v]arietal designations and appellations of origin have earned an 
important place in the wine consumer marketplace as indications of 
quality wines with certain distinctive tastes and styles.''
    In support of its petition, CAWG commissioned a survey to study 
consumers' understanding of the current labeling of flavored wine 
products that include a varietal name with an appellation of origin in 
the statement of composition. A total of 800 telephone interviews were 
conducted. According to CAWG, the results of the survey showed that 
most respondents believe that wine labels accurately reflect what is in 
the container and that label information is important to their buying 
decisions. A little more than 48 percent of the respondents stated that 
they expected products containing labels with such statements as 
``California Cabernet Sauvignon with natural flavors'' and ``California 
Chardonnay with natural flavors'' to be standard grape wines that 
contain 75 percent wine made from grapes of that variety. The 
petitioner noted that flavored wine products that include a varietal 
name in the statement of composition have no minimum varietal content 
requirement.
    CAWG stated that the results of its survey clearly show that the 
labeling of flavored wine products that include a variety name along 
with an appellation of origin in the statement of composition is 
misleading to consumers. The petitioner believes that its proposed 
amendment ``is targeted directly at the misleading nature of current 
statements of composition on varietal-based specialty products.'' By 
prohibiting varietal and semi-generic designations and appellations of 
origin in the statement of composition, the petitioner contends that 
consumers will not be misled as to the actual identity of the product. 
Flavored wine products that have a varietal wine base would have 
statements of composition in the form ``grape wine with natural 
flavors'' or ``white wine with natural flavors.''
    ATF did not propose the amendment requested by CAWG. However, we 
did solicit comments on the petition. This will be addressed further in 
the section titled ``Notice No. 890.''

V. Significance of Wine Labeling Terms

    ATF believes that consumers have learned to attach significance to 
varietal/semi-generic designations, appellations of origin, and vintage 
dates on grape wines. This belief is based on the fact that for many 
years the grape wine industry has heavily utilized varietal/semi-
generic designations, appellations of origin, and vintage

[[Page 59721]]

dating in the marketing of grape wines. Additionally, we have conducted 
rulemaking projects spanning nearly 14 years identifying American grape 
variety names (See Treasury Decision ATF-370, 61 FR 522, January 8, 
1996). Similarly, Congress has recently amended the IRC to recognize 
semi-generic names as being distinctive grape wine designations. 26 
U.S.C. 5388(c), as added by Public Law 105-34, section 910(a). These 
efforts illustrate the importance of varietal and semi-generic grape 
wine designations to both the wine industry and to wine consumers. This 
was also addressed in the CAWG petition.
    ATF believes that consumers are confused about the distinction 
between an existing standard of identity wine and flavored wine 
products, especially when grape varietal or semi-generic terms appear 
on the labels of flavored wine products. Flavored wine products are 
often located next to varietal wines or semi-generic wines on the 
shelves of grocery and liquor stores. Also, the promotional and 
advertising materials accompanying these flavored wine products 
frequently feature or highlight the varietal or semi-generic component 
of the finished wine product, even though the finished flavored wine 
product is not entitled to the varietal or semi-generic designation. We 
concluded that current statements of composition that include varietal 
or semi-generic names do not provide consumers with adequate 
information about the identity and quality of the flavored wine product 
and are likely to mislead consumers to believe that flavored wine 
products are the same as wines that meet the requirements for a 
varietal or semi-generic designation. We also believe that the consumer 
survey we commissioned and the CAWG consumer survey support that 
conclusion.
    Furthermore, examination of this issue caused us to review our 
policy relating to statements of composition for all flavored wine 
products, including those that do not include varietal or semi-generic 
names, such as those that state ``Grape Wine With Natural Flavors,'' 
since the finished products are no longer ``Grape Wine'' but are 
``Flavored Wine Products'' because of the presence of flavors.

VI. Notice No. 890

    On December 28, 1999, we published a notice of proposed rulemaking 
in the Federal Register concerning the labeling of flavored wine 
products (Notice No. 890, 64 FR 72612). We proposed to establish a new 
class designation, ``Flavored Wine Product.'' Under this designation, a 
flavored wine product would be a wine-based alcohol beverage that does 
not qualify for any of the class or type designations listed in the 
existing wine regulations because of the addition of flavoring 
material(s).
    As stated in Notice No. 890, we believe that all flavored wine 
products need to be labeled to indicate to consumers that such products 
are composed differently from wines entitled to be labeled with a 
standard of identity under subpart C. We, therefore, proposed to add a 
Class 10 to the standards of identity for wine to be called ``Flavored 
Wine Product.'' As proposed, such product would be required to be 
designated on labels as ``flavored wine product,'' together with a 
truthful and adequate statement of composition, all of which would be 
required to appear in the same size, style, and color typeface on the 
brand label.
    At a minimum, we proposed that the statement of composition for 
flavored wine products must meet the following requirements:

1. Identify Class and/or Type

    We proposed to require that the class and/or type of each wine used 
in the flavored wine product (e.g., ``grape wine,'' ``table wine,'' 
``peach wine,'' ``honey wine'') be identified. A single grape variety, 
type designation of varietal significance, or semi-generic name could 
be used if such named grape variety, type designation of varietal 
significance, or semi-generic name appeared together with an 
appellation of origin no smaller than a country and the named grape 
variety, type designation of varietal significance, or sem-generic wine 
constituted not less than 75 percent by volume of the finished flavored 
wine product. For Vitis labrusca varieties, we proposed that the named 
grape variety must constitute not less than 51 percent by volume of the 
finished flavored wine product. Under our proposal, an appellation of 
origin would not otherwise appear on the label of a product of this 
class. Similar provisions were proposed for specialty products that do 
not contain any flavor(s) (Sec. 4.34(c)).

2. Identify Added Flavoring Material(s)

    We proposed to require that if one flavoring material is used in 
the production of the flavored wine product, the flavoring material 
must be specifically identified (e.g., ``strawberry flavor''). If two 
or more flavoring materials are used in the production of the flavored 
wine product, we proposed that each flavoring material may be 
specifically identified (e.g., peach flavor,'' ``kiwi flavor,'' or 
``peach and kiwi flavors'') or the characterizing flavor must be 
specifically identified and the remaining flavoring material(s) must be 
generally referenced as ``other flavor(s).''
    With regard to the term ``natural'' as used on alcohol beverage 
labels to describe a flavor, e.g., ``With Natural Flavors,'' we stated 
in the notice that it is our belief that there is no consensus among 
consumers as to a meaning for the term ``natural.'' This belief is 
based upon our experience in regulating the wine industry and on the 
consumer survey noted above. An example indicated in the survey 
reflects that fully one-third of respondents considered the term 
``natural'' to indicate that no additives or chemicals are present in 
the product. This conclusion is clearly erroneous. Therefore, to avoid 
consumer deception concerning the identity of flavored wine products, 
we proposed that the term ``natural'' may not be used anywhere on the 
flavored wine product labels to describe flavoring materials. When 
artificial flavoring material(s) are used, they would be so described 
(e.g., ``artificial raspberry flavor'').

3. Identify Added Coloring Material(s)

    We proposed to require that coloring materials(s) be disclosed in 
the statement of composition, whether added directly or through 
flavoring material(s). The coloring materials would be identified 
specifically (e.g., ``caramel,'' ``certified color,'' ``annato,'' etc.) 
or as a general statement, such as ``artificially colored,'' to 
indicate the presence of any one or a combination of coloring 
material(s). However, FD&C Yellow No. 5 requires specific disclosure in 
accordance with 27 CFR 4.32(c).

4. Include a Reference to Sugar

    We proposed to require that sugar be listed in the statement of 
composition if sugar is used in the production of the flavored wine 
product (not including its use in the production of the base wine 
within the range authorized by the regulations).

5. Include a Reference to Water

    We proposed to require that water be listed in the statement of 
composition, if the water addition, whether added directly to the 
flavored wine product or by the addition of flavoring material(s), 
exceeds 5 percent by volume of the finished flavored wine product.

6. Include a Reference to Wine Spirits

    We proposed to require, except for flavored wine products made from 
a

[[Page 59722]]

base of a class 6 wine and imported flavored wine products, a reference 
to the addition of wine spirits in the statement of composition, 
whether such wine spirits are added in the production of the wine 
component of the flavored wine product or added in the production of 
the finished flavored wine product, if the wine spirits are not derived 
from the same kind of fruit from which the wine component was 
fermented. Section 4.39(a)(7) prohibits the appearance on a wine label 
of any statement that the wine contains distilled spirits with one 
exception. Accordingly, we proposed to amend the exception to cover the 
reference to distilled spirits in the statements of composition for 
flavored wine products.
    Although in Notice No. 890 we solicited comments on the CAWG 
petition, we did not propose the amendment requested by the petitioner. 
We believed that the regulation change proposed by CAWG was more 
restrictive than ATF's proposals and did not provide the industry with 
flexibility in labeling their flavored wine products.
Miscellaneous--Amended Definition of ``Brand Label''
    In Notice No. 890, we also proposed to revise the definition of the 
term ``brand label.'' As defined in section 4.10, the ``brand label'' 
is the label carrying, in the usual distinctive design, the brand name 
of the wine. Pursuant to section 4.32, certain mandatory information is 
required to appear on the brand label, including the brand name, the 
class, type, or other designation of the product, and the alcohol 
content.
    We believe that the existing definition of the term ``brand label'' 
allows certain of the mandatory information to be placed on the 
container in such a way that it is not readily visible to consumers. We 
also believe consumers are having difficulty locating important 
mandatory product label information necessary to be adequately informed 
as to the identity and quality of wine products, including bag-in-boxes 
and other new wine containers. In addition, the popularity of flavored 
wine products and the potential for consumer confusion between such 
products and other wines that fit specific class designations 
necessitates a more specific definition of ``brand label.''
    Accordingly, in Notice No. 890 we proposed to amend the definition 
of ``brand label'' to mean the principal display panel that is most 
likely to be displayed, presented, shown, or examined under normal and 
customary conditions of display for retail sale, and any other label 
appearing on the same side of the container as the principal display 
panel. The brand label appearing on a cylindrical surface is that 40 
percent of the circumference which is most likely to be displayed, 
presented, shown or examined under normal and customary conditions of 
display for retail sale.
    The proposed definition is based on the definition of ``brand 
label'' that is currently in the distilled spirits regulations and is 
consistent with the principal display panel approach of the Fair 
Packaging and Labeling Act.
    The comment period for Notice No. 890, initially scheduled to close 
on March 29, 2000, was extended until May 5, 2000, pursuant to Notice 
No. 895 (65 FR 17839, April 5, 2000).

VII. Analysis of Comments

    In response to Notice No. 890, ATF received 152 comments, 
representing 186 signatures. Comments were submitted by members of 
Congress, consumers, representatives of State government, members of 
the industry (representing both domestic and foreign interests), and 
various organizations (e.g., California Association of Winegrape 
Growers, the Presidents' Forum, the Wine Institute, the National 
Association of Beverage Importers, Inc., the Flavor and Extract 
Manufacturers' Association of the U.S., the American Vintners 
Association, and the French Wine and Spirits Exporters Federation).
    One commenter requested an amendment of the regulations (section 
4.39(a)(7)) to allow references to distilled spirits on labels of 
standard wine if such references are true. The amendment requested by 
the commenter is beyond the scope of this rulemaking. However, it may 
be included as part of a future rulemaking proceeding.
    Six commenters either supported the proposed regulations or 
expressed support for specific proposals. For example, two commenters 
supported ATF's proposal to prohibit the term ``natural'' from 
appearing on labels of flavored wine products when describing flavoring 
materials. One of the commenters also supported our proposal to 
establish a new standard of identity for flavored wine products (i.e., 
``flavored wine product''). Two commenters supported ATF's proposal to 
allow a single grape variety, type designation of varietal 
significance, or semi-generic name in the statement of composition for 
a wine specialty product, provided the named grape variety, type 
designation of varietal significance, or semi-generic wine constitutes 
not less than 75 percent (51 percent for Vitis labrusca varieties) by 
volume of the finished wine specialty product.
    Of the 141 comments that addressed the labeling of flavored wine 
products, 136 (97 percent) opposed ATF's proposed regulations. Most 
commenters agreed with ATF's finding that current statements of 
composition on flavored wines that include a varietal or semi-generic 
name are likely to mislead the consumer and do not provide the consumer 
with adequate information as to the identity and quality of the 
product. Examples were provided in the comments that support this 
conclusion. However, the commenters believe that it is not necessary to 
establish a new standard of identity for flavored wine products in 
order to resolve the problem. Rather, they support the CAWG petition or 
a similar proposal that would prohibit the use of varietal and semi-
generic names in statements of composition for wine specialty products. 
Approximately 75 commenters contend that ATF's proposed regulations are 
too broad, too complex, and would affect the labeling of all wine 
specialty products. They argue that there is no documented evidence of 
consumer confusion for many of these products. As one commenter stated:

    [We have] been producing and bottling plum wine with natural 
flavors and grape wines with natural flavors since 1984 with no 
apparent confusion on the part of our consumers with regard to the 
product that they are buying.

    In addition, many commenters object to ATF's proposal that would 
allow the use of varietal and semi-generic names as part of the 
statement of composition on both the new class of flavored wine 
products and other wine specialty products that are not 100 percent 
standard grape wine. They maintain that varietal and semi-generic names 
and related appellations of origin should only be used on products that 
are 100 percent standard grape wine. With respect to the use of 
varietal names on wine labels, many commenters stated the following:

    The standard for varietal content was carefully developed to 
maintain the varietal character of the wine, and in the context of 
products which are 100% grape wine. Therefore, varietal terms should 
only be used on products which are 100% grape wine.

    Three comments objected to the proposed designation of the new 
standard of identity. They argue that the term ``flavored wine 
product'' implies that the product is ``lesser than, or subordinate to 
grape wine,'' and ``both degrades and cheapens everything that we put 
in to them.''

[[Page 59723]]

    Several commenters contend that ATF's proposed regulations are not 
cost effective and would impose an undue burden on the industry. 
According to one commenter, the massive relabeling of products required 
by the proposed regulations will result in substantial costs for the 
domestic and international wine trade without improving consumers' 
understanding of wine labeling. Another commenter provided specific 
information--

[Our] line alone includes eight (8) items, all well established as a 
result of extensive marketing efforts, which would become non-
conforming were the proposed regulatory changes to be enacted. 
Collectively these eight (8) items represented nearly one quarter 
(25%) of our sales volume last year, calendar [year] 1999. In 
addition to the tens of thousands of dollars of investment in 
artwork, design and marketing, * * * [we have] well over one hundred 
thousand dollars ($100,000) invested in labels, silk screened 
bottles and point-of-sale materials for these eight (8) items.

    Several commenters objected to ATF's proposals concerning the 
statement of composition for flavored wine products. One commenter 
stated that the proposed regulations are excessive and burdensome and 
``turn a truthful and adequate statement of composition into a version 
of ingredient labeling without providing adequate justification for the 
change.'' Other commenters shared this view.
    Many commenters objected specifically to ATF's proposal to prohibit 
the use of the term ``natural'' in the statement of composition for 
flavored wines and other wine specialty products. They maintain that 
ATF has had a long-standing policy of allowing wine producers to 
identify a flavor as being ``natural'' or ``artificial,'' provided it 
was a truthful characterization of the flavoring. According to one 
commenter, adopting the proposed regulation ``would reverse that long 
standing policy, cause thousands of labels to change, and would be 
totally inconsistent with all other food labeling without 
justification.'' Another commenter stated that prohibiting the term 
``natural'' to describe a flavor is significantly different from ATF's 
policy regarding statements of composition as discussed in its 
publication ``Compliance Matters 97-1.'' In addition, one commenter 
indicated that if ATF believes there is confusion among consumers as to 
a meaning for the term ``natural,'' the term should also be prohibited 
from appearing in statements of composition for flavored malt beverages 
and distilled spirits specialty products.
    One commenter who expressed opposition to the proposed regulations 
questioned the methodology used with respect to ATF's consumer survey 
and the validity of the results of the survey. Based, in part, on the 
consumer survey, ATF concluded that current statements of composition 
on labels of flavored wines that include varietal or semi-generic names 
do not provide consumers with adequate information as to the identity 
and quality of the product and are likely to mislead consumers to 
believe that flavored wine products are the same as wines that meet the 
requirements for a varietal or semi-generic designation. In contrast, 
the commenter refers to the results of its own consumer survey that 
``clearly shows that consumers are neither confused nor deceived by 
Flavored Wines labeled in accordance with BATF's current regulations.'' 
ATF maintains that statements of composition on flavored wines that 
include a varietal or semi-generic name are likely to mislead consumers 
and do not provide consumers with adequate information as to the 
identity and quality of the product. ATF further believes that its 
consumer survey, the consumer survey conducted by the petitioner, and 
the comments received in response to the notice of proposed rulemaking 
support this conclusion.

VIII. Amended Definition of ``Brand Label''

    Thirty comments addressed our proposal to amend the definition of 
``brand label'' for wine. The commenters expressed several concerns 
with respect to the proposed definition that we believe warrant further 
study and analysis. However, we do not wish to delay a final decision 
concerning the labeling of flavored wine products. Therefore, we will 
address the ``brand label'' issue separately in the near future.

IX. Final Rule

    Based on the comments received in response to Notice No. 890, we 
have re-examined the proposed regulations concerning the labeling of 
flavored wines and other wine specialty products. It is clear that most 
commenters agree with our conclusion that current statements of 
composition on flavored wines that include a varietal or semi-generic 
name are likely to mislead consumers and do not provide consumers with 
adequate information as to the identity and quality of the product. It 
is equally clear that most commenters do not believe ATF's proposal to 
create a new class designation is the best solution to the problem.
    ATF is particularly concerned about the financial burden that would 
be placed on the industry, both domestic and foreign, if the proposed 
regulations were to be adopted as final. As pointed out in the 
comments, the proposed regulations would affect all wine specialty 
products, including those that have been in the marketplace for a long 
time and do not use a varietal or semi-generic name in the statement of 
composition. In addition, under the proposed regulations, flavored 
wines and other wine specialty products would still be able to use 
varietal and semi-generic names in the statements of composition, 
provided minimum percentage requirements are met. Based on the 
comments, we are concerned that consumers seeing these designations on 
such products may perceive these products to be standard grape wines 
even if the products were labeled as we proposed.
    The purpose of the labeling provisions of the FAA Act is to prevent 
deception of the consumer and to provide the consumer with adequate 
information as to the identity and quality of the product. In 
prescribing regulations, ATF has the responsibility to ensure that the 
statutory goals are met. However, ATF does not believe that the 
regulations should be more restrictive than is necessary to meet the 
statutory goal. On the contrary, ATF believes that we should regulate 
only where necessary and to the extent required to avoid consumer 
deception or provide the consumer with adequate information about the 
product.
    Accordingly, ATF is not adopting the regulations as proposed in 
Notice No. 890. We are, however, amending the regulations in section 
4.34(a) to prohibit the use of any varietal designation, type 
designation of varietal significance, semi-generic geographic type 
designation, or geographic distinctive designation in statements of 
composition for flavored wines and other wine specialty products. This 
amendment is similar to that proposed in the CAWG petition.
    In Notice No. 890, we proposed that in addition to the statement of 
composition portion of the mandatory designation for a flavored wine 
product, additional statements regarding the components of such a 
product could appear on a back or side label, but not the brand label. 
Such statements would have to reference all components listed in the 
mandatory statement of composition and must include the percentage of 
each component totaling 100 percent. Furthermore, such

[[Page 59724]]

additional statements must be truthful, accurate and specific, within 
the meaning of section 4.38(f). Many commenters disagreed with our 
proposal, maintaining that varietal and semi-generic names should only 
be used on products that are 100 percent standard grape wine. For 
example, one commenter stated the following:

[T]here should be no provision for showing a varietal designation or 
a semi generic designation (and related appellation of origin) in 
any way, including in a statement of composition, anywhere on a 
label of any wine product that is not a standard grape wine. That 
includes, of course, any other-than-standard wine, substandard wine 
and/or flavored wine product.

    Another commenter stated that ``[v]arietal, semi-generic names and 
appellations of origin should only be used on Class I, Class II and 
Class III wines. They should not be used on any other class of wine, 
nor on any `wine specialty products.' '' Another comment, representing 
three Washington State wine organizations, maintained that 
``[p]ermitting the use of varietal or semi-generic names on products 
that are not in fact 100% [standard grape] wine will simply add to 
consumer confusion.''
    Accordingly, we are amending the regulations to provide that wine 
labels may not contain any varietal name, type designation of varietal 
significance, semi-generic name, or geographic distinctive designation 
in the brand name, product name, or distinctive or fanciful name, 
unless the wine is made in accordance with the standards prescribed in 
classes 1, 2, or 3 (i.e., grape wine, sparkling grape wine, or 
carbonated grape wine). Any other use of such a designation on other 
than a class 1, 2, or 3 wine is presumed misleading. This amendment is 
similar to one proposed by the Wine Institute in its comment on the 
proposed regulations. The Wine Institute represents over 500 California 
winery and associate members. We believe this amendment is necessary to 
ensure that consumers are adequately informed as to the identity and 
quality of the wine, and to prevent consumer deception.

X. Applications for and Certification of Label Approval

    Upon the effective date of this Treasury decision, i.e., January 1, 
2001, applications for certificates of label approval must be in 
compliance with the regulations. In accordance with the provisions of 
27 CFR 13.51 and 13.72(a)(2), upon the effective date of this Treasury 
decision, certificates of label approval that are not in compliance 
with the regulations will be revoked by operation of regulation. 
Certificate holders must voluntarily surrender all certificates that 
are no longer in compliance and submit applications for new 
certificates that are in compliance with the new requirements.

How This Document Complies With the Federal Administrative 
Requirements for Rulemaking

A. Executive Order 12866

    We have determined that this final rule is not a significant 
regulatory action as defined in E.O. 12866. Therefore, a regulatory 
assessment is not required.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to conduct a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements unless the agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities. Small entities include small 
businesses, small not-for-profit enterprises, and small government 
jurisdictions. We hereby certify that this final rule will not have a 
significant economic impact on a substantial number of small entities. 
Since producers routinely make changes to their labels, we do not 
believe that the final regulation will result in any additional burdens 
on the industry. Accordingly, a regulatory flexibility analysis is not 
required.

C. Paperwork Reduction Act

    The provisions of the Paperwork Reduction Act of 1995, Public Law 
104-13, 44 U.S.C. Chapter 35, and its implementing regulations, 5 CFR 
part 1320, do not apply to this final rule because no requirement to 
collect information is imposed.

Disclosure

    Copies of the notice of proposed rulemaking, all written comments, 
and this final rule will be available for public inspection during 
normal business hours at: ATF Public Reading Room, Room 6480, 650 
Massachusetts Avenue, NW., Washington, DC.

Drafting Information

    The author of this document is James P. Ficaretta, Regulations 
Division, Bureau of Alcohol, Tobacco and Firearms.

List of Subjects in 27 CFR Part 4

    Advertising, Consumer protection, Customs duties and inspection, 
Imports, Labeling, Packaging and containers, Wine.

Authority and Issuance

    For the reasons discussed in the preamble, ATF amends 27 CFR part 4 
as follows:

PART 4--LABELING AND ADVERTISING OF WINE

    Paragraph 1. The authority citation for part 4 continues to read as 
follows:

    Authority: 27 U.S.C. 205.


    Par. 2. Section 4.34(a) is amended by adding a sentence after the 
seventh sentence to read as follows:


Sec. 4.34  Class and type.

    (a) * * * The statement of composition will not include any 
reference to a varietal (grape type) designation, type designation of 
varietal significance, semi-generic geographic type designation, or 
geographic distinctive designation. * * *
* * * * *

    Par. 3. Section 4.39 is amended by adding a new paragraph (n) to 
read as follows:


Sec. 4.39  Prohibited practices.

    (n) Use of a varietal name, type designation of varietal 
significance, semi-generic name, or geographic distinctive designation. 
Labels that contain in the brand name, product name, or distinctive or 
fanciful name, any varietal (grape type) designation, type designation 
of varietal significance, semi-generic geographic type designation, or 
geographic distinctive designation, are misleading unless the wine is 
made in accordance with the standards prescribed in classes 1, 2, or 3 
of Sec. 4.21. Any other use of such a designation on other than a class 
1, 2, or 3 wine is presumed misleading.

    Signed: August 4, 2000.
Bradley A. Buckles,
Director.
    Approved: September 5, 2000.
John P. Simpson,
Deputy Assistant Secretary, (Regulatory, Tariff and Trade Enforcement).
[FR Doc. 00-25706 Filed 10-5-00; 8:45 am]
BILLING CODE 4810-31-P