Alcohol Regulation
The best-known pieces of legislation regarding alcohol are the Eighteenth and Twenty-first Amendments to the Constitution. The Eighteenth Amendment prohibited the manufacture, sale, and importation of alcoholic beverages. Ratified in 1919, it took effect in 1920, ushering in a period in American history known as Prohibition. After twelve years, during which it failed to stop the manufacture and sale of alcohol, Prohibition was repealed in 1933 by the Twenty-first Amendment.
Most interpretations of the Twenty-first Amendment hold that the amendment gives individual states the power to regulate and control alcoholic beverages within their own borders. Consequently, every state currently has its own alcohol administration and enforcement agency. "Control states" directly control the sale and distribution of alcoholic beverages within their borders. There are eighteen control states: Alabama, Idaho, Iowa, Maine, Michigan, Mississippi, Montana, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming. Some critics of this policy have questioned whether such state monopolies violate antitrust laws. The other thirty-two states are licensure states and allow only licensed businesses to operate as wholesalers and retailers.
DIRECT SHIPMENTS—RECIPROCITY OR FELONY?
A legislative controversy has developed over the direct shipment of alcoholic beverages from one state directly to consumers or retailers in another. Under the U.S. Constitution's Interstate Commerce Clause, Congress has the power to regulate trade between states. Nevertheless, the Twenty-first Amendment to the Constitution, which ended Prohibition, gives states the authority to regulate the sale and distribution of alcoholic beverages. It allows states to set their own laws governing the sale of alcohol within their borders.
Because the laws of the states are not uniform, several states passed reciprocity legislation, allowing specific states to exchange direct shipments, thus eliminating the state-licensed wholesalers from the exchange. Wholesalers and retailers have charged that reciprocity and direct shipment are violations of the Twenty-first Amendment. They fear being bypassed in the exchange, as do states that prohibit direct shipments of alcohol. Other stakeholders in this issue are consumers and wine producers who want the right to deal directly with each other.
ALCOHOL SALES AND THE INTERNET.
In January 2001 the Twenty-first Amendment Enforcement Act became law. This legislation makes it difficult for companies to sell alcohol over the Internet or through mailorder services. It allows state attorneys general in states that ban direct alcohol sales to seek a federal injunction against companies that violate their liquor sales laws.
Within a month of the passage of this legislation, the high-tech community voiced its concern over such legislation, suggesting that if states could ban Internet wine sales they might restrict other electronic commerce as well. Senator Orrin Hatch (R-Utah) said he crafted the bill to take other e-commerce concerns into account, and insisted that the measure is "narrowly tailored" to deal with alcohol only.
On May 16, 2005 the U.S. Supreme Court ruled on three cases that had been consolidated under the name Granholm v. Heald. At issue were state laws in Michigan and New York that prohibited out-of-state wineries from selling their products over the Internet directly to Michiganders and New Yorkers, but allowed in-state wineries to make such sales. The governments of Michigan and New York argued that these laws were permissible under the Twenty-first Amendment. A group of wineries and business advocates argued that the state laws were unconstitutional restrictions of interstate trade. In a 5-4 decision the Supreme Court agreed that the state laws were unconstitutional, stating "States have broad power to regulate liquor under §2 of the Twenty-first Amendment. This power, however, does not allow States to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers. If a State chooses to allow direct shipment of wine, it must do so on evenhanded terms. Without demonstrating the need for discrimination, New York and Michigan have enacted regulations that disadvantage out-of-state wine producers. Under our Commerce Clause jurisprudence, these regulations cannot stand."
Early Tobacco Regulation and Legislation
Federal tobacco legislation has covered everything from unproved advertising claims and warning label requirements to the development of cigarettes and little cigars that are less likely to start fires. In the past, the U.S. Food and Drug Administration (FDA) has prohibited the claim that Fairfax cigarettes prevented respiratory and other diseases (1953) and denied the claim that tartaric acid, which was added to Trim Reducing-Aid cigarettes, helped to promote weight loss (1959).
The U.S. Federal Trade Commission (FTC) has also been given jurisdiction over tobacco issues in several areas. As early as 1942, the FTC had issued a "cease-and-desist" order in reference to Kool cigarettes' claim that smoking Kools gave extra protection against or cured colds. In January 1964 the FTC proposed a rule to strictly regulate cigarette advertisements and to prohibit explicit or implicit health claims by cigarette companies.
The tobacco industry has managed to avoid federal regulation by being exempted from many federal health and safety laws. In the Consumer Product Safety Act, the term "consumer product" does not include tobacco and tobacco products, nor does the term "hazardous substance" in the Hazardous Substances Act. Tobacco is similarly exempted from regulation under the Toxic Substance Control Act and the Fair Packaging and Labeling Act.
Some of the legislation of the late 1980s included requiring four alternating health warnings to be printed on tobacco packaging, prohibiting smokeless tobacco advertising on television and radio, and banning smoking on domestic airline flights. In 1992 the Synar Amendment was passed. The amendment said that states must have laws that ban the sale of tobacco products to persons under eighteen years of age. In 1993 the Environmental Protection Agency (EPA) released its final risk assessment on environmental tobacco smoke (ETS, or "secondhand smoke") and classified it as a known human carcinogen (cancer-causing agent). In 1994 the Occupational Safety and Health Administration (OSHA) proposed regulations that would prohibit smoking in workplaces, except in smoking rooms that are separately ventilated.
TOBACCO SALES AND THE INTERNET.
The Internet plays a role in the distribution of tobacco as well as alcohol. There are more than four hundred Web sites that sell tobacco products.
There are a number of problems with such Web sites. One in five online cigarette vendors do not say that sales to minors are prohibited on their sites, according to an American Journal of Public Health survey (Kurt M. Ribisi et al., "Are the Sales Practices of Internet Cigarette Vendors Good Enough to Prevent Sales to Minors?" American Journal of Public Health, vol. 92, 2002). More than half require that the user simply state that he or she is of legal age. Three-quarters of Internet tobacco sellers explicitly say that they will not report cigarette sales to tax collection officials, a violation of federal law. States may lose as much as $200 million each year in uncollected tobacco excise taxes, according to one Forrester Research estimate ("Forecast: U.S. Online Tobacco Sales, 2001 to 2005").
In July 2003 the Senate Judiciary Committee approved the Prevent All Contraband Tobacco Act (the PACT ACT, S. 1177). The Senate passed the PACT Act by unanimous consent in December 2003. Similar legislation (amended H.R. 2824) passed the House Judiciary Committee in January 2004. This legislation requires Internet vendors of tobacco to register with the states in which they intend to sell their products. They are then required to comply with all state laws regarding tobacco tax collection and reporting. The bill allows states to block the delivery of cigarettes and smokeless tobacco sold by Internet vendors who fail to register with the state.
FDA REGULATION OF TOBACCO PRODUCTS.
In 1994 the FDA investigated the tobacco industry to determine whether nicotine is an addictive drug that should be regulated like other addictive drugs. Weeks of testimony before Congress indicated that tobacco companies may have been aware of the addictive effects of nicotine and the likely connection between smoking and cancer as early as the mid-1950s.
At first representatives from the tobacco companies and the Tobacco Institute (which represented the major tobacco companies) denied that there was any scientifically proven connection between smoking and cancer and claimed that nicotine was not addictive. The industry acknowledged that it changed levels of nicotine in cigarettes, but claimed this was for taste purposes only, not to increase the addictiveness of its products.
In August 1995 the FDA ruled that the nicotine in tobacco products is a drug and, therefore, liable to FDA regulation. Based on this finding, the Clinton administration proposed strengthening existing legislation designed to stop the sale of cigarettes to minors. One of President Bill Clinton's recommendations was that cigarette sales be prohibited to anyone under eighteen. While the Synar Amendment requires states to enact laws prohibiting tobacco sales to minors, states have not consistently complied with this legislation. According to a September 2000 study published in the Archives of Pediatric and Adolescent Medicine, some states were failing to conduct enforcement inspections, were not prosecuting violators, and were not reporting their enforcement progress to the Department of Health and Human Services. Some states claimed to be enforcing federal law when they were not.
President Clinton also recommended that the sale of cigarettes through vending machines be banned, and that advertising in media designed for minors be stopped.
Some of the provisions of the proposed FDA regulations were:
- The minimum age for purchasing tobacco products would be eighteen.
- Vending machines and self-service displays would be banned, except in nightclubs and other facilities that bar the admission of persons under age eighteen.
- "Kiddie packs" (containing five or fewer cigarettes) and free samples would be banned.
- Advertising billboards would have to be one thousand or more feet from schools and playgrounds.
- Other billboards, in-store advertising, and outdoor displays would be limited to black-and-white text only—no colors or graphics, except in "adult-only" facilities where the advertising cannot be seen from the outside or removed from its display location.
- Brand-name sponsorship of sporting or other public events would be prohibited; only company-name sponsorship would be allowed. Also, it would be prohibited to print brand names on hats, T-shirts, and other personal items.
The FDA recommendations were to go into effect on August 28, 1996, but a lawsuit by the tobacco, advertising, and convenience store industries against the FDA delayed the implementation of the FDA order. In April 1997 the Federal District Court in Greensboro, North Carolina, in Brown and Williamson Tobacco Corp., et al. v. Food and Drug Administration, et al. (966 F Supp 1374), ruled that the FDA did have jurisdiction under the Federal Food, Drug, and Cosmetic Act (52 Stat 1040) to regulate cigarettes and smokeless tobacco products, upholding the restrictions that involved youth access and labeling. But the court found that the FDA did not have authority to regulate the advertising of tobacco products. Both parties appealed the district court decision.
In August 1998 the U.S. Court of Appeals for the Fourth Circuit in Richmond, Virginia, reversed the district court's decision. In Brown and Williamson Tobacco Corp., et al. v. Food and Drug Administration, et al. (153 F.3d 155), the court ruled that the "FDA lacks jurisdiction to regulate tobacco products" and that "all of the FDA's August 28, 1996, regulations of tobacco products are thus invalid."
On April 26, 1999, the U.S. Supreme Court granted the FDA's Petition for a Writ of Certiorari to review the decision of the U.S. Court of Appeals for the Fourth Circuit (67 LW 3652). The granting of the petition allowed the age and identification provision of the FDA's tobacco regulations to remain in effect pending the Court's final decision. On March 21, 2000, the Supreme Court ruled (5-4) that the government lacks authority to regulate tobacco as an addictive drug. Although the ruling would not allow the FDA to regulate tobacco, state laws on selling cigarettes to minors were not affected.
STATE REGULATIONS.
In 1998 the CDC and the National Cancer Institute reviewed state tobacco laws regulating smoke-free indoor air, youth access to tobacco products, advertising, and excise taxes. Their survey, entitled State Laws on Tobacco Control—United States, 1998, identified state laws related to tobacco control in effect as of December 31, 1998. Forty-six states and the District of Columbia restricted environmental tobacco smoke to some degree or in certain places, all states taxed cigarettes and prohibited the sale of tobacco products to minors, and thirteen states restricted tobacco advertising.
Other Government Programs
Antismoking campaigns, including those launched by the U.S. Surgeon General, are taking their toll on the tobacco industry, particularly on farmers for whom tobacco is their primary source of income. In an effort to prevent the complete collapse of these farms, the government has helped many farmers diversify their crops.
The U.S. Department of Agriculture (USDA) has continued its efforts to stabilize tobacco production by administering marketing quotas to limit the amount of tobacco produced, thus artificially maintaining higher prices.
Alcohol and Tobacco Lobbying
This chapter has addressed some of the significant legislation directed at the tobacco and alcohol industries. It is important to note that these industries spend a great deal of money on lobbyists—people who act for special group(s) trying to influence the voting on particular legislation. In 2002 the tobacco industry spent $20.6 million to lobby Congress. According to the Campaign for Tobacco Free Kids, in the first six months of 2003 the tobacco industry spent $10.6 million to lobby Congress.
The 2002 and 2003 tobacco industry lobbying expenditures were down significantly from the $38.2 million spent in 1997 and the $66.6 million spent in 1998. Spending was particularly high in those years because the late 1990s saw a great deal of legislative activity regarding the tobacco industry: the possibility of the FDA regulating tobacco as a drug, the first attempt at a tobacco settlement agreement, the 1998 MSA settlement, and some highly publicized lawsuits against cigarette firms. In later years, spending was reduced largely because of restrictions placed on lobbying in the 1998 MSA settlement.
The alcoholic beverage industry is active in the political arena as well. The National Beer Wholesalers Association political action committee saw the eighth-largest growth in the nation in contributions to candidates between 1998 and 2000. Their contributions jumped from $1,301,719 in 1998 to $1,871,500 in 2000, an increase of $569,781, according to data from the Federal Election Commission. In 2004 their contributions totaled $2,616,285.
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