Limbo

TTBAt the American Craft Spirits Association annual convention this past week, I had the pleasure of attending a presentation by senior TTB staffers.  The presentation included discussion of current regulatory initiatives, including the long-awaited open comment period where the public will have the opportunity to weigh in on potential changes to the existing federal rules governing spirits.  That comment period could result in such things as being able to label and advertise your product as “Barrel Aged Gin” or  “American Single Malt Whiskey” (both of which are currently problematic under the TTB standards of identity).

But there was a bit of a cloud over the staffers’ presentation.  For no matter what the industry and the public might like them to do in terms of regulatory reform, and regardless of whether the change is desirable from the standpoint of the agency, their hands are tied.

On January 30, 2017, President Trump signed the Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs.  While the Order contains numerous provisions which might have an effect on the spirits industry, a few stand out as being particularly relevant.

First, under the Order, whenever a federal agency (such as the TTB) proposes or puts forward for notice and comment a new regulation, it must simultaneously identify at least two existing regulations which will be repealed.  Put simply, that means that if the TTB wants to establish new regulations which create a new type of spirits under an existing class (e.g., barrel aged gin) or perhaps even recognize as new a class of spirits that has been around for a good while but without its own class in the regulations (e.g., absinthe), it can’t do so without identifying other regulations that it is willing to scrap.

As someone who occasionally lacks self-restraint, I couldn’t resist asking the earnest but obviously frustrated TTB staffers whether they had identified any existing regulations that they were prepared to throw out in order to be able to implement any new regulations they thought worth implementing.  Not surprisingly, they have not – though they were hopeful that they might be able to simply modify existing regulations (as opposed to promulgating new regulations) to accomplish needed regulatory changes.  By amending existing regulations instead of proposing new ones, they were hopeful that they might be outside the scope of the Order. But they were not overtly confident in this analysis (and neither am I).

Second, the Order contains a provision requiring that “the total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero….”  What does that mean?  It means that each agency (e.g., the TTB) that seeks to implement a new regulation must (in addition to the identification of two regulations which will be repealed) make sure that the costs of implementing the new regulation are less than the savings obtained by scrapping the two existing regulations. But scrapping regulations can itself be a costly exercise – particularly in the year of occurrence – so it is anyone’s guess whether or how regulatory form might efficiently occur under this constraint.

Where does that leave us with respect to the planned open comment period and potentially beneficial changes in regulation?  Limbo.  About the best thing we can say is that at least the Secretary of the Treasury (which governs the TTB) has at least been appointed and confirmed – so the work can at least commence.

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