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and make a certain grade of linoleum that comes out a certain way, that I have to change the color of it when the thing comes out that way.
Senator Johnson. You may pay the tax and not change the color.
Senator HAWKES. Why should you be taxed in one line and not in another for doing the same thing that everybody is doing? I would like to have somebody straighten me out on that, because that is the most amazing thing that you have told me.
Senator GEORGE. Just one more discrimination against the oleomargarine manufacturers and producers, that is all it is, one more concession to the dairy people.
Mr. LEPPER. "It is true, is it not, that if we repealed the revenue law, even though at the same time we strengthened the Food and Drug Act, your jurisdiction would not extend to protecting consumers where oleomargarine was made and sold within the bounds of a single State?”
I answered that in the affirmative before.
The CHAIRMAN. How do you distinguish those cases which have held that purely intrastate transactions can be regulated if they impose an economic burden on interestate transactions or tend to prevent the appropriate Federal regulation of interstate transactions?
Mr. LEPPER. You are raising a question, Senator, of very recent development.
The CHAIRMAN. Yes.
Mr. LEPPER. And frankly I am not prepared as a legal expert to discuss it, because I am not a lawyer. I am a chemist.
The CHAIRMAN. I may say from my personal standpoint those decisions are of doubtful wisdom but we have them, and the question is what bearing they have on our immediate problem.
Mr. LEPPER. I know it has been speculated what effect they have on the extent of the enforcement of the Food and Drug Act. So far as I know, no attempts have been made to test those ramifications.
“Again, I would like to read what I believe to be from your testimony at the 'standards hearing?":
Senator HAWKES. What year was that?
have been 1940. I think it was in the fall of 1940. “ It is our experience in law enforcement that the purchaser is guided many, many times in the identity of a product, by its flavor, its appearance, its physical properties, regardless of what statements are made on the label, with respect to artificiality or coloring, as the case might be; and it is one of the fundamentals of law enforcement procedure that such effects, resulting from appearances and flavors, when they are deceptive are not correctible by label declaration.'
"In your opinion, does artificially flavored and colored oleomargarine come within what you there call a fundamental of law enforcement procedure?”
At that time, and we still do maintain and have been upheld by the courts that deceptiveness, natural deceptiveness per se, cannot be corrected by disclaimers on the label, the label statements. However, in the developement of the standard making procedure under this law, which only became effective 2 years before this standard of oleomargarine was promulgated, has illustrated that under the authority of requiring a definite statement on the label in a definite place the purchaser could adequately be notified as to the identity of the product,
especially in such case where the product is not visible at the time he purchases the package, and the Administrator in promulgating the standard for oleomargarine required the declaration of the artificial flavor and the artificial color in direct connection preceding or following the name "oleomargarine” without any intervening lettering, designs or anything that would detract the purchaser's attention from the fact he was getting artificially flavored and colored oleomargarine.
And under those circumstances, what I said at that time is not necessarily 100 percent binding.
That is the last question.
I wish to repeat again that the witness is here at the committee's request, and he has not volunteered to appear.
Thank you very much.
The CHAIRMAN. Mr. Miles Horst, secretary of agriculture of the State of Pennsylvania.
Will you identify yourself, please?
Mr. CRESSWELL. Secretary Horst was unable to be here today, and asked me to come down and present a short statement for him.
The CHAIRMAN. What is your name?
Mr. CRESSWELL. Donald M. Cresswell, chief of the division of crop reporting, and information, in the State department of agriculture, Harrisburg, Pa.
The CHAIRMAN. Proceed.
STATEMENT OF MILES HORST, PENNSYLVANIA SECRETARY OF AGRICULTURE, READ BY DONALD M. CRESSWELL, CHIEF, CROP REPORTING AND INFORMATION, PENNSYLVANIA DEPARTMENT OF AGRICULTURE, HARRISBURG, PA.
Mr. CRESSWELL. Since this is Secretary Horst's statement, I am not prepared to expand on his remarks.
Pennsylvania was one of the first, if not the first State to enact legislation relating to the manufacture and sale of oleomargarine. The first Pennsylvania act was passed in 1885. It prohibited the manufacture and sale of "any oleaginous substance or compound designed to take the place of butter or cheese produced from pure unadulterated milk or cream.
This early measure was followed by an act in 1901 and an amendment in 1921. That act “prohibited manufacture and sale of oleomargarine, butterine, or other similar products, when colored in imitation of yellow butter,” and was designed to "prevent and punish fraud and deception.” It also provided for licensing of manufacturers, wholesalers, and retailers of oleomargarine.
Those Pennsylvania laws were repealed in 1947 through a new act. The present legislation is designed to insure that those who purchase and pay for butter and not colored oleomargarine.
The present Pennsylvania law prohibits the manufacture or sale of oleomargarine or similar substances when colored in imitation of yellow butter. In this respect our law is no different in principle than any other special Pennsylvania law governing food products. The permitted ingredients are more liberal than most special food laws in Pennsylvania and only the use of milk fat and yellow color are restricted.
The Pennsylvania Oleomargarine Act of 1947 provides for the licensing of manufacturers, wholesalers, retailers, restaurants, hotels, and boarding houses that use oleomargarine. We consider the licensing of sellers of oleomargarine as essential to adequate supervision in the sale of the product. Our law provides for protection for the consuming public.
No oleomargarine is manufactured in Pennsylvania. This means that all oleomargarine sold in the State at some time must pass through interstate commerce. Oleomargarine legislation in Pennsylvania therefore has been and is closely tied in with Federal legislation.
When Congress enacted control legislation on oleomargarine it permitted the respective States also to exercise jurisdiction over shipments that move in interstate commerce. By continuing this legislation in effect, the States are given special rights to participate in the control of interstate shipments when they cross the line into the respective States. This has been very helpful in desirable control of the sale of the product in Pennsylvania.
The Federal act also requires the payment of a stamp tax for handling oleomargarine. The records then tell where oleomargarine is moved and sold. We in Pennsylvania consider continuation of such records to be highly desirable. We have no objection to the continued sale of oleomargarine when it is offered for sale as oleomargarine and nothing else.
However, when any food product, through manufacture, is made to appear to the eye as another article of food, and when every effort is made to provide it with the flavor of another article of food, it is a matter of great importance to consumers as well as regulatory officials who are charged with the responsibility of law enforcement. When such a product is offered for sale as food it becomes a matter of vital interest to the consuming public who are not in a position always to determine the substitution of an imitation of the real product.
That is why it becomes necessary to have governmental regulation and control. Suitable legislation provides not only protection to the purchasing public but it also gives protection to the various industries involved, the manufacturers of both oleomargarine and dairy butter.
If oleomargarine were manufactured and put up so that it could not be made to look like another product, and the consumer would not be defrauded through its sale, special regulation would not be necessary.
Every step in its manufacture, advertising, and sale points to the fact that the real object is to sell oleomargarine to consumers in place of the product it tries to imitate.
Until the oleomargarine industry makes and markets its product so that it cannot be manipulated to defraud the purchaser, Federal and State regulation and control are necessary.
Thé CHAIRMAN. Thank you very much.
The CHAIRMAN. The next witness is Mr. George McLatchey. Will you please identify yourself for the record ?
STATEMENT OF GEORGE W. McLATCHEY, VICE PRESIDENT, AMERI
CAN DAIRIES, INC., KANSAS CITY, MO. Mr. McLATCHEY. My name is George W. McLatchey, and I am vice president of the American Dairies, Inc., Kansas City, Mo. Our company manufactures and sells butter, milk, cheese, condensed milk, ice cream, and other related dairy products. Our plants are located in Arkansas, Kansas, and Missouri. I am speaking on behalf of the American Butter Institute, 110 North Franklin Street, Chicago 6, Ill., a national trade association of butter manufacturers.
Our association represents approximately 550 butter manufacturing plants in 42 States. Our member companies provide a daily market to over 1,000,000 cream producing dairy farmers. I am a member of the board of directors and of the executive committee of the American Butter Institute.
The American Butter Institute and its members are strongly opposed to the repeal of present oleomargarine taxes and license fees as proposed in H. R. 2245. The resolution adopted at our last annual meeting in November 1947 is as follows:
Resolved, That we retain present State and Federal laws on oleomargarine to prevent the fraudulent misrepresentation of this product to the consuming public.
Butter manufacturers and cream producers do not seek to deprive anyone of oleomargarine. They seek only to protect their markets and their customers against fraud and deception. Any housewife who wants to buy oleomargarine in the money-saving uncolored form should be able to do so, as she can now. Nearly 97 percent of all the oleo withdrawn tax paid in 1947 was uncolored according to the most recent report of the Commissioner of Internal Revenue. By the same token, any consumer who pays for butter is entitled to get butter-real butter. Oleomargarine colored yellow in imitation of butter is an incentive to fraudulent sale. It is, moreover, an incentive to fraud and deception which the Pure Food and Drug Act is not designed to prevent, since this act applies only to interstate commerce. We maintain that the Federal Food and Drug Administration cannot adequately protect the consumer against fraud in the sale of oleomargarine for butter. I quote in part from Report No. 1221 from the Senate Committee on Interstate and Foreign Commerce, during the second session of the Eightieth Congress, to accompany H. R. 4071:
More than $25,000,000,000 worth of these commodities annually flows through the channels of interstate commerce. The Food and Drug Administration has approximately 200 food and drug inspectors on its rolls. The opportunity for inspection while the goods are in transit is quite inadequate. It is inevitable at least in the absence of an increase in inspection personnel beyond anything that might be considered practicable—that the bulk of Federal inspection activities take place after merchandise has been transported in interstate commerce and while it is stored pending further processing or disposition to
Only Federal regulation that has jurisdiction within State boundaries can prevent the widespread substitution of oleomargarine for butter. It is to maintain this control that the dairy industry opposes the repeal of Federal taxes on oleomargarine. No other form of control is practical. No other effective control method has been suggested by the oleo industry.
Prior to 1902 the tax on colored and uncolored oleomargarine was 2 cents a pound on each product. During the period from 1886 to 1902 fraudulent sale of colored oleomargarine was so great that Congress saw fit to revise these laws and place the present taxes of one-fourth cent on uncolored and 10 cents on colored Oleomargarine.
On January 26, 1901, the majority report of the House Committee on Agriculture and Forestry described the situation as follows:
So far as the identification of the commodity (oleomargarine) is concerned, the law of 1886 has been successful. So far as the identification of the commodity to the consumer is concerned, the law or 1886 is of little value, the evidence being that a very large proportion of the oleomargarine manufactured goes to the consumer finally as butter, either as a purchaser of the retailer or as a guest at a hotel, restaurant, or boarding house.
In the testimony given by Mr. Credicott, representing the American Butter Institute, before the House Committee on Agriculture hearing March 10, 1948, he stated :
After the passage of the present Oleomargarine Act of 1902 it took the Government years to clean up fraud at the wholesale level. The records of the Internal Revenue Department from 1902 to 1910 will disclose the conviction of many concerns who purchased uncolored oleomargarine in bulk and secretely colored it for sale as butter. In that period I was an employee of the Dairy Division, United States Department of Agriculture, and was directed to assist the Internal Revenue agents in uncovering fraud.
During the 15-year period 1911-26 for which records are available there were 29,846 convictions of fraud—the selling of oleomargarine for butter as covered by the Commissioner of Internal Revenue in his annual reports. The penalties and fines imposed in these convictions totaled $19,986,889. The fact is mentioned only to show that even with these severe penalties the incentive to fraud in the sale of oleomargarine for butter is great enough for unscrupulous individuals to chance these penalties. This large record of convictions shows also that the present laws have been effective in the control of the fraudulent sale of oleomargarine when aggressively administered.
During the past 10 years there have been only four cases referred to the Department of Justice for prosecution for violations of the labeling, marking, and branding provisions of the oleomargarine-tax laws. It is common knowledge that the Bureau of Internal Revenue prefers to settle cases out of court. We respectfully urge the committee to request a full and complete list of all violations, including taxes and penalties paid on such cases not referred to the Department of Justice. We also respectfully urge the committee to request of the Commissioner a detailed break-down of personnel and enforcement policies relating to the oleomargarine laws and regulations.
The Hon. A. Lee M. Wiggins, Under Secretary of the Treasury, in testimony before the House Committee on Agriculture last March and also in yesterday's hearing before this committee, stated that onequarter cent or less per pound on all oleomargarine-colored or uncolored-would be sufficient for such regulatory purposes as Congress may decide were necessary. Can the Bureau of Internal Revenue guarantee consumers and the butter industry that no fraud will prevail at this tax level? It must be remembered that the incentive to defraud is considerably lessened by the present prospect of high penalties.
The removal of present laws and regulations can only lead to a great increase in the fraud perpetrated on the consuming public. It