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BOSTON PUBLIC LIBRARY

JBfflA

OFFICE OF NATIONAL RECOVERY ADMINISTRATION
DIVISION OF REVIEW

INFORMATION CONCERNING COMMODITIES
A STUDY IN NRA AND RELATED EXPERIENCE IN CONTROL

PART B: STANDARDS AND LABELING

Hunter P. Mulford

WORK MATERIALS NO. 38

Work Materials No. 38 falls into the following parts:

Part A: Misrepresentation and Deception
Part B: Standards and Labeling
Appendices I, II and III

TRADE PRACTICE STUDIES SECTION
February, 1936

01PICE 07 NATIONAL RECOVERY ADMINISTRATION
DIVISION OF REVIEW

INFORMATION CONCERNING COM; ©PITIES
A STUDY IN NBA AND RELATED EICPBRIENCE IN CONTROL

PART 3 - STANDARDS A.T) LA3ELIITG
Hunter P. Kulford

TRADE PRACTICE STUDIES SECTION
February, 1936

9786

FOREWORD

This study on "Information Concerning Commodities — A Study in
NBA and Related Experience in Control" was prepared by Mr. Hunter P.
Mulford, of the Trade Practice Studies Section, Mr. Corwin D. Edwards
in charge.

The study deals with two distinct tyoes of control, (l) measures
designed to prohibit the use of false and deceptive representations of
various sorts in the marketing of commodities, and (2) positive require-
ments for the furnishing of accurate information through the development
of uniform -oroduct standards and the use of informative labeling. These
two types of control are in many respects closely related and inter-
denendent. Various forms of misrepresentation flourish, and are made
difficult or impossible to deal ^ith, when there are no agreed standards
or definitions of the products concerned against which inaccurate or
false and fraudulent statements may be measured. Other forms of
misrepresentation, resulting from failure to disclose significant facts
concerning the commodity offered for sale, may be met only by specific
requirements for the inclusion of such information in the labeling,
marking, branding, or even advertising, of the products concerned.

This close connection between the two principal forms of commodity
information control has led to their treatment in a single study.
However, due to differences in the nature of the fundamental problems
involved, the subject has been divided for the purposes of presentation.
Part A of the report deals with Misrepresentation and Deception, and
Part B with Standards and Labeling.

Since the code provisions -orohibiting misrepresentation and decep-
tion were largely statements of existing law, the principal matters
for study were the manner in which the codes were administered, and the
results which were obtained through them. The study examines the code
provisions concerning misrer>resentation, outlines the typical NPA
method of administration, and presents what evidence the central NRA
records offer on the significance of these provisions to the industries
adopting them. From the available, but not complete, compliance
records, and a limited sample of first-hand Code Authority opinion,
certain conclusions have been drawn concerning the extent of application
of the provisions, their effectiveness in operation, the type of
industry principally applying them in practice, and the chief obstacles
to their successful functioning. For general comparative purposes
various aspects of the work of the Federal Trade Commission in restrain-
ing misrepresentative and deceptive nractices have been given.

Unlike misrepresentation and deception, standards and labeling are
subjects on which there is no general agreement of opinion. The records
of code proposal and adontion were therefore of special importance as
illustrating the controversial nature of the problems and the various
attitudes existing within the industries concerned. These records
have proved equally illuminating with ^espect to the difficulties
involved in obtaining reconciliation of the various interests. As to
the actual operation of the standards provisions, limitations placed
UDon field work and the difficulty of obtaining representative expressions
of opinion or objective data resulted in only a small body of evidence

9786 -i-

■being secured. However, a number of what are "believed to be justifi-
able conclusions have been drawn.

Summaries of findings and conclusions with respect to each of the
two parts of the report have been included at the beginning of the
respective sections. Broadly speaking, although only a minority of
the industries wore seriously concerned with the problem of misrepresenta-
tion, the code previsions, when actively administered, tended to pro-
duce beneficial results* On the other hand, efforts to apply standards
and labeling to the solution of industry problems on a mandatory basis
were generally frustrated by conflicts of competitive groups within the
industry, or by the apparent irreconcilability of industry and consumer
interests, - inevitable difficulties which the tenure of NRA existence
was entirely too short to smooth away.

The principal limitations of the report as a reflection of NRA
experience have resulted from the great area to be covered, as repre-
sented by the number of codes with pertinent provisions, and from the
relatively slight opportunity given for the collection of first-hand
data and opinion. For further development of the subject extensive
field work with former Code Authorities, trade associations, and
individual industry members, is of -prime importance. Other suggested
fields for further inquiry are indicated in the Appendix to the report.

Preparation of the Standards and Labeling section of the report
was carried out with the aid of Mr. H. A. Mereness. Various other
individuals contributed special industry summaries, as indicated in
Appendix II. Special assistance in the development of material for
the final report on Misrepresentation was given by Mr. E. S. Tobey.

At the back of this report will be found a brief statement of the
studies undertaken by the Division of Review.

L. C. Marshall
Director, Division of Review

February 27, 1936

9786

INFORMATION CONCERNING COMMODITIES
A STUDY IN NRA AND RELATED EXPERIENCE IN CONTROL

Table of Contents

Page
Summary of Findings: Part B - Standards and Labeling vl

PART 3 - STANDARDS AND LABELING
Chapter One - General Background,

I, Definitions of Standards,.,...,, 1

II. Some Problems Involved in Standardization 3

Chapter Two - Standards and Labeling in the NRA Codes 7

I. General NRA Policy Concerning Standards 7

A. Standards Policy of the Consumers' Advisory Board 7

B. Other NRA Standards Policy.. 9

II, General View of the Code Provisions Affecting Standards 10

A. Nature of the Standards Provisions 10

B. Labeling Re qui r era en ts 12

III. Cross-Section View of the Principal Types of Standards

and Labeling Provisions Found in the Codes 13

A. Mandatory Minimum Standards. 14

1. Plumbing Fixtures Industry.. 15

2. Mayonnaise Industry. 18

3. Preserve, Maraschino Cherry, etc. Industry 21

4. Macaroni Industry, 23

5. Bedding Industry 27

6. Batting and Padding Industry 31

7. Floor and Wall Clay Tile Industry 32

B. Other Restrictive Provisions. 39

1. Mopstick Industry 39

2. Rubber Manufacturing Industry.. 43

3. Cordage and Twine Industry 45

4. Pyrotechnic Manufacturing Industry.. 47

C. Grade Standards and Labeling., 48

1 . Canning Industry . , 48

2. Silverware Manufacturing Industry. , 50

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Page

B. Labeling for Identity 54

1. Wool Textile Industry 54

2. Fur Manufac buring Industry 56

3. Medium and Lrw Priced Jewelry Industry 58

4. Coffee Indus cry 59

5. Maaarc^i Indus try. , 61

6. Hosiery Industry ^2

E. Subst andard Labe!. ing 64

1. Eat Manufacturing Industry 54

2. Broom Manuf c -turing Industry 69

3. Bl^sached Shellac.

4. Hosiery Industry 71

5. Safety Razor and Safety Bazor Blade 74

6. Retail Rubber Tire and Battery 74

F. Simplification 76

1. Wood Cased Lead Pencil Industry 76

2. Paint and Varnish Industry 77

3. Uayonnaise Industry,

4. Fertiliser Industry,

78
79

G. Miscellaneous Standards. 81

1. Standards of Performance.

i. Household J ce Eef rigerator 81

"b . Ho siery Industry 85

2. Biological Stt ndards 86

a. Bog Pood Indus-cry 86

3. Service Standards 90

a. Cleaning and Eyeing Trade 90

H. Enabling Provisions 92

I. Compliance Eata 94

J. Relation of Standards Provisions and Price Provisions 95

qp
K. Conclusion

Chapter Three - Other Standardizing Agencies 99

I. Federal Standardizing Agencies,

A. The Food and Erug Administration "

B. Other Federal Standards Statutes 101

C. The National Bureau of Standards 104

B. Federal Purchasing Specifications 105

E. The Federal Trade Commission 1°6

F. Agricultural Adjustment Administration 106

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Page

II. State and Municipal Agencies l0g

III. Private Standardizing Agencies 109

A. The American Standards Association 109

B. Eie .Amer- oon Society for Testing Materials .. ill

C. Other Agencies Affecting Standards ] HI

1. The American Medical Association HI

2. Tne American Dental Association 112

3. The American home Economics Association 112

4. Better Easiness Bureaus 112

5. Newspaper and Magazine "Institutes" and Services 112

6. Other Groups. H2

7. Certification Plans and Agencies 113

IV. Proposed Legislation Concerning Standards and Labeling 113

A. The Copeland Bill , 114

B. The Capper Bill, 115

C. The Huddle stem Bill ' 115

L>. The TCheeler-2ayburn Bill \ ...................... [ lis.

Chapter Pour ~ Some Legal Aspects of Standards and Labeling 117

A. Mandatory Minimum Standards 118

B. Mandatory Gradj ng of Goods 120

C. Mandatory Labeling Requirements 121

D. Container Standards m 122

9786

IIIP021'.IATI0IT CONCERNING COIIKODITIES
A STUDY IH NBA AND RELATED EXPERIENCE IN CONTROL

Sumna ry_ oT_ Findings

PART 3 - ST A lDA; CDS ARD LATELIRG

The first section of this study has dealt with the negative aspects
of oonnoc.it y information as represented ~by prohibitions upon misrepre-
sentation and deception in the marketing of goods. This section is con-
cerned with the supply of positive information concerning commodities
through the development of product standards and their use in informa-
tive labeling.

For the infornation to be presented concerning the effort to
develop standards and labeling practices under the NBA codes reliance
has had to he placed chiefly upon the records of code adoption and
administration available in Washington, together with a certain amount
of contact with former code authorities, and conferences with code ad-
ministration officials of the Recovery Administration. Limitations
placed upon field work in connection with the study have made it la-
possible to develop r. full picture of the effects in operation of the
standards and labeling provisions, such as might be drawn from contact
with the various industry and consumer groups affected. Data for the
summaries as to other standardizing rgencies which are appended were
taken from published records or from contact with administrative officials
where practicable.

provisions dealing with standards in some form were included in ap-
proximately one-third of all basic and supplemental NBA codes approved,
llore than, one-half of these were merely enabling provisions. Others
simply recognized standards which were already in existence; some were
adopted for the purpose of effectuating price filing provisions; and
still others were little more than references to the subject. The total
number of standards provisions, therefore, is to be taken rather as an
indication of the extent of interest in the subject, than as a measure
of the degree to which standards work was actually undertaken under the
codes .

There was never any general policy on the part of NRA to encourage
or require the inclusion of standards and labeling provisions in the
codes, or to insist upon action by the industries pursuant to enabling
provisions. The initiative in these natters was left, except in a few
special instances, with the industries presenting the codes or with the
consumer interests affected, either dealing directly or through the
representation of the Consumers' Advisory Soard.

TTnere standards provisions were initiated and supported by the
industries, they were characteristically predicated upon industry in-
terests. There such interests were not actively concerned, even though
standards provisions were incorporated in the codes, ^hey remained very
largely without effect. This was particularly true of ■ the enabling
provisions, the great majority of which were entirely unproductive of
any effort to translate them into action. Rot a few of the latter

2786

however, it must "be noted, were written into the codes at the instance
of Consumers • Advisory Board advisers as matters of principle, without
any demonstrated support from consumer interests themselves.

On the other hand, in even so important a field of consumer concern
as the canning industry, an enabling clause inserted into the code "by
express Presidential Order did not serve to bring about any conclusive
standards action.

It seems apparent, therefore, that the NRA method of cooperative in-
dustrial control, requiring agreement between the industry affected and
the Administration for the adoption of code provisions, was not adequate
to promote public interests in the matter of standards unless industry
interests were similarly concerned.

Even in instances where the industries did display an active in-
terest in standards, there was frecueiitly a failure of any positive re-
sults due to internal conflicts over the nature of the standards pro-
gram to be adopted. There was definitely manifested in certain cases a
tendency on the part of ere interest -group within the industry to em-
ploy a legitimate need for standards as grounds for effectuating some
form of control aimed primarily at securing competitive advantage over
other groups.

Such efforts commonly took the form of seeking, in the name of dis-
couraging misrepresent, ' Ion and price-cutting based on quality de-
gradation, to prohibit low-quality '-oods f rom manufacture or sale en-
tirely, or to stigmatize them by some ^'orm of substandard labeling which
would definitely discourage purchase; instead of simply providing the
purchaser with accurate and adequate information as to the nature of the
commodity he was obtaining.

".'."here stich restrictive measures were aimed against the actual pro-
duction or sale of certain products they practically always provoked
controversy over their adoption; and if adopted, proved unenforceable
in practice - apart from their dubious legality as restraints upon
trade. They were, furthermore, resisted "03- WA as a matter of policy,
it being held that low-grade products not involving any hazard to
health, if properly labeled and priced, might have an entirely legiti-
mate market.

On the other hand, efforts to control unhealthy competitive condi-
tions based upon quality chiseling through the use of ordinary sub-
standard labeling - that is, by means of legitimate commodity informa-
tion - were generally approved and met with some measure of success.

Attempts to make mandatory through the codes Commercial Standards
or Simplified Practice Recommendations, originally set up in coopera-
tion with the Bureau of Standards on a voluntary basis, also had a
tendency toward undue restriction of production and product variation,
and provoked difficulty in application.

General difficulties reported encountered by the Code Authorities
in administering the standards and labeling provisions included the !>:—

9786

extent of policing required and. the failure of HPA to apply penalties
for violations. Concrete reasons advanced for failure to take action
to carry out the "ourpose of enabling provisions as to standards in-
cluded lack of funds to proceed, industry products not suited to
standardization; and press of other cods administration activities.

Obstacles to the effectiveness cf standards and labeling pro-
visions concerning consumer goods, even when effort was made to apply
them by the orodacing industry, were sometimes found in lack of appli-
cation of the provision to distributions resulting in a tendency upon
the part of retailers to remove informative labels before offering the
foods to the public , and in pressure being brought by trade buyers to
obtain substandard goods from the manufacturers without the required
grade label.

Any standardizing and labeling program which is to be of benefit
to the ultimate consumer, it weald appear , must apply to the goods in
their finished fora; and in the manner in which they are actually
offered to the purchaser; and should be enforceable vertically from
facto ry to point of retail sale,,

Code provisions which actually effectuated positive standards
and/or labeling requirements were frequently found of value in pro—
viding criteria for enforcing the negative side of commodity information,
i.e. prohibitions upon misrepresentation and deception in the labeling
and advertising of goods.

The subject of standards is obviously closely related to that of
price, price having little meaning except in relation to the quantity
and quality of the product to which it applies. The industries seeking
to incorporate standards in their codes were, in general, frankly in-
terested in protecting the price stricture from destructive price-
cutting, based in many cases on debasement of industry products. In
various instances standardisation or classification of products was
required for purposes of price filing,, In one or two instances noted
in this report a more direct attempt was made to link standardization
of product with price uniformity. In general, however, the effect of
standardization, -unless restrictively applied, is not to establish
price rigidity but to bring about a more equable relation between the
quality of a product and its price.

As to the general application of standards and labeling, the
variety of problems encountered makes it evident that the formulation
of such a program for any industry must be dene in terms of that in-
dustry^ individual situation, with careful consideration given to the
most suitable form of standardization in the circumstances, and to the
interests of all industry elements, competitive industries, and the
pur chas i ng pub lie.

Any attempt to make operative a mandatory standards and labeling
system requires general assent and cooperation of the industry concerned
if elaborate official policing is to be avoided.

9786

Specific provision for periodic revision and review of the
standards adopted, to give scope for technological development and
improvement , and allow for corrections "based upon experience in
operation, should "be incorporated in every standards program at the
tine of adoption.

In genera]., mandatory standards which seek to place restrictions
upon actual production or saij of sue standard goods, as distinguished
from mandatory labeling which rims to supply adequate commodity in-
formation, are of doubtful propriety as well as legality, except where
considerations of safety and Health, or other welfare factors, are
involved.

Controversies over standards provisions in the codes occurred
principally in the consumerc1 goods industries. On the whole it may
be said that little, if anything, aimed directly at the benefit of the
ultimate consumer was achieved with respect to standards under the
codes. Such advantages as accrued were incidental to the primary in—
dus t ry purpo ses i" vo 1 v edc

A similar situation exists with respect to most of the other
important standardizing agencies. Standards work done ~by the National
Bureai1. of Standards, b">r the large technical societies, and by trade
organizations, is directed primarily toward the problems of producing
industries-, Restraint of misrepresentative practices by the Federal
Trade Commission is authorized in the interest of fair competition.
Even tho protective work of the Food and Drug Administration in the
consumer interest is bounded h"" the considerations of safety and
health and outright fraud.

Any program of a national character aiming at the general pro-
tection of the consumer in the market place would require a marked
alteration in traditional policy. The proposed change in the Federal
Trade Commission Act embodied in the 'flheeler—Rayburn bill now pending,
to make "unfair and deceptive acts and practices in commerce" illegal
in themselves, regardless of their competitive implications, may in-
dicate a, tendency in this direction.

Such an alteration of attitude, involving a positive national
policy with respect to standards and labeling of goods in general,
could only be put into effect through the force of a Federal agency
vested with larger and more broadly based powers to require acquie-
scence than any which have hitherto functioned in the field.

9786 -ix-

PaRT B - STANDARDS AND LABELING
CHAPTER ONE

general background

i. definitions of standards

The term "standard" as anolied to commodities in commerce, has
been defined as "a criterion, measure, or example, or a procedure,
process, dimension, extent, quality, quantity, or time, which is
established by authority, custom, or general consent, as a definite
basis of reference or comparison." (*V

More concretely, standards refer, in their subject matter, to
quality, size, weight, style, shape, serviceability, or other char-
acteristics of merchandise. Standards of size, weight, and style
are relatively easily determinable by the nrocess of weighing,
measuring, estimating or inspecting. Standards of "quality, " how-
ever, are more difficult, since the determination of quality may in-
clude many or all of the other characteristics mentioned above.

The form of standard adopted in any particular instance may be
a"minimum" standard, designed to set a limit below which the pro-
duce may not fall, except under specified conditions. It may be a
"maximum" standard, in which an uoper limit is set, generally for
some secondary purpose. Or it may be a "grade" standard, in which
a series of successive standards, so to speak, are set covering the
whole range of variations of the product.

Standards may be effectuated in several ways, as (l) by means
of restrictions upon the product itself, which limit or penalize its
production or sale in any form falling outside the standard limits;
or (2) by requiring such sub-standard products be branded, labeled,
or otherwise marked to indicate their failure to comply with the
standard requirements.

In addition to this "sub-standard labeling, " other forms of
labeling, such as "grade labeling, " "descriptive labeling, " and
"labeling for identity," are employed for standardizing purposes.

[*) "Standards and Standardization," Nat. Ind. Conf. Bd. 1928,
p. 24.

9736

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The tern "grade" as employed in grade labeling does not indicate merel--
some general notion of quality, as"high grade" or "l^-- rade", "but a definite
series of "bands of quality", in most instances de-i ;nated "ay sjnnbols such
as A, B, C, D, etc. or by a simple designation such a.s "I'ancy", "Choice",
"Standard" and "Substandard". These ;rade designations, having generally
reference to quality, usually represent a composite of several character-
istics of the product, as was indica.ted in the discussion of definitions of
standards above.

As contrasted with this simple, composite desi en;- 1 ion there is another
form of labelin , termed "descriptive", in "hi oh the various elements which
would enter into t le determination of a quality grade are. .set forth in
detailed terns upon the label. Both methods have advocates. The grade
label is held, on the one hand, to be more simple and understandable, and
therefore to have greater utility, particularly for the ultimate consumer;
on the other hand, supporters of "the descriptive label hold it to be more
complete and accurate in the conveying of information concerning the goods,
and preferable as not requiring on the part of the buyer a 1-nowledge of '
the standard itself.

"Labeling for identity" is designed to identify the product , or the
principal components or ingredients which enter into it, e.g., the relative
content of sil?: cotton in hose, or the proportion of oil in mayonnaise, and
thus to prevent misrepresentation and deception through the use of substitutes
and adulterants in merchandise 'hose constituents cannot be judged by
inspection alone..

"Simplifi caption" has reference t6 measures undertaken to reduce excess-
ive numbers of variations in the sizes, styles, types, colors, or other
physical characteristics of a product, in order that items not necessary
for tue needs of normal consumption may be eliminated to the interests of
economy and efficiency.

Other types of standards employed include "construction standards"
based upon the technical characteristics of the product or its method of
production. This type is of special interest to the producers of goods.
"Performance Standards", on the otfter hand, which aim to rate the product
upon its showing under test conditions approximating actual use, are
increasingly in demand among consumer groups.

The process of standardization comprises two principal elements,-
" standards drafting" and "standards control". The first is concerned with
the definition or other determination of what constitutes a suitable
standard in the case of a given product. As to the second, t^o methods of
control have already been given: restriction upon production of substandard
articles, and labeling to denote their inferiority. Effectuation of either
tyoe of program cal"1 s for a certain amount of policing and inspection to
insure observance of the requirements. In addition, tliere is necessary
the development of suitable test methods for determining whether the articles
actually produced and sold conform to the standards requirements set. This
is particularly necessary where standards of serviceability or use for various
types of consumers' goods are concerned.

The purpose of standards, fr-m the viewpoint of the consumer (whether
9786

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ultimate consumer or industrial consumer), is to improve the quality of the
product tendered hin, to increase the definiteness and accuracy of his
knowledge concerning what he "buys, and, as a result of this, to lessen the
chance of misrepresentation and deception based upon lack of such knowledge.

Prom the industry point of vie1" the most general object is to get rid
of wn^t is considered unfair price competition through quality "chiseling",
.et »er in the form of price-cutting "based uwon the supplying of lo1* grade
products or discriminatory deliver:/ of higher-grade products than the price
charged supposedly warrants. TThol-esale quality-cutting also tends to des-
troy consumer confidence and arouses fears for the general loss of markets
for industry products, especially where competition for related industries
is keen.

"Simplification" aims to benefit the -producer through increased
economy in production and elimination in waste, and the distributor through
reductions in inventor;," required to be carried. These savings, it is held,
eventually - ork to the advantage of the ultimate consumer also, through
their reflection in lower c nnodity orices.

It will be seen that certain aspects of standards, such as simplifica-
tion and other restrictions upon the actual production of -^oods, are not
strictly speaking questions of "commodity information". They are, however,
closely interrelated '~ith the whole question of standards, and are therefore
seen as coming nthin the range of this study.

Examples of all types of standardizing and labeling activities which

have been noted in this introductory exposition will be brought out in the

discussion of standards and labeling provisions of the codes, to be presented
in the chapter on 113A experience following.

The next section of this present chanter touches upon some of the
practical problems involved in the general question of standardization.

II. SO 2! F3.CZ:::. S IIt'OLvHD DT SIA"!I)A:OIZATK"T

In a consideration of standardisation a distinction must be made
between two related but intrinsically separate subjects to which the term
may be applied. By standardization on the one hand ie may mean development
of uniform methods of production and the consequent mass output of identical
or interchangeable commodities, regardless of what the character of those
commodities may be. Upon this type of standardization the modern industrial
system rests. On the other hand, as related to the subject-matter of this
report, standardization is a. quite different thing. That type of standard-
ization means the setting up of bases of information and comparison,
whereby tlis relative content, quality, or serviceability of the goods pro-
duced and. marketed und.er standardized industrial methods may be jud.ged. The
need of this second, type of standardization is a. direct outgrowth of con-
ditions created by the first, in a manner which may be briefly traced.

One of the revolutionary effects of standa.rd.ized industry has been the
shift from a consumption to a production economy. In the era of local
hand- industry, production very largely followed at the heels of use. Goods
pere produced, to a large degree to supply immediate needs, "ith producer and.

9786

consumer dealing at first hand. The buyer was familiar with the relatively
few and simple articles of ordinary commerce, and competent to judge their
merits on the basis of "handle-and-heft" .

The modern system turns out masses of goods to compete with other masses
for the dollar in the consumer's purse, its urcductive operations based
primarily, not upon the need of the rmrcnasing public for goods, but u-oon
the demand of the productive machinery for markets. The role of consumption
is to sustain production, and the industrial a.ctivity tends to be regarded
as sjmonomous with the geneial interest „

S i mul t an eou si 3r with the outpouring of goods in masses have come an
immense increase in the number, variety and complexity of oroducts, and.
developments in their wrapping, packing and branding for sale, which have
reduced the consumer to relative helplessness as to judging at first-hand
concerning the quality of what he buys and made him an ea.sy target for sales
misrepresentation. ■ ' ■ • ■

One result, of these competitive and. commodity changes has sometimes
resulted in a growth of destructive competition in terns of orices, based
in considerable degree uoon catting of quality s made -o^ssible in turn by
consumer ignorance or leceution, - with cot - the consumer and quality pro-
ducer as Sufferers ' at che hands of "the less scrupulous dealer.

As a mean.s of meeting sucii a situation cones the de- and for commodity
information. The first form "hich this generally takes is negative, -
development of law and regulatory activity to prevent deceptive and
fraudulent representations concerning goods in commerce; the next step
is the requirement of positive commodity standards and their use in
informative labeling a.nd branding.

To a degree the interests of consumer and. the better-grade producer
go alon'j" in this. Both benefit by measures which make it more difficr.lt
for the "chisiler" to capture the industry's markets by cheapening and
misrepresenting its products. The consufljer'^s interest in commodity informa-
tion, however, goes further. In many cases he feels the need to be
informed, not only concerning lo^-gra.d.e goods, but also concerning all grades
of goods, in order that he may form his judgments of comparative value and
use.

It is here that the interests of consumer aud uroducer in commodity in-
formation frequently p~rt, for it is by no means always that the urod.ucer
feels that such comolete informing of the public as to all graces of °.;oods
is to his advantage. On a strict-lj* realistic basis, what the real industr""
interest often calls for, in fact, is sufficient st; ndardization to curb
the quality "chiseler", without commitment to the expense and difficulties
of a complete program of consumer information.

The practical problems and difficulties nf standardisation are frequent-
ly very real. Determination of the tyoe of standard best suited to the
product — identity; performance, construction, or 'grade and formulation of its
terms, are often natters of much time and. negotiation. Test methods may
have to be devised, and test apparatus may be costly — as may also the
inspectioi service, special labeling, etc. which are required.

9786

-5-

Where to draw the line between standard and substandard goods is
frequently a perplexing problem. Different members of the industry usually
have been mating products which class all up and down the scale, m=>ny of
them for 5 long period, and have built up markets which might be disastrous-
ly affected through classification of the product just belo" the standard
grade. Adjustment to all these interests adds to the burden of the under-
taking.

Opposition to general grading of industry products will usually be
met from members '"ho have developed their businesses on the basis of long-
range investment in advertising prestige, and who feel that such investment
will be seriously impaired if the public is taught to purchase on the
basis of impersonal grades rather than on that of brand names, however high
in the scale such branded products may grade.

Present— day competition, moreover, is not alone between individual
members of an industry, but between industry and industry. Producers in
any one line can not afford to go too far in advance of those in related
lines, where such action incurs the possibility of competitive disadvantage
in any form. Such considerations generally have to be weighed also by any
industry preparing to undertake a standardization program.

Where a principal standards problem in an industry relates to the
handling of substandard goods, the divergence of interest between industry
and consumer mentioned above often appears. The inclination of the better-
grade producers is usually to restrict competition from this class of
product as fully as possible. The opportunities offered by the NRA codes
were utilized in some instances to attempt to ban the sale of such products
altogether. The consumer's interest, however, is not in having such
commodities removed from the market, unless they involve hazards to safety
and health, but merely that they be so branded that he may know them for what
they are. Priced properly such goods may fill a need of the low-income
classes at a level which is suited to the purchaser's pocketbook. Sab-
standard labeling, from the consumer viewpoint, shotild afford sufficient
protection from unfair competition to the producer of higher grade goods.

The producer, however, facing perhaps his most serious problem in
price competition, does not always agree. He may feel that the mere term
"Substandard" does not sufficiently characterize the inferiority of the
unfairly competing product. There arise o\it of this, internal clashes
as to precisely the ns.ture of the substandard labeling which the industry
will approve. Obviously "Imitation" or "Substitute" has different conno-
tations to the prospective purchaser than plain "Substandard", and a
"i.iade-Over" clot ing product will encounter less consumer resistance than
the same article branded "Used."

The whole question of the precise nomenclature to be employed in the
descriptive labeling of industry products for content, identity, grade,
etc., often bristles with problems and conflicting interests, where a
slight change in language may have very marked effects on the fortunes
of those concerned. Even the size and face of the type to be employed in
labeling was so :etimes a battleground under the codes.

Still other problems which arise with respect to the practicability
9736

-6-

or effectiveness of labeling include the difficulty of applying marks
or labels to some -products, such as certain fabrics; the ease with which
labels may be removed, or remove themselves, or narks nay be effaced;
the inconsnicuousr ess of the i laaner in which a label or nark may be
awolied; and the possibility of damage when marks are removed.

jTron the "oroducers ■ •point of view there is also the question as
to just how much informative labeling about standards nay mean in
point of actual fret to the great ma:-,3 of the consuming public; how
far ourchasers are inclined to be guided by it; and consequently
what return they nay fairly en ect frca any trouble and expense which
they nay undergo in putting it into effect. Consumer organizations
likewise are alive to this problem of consumer education on the subject
of standards and labeling and the certainty that, without such education,
the best of programs will hold little benefit for those for whose behoof
they are intended.

The foregoing are all immediate, practical problems ^hich are apt
to arise in connection with any nroposec1 program of standardisation. -
Many of them will be foroid plain].;.' ot?ted. and still others "present by
implication, in the standards e-oerierjoei of the various codes which
are dealt with in tne chaoter that "ollows.

S786

-7-

CEAPTSR II
STAEDARDS AED LABEL I1TG- III THE ERA CODES

I. C-SEERAL ERA POLICY COECEREIEG- STAEDARDS

There was at no time any general policy on the part of ERA as a .
whole to encourage the incorporation of standards and labeling pro-
visions in the codes. The initiative with, respect to these subjects
was left with the respective industries and with the representatives
of consumers or other public-interest groups. The underlying ERA
attitude in this matter is indicated by the following:

"Standardization of product is not to be accepted as a
universal prescription, nor is it usually a zone of ac-
tion into which the ERA should project itself. In many
cases, the prohibition of false marking or branding
(11-1512) is a sufficient protection. Where the indus-
try discloses a strong sentiment for it, however, or
where there is a strong showing in the public interest,
ERA will lend its cooperation******"( *)

Where provisions concerning standards and labeling were presented
as parts of proposed codes, the proposals were referred to the vari-
ous advisory and technical' groups of the ERA organization for exami-
nation and report in the manner of other trade practice provisions.
Later in. the code period, responsibility for passing upon standards
proposals was specifically lodged with the Division of Research and
Planning. (**)

A. Sta.nda.rds Policy of the Consumers1 Advisory "Board

Special attention to the subject of standardization was given
throughout by the Consumers' Advisory Board, which as early as
January 1934, had formed a special Standards Unit to work in this
field. The Consumers' Advisory Board was active, "both in subject-
ing proposed standard provisions, to critical analysis from the con-
sumer point of view, and in urging the inclusion of such provisions

(*) "Policy Statements and Related Subjects", Work Materials Eo. 20,
Division of Review, ERA Dec. 1935, p. 45, Sec. 1660.

(**) Office Memoranda #292 and #298, Sept. 17, and Oct. 8, 1934.

9786

where it felt that the public interest demanded and no such action was
contemplated by the industry sponsoring the code.

Because of this special interest the Consumer's Advisory Board
early formulated certain policy principles for the guidance of its
code advisers in dealing with standards proposals.. These principles
were modified and amplified from tine to time as experience indicated.
In a memorandum to General , Hugh S. Johnson under date of November 38,
19S3, the Consumers' Board advocated the inclusion in all codes of an
"enabling clause" requiring the code authority to set up a committee
to develop suitable grade standards and labeling requirements for its
industry. This suggestion was not adopted, although a specimen en-
abling clause along the general lines suggested Was included in the
"iiodel Code" test, but not made mandatory for inclusion in all codes.
The effort of the Consumers' Advisory Board was, however, instru-
mental in having enabling clauses ii eluded in a number of codes.

The general attitude of the Board with respect to standards and
labeling proposals is indicated by the following quotation from a
policy memorandum issued by the Board to its staff on January 4,
1934;

"It is, therefore, in the consumers' interest that there
should be quality labeling which;-

(a) Tells him the nature of the material, if knowledge of
the material helps him to judge the product, e.g., per
cent of wool in a 'part wool' blanket.

(b) Tells him what service the object will give if there
arc established standards of service and means of measur-
ing them, e.g., adequate guarantees of tire mileage.

( d) Establishes a minimum below which either injury or
fraud enters, e.g., food and drug regulations.

(e) Increases efficiency and correspondingly lowers the
cost of manufacture or production.

It is not in the consumers' interest that ' minimum or
absolute standards should be set which :-

(a) Eliminate low grade, low cost products, when the low
grade is appropriate to some consumer use.
(o) Restrict improvement in technique or the offering of
better' quality at the same price.

( d) Accord a monopoly position to certain producers or
^roups of producers." (*)

(*) Full text of this memorandum, including concrete in-
structions to code advisers based upon the foregoing premises,
is given in A roendix III of this re-iort.

9786

B. Other ERA Standards Policy

In the summer of 1934, in connection with the formulation of gen-
eral NBA policy concerning various trade practices, a proposed policy
memorandum dealing with informative labeling appeared (*). This
propo sal r ecoramended :

"1. That the National Recovery Administration, through a
committee or otherv7ise, study the extent to which it can -
preferably with the coo-ieration of the Bureau of Standards,
The Department of Agruculture, and such other agencies, as
the Administrator and representatives of these two govern-
mental agencies shall agree are appropriate- — bring to ex-
istence machinery which will forward the development of
such informative labeling of orcducers' and consumers'
goods as;

(a) Will tive prospective purchasers as accurate a descrip-
tion as it is -nracticable of the significant qualities of
given commodities.

(b) Will provide prospective -mrchasers with as much in-
formation as -oossible for making cormarisons between al-
ternative commodities.

(d) Will not curtail the offering on the market of any
product, unless it is believed to be harmful to its user.

2. That in the interim pending a definite report by such
a committee as suggested above, standards be not approved
in codes solely on the recommendation of the industry con-
cerned, and not until they have been approved by the Bureau
of Standards, the Department of Agriculture, or some
agency approved by one or the other of them. "

This memorandum never received the ariroval of the National
Recovery Administration and therefore never became an official guide
for the fcrouios within NRA dealing with standards and labeling, al-
though it did exercise a degree of influence.

As -oreviously noted, an optional enabling clause relative to
standards was included in the model code. The following "substantive
0uides", similar in content to the model code provision and expressive
of a degree of policy, were used in passing upon proposed provisions
for the establishment of standards committees by the COde Authorities:

"Standards committee;

The code committee will establish a permanent standards committee,
upon which government a.nd consumer interest will be represented.

Formulation of standards :

This committee will study and formulate standards in cooperation
with the American Standards Association or the United States
Bureau of Standards. The code committee v/ill submit such
standards either to the Association or the Bureau of approval.

If the standards committee disagrees, the code committee, with the

(*) Policy Recommendation No. 1,°. See Appendix III, Section VII. See
also Advisory Council Discussion No. 142, Appendix III, Section XI.
9786

-10-

approval of ERA, may determine the standards to lie submitted,
After such review as I1RA may consider necessary the standards
will be binding on all members of the industry.

^Revision pjT standards:

The standards committee will observe the operation of com-
pliance with such standards, and will recommend revisions
whenever necessity appears. Such revisions will follow the
same procedure."

"Hon- standard products are -prohibited :

The establishment of standards will not prohibit the man-
ufacture and pale of non-standard products which are accurate-
ly labeled or otherwise clearly identified to customers, if
such non-standard products arc in no way harmful to the users. "(*)

A more detailed account of the development of standards policy
and procedure during the code period than is feasible for inclusion
at this point has been prepared as Appendix III of this report.

In the following pages is given a summary of the various types of
standards Provisions which were actually incorporated in the codes Pur-
suant to this policy and >rocedure.

II. GENERAL VIEW OF THE CODE PROVISIONS AFFECTING STANDARDS

Of the total of 557 approved NRA basic codes, and 200 supplemen-
tal codes, 244 contained some form of provision relating to standards.

The mere figures, however, are not of great signif icance, other
than to show a very considerable interest in the subject amon^' the
codified industries, for the reason that the provisions were of the
utmost diversity in form and scope, and perhaps were similarly
diverse to the manner in which they were regarded by the industries
themselves.

A. Nature of the Standards Pro vis ions .

Illustrative of this diversity in the nature of the standards
provisions themselves, in some instances they amounted to little more
than passing reference to standards, or to expressions as to the
general desirability of standardization work. In many others the
standards clauses simply gave further approval to specifications or
practices already widely accepted among the industry's members. This
was particularly true of the machinery and industrial apparatus
codes, and those dealing with the building material, and equipment.
In others, again, very radical and significant standardization pro-
grams were embarked upon.
(*) "Policy Statements and Related Subjects", Vork Materials #20fMEA

Division of Review, December 1935. p. 45, section 1661-1664. r
(**) "Alanysis of Standards Clauses. in Codes", Consumers' Advisory Board

Standards Unit, June 26, 1935.
9786

-11-

Of the 244 standards provisions more than one-half - 135 pro-
visions - were enabling clauses; clauses, that is, providing in
more or less general terms for some sort of standards work to be
inaugurated subsequently by the Code Authority. Of these, the
greater part never produced any significant results. Many of
them were included in the code at the instance of consumer repre-
sentatives or other interest distinct from the industry which
sponsored the code, and probably were accented by the latter with-
out any strong objection of interest in making them effective. Only
89 of the enabling provisions were, in fact, couched in what might
be construed as mandatory terms, the other 46 being merely permissive.

A further breakdown of the standards provisions with respect to
their particular subject matter shows 61 codes with some specific
reference to standards of quality, content, size, weight, process
or method; 39 codes with provisions setting definite requirements
as to seconds, second-hand or rebuilt goods; 16 codes which re~
quired conformance with existing Commercial Standards; and 53 which
designate in some manner the use of technical, trade, or govern-
mental specifications. (*) '

In all, 89 codes contain some reference to one or more of the
existing standardizing agencies. The greater numoer of these re-
ferences are to governmental agencies, of which ei0ht arc specified.
Thirty-four nongovernmental agencies are mentioned. Of the 68
governmental references, 46 are to the National Bureau of Standards.
Twenty-three of these codes call for cooperation with the Bureau of
Standards to formulate standards of quality, dimension, materials,
etc. In 19 provisions the code "recognizes" in some manner exist-
ing standards established with the aid of the Bureau. (**) In six
codes definite references are made to existing Federal specifica-
tions.

Other government agencies mentioned arc the Department of
Agriculture, the Pood & Drug Administration, the Bureau of Mines,
the Interstate Commerce Commission. Private agencies include the
American Standards Association, the American Association for Test-
ing Materials, the American Medical Association, and a considerable
number of national trade associations.

(*) Op.cit. supra, -op. 3-4

(**) "Recognition of the Standardization Services of the National
Bureau of Standards in approved Codes of Pair Competition",
prepared by Bureau of Standards.

9786

-12-

B . Labeling Requirements .

a separate analysis of the code provisions dealing with positive
requirements for the labeling. of industry products (*) discloses a
total of 184 codes and supplements having some requirement of this
kind.

Forty-four of these provisions are shown to call for labeling
as to size, weight, capacity, contents, materials, or compliance
with certain specifications; 40 required the marking of second,
rebuilt or repaired goods; 33 required labeling in compliance with
the standards adopted oy the code; in ?0 the code authority was
authorized to recommend labeling regulations. Obviously there is
considerable overlap between the codes reported as having labeling
provisions, and those previously noted as having some form of
standard provision. It is probable, however, that at least
300 .codes in all contained provisions relating to either one sub-
ject or the other, and in numerous cases to both. (*)

In the following section will be discussed the particular pro-
visions found in a group of selected codes, and the record of their
.operation and effect insofar as the available data reveal this.

(*) Post Code Analysis Report No. 121, Research and Planning
Division, ERA, April 18, 1935

(**) For further detailed data as to the standards and labeling
provisions in the codes, see analysis of the Consumers'
Advisory Board referred to above; Post Code Analysis Reports
Nos. 70.,. and 70-A, Research and Planning Division, ERA; and
"Trade Practice Provisions in Codes of Fair Competition",
Division of Review, ERA, Dec. 20, 1935.

9786

-la-

in. CROSS-S~CTION VIET/ OF THE PRINCIPAL TYPES OF STAliDAdDS A1TD LABEL-
I1TG PROVISI"iJS FCU1JD III TI1! CODES

The material to lie presented in this section, together with the
Appendix supporting it, constitutes the main "body of the standards and
labeling report. In it there is sought to be included (l) the avail-
able information concerning the majority of the industries with respect
to which there was a significant standards story under the codes, and
(?) one or more examples of all principal types, of standardizing effort
which the codes illustrate.

In the following pages the information which has been obtained is
presented in cross-section view, the various codes studied being group-
ed under the particular type of standard and labeling method which was
employed in them. The classification which has been employed for this
purpose, and the other of presentation used, is as follows:

A. Mandatory Minimum Standards

B. Other Restrictive Provisions

C. Grade Standards and Labeling

D. Labeling for Identity

E. Sub- standard Labeling

F. Simplification

G. Miscellaneous Standards

1. Performance Standards

2. Biological Standards

3. Service Standards

H. Enabling Provisions

To deal with the number of codes used in the above cross-section
view it has been necessary to enrol oy a considerable degree of conden-
sation. In order that a more detailed picture might be given to the
standards experience in some of the codes, there have also been in-
cluded as Appendix II of the report much more extended summaries of
5 industries of particular importance from the standards and label-
ing point of view. Five others (marked XX) have been summarized and
included in a volume on file in the NRA archives. These industries arer

XX Exhibit A - Plumbing Fixtures Industry

XX Exhibit 3 - Wood Cased Lead Pencil Industry

Exhibit C - Canning Industry

Exhibit D - Mayonnaise Industry

Exhibit E - Hosiery Industry

Exhibit F - Preserve, Maraschino Cherry, etc. Industry

XX Exhibit G - Agricultural Insecticide and Fungicide Industry

Exhibit H - Cleaning and Dyeing Trade

XX Exhibit I - Paint, Varnish, and Lacquer Mfg. Industry

XX Exhibit J - Fertilizer Industry

9786

-14-

What has been principally sought to be brought out with respect to
the various codes treated is (l) the particular standards problem of the
industry and its prc-code efforts to deal with it; (3) the nature and
specific objectives of the standards provision incorporated in the code;
and (3) the results in operation of the provision.

The sources which have been principally relied upon for the desired
information are the various records of code adoption and administration
available in the ERA files in Washington, including especially the re-
cords of code hearings and other data dealing with the code-making stage
and the files of the Consumers' Advisory Board, supplemented by con-
ferences with former administrative officials of ERA and such former
code authorities as could be contacted locally or by correspondence. The
extreme limitation placed upon field work in connection with the study
has been a barrier to the development of nach information as to the
operation of the standards, which it is hoped some later resumption of
the work will make available.

With respect to the operation phase of the standards provisions it
is also to be borne in mind that a standards program characteristically
requires some time to put into effective motion. Formulation of satis-
factory standards is often a prolonged process, and after adoption a
reasonable period must usually be permitted the adhering members to
bring their methods into conformity, dispose of the previously produced
stocks, etc. In many cases the ERA code provisions concerning standards
did not go into effect until the latter half of 1934; and by the end of
that year the influence of the ERA, and, consequently, the effective-
ness of the code provisions in genersL were on the wane. In many cases,
therefore, there was no sufficient tenure of existence of the standards
provisions to permit a true test of operation.

On the other hand there were many cases where the standards exper-
ience under the codes v/as sufficient for some definite conclusions to
be drawn, and a number of these are included in the material which
follows.

A. Mandatory Minimum Standards

Proposals for the adoption of mandatory minimum product standards
in the codes generally had for their avowed purposes, first protec-
tion of the industry itself against what its members, or some sub-
stantial portion of them, considered to be unfair competition from
prodcuts inferior in grade, quality, composition, content, etc. to the
"standard" products of the industry; and, second, prevention of decep-
tion and defrauding of the consumer arising from the same source.

The methods employed for accomplishing these objects might, as
previously indicated, take the form citner (l) of seeking to restrict,
or rule out entirely, the manufacture and marketing of the inferior
product, or (2) of compelling it to be marketed under distinguishing
labels, marks, or brands which clearly proclaimed its inferiority.

0786

The form of below- standard narking employed might be in the nature
of "Substandard" or "non-standard" labels, designation as ,rsubstitutes"
or as "imitations", or branding as "seconds*!1 "irregulars," "culls,"
etc. The exact term to be employed was often itself a point of contro-
versy, since obviously the degree to which the designation served to
stigmatize. the goods in the buyer's mind \;ould largely determine the
extent to which their sale ?/ould be affected.

In some cases the dividing line as to standard. and below- standard
was uniformly established by formula or other definite terms written
into the code itself. In others it was based upon principles previous-
ly promulgated in cooperation with some governmental or private
standardizing agency. In still other instances, particularly in the
case of "seconds", "irregulars", or "culls", the division might simply
rest u-oon accepted trade custom, or even more the individual manufac-
turer's discretion as to the grading of his goods.

Whatever the details employed, where the attempted control took
the more drastic form of prohibiting or restricting the actual manu-
facture or sale of certain classes of products, the special interest
of some individual of group within the industry was generally found
to be particularly affected, and controversy resulted. Such a method
would, by its very nature, lend itself particularly to attempts to
obtain specail competitive advantages within the industry under cover
of ostensible aims to conserve quality and protect the public. The
evidence indicates that this in fact too]: ^lace in more than one case.
This restrictive type of device for combating destructive sabotaging
of product standards was also subject to legal question on grounds of
restraint of trade.

A number of examples of the different methods employed to effec-
tuate minimum standards are found in the codes. Some of the princi-
pal ones, with the available evidence as to their effect in opera-
tion, are outlined below.

1. Plumbing Fixtures Industry - (Code ho. 204).

This code is one outstanding instance of an attempt to deal with
the standards problem by banning completely the domestic market-
ing of substandard products. (*)

The Code as approved contained the following provision:

"Grading. - No manufacturer shall sell in the United States
other than first-grade products guaranteed against manufac-
turing defects. Such guarantee shall be uniform among all
rnanufi cturers, as specified by the Code Authority, and shall
provide for furnishing new products of the same type and size
to rcolace those which have proved defective on the same
basis as the original purchase, but it shall not cover
charges for labor or consequential damages, provided, however,
that in exceptional cases, a manufacturer may make additional
allowances because of defective materials u-ion filing a
complete report thereof witBa the Code Authority." Article VIII,

(*) See Appendix II, Table of Contents of this report for loration of

detailed, documented summary of the standards history of this code.
9786

-16-

Section 4). (*)

This- provision appears to have received majority support of the
Industry at the code hearings, the announced aims being "as a protec-
tion to the public and to stablize marketing conditions." Marketing
of seconds or ''culls", often under the guise of firsts, was claimed
to have become an increasing problem of the industry. Growth of
•Mirect-to-you" distribution by mail order houses and otherwise,
through which a large proportion of "culls" were sold, was also
a cause of concern. Attempts to control the situation through use
of substandard labeling, it was claimed, had failed.

Opposition to the provision was voiced by several smaller man-
ufacturers on the ground that certain types of production equipment
produced a larger porportion of "culls"; that to prohibit the sale of
"culls" would drive such plants out of business:? that there was a
demand for this grade of ware, which had sound utility; and that
to ban it would increase the cost of plumbing fixtures to the
public generally. II o protest to the provision appears to have
been presented by an advisory board of ERA. One smaller manu-
facturer admitted abuses in the sale of "culls", but sufegested a
substitute plan to permit a sale of 10$ of a mill's production
as "cull" grade material.

The provision, however, was adopted as proposed. "Uniform
sizes, drillings, grade rules, and minimum specifications" were
to be established by the industry "subject to review the Adminis- , ,
trator." (**)

Opposition to the provision continued subsequent to approval
of the Code. One opposing member circularized plumbing fixtures
distributors, receiving considerable support for the objections.
The Darrow Board of Review(***) criticised the provision sharply,
holding that it imposed "an additional unwarranted charge upon the
public", and that "the provision is oppressive to small industry."

(*) Codes of Fair Competition, Vol. V. p. 129.

(**) Code, Article VIII, Section 3, op. cit. supra.

(***)See p. 66, Part I, of this report, supra, for reference
to the nature of this Board.

9786

-17- ■

The Com-oliance record is meager, although it seems probable that
there was considerable failure to obey the provision. The compilation
of State Com-oliance Office records as to trade practice violations,
made by the Field Section, Division of Review, shows only three
reported violations of the prohibition raon sale of substandard goods,
and 12 violations of the code's labeling reouirements.

The high point of the comnliance problem came in the case of the
Kokomo Company, which was found guilty of violating Article VIII,
Section 4, by the Compliance Council in August 1934, and had its
Blue Eagle removed. On reference of the case to the Litigation Divi-
sion for prosecution, however, the Legal Division held that Section 4
wns dependent unon Section 3, which provided for NBA approval of
"grading rules". Since no such rules had been submitted for approval,
there were no applicable standards to determine the Kokomo Company's
compliance. Therefore its Blue Eagle was restored, and the case was
dismissed.

This outcome greatly disturbed some members of the industry.
"Interest in, and support of the Code waned rapidly from then on." (*)
The following temporary grading provision was submitted to NBA and
approved for 90 days, December 5, 1934:

"Each member of the industry shall be his own judge as to
classifying his own product, except he shall not grade as
first grade or regular selection any ware which may be
detrimental to health or sanitation." (**)

The Vitreous China Division, which was most affected by the pro-
vision, moved to replace Section 3 by revising Commercial Standard CS
20-30, providing for the marking of "cull" ware with a non-removable
label - "CULL" - placed so as to be easily legible after installation;
and the industry agreed to accept a stay of the marketing prohibition
contained in Section 4.

Due to the difficulty of maintaining compliance in grading of the
product on the basis of administrative Order 204-22, compliance in
general declined and it was deemed advisable to eliminate all of
Article VIII of the Code, which was done February 9, 1935. nothing is
on record as to the revision of CS 20-30 between that date and May 27,
1935, when the code lapsed. (***)

(*) Statement of Deputy Administrator Pilkington, Code History. See
Appendix II, Table of contents.

(**) Administrative Order No.' 204-22, Code Record Section files.

(***) With respect to later action for revision of CS 20-30, informa-
tion supplied by the Commercial Standards Division, National Bureau
of Standards, is to the effect that- the most recent plan of the
industry for dealing with substandard labeling is to mark culls with
'. two bars in red enamel placed in an inconspicuous position on the
fixture. (January 23, 1936.)

9786

-18-

Another move on the oart of this industry to take from the market
other than standards- materials was embodied in the following provision:

"The following practices constitute vinfair methods of comoeti-
• tion for metiers of the industry r.nd are ■prohibited:

"Used Materials. Inasmuch as the handling of both ne^ and
secondhand building materials by- the same merchant encouraged
substitution and misi-epresentation of products to the, consumer,
to the detriment of bdtn the consumer and the manufacturer,
the sale of the products of tn: s industry by manufacturers
to anyone who buys for resale used or .damaged building
materials, planting products, heating nroducts, and/or pipe
' fittings and valves." (*•) , '

There is no record as to compliance ^ith this provision, .and due
to the greater interest of the industry in other provisions and the
obvious difficulty of enforcing tn:' i provision, it is believed that
Article VII, Section 15, had little effect.

2. HAYOr-TAI SET NTUSTRY - (Code No. 349)

Several successive steps in standardization were attempted by the
Mayonnaise Industry under its Code, in an effort to cope with what
were felt to be practices endangering the general interests of the
industry.

Prior to the code period this industry had had only a single
"definition standard" for its products, estaolished by the Food &
Drug Administration. This referred io mayonnaise, and called (as
amended in lf^33) for a minimum" content o^ 50f^ of edible oil. No
standard hsd been establxrhed for salad dressings, nor for- the large
number of other "dressings1' , 'spreads'', etc, which sprung up with the
industry's rapid growth in the immediate pre-code. period,, (**)

At the time of the sponsoring of its ~ode the industry faced a
difficult siu'uati'.>n, marked by r.svere price; competition, which was
felt to bear particularly heavily upon the makers of higher grade
products. Reduction of oil contents use of substitutes pad synthetics,
etc. , were among che means chiefly employed to reduce costs and
increase sales \olume baced moon low -orico p.ppealc In pdiition, the
more substantial portion of the industry was alarmed lest the lowered
quality of the many new products coning uoor the narket undermine con-
sumer confiIer.ce and check thi marked expansion which had been enjoyed
by the industry in recent years.

The code as proposed and approved adopted the 5(>b minimum oil
content of the Food & Drug Administration-' s advisory standard for

(*) Code, Article VII, Section 15.

(**) For detailed summary as to standards in this code see Appendix II,
Exhibit D of this report.

9786

mayonnaise, and in addition set a minimum of 35$ oil for salad
dressings:

"The standards set forth below for Mayonnaise and Salad
Dressing shall oe adhered to by all members of the industry.
If any product does not conform with these standards, it may
not be labeled Mayonnaise or Salad Dressing, as the case may
"be.

"Section 1. Mayonnaise. - Mayonnaise, mayonnaise dressing,
mayonnaise salad dressing, is 'the semi-solid emulsion of
edible vegetable oil, egg yolk, or whole egg, a vinegar,
and/or lemon juice, seasoned with one or more of the following:.
salt, sugar, and/or dextrose, or other seasoning commonly used
in its preparation. Any other sugar for which a standard has
been established, and unrefined milk sugar, may be used,
provided the presence of same is declared on the label. The
finished product contains not less than fifty percent (50$)
of edible vegetable oil, and the sum of the percentages by

^ weight of oil and egc: yolk is not less than sixty-six and

¥ two-thirds (66 2/3).

"Section 2. Salad Dressing. - Salad Dressing is the wholly or
partly cooked or boiled semi-solid emulsion of edible vegetable
oil, egg yolk or whole egg, venegar, water and/or lemon juice,
with one or more of the following: Salt, other seasoning
commonly used in its preparp t ion, sugar and/or dextrose, starches
or other edible moisture absorbing agents; and without artificial
color. Any other sugar for which a standard has been established,
and un- refined milk sugar, ma;r be used. Where any edible
moisture absorbing agents are used, the same must be declared on
the label. The finished product contains not less than thirty-
five percent (35$) by wieght of edible vegetable oil.

"Section 3. The standards for Mayonnaise and Salad Dressing,
above set forth, shal 1 not be construed to include or apply to

fc Thousand Island Dressing, Tartar Sauce, French Dressing or

w ' Russian Dressing." (*)

It -ill be seen that no minimum reouirements "ere set for the
"dressings" and "spreads", but it was provided simply that such non-
standard products could not be labeled "mayonnaise" or "salad Dressing".

These provisions were adopted apparently with controversy, but
they failed to care satisfactorily for the situation they were designed
to correct. Mhile the lower-quality products could not be labeled
"Salad Dressing" or "Mayonnaise", they were not required to be labeled
"Sub-standard"; nor were they recuired to show the percentage content
of their various ingredients on the label.

As a result they could be, and were, labeled in such forms as
"Uncle Billy's Dressing - Neither a Mayonnaise nor a- Salad Dressing,
but as Good a.s Either", and so continue to compete successfully,

(*) Mayonnaise Code, Art. VIII, Codes of Fair Competition, Vol. VIII,

p. 281-82.
9786 -

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regardless of their composition. Some such products contained as
little as 3's of edible oil. (*)

Probably in Part because of the extent to which such practices
could be legitimately followed under the code, th;re we no serious
difficulties recorded as to oonpliance with tho standard provisions.

Due to ''-he continued unsatisfactory industry conditions, however,
the coude 'authority on IAtoi'H 32, 1035. prop.c-.ed an amendment which
would have prohibited entirely the sale of sub- standard products (that
is, below the code standard, but hot unfit for food). This was
opposed oy the Consumers' Advisory Board which, while sympathetic to
the effort of the industry to regulate the duality of its Products,
objected'to ?uch a prohi bition a.s a. virtual restraint of. trade, and
held that sale- of all grades of products should be -permitted, provided
they complied with the Food &. .Drug la^'s.

The industry, particularly the larger units, then proposed an
alternative reauiremert that sub-standard products be lafbeled
"substitute'1 or "imitation". ,T,his w s opposed by other elements of
the industry j and by the Consumers' Advisory board on the ground that
it unduljr stigmatized products which had a legitimate market of their
own, if properly described or graded. The amendment was then drafted
to prescribe that sub-standard products have "SUB-STAl.'DAFD" printed
immediately after the brand name in letters not less than l/4 inch
high, etc. . and further that, the label should show the names and
percentages of. all ingredients. ■..,..,

The Consumers' Advisory Board opposed .this also, on the grotind
that the amendment based the standard on only one ingredient, oil;
that otherwise it -orovided only a broad standard of identity; and that
it afforded no information or protection -to the odnsuraer as to

different grades of product above the minLum,, It
the amendment be approved for 90 da ."^ , and that me
prepare proposals for grading all qualities of -sal

was. recommended that
-awhile the industry
id dressing. Due

to the Schecnter decision no further action w.^s taken in the matter.

This code's standards story is interesting in that the .ndustry's
experience brought up successively several of the principal methods
usually employed for ''standards control, and pointed to various weaknesses
and objections with respect to them, Theqe method's i"ere: (1) simple
minimum standards for identity, without sub-standard labeling require-
ments; (2) prohibition, of manufacture' and rale of sifb-standard goods
entirely; (S) labeling of sub-standard.. goods as "substitute" or
"imitation"; (4) labeling of sub- standards as "Sli3 -STAl'DAED" merely;
(5) complete grading and labeling, ' covering , the entire range of the
product.

The Mayonnaise' Industrv also had a. code controversy with respect
to container sizes, which will be mentioned unier "S II Til? I CAT I ON" ,
below. •,,,-.

(*) Data in -"ules of Standards Unit, Consumers' Advisory 3oard,
Mayonnaise Folder. '

9786

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3. Preserve and Maraschino Cherry, Industry - (Code No. 460)

The standards situation in this industry was somewhat similar to
that of the Mayonnaise Industry. (*) Prior to the code, standards
established "by the Pood and Drug Administration required "pure"
preserves, jams and jellies to contain 45 pounds of fruit and 55
pounds of sugar for a 100 pound "batch. Products composed of 25 pounds
or less of fruit, and 75 pounds or more of suga1", were required to be
labeled "imitation."

Between these upper and lower minimum limits, of 45 and 25 -pounds
of fruit respectively per 100 pounds of products, products might be
marketed with varying fruit content. These, while "not entitled to the
unoualified name 'Jam1 or 'Preserve'", were on the other hand not
required to be branded "imitation". Ho action would be taken against
them by the Pood and Drug Administration if they were labeled as a
"Compound", or the ecuivalent, and if the percentage content of each
ingredient, as fruit, sugar, pectin, etc. was clearly shown.

In conseouence of this, numerous "compounds", "spreads" and other
special name products appeared, with fruit content considerably below
that of the "pure" products, but priced only sufficiently lower to under-
cut the latter. This was held to be confusing to the consumer, who
could not readily distinguish between the classes of products offered;
(**) and to oe unfairly competitive with the higher-grade products,
since the fruit ingredient was ordinarily the largest element of cost,
and the difference in raw material costs a.s between the higher and lower
grade products was usually considerably more than the sale price
differential of the finished products.

The crux of the difficulty from the industry viewpoint appears to
have been that the terms "compound", "Spread", etc., did not serve to
characterize such products in the eyes of the consumer as sufficiently
inferior to the "pure" products to enable the latter to maintain sales
at what was considered a price differential commensurate with the
differences in quality.

To remedy this by means of the code, the industry adopted detailed
standards, b-'sed upon the "pure" product standards established by the
Pood and Drug Administration (that is, the 45 lb. fruit, 55 lb. sugar
standard.) All products not conforming to those standards were defined
as imitations. (***) All imitations were required to be "conspicuously .
labeled- 'IMITATION PRESERVE', ' IMITATION JAM1 , " etc.:

(*) See detailed summary, Appendix II, Exhibit P of this report.

(**) The consumer was found in some cases to be purchasing sugar at
33rf per lb. (Letter of Secretary of Agriculture, Exhibit P of
Appendix, this report,)

(***) Art. VI.' Codes of Pair Competition,' Vol. XI, p. 253.-54. .

9786

"Imitation Products. Mo member of the Industry shall .'sell a
product that is an. imitation ©reserve, imitation jam,
imitation jelly or imitation apple butter as defined in
Article VI, Section 4, which is* not conspicuously labeled
"Imitation Preserve1! , ''I.mtat ion Jaio-'j "Imitation Jelly",
or "Imitation Apple Bu+t>!r"} asi the e^se may be, and, if the
■ iiaJQes of the ingredients* of which it is composed be not
plainly stated on the label in oib's'e proximity to and
direct conjunction with the name of the product in' the order
of their "predominance by weight in the oroduct," (Article
VII, Section 2) (*)

The term "imitation" was , thus extended to include products in the
25-45 lb. of fruit class, i.d. the "compound1' group.'

Ho attempt was made to prohibit • in- any way the manufacture or sale
of the . sub-standard articles. It was felt that the connotations of
"imitation" in the minds of purchasers -would so lower the appeal of the
products thus branded that they could not be successfully sold in close
competition with the genuine, and that' in consequence the industry
products would divide into two general classes "pure" and "imitation",
or -"standard" and "siib-standard" , with prices more nearly corresponding
to ouality in each class.

The provisions appear to have had the general approval of the
industry both at the tine of adoption and during the life of the code.
They ^ere, according to evidence, of code authority representatives,
complied with to a very high degree, and "gave the industry more real
benefits than any other provisions of the code,," Ho comoliance data
on these provisions has. been discovered, in the available UFA. records.

Since the SchechWr decision, however, compounds and spreads are
reported as appearing once more, 'and the industry is proposing to
cope with the situation through a Trade Practice' Conference under the
auspices of the Federal Trade Commission- Quite re-cent advices indicate
that the Pood and Drug Administration will- in the future follow the
code standards renuiring labeling .of "imitation" for all products under
the 45 pound fruit standard.

The breakdown in quality of industry products reported since
June, 1935, is closely related to the question of raw material prices.
During the; code period- the cost of fruit ingredients was unusually
low - generally less per pound than* that of sugor. There- was, there-
fore, no incentive to increase the sugar content at the expense of
fruit. Since June, 1935, however, the reverse has been true. This
circumstance must obviously oe taken into account in evaluating the
actual achievement of the standards provisions during the code period.(**)

(*) Article VII, Section 2, of code*.'* Codes of Fair Competition,
. Vol. 2{I, v. 255.-

(**) For further effort of the industry to effectuate the code standards,
in cooperation with the Food & Drug Administration, see detailed
industry summary, Appendix II, Exhibit F.

9786

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k L '

4. IACAH01TI IIOTSTRY - (Code No. 234)

This Code as approved contained a variety of standards and label-
ing provisions. Certain of the provisions merely embodied standards
which had previously been established by the Food and Drug Administra-
tion. Others went beyond these, but had been approved by a Committee
from that Administration. (*)

Article VII, Section 3 of the approved Code set up the following
minimum standards and sub-standard labeling reouirements:

"It shall be an unfair method of competition:

"Standards. To manufacture or sell, or otherwise
introduce into commerce any macaroni product in viola-
tion of the provisions that:

(a) Macaroni products made from semolina, or durum
wheat flour containing more than 0*75$ ash, exclusive of
salt, shall bear a statement on the principal label as
follows: 'This product is oelow standard but not illegal.'

(b) Macaroni products made from farina, or hard wheat
flour other than durum containing more than 0.48^ ash,
exclusive of salt, shall bear a statement on the principal
label as follows: 'This product is below standard but not
illegal.' (**)

Labels were further reouired to bear "a true statement of the
names of the farinaceous ingredients used in order of predominance by
weight. "

In addition to these sub-standard and identity labeling requirements
the Code contained a mandatory minimum requirement for the egg content
of "macaroni products in the form of noodles" manufactured, sold or
otherwise introduced into commerce. (***)

This provision in effect banned other than egg noodles from the
market altogether. The industry thus employed both types of methods
for effectuating minimum standards, (l) sub-standard labeling for
industry products in general, and (2) prohibition of manufacture and
sale of one particular product in any grade belo™ the established
code minimum.

(*) Memorandum of Charles Campbell, Code Record, Vol. 3. Part 2,

p. 349 A. .-.'•"

(**) Codes of Pair Competition, Vol. V., p. 532-33.

(***) Article VII, Section 3, (d) of the Code as approved, op. cit.

supra "macaroni products in the form of noodles shall .contain not
less than 5,5^ of egg 'or egg yolk solids by weight on a dry
basis. "

9786

-24~

Other provisions relating to quality and container standards which
were approved in the original code are as follows}

"(e) Mo macaroni product shall contain any added ingredients,
except as specified under the standards, provided, however,
that no wholesome food ingredient is excluded, if it's
presence is declared on the label in such manner as may be
prescribed by the Code Authority.

"(f) Macaroni products shall not be packed for sale in
colored wrappers or containers which give the product the
appearance of containing more egg yolk solids than are
present in the product.

"(g) No artificial color or any other substance shall be used
which imparts to a macaroni product a shade of yellow color
which makes the product appear to contain more egg yolk
solids than are present in such product." (*)

The standards provisions of the Code apparently were accepted
without serious protest, although certain large manufacturers objected
to features of the labeling requirement. (**)

The general industry attitude toward the need for the adoption of
standards requirements is indicated by the fo'-llowing:

"Since price competition had become so acute in the industry
in the last year and a half, manufacturers felt that they
must cut the cost of producing their goods in any way
possible. They could not cut their labor costs without run-
ning into difficulties, therefore they cut the cost of raw
materials. Consequently, there has been a great increase in
the use of artificial coloring to take the place of egg
content; there has also been an increase in the use of
inferior grades of flour in place of higher grade semolina;
and finally there has been an effort to use a mixture of
soya and ordinary flour to simulate senolina. " (***)

To meet certain objections which had developed in the course of
administration with respect to '• the ' standards provisions, the Code was
amended on December 3, 1934» (****)

One important change was that which removed the ban upon

(*) Codes of Fair Competition, Vol. V. p. 533.

(**) Protest of Beechnut Packing Company, Transcript of Hearing,
Vol. B. Part 1, p. 47. '

(***) Code Administration Study, Macaroni Industry, Research and
Planning Division, NRA p. 48.

(****) Amendment Ho. 4, Codes of Fair Competition, Vol.- XIX, p. 327.

9786

-25-

manufacture or sale of noodles containing less than the prescribed
minimum of egg, and substituted a provision requiring that such
noodles might "be sold if termed "plain noodles" and "if the word
'plain' is contiguous to and in the same size and color of type as
'noodles' and on the same colored background."

By this alteration, the prohibitory minimum standard was changed
over into the less stringent labeling form of control.

This change v"as made largely as the result of protests by repre-
sentatives of Chinese consumers who held that the plain noodle was a
wholesome article of food, much in use by them, and that prevention
of its manufacture and sale , was without warrant. (*)

As to the general effects of the standards provisions, Mr. G. G.
Hoskins, code authority chairman, stated that during the early life
of the code these provisions performed an excellent function for a
limited period, raising the standards of ingredients, doing away with
artificial coloring, and aiding to prevent imposition upon the consumer
of inferior products advertised as composed of the best ingredients. (**)

Later, however, according to Mr. Hoskins, during the fall and
summer of 1934, artificially colored soya bean flour came to be
extensively used to simulate "Tine grade semolina. The code authority
attempted to correct this under the code without success, due
principally it is claimed, to what seemed to the industry to be the
unnecessary delays of the Litigation Division in enforcement and to
failure to assess penalties for violations.

Similar testimony is given by a member of the Macaroni Laboratory
maintained by the Industry, who further states that since the lapse of
the code there has been a general increase in the number of violations
of the standards and labeling provisions for these products, and that
the quality standards as established under the code have been
practically abandoned. (***) At the same time he stated that, while
the present price structure in the industry is low, business is good.

Data obtained from the compilation of NBA State Office compliance
records indicate a very considerable degree of difficulty experienced
by the code authority in obtaining compliance with the labeling reauire-
ments. A total of 50 cases dealing with this subject are shown to have
been to NBA Compliance, for action, a larger number than for any other
one type of trade practice provision, except the open price filing

(*) Statement of Assistant Deputy Bishop, in charge of the Macaroni
Code, to representative of Trade Practice Studies Section,
November 14, 1935.

(**) Statement in conversation with Mr. Scott, Assistant Deputy
Administrator.

(***) In conversation with representatives of Commodity Information
Unit, Trade Practice Studies Section, November 6, 1935.

9786

-26-

provisions.

Of the 50 cases so referred, 25 were found to involve actual
violations and vrere adjusted "by NBA. In 19, no violation was found.
One case was dropped, and 5 were pending when the code lapsed. No
conrolete record is available of the precise disposition which was
made of the 25 "adjusted" cases, but the evidence at hand tends to
support the claim of the code authority above that little aid to en-
forcement in the form of penalties aoolied was received from NBA.

9786

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5. BEDDING INDUSTRY - (Code No. 219)

This code contained a somewhat special type of restrictive provi-
sion, based upon what nay be termed a sanitary standard. (*) The
regulation did not limit the actual sale zf any sub-standard industry
product, but by prohibiting the use of certain materials in manufacture
it did propose to rule out of the market products containing materials
aclC to be sub-standard, at least from the standpoint of sanitation and
health. The provision as approved read:

«'l. Second Hand Material - Ho member of the industry shall

use second-hand or previously used material in the manu-
facture of bedding. Renovate and repair work on bedding
not for resale is permitted, but if on such work added
material is. needed, such added material shall not con-
tain any previously used material.

"The terms 'second hand1 or 'previously used1 material as
used herein mean (a) any material which has been used in
the manufacture of another article or used for any other
purpose; (b) any material made into thread, yarn, or fab-
ric, and subsequently torn, shredded, picked apart, or
otherwise disintegrated. (They do not include metals re-
rolled under white heat or by-products obtained from the
• machining of new cotton)." (**)

The code also contained detailed labeling provisions which will
be dealt with later under Identity Standards and Labeling.

This industry, it is to be noted, is- very wisely spread and in-
cludes numerous small, local concerns, a fact which had bearing upon
both the adoption of the provision and the compliance problems with
respect to its administration. Figures indicative of the scope of the
industry, as it existed in 1931, show a total of 781 establishments,
employing 15,622 workers. Industry output for the year amounted to
$77,508,000. (***)

The prohibition upon the use of second hand materials was the
most bitterly contested of all trade practice provisions offered in the
proposed bedding code. The reasons which were urged for adoption of'
the prohibition by its_Jjidus try proponents were as follows: (♦****

(*) No summary for this code is included in the Appendix for this
report, It is therefore treated somewhat in detail here, as
the question of restriction of second hand material was con-
troversial throughout the code history; it involved an im-
portant legal question affecting standardization; and it
illustrates certain diffciulties of NBA enforcement.

(**) Article VII, Section 1, Codes of Fair Comp tition.Vol. V, pp. 321-22

(***) U. S. Bureau of the Census, Census of Manufacturers, 1931

(****) Summarized from the Transcript of Hearings, passim.

9786

-28-

1. Bedding manufactured from second-hand material is detri-
mental to L.oa.lth.

2. Methods of sterilization usee re inadequate.

5. State laws regulating the ' nu;V cture of second-hand 'bed-
ding iiave not "been adequately enforced because of the lack
of necessary enforcement officers and inspectors.

4. In spite of tnis, there have "bee;:. 1,200 convictions of per-
sons for selling ur.sterilizec 'bedding.

5. If sterilization were properly clone, the cost of second-
hand bedding woulcl be approximately the same as new.

6. Bedding manufactured from second-hand material is in
numerous cases sold to the public as new. This is accom-
plished by removing the tags and labels shoving that the
product is manufactured from second-hand material.

7. Manufacturers of new bedding are placed at a disadvantage
by being forced to compete with second-hand products. . It
is their belief that when an article has outlived its use-
fulness and is discarded by the owner, it should be destroyed
and a market should develop for the sale of another new
article. This argument is substantiated by the' fact that

the original cost of manufacturing is reater than the cost
or remaking or renovating bedding, and manufacturers of new
bedding feel that they are- being discriminated against by
having to compete rath the -sec ord -hand prod- "t.

8. The market for new materials would greatly Increase if the
use of the second-hand materials' was prohibited.

As offset to" this, opponents of the provision asserted the follow-
ing: '(*)

1. The cost of sterilizing is insignificant

2. If the State laws arc unenforceable , -then how can a more
stringent law be enforced?

3. • Bedding manufactured from second-hand material does not com-

pete with new bedding.

4. Second-hand bedding is a necessary commodity to the class
of people who are unable to buy new bedding.

5. Lianufacturers who have installed sterilizing facilities in
order to comply with State laws would automatically lose

- their investment.

6. Small' Shops with limited capital could not purchase the nec-
essary new materials and would be forced to close down.

7. Second-hand bedding when properly sterilized according to
State law requirements has been adjudged t o be sanitary and
safe for the public. ,

The need for some suitable regulation of the use of used materials
in bedding manufacture had long been recognized. Tnirty-one states
and four municipalities had, at the time the. Code was sending, some
law or ordinance in' force affecting second-hand bedding materials,
none of which however were as stringent as the proposed code provisions,

(*) Ibid.
9786

-29-

Several prohibitory statutes of the general type of these provisions
had already net with reversals in the courts, as will be sho- n later.

?\\: provision was ultimately adopted as proposed, and the Code
approved January So, 1934, no 1TBA advisory board having commented on
the provision in its final report prior to approval. The Consumers'
Advisory Board, through its representative, did not take issue with
the provision at this time, out %% a wish not' to oppose the health
and sanitation features involved, although it was felt that such a
prohibition would increase the cost of "bedding to the public. (*)

On July 31, 1934 the code was amended, clarifyir...; the second-hand
material provision but not aterially altering it. (**) In connection
with the amendment the following legal aspects of the question were
'brought up: (**?«)

1. Four State Court decisions were cited, all of which held
that similar State laws prohibiting the use of second-hand
materials were invalid and unconstituti ;na.l.

(a) People v. Weincr, 271 III, 74, 110 1T.E. 870 (1915).

(b) Town of Greensboro v. Ehrenreich, 80 Ala. 579 (1886).

(d) State v. Taft, 118 h.C. 1190, 23 S.E. 970 (1896).

2. The following U. S. Supreme Court decision was also cited,
which case held the same as above.

(a) Weaver v. Palmer Bros. Co., 270 U.S. 402, 70 L. Ed. 654 (1925)

3. The opinions rendered in these cases were, in part, as follows:
(a) The evidence tends strongly to show that, in the absence

of sterilization or disinfection, there would be little,
if any, danger to the health of the users of comfortables
filled with shoddy, new or second- hand; and confirms the
conclusion that all danger from the use of shoddy may be
eliminated by sterilization.

(b) To prohibit the use of material not inherently dangerous
■and that might be rendered safe by reasonable regulation

transgresses the constitutional protection of personal
property right.

(d) The business hero involved is legitimate and useful; and,
while it is subject to all reasonable regulations, the
absolute prohibition of the use of shoddy in the manu-
facture of comfortables is purely arbitrary and violates

• the cue process clause of the Fourteenth Amendment.

(*) Brief of Miss Hokahr, Amercian Home Economics Association,

■ Consumers' Advisory Board Files.
(**) Amendment 4, Codes of Fair Competition, Vol. XIV ,p. 217.
(***) Summarized from Brief of Assistant Counsel for the Code, July
12, 1934, Legal-pi vision Tilos.

9736

-31-

The counsel, however, expressed hiss belief that if showing could be
made that the only practical way to prevent the use of unsterilized
second hand materials is to forbid their use entirely, Article VIII,
Section 1, of the Code would be held unconstitutional by the courts.

Two petitions for exemption from the provisions were considered dur-
ing the life of the code. (*) In the £irst case the Consumers' Advisory
Board approved the exemption on the ground that the public would be pro-
tected if proper sterilisation and labeling were carried out, being
guided in this by the opinion of the Surgeon General of the United States,
who wrote as follows:

"There appears to be no health hazard in the reuse of second-hand
material in the manufacture of bedding, if thoroughly sterilized. " (**)

Other Advisory Boards opposed the exemption on the ground that the
provision protected the public from unsanitary bedding and from misrep-
resentation, and that the exemption would give those exempted an unfair
competitive advantage. The positions taken with respect to the second
application were substantially the sane as above. ' Both petitions were
denied.

Clear evidence of the difficulty "which was encountered in attempt-
ing to obtain compliance with the -orohibition upon use of second-hand
materials in this code is found in the Field Office compilations of trade
practice violations, based upon the various NBA. State Office records.
Of a total of 310 -reported cases involving violations of all types of
trade practice provisions which were contained in the bedding code, 281
had to do with alleged infractions of the standards provision. Fifteen
others concerned violations of the labeling provisions of the code.

Moreover, of the 281 standards cases reported,. 153 or nearly one-
half, were "dropped" for reasons unspecified, but which were probably
closely related to the general situation noted in the attitudes of NRA
State Office representatives given below. In 46 other cases "no viola-
tion" was found, making a total of 179 cases negatively disposed of,
as compared with 101 cases in which a violation was found, and som"e form
of "adjustment" (also not specified) was made. One such case was pend-
ing when the codes became void.

¥ith respect to the 15 labeling violations, in S a violation was
found and some adjustment made. In 5 there was no violation, and 1 case
was dropped.

Details as to disposition are found for only two cases that came to
NBA for enforcement. (***) Both of these cases were dropped on substanti-
ally the same ground, that no state law was being violated, that the equity
of the case was with the defendant, and that the result of a trial would

most probably be in the defendant's favor. (****)

(*) Duval Country Mattress Manufacturers Association, Jacksonville, Fla. ;
San Francisco Bedding Company, San Francisco, California.

(**) Letter of March 5, 1935 - -Consumers' Advisory Board Files.

(***) Northern Bedding Company, State of Pennsylvania; San Francisco
3edding Company, San Francisco, California.

(****) Letter from J. F. Pinkney, Regional Litigation Attorney, San
Francisco, May 22, 1935.

9786

-31-

That the same situation stood generally as a "bar to enforcement in
at least the San Francisco and the Chicago regions has been confirmed by
conversations with Mr. Pinkney and Mr. Boland, attorneys for the San
Francisco office, and Mr. Swift, Chairman, Regional Council, Chicago,
all of whom felt that attempts to enforce the provisions legally were,
in the circumstances, useless. This situation is doubtless largely ex-
planatory of the great number of "dropped1' cases shown by the compliance
records presented above.

The experience of this code is .illustrative of the difficulties in-
volved in effectuating a restriction upon use of lower grade materials
when no clear consideration of public safety and health, or necessarily
of fraud, is involved; and when, as was here evidently the case, a large
section of the industry is unconvinced of the justice or propriety of
the restriction. It also indicates the difficulties which confronted
MA enforcement efforts where code regulations went beyond state and
local law dealing with the same subject matter.

6. Batting ■ and padding Industry - (Code No. 417)

Somewhat more success seems to have been had with a similar pro-
vision in the above code, approved May 5, 1934. The terms of this
provision were as follows:

"The following practices constitute unfair methods of compe-
tition for members of the Batting and Padding Industry and are
prohibited:

1. Using of second-hand or previously used cotton in the manu-
facture of batts.

'Previously used cotton' is defined to mean any cotton which has
been manufactured and used for the purpose for which it was manu-
factured, or used for any other purpose. This provision does not
apply to manchester, burlap or jute bagging, sisal, or to sterilized
wool, but prohibits the use of all second-hand material such as
might be reclaimed from comforters, mattresses, bedding of any kind,
old automobile upholstery, old upholstered furniture, or the like.
In every place where batting is made, the owners or their agents
shall permit their plants (or portion of their plants) to be in-
spected by any authorized agent of the Code Authority representa-
tive for this Industry in order to satisfy the Code Authority that
the provisions of this Section are being complied with. » (*)

As compared with the bedding industry, however, it is to be noted
that the batting and padding industry was relatively small and compact,
presumably making more simple the task of administering a requirement
calling for careful supervision and enforcement. This industry, in
1929, was reported to have comprised 55 establishments with approxima-
tely 7,000 employees and an output of $16,000,000. (**). Furthermore,

(*) Codes of Fair Competition, Vol. X, p. 9.

(**) Figures of Research and Planning Division, J1RA, Post Code Ana-
lysis Report Ho. 60-3.

9786

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• this industry deals largely with materials for industrial consumers
(such as the automobile industry) rather than with ultimate consumer
products.

In response to a query addressed to the former' code authority of
this industry as to the effects of the code provisions, the statement
was made that the code had helped .- "very. much so" - to deal with
the problem of second-hand materials. (*).

Two difficulties which seem to have been principally encountered
in administering the provision were the doubtful legality of the code
requirements and the securing of adequate evidence of violation of
the provisions. To meet the latter, an amendment to Article VIII,
Sec. 1, was proposed, providing among other things that the presence
of second-hand material on the premises of a member of the industry
was to be taken as prima facie evidence that such material was being
used in the manufacture of industry products contrary to the code re-
quirements.

This proposal was opposed by the ' Consumers' Advisory Board, and
other changes in the proposed amendment suggested, in the terms quo-
ted below:

"The Consumers' Advisory Board is of the opinion that the
• presence of second-hand. cotton on the premises of the manufactu-
rer should- not "be construed as prima facie evidence" of its use
in the manufacture of batting and padding, and that the proposed
amendment is likely to work injustices. We, therefore, recommend
the deletion of the first sentence of the proposed amendment.
We have no objection to the analysis of samples of suspected cot-
ton (found on the premises of manufacturers) by a competent ex-
pert agency chosen with the concurrence of the manufacturer in
question. We recommend, however, that the proposal be altered
to insure that such concurrence will be secured in all cases. If
the use of second-hand material in the actual manufacture of bat-
ting and padding is to be checked, it would appear that some pro-
vision for the inspection of the' finished product, or for inspec-
tion at some, point in its actual manufacture should be added to
the amendment." (**). The amendment was never approved, and there
is available no further evidence as to the operation of the se-
cond-hand materials provision in this code.

7. Floor and Wall Clay Tile Industry (Code Ho. 92)

Another approach to the problem of control of marketing of second-
grade products, and one in which certain other purposes appear to have
been important, if not paramount, is offered by the floor and wall clay
tile code.

(*) Questionnaire, Trade Practice Section files, Price Filing Unit.

(**) Memorandum of February 19, 1935, Consumers' Advisory Board to
F.C.Lee, Textile Division, Consumers' Advisory Board files.

9786

-33-

This code set up, first, a simple requirement for labeling of "stan-
dards" and "seconds", "based on existing Simplified practice Recommenda-
tions .of the Bureau of Standards and provided for further classification
of industry products.

"A. All tiles sold or shipped "by any meriber of the Industry shall
"be "branded either Standards or Seconds in accordance with the mi-
nimum grade specifications of Simplified practices Recommendation
R-61-30 as issued "by the United States Department of Commerce or
as may hereafter "be established as standards for the Industry and
approved "by the Administrator. "

"B. The Code Authority. nay recommend from time to time a classi-
fication of the various types of tiles manufactured, and upon the
approval. of the majority of the members of the Code and of the Ad-
ministrator, after such hearing as he may prescribe, such classi-
fication shall be established as the practice of the Industry and
no member of the Industry shall sell or offer for sale products
for which such classifications have been established except in ac-
cordance with such classification. The provisions of this Section
B shall not apply to unglazed quarry tile." (*).

This article further proceeded, however, to set limits to the quan-
tity ©f second-grade tile which any member might market, based on his
total sales of tile; with a further provision that such limits might be
exceeded upon payment of liquidated damages for the excess. The text of
these provisions follow:

"C. Ho member of the Industry shall sell second-grade tile in an
amount in excess of thirty-five per cent of the total square foot-
age of glazed tile sold by hin nor in excess of fifteen per cent
of the total square footage of unglazed tile sold by him or such
other reasonable percentage as may hereafter be decided upon by a
majority of the Industry, and approved by the Administrator, from
time to time; provided, however, that the Administrator on peti-
tion and after such hearing as he :iay prescribe may modify the per-
centages herein established; and provided further that any member
of the Code may participate in the provisions of Section D herein-
after set forth. The provisions of this Section C shall not apply
to unglazed quarry tile.

"D. (1) Any member of the Code may exceed the percentages speci-
fied pursuant to Section C of this Article on condition that he
shall pay to the Treasurer of the Code Authority, as trustee of the
Tile Industry Fund, as liquidated damages 20 per cent of the to-
tal sales value of the second-grade tiles sold by him in excess of
the percentages established pursuant to the aforesaid Section C
of this Article.

" (2) The liquidated damages referred to in the foregoing subsec-
tion shall be based upon the average percentage of seconds sold by

(*) Article X - Classification and Standardization of Tile. Codes
of Pair Competition, Vol. II, p. 454.

9786

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any member of the Code in excess of the percentages esA ablished
pursuant to Section C of this Article' sold for the current cal-
endar year or part thereof after the effective' date of this Code.
Each member of the Code shall send to the agency designated by
the Code Authority a monthly statement stating' thereon his square
footage over or under the allowed percentage of second-grade tiles
for the current month, and the Code Authority or such agency as
it may designate shall send to each member, of the Code a month-
ly statement stating thereon his square footage over or under the
allowed percentage of second-grade tile cumulative to date for
the current year and the liquidated damages, if any, due thereon.
Each member of the Code shall within 30 days after receipt of such
statement pay to the Treasurer of the Code Authority as trustee
of the Tile Industry Fund any liquidated damages due in accordance
with such statement or the provisions of this Code.

" (3) ITo member of the Code shall be required to pay liquidated
damages due for any current month if sufficient credit has accrued
to his account for sales tinder the allowed percentage during any
previous months.

" (4) Any member of the Code who in earlier months of any current
year shall have paid liquidated damages which subsequently are
off-set by a credit due him for the percentage of second-grade
tiles subsequently sold below the percentage established pursuant
to Section C of this Article, shall have refunded to him on June
30 and December 31 of each year, or as soon thereafter as possible,
such excess liquidated damages as he shall have paid.

" (5) All sums due as liqrddated damages in accordance with the
provisions of this Section D of this Article shall be paid into a
separate fund to be known as the Tile Industry Fund. The Treasu-
rer of the Code Authority as an individual shall be the trustee
of the Tile Industry Fund and as such shall place payments for
liquidated damages received to the credit of such fund and make
disbursements therefrom in accordance with the provisions of this
Article. This Fund shall be maintained as a separate fund from
any general fund which the Code Authority may establish or main-
tain. Disbursements from said fund may be made from time to time
in such manner and for such purposes as the majority of the mem-
bers of the Code shall determine; provided, however, that at all
times a sufficient fund shall be maintained in the said Tile In-
dustry Fond to refund any liquidated damages 'hich may have beer-
paid into the aforesaid fund and which subsequently may become
due for refund to members of the Code, in accordance with the pro-
visions of subsection (4) of this Section D. " (*).

The code also provided for the signing by members of a letter of
assent to the code. (**).

(*) Ibid. pp. ■ .
(**) See Schedule A, for text of letter. Ibid, p. 460.

9786

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In support of these provisions Mr, T. T. Ackerman, representing
the Tile Manufacturers Association, stated at the code hearing:

"In a further attempt to secure a greater share of the
market, the manufacture and sale of second-grade tile has
"been greatly increased. In a number of cases manufacturers
actually make more second-grade tiles than first grade tiles.
Off shade tiles has been another method of securing greater
volume. The manufacturers realize that this condition cannot
continue if they are to have any degree of stability in the
market and if they are to promote the use of tiles and
prevent competitive materials from taking their entire
market. " (*) . .

No protest by any industry, member, or by any NBA advisory board,
concerning these -orovisions, is recorded in the Transcript.

Further light on the industry attitude toward the question of
seconds is found in a statement of Deputy Administrator 3everly Ober.(**)

Extracts from this statement of the Deputy Administrator are
as follows: . . .

Article X; Standards

III

"The Code Committee advanced the following arguments in support
of the provisions of this Article:

"Because of the very low volume of business in this Industry,
competition became particularly acute and frequently took
the form of selling purchasers standard tile at a reduced
price under the guise of seconds. More than 50fo of the tile
sold by many, manufacturers was labeled as seconds whereas in
the normal process of manufacture the percentage of seconds
should not run in excess of rbout 25^o.

"j'ith the approval of the Code, making it an unfair trade
practice to sell below filed prices, it was expected that this
practice, unless curbed, would become very much more widespread.
It was expected that manufacturers would deliver standard
tile and bill the purchaser for seconds, at the price posted
for seconds, thereby giving, in effect, a secret and unfair
rebate.. Because of the fact that there is no means readily
• available for making a sharp distinction between standard
tile and second tile, the Code Committee contended that the

(*) Transcript of puolic hearing, September 27, 1933, p. 47

(**) i Memorandum to L. C. Marshall, November 24, 1934, Deputy
File No. 3, General.

9786

-36-

entire Code provisions relating to filed prices would "be
circumvented and nullified unless some restriction as to
the sale of seconds was placed in the Code. It was con-
tended that the only practical means of doing this was to
limit the percentage of seconds which could be sold without
the payment of a penalty. "

The effects of these provisions, so far as they have been
ascertained, are as follows:

(a) The percentage of seconds sold, as conroared to standard
tile has been considerably decreased.

(b) The snread in prices between seconds and standard tile
has been materially decreased. , The "orice of seconds has
increased about SO'o since the Code r'ent into: effect, . whereas
the price of standard tile has increased only .about lO'o.

"There is nothing to indicate that this provision has
adversely affected any member of the Industry or any of their
distributors.. :

VII

"These nrovisions have not resulted in any serious administra-
tive problems and there- have been no complaints from any
source.

Discussion of Article X by Sections:

"Section A. Labeling "Standard" and "Seconds". This section
is unobjectionable and it is thought that it has been
beneficial so the Industry. .

"Section 3. Classification of Products by Code Authority.
The Code Authority has not made any recommenda.tions with
reference to a classification of various types of tile and,
so far as I know, has taken no steps, to set up such
classification.

"Section C. Very few members ,of this Industry are subject to
an absolute limit on the percentage o"f second grade tile sold,
as most of them have become members of the Code by signing
the letter of assent shown in Schedule A.

"Section D. A number of manufacturers have exercised their
privilege under this section and hpve exceeded the percentage
of second grade tile set pp.in Section C, and have paid pro-
portionate liauidated damages to the Tile Industry Fund ***."

It '-puld appear from the above statement of the deputy administra-
tor that the object of the industry in setting uo these restrictions

9786

-37-.

was hardly to limit the actual quantity of seconds marketed, either
for the purpose of maintaining industry -oroduct standards, or to prevent
competitive inroads "by other materials. Substitution of firsts for
seconds, which the plan is .expressly designed, to prevent-, would itself
have tended to do -this. Furthermore, the code authority was active in
obtaining the signature of members to the letter of .assent-,, holding-
out the -inducement that this would entitle the member to increase his
allowable sales of seconds under the liquidated damages pro-vision. (*)
And early in 1935, when the liquidated damages plan for penalizing
over-sale of seconds' was breaking down, the code authority petitioned
for a stay of the remaining- merely restrictive provisions of the plan,
as they. would "impose undesirable restrictions on the sale of
seconds. " ('**) ' ,"

What apparently was wanted was, first, a means of decreasing the.
price. differential between seconds and first by raising the price of
the former through the iirroositi<$|? of the penalty nlaced on excess
sales. The aim appears to have 'jpeen successful, if the deputy's
statement under VI above correctly reflects the situation. ,It is to
be noted,, howeve-f, in considering. the whole situation that the quality
differential between first and Ipeond grade tile was not great, and
that all companies were allowed'^ 35$ sale of seconds without penalty,
whereas according to the deputy the normal proportion of seconds
produced is 25^o.

There was, however, also some real sentiment for the limitation of
seconds, it would seem. A' proposed amendment to the code creating a
new China Accessories Division stipulated that:

"Ho member of the industry shall sell or offer for sale
more than one grade of china accessories."

This extreme restriction was rejected upon protest by the
Consumers' Advisory Board.

Whatever the aims or effects of the provisions as to seconds as
such, there seems to be no question of their success in their secondary
role, namely, as a means of Droducing revenue. (***) Collections of
liquidated damages for excess sales of seconds were reported as
totaling approximately $50,000 by January, 1935. Furthermore, as
provided in Art. X, of the code, the sums so collected were held as
part of a special "Tile Industry Fund", to be kept separate from other
funds, and to be expended as "the majority of the members of the code
shall determine", (****) no part being required to be employed in

(*) Letter from Code Authority, January 22, 1935. Deputy Files.

(**) Letter from Code Authority, January 22, 1935. Deputy Files.

(***)The material on tnis point was obtained principally in conference
with R. A. Martino, Assistant Deputy later in charge of the Code.

(****) Code, Article X, Section D,5, quoted above.

9786

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defraying the expenses of Code Administration.' This "Tile Industry
Fund" was challenged by TT.R.-A. when the question of "£■ Code budget came
up late in 1934, The demand was made that the "Fund" be applied

'toward the cost of code administration. The legality of the entire
liquidated damages arrangement of Article X was brought into question.
For some reason which is not entirely clear the code authority ( and
the Assistant Deputy) as quoted' above , seem to have considered that
industry members were automatically subject to the 35$ restriction

'upon seconds imposed by Secj C. , but that only signers of the- letter
of assent (Schedule A) were entitled to the "privilege" of Paying
liauidated damages for excess as: permitted by Sec. D.

In connection with the code authority's request for a stay of the
provisions of Article Xj Section 0, D,' arid E, the Legal Division held
that "said sections are illegal". (*)

This opinion apparently applies t-o the provision containing the
original -restriction upon' the sale ;of seconds (Sec. C) , as well as
to the liauidated damages device for relaxirig that restriction.

The stay was granted by Administrative Order No. 92-23,
April 26, 1935, effective until June 16, 1935. No information is at
hand as to the effect of the stay, or of the lapse of the code, upon
the standards situation,

(*) J. E, Skilling, Asst. Counsel, Feb. 20, 1935. Deputy File
"Complaints".

9786

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3. Other Restrictive Provisions.

BesicTc the types of standards retirements illustrated in the
preceding section there were certain other forms of restrictive pro-
visions which, in addition to a mandatory minimum standard, set a
mandatory upner limit upon quality, or imposed some other prohibition
upon deviations from the established, product.

Such restrictive provisions resulted in cases where the speci-
fications of a Simplified Practice Recommendation or a Commercial
Standard, originally devised for optional use, were made mandatory
by the code, or a Code Authority was empowered to set up such a man-
datory standard; and where the provision further required, either
specifically or in effect, that no product should be produced other
than in accordance with the specifications so established.

Such provisions were of infrequent occurrence. Their osten-
sible purpose was to prevent unfair price competition carried on,
not in terms of destructive price cutting, but through price con-
cessions in the form of superior goods supplied at prices quotod
for ordinary grades. Their effect, however, obviously would bo to
make production of a definitely superior product inadmissible be-
cause of its very superiority; and in general to "freeze" the in-
dustry's products against further variations.

It is evident also that, as in the case of standards provisions
which restrict manufacture or sale of substandard goods, such a pro-
hibition affecting goods above, or otherwise not in agreement with
the standard, would be likely to bring up the legal question of res-
traint of trade.

Several instances of file latter type of restrictive provision
are given below. Lore characteristically, it may be noted, the codes
sought to prevent price "chiseling" in terms of higher quality by
setting up grades or classifications of products for price filing
purposes, and requiring that, in case of deviation from the estab-
lished grades, increases in cost should be suitably reflected in
price. There were also numerous direct prohibitions upon substitu-
tion, in delivery or performance, of superior goods for the grade
supposedly ordered and pair1 for.

1. Mopstick Industry - (Code ITo. 116)

The code for this industry was approved November 14, 1933.
The following descriptive data were included in the material trans-
mitted with the code for approval:

Economic Effect of the Code

"This small industry manufactures mop sticks made by finishing
a mop handle and attaching thereto a clamping device for hold-
ing a. removable wet mop. Approximately 160 persons are em-
ployed in this industry, It has maintained an effective trade
association for many years and approximately 97 percent of its

9786

product complies with the specifications established "by the Unit-
ed States Bureau of Standards. The provisions of Article VII,
section 2, on methods of unfair competition were derived from a
list of unfair trade practices approved for the hopstick Industry
"by the Federal Trade Commission and are already in operation in
this well organized industry." (*)

Included among these trade practice provisions was the following
rule relative to standards:

"The following constitute unfair practices and arc prohibited:

"(h) To sell mop sticks which do not comply with the minimum
standards as established for the industry by the United States
Bureau of Standards without labeling the product as not. comply-
ing with such standards." (**)

The standards in question were those for household mopsticks
as contained in Commercial Standard CS 2-30, issued by the Bureau of
Standards December 23, 1930. This commercial standard set up mini-
mum requirements as to strength, ' gauges, finishes, etc., but it also
embodied illustrations of two general tyoes of mopstick approved as
to design. It was with respect to the latter feature of the standard
that the code provision, as interpreted by the Code Authority, went
beyond a minimum standard, and assumed the nature of a regulation
restricting permissible production of mmop sticks to the two types of
design incorporated in the standard.

The code provision was axlopted without protest from any quar-
ter. As indicated by the data quoted above, the industry was well
organiizod and already producing almost wholly in accordance with
the specifications of CS 2-30. On January 5, 1935, however, and
again on February 27, 1935, a member of the industry in Chicago peti-
tioned the HBA for an exemption from the standards provision to en-
able it to market a new product without the penalty of substandard
labeling. This new mopstick, the applicant claimed, complied with
all the standard requirements as to weight, gauge, strength, and
finish, but was of a different and impx-oved design from those il-
lustrated in CS 2-30. Applicant had been informed by the Code
Authority that such a product could be marketed under the code only
if labeled in such a manner as to indicate that it was "non-stand-
ard". Such labeling, the company held, would "set up undue sales
resistance in the eyes of the purchaser" and so unfairly handicap
the marketing of a -oroduct equal in every way, if not superior,
to the standard products. Applicant further stated:

M'7c feel, that it was not the intention of the parties
drawing these original Bureau of Standard specifications of

(*) Codes of Fair Competition, Vol. Ill, p. 53.
(**) Art. VII, 2(h), ibid. p. 65.
9786

-.41-

prohibiting anyone from bringing out an improved type of con-
struction and being penalized by having came considered as not
complying with the standards; but on the other hand, that it
was their intention to set forth certain minimum standards of
strength and quality based on gague of material and finish of
parts." (*)

The code authority, however, viewed this as "an attempt to
break down the standards which are contained in the code", and
called the matter to tie attention of the Standards Unit, Con-
sumers' Advisory Board, with the suggestion that it "take whatever
steps you may feel necessary to protect the policies of your unit
in this instance." (**)

The Assistant Deputy Administrator in charge of the code sub-
mitted the application to the various Advisory Boards, and the
Legal and Research and Planning Divisions, with the following
comment: >

"It is suggested that consideration be given to this
petition. on the ground that it was presumably not the in-
tention of the established standards to limit them to a
specific design and that any variation in design which pro-
duces an article which is not inferior should not result in
the necessity for labeling it as not complying with the ap-
proved standards and thereby inferring that it is an inferior
product." (***)

The petitioner had especially requested prompt action upon
his request, since he. was on the point of beginning to market his
new product. The Standards Unit of the Consumers' Advisory Board
therefore recommended that a 60-day exemption be granted him, dur-^
ing which time the Bureau of Standards might "give further consider-
ation to this matter and possibly provide for a revision of the
Commercial Standard to enable all members of this industry to have
the necessary latitude, required for the production of more ef-
ficient and more practical models." (****)

(*) • Letter of G. A. Altcnbern, Secretary, Wizard, Inc., to

Major C. Sterry Long, Administration member of the code,
February 27, 1935. Dnputy files.

(**) Letter from Code Authority to T. E. Wilson,' Consumers'

Advisory Board, March 4, 1935.

(***) Memorandum from W. Jennings. Butt, Asst. Deputy Adminis-

trate^, March 4, 1935. _ Deputy's Code File.

(****) Memorandum of T. E. Wilson, Standards Unit, Consumers'

Advisory Board, March, 5, 1935.

97 Lc

-42-

The Standards Unit also submitted the question of the proposed
exemption to the Bureau of Standards for its comment. (*)

The Bureau of Standards on Hatch 23, 1935, replied in part as
follows:

"It is not the intention of any commercial standard to
obstruct development of new and improved commodities. . . ***

"It would, therefore, seem to be in order that the com-
mercial standard be considered for revision to admit construc-
tions which may have been designed since the standard was es-
tablished, if the industry agrees that such constructions are
equal to or better than tho se now covered in the standard.

"If the mopsticks placed on the market do in fact comply
with the minimum retirements for weights and gauges, we see
no objection to some temporary provision in favor of Wizard,
Inc., pending revision of the commercial standard." ('**)

The Legal Adviser on the code subsequently recommended that
the entire standards provision be stayed for a neriod of 90 days to
permit thorough consideration of the whole question, and possible
revision of the provision. This was opposed by the Consumers'
Advisory Board, as needlessly sweeping, ' and likely to impair general
compliance with the code. (***)

There is no further record as to the case. No exemption or

stay was ever issued, and there is nothing to indicate the ultimate

destinyt of the petitioner or his improved mopstick.
o

The incident serves, however, to illustrate the manner in which
standards requirements which were originally designed solely for
optional application may, when made mandatory, acquire restrictive
force entirely beyond the original intent of the standard itself.
It indicates also the conservatism with which a highly standardized
industry is apt to view innovations in industry products, irrespec-
tive of their particular merit; and the effect which this may have
upon improvements in the field. Standardization in the matter of
style or design, it would appear, is a matter much less properly
subject to mandatory restrictions than considerations of quality,
■size,' strength, etc. of 'constituent materials.

(*) Memorandum to T. E. Wilson, Standards Unit, Consumers'

Advisory Board, NBA, to I. J. Fair child, Chief, Division of
Trade Standards, National Buroau of Standards.

(**) Better of I. J. Fairchild, Chief, Division of Trade Standards,
to T. E. Wilson, March 23, 1935.

(***) Memorandum of April 24, 1935. Consumers' Advisory Board
Piles, Standards Unit.

9786

-43-

2. Rubber ManufaC taring - (Code Ho. 156)

Several of the Divisional Codes of this industry contained some
form of standards provision.

The Automobile Fabrics Proofing and Backing Division of this
Industry adopted the following general standards provision:

"Every member of the Division shall conform to the stand-
ard specifications and inspection rules adopted "by the Division
from time to time for auto- topping fabrics, subject to the ap-
proval of the Administrator. Should this provision work an un-
just hardship on any member of the Division, such member may
appeal to the Divisional Authority which shall have power to
grant such relief as justice may require." (*)

'This provision, it will be noted, set up no standards in it-
self. It was, however, mandatory in its terms, and did not make
use of the word "minimum" in any sense, but flatly imposed conform-
ity with the standards specifications to be adopted. Proposed
specifications, however, were required to be approved by PBA. The
provision was included in the code without recorded dissent.

pursuant to this enabling clause the Division on June 14, 1934,
submitted proposed specifications to the Administration for ap-
proval. The proposals were referred to the National Bureau of Stand-
ards, which criticised them in various technical respects. The Con-
sumers1 Advisory Board suggested their temporary approval for pur-
poses of revision:

"It is recommended that these specifications be approved
as "Tentative specifications", to be in effect as such for a
period not to exceed six (6) months. It is also recommended
that such approval shall further provide that these specifica-
tions be subjected, during this six month interim, to review
and modification for general consumer-producer acceptance un-
der the procedure of some standardizing agency which will
guarantee both governmental and consumer representation in the
final drafting of the specifications." (**)

The Legal Adviser objected to the specifications on the follow-
ing , grounds:

"The examination of the Record of the hearing held on
June 14, 1934, in connection with the application for approval

(*) Chapter II, Article IV, Section 7. Codes of Fair Competition,
Vol. IV, p. 86.

(**) Liemorandum, Consumers' Advisory Board to J. W. Lenaerts,
Deputy Administrator, Rubber Section, July 19, 1934.

9786

-44-

of str.nd.ard specifications and inspection rales submitted by the
Divisional Authority in accordance with Article IV-A, Section 7,
Chapter II of Code Ho. 156 indicates that the purpose of adopt-
ing such specification is to limit the number and kind of auto-
mobile top fabrics which can be. oroduceu by members of the
Division.

"In my opinion this would clearly serve to operate in res-
traint of trade and for that reason I am taking the position
that such purpose would be illegal. The Legal Division has no
objection to approval of standard specifications for an in-
dustry, provided such specifications refer to quality of pro-
ducts without limitation as to kind or number. It is therefore
suggested that said specifications be revised as as to provide -

'The following standard specifications and inspection rules
for auto topping' fabrics are adopted for members of the Auto-
mobile Topping Fabrics and Proofing Division of the Code of
Fair Competition for the Rubber Manufacturing Industry.
Such standard specifications shall be construed as establish-
ing minimum standards, of quality for auto top fabrics manu-
factured by members of the Division for sale to the jobbing
and replacement trade.1 " (*)

Revised specifications containing a preamble emoodying the
phrasing suggested by the Legal Adviser above were submitted by the
Division on November 16, 1934. The Consumers' Advisory Board ob-
jected that, despite this phrasing, while the standards specifica-
tions remained in the form proposed, maximum restrictive standards
were in effect established. The specification were, however, ap-
proved by the Administration on February 20, 1935. (**)

So little time remained for these provisions to become effec-
tive before the lapse of the codes, that no compliance record con-
cerning their operation, if they ever were actually in operation,
exists.

The Rubber Footwear Division adopted the following qite com-
prehensive provisions:

"The Specification Committee shall from time to tine present
for adoption, .with reasonable tolerances, by the Division,
definitions of standard products under the titled "Standard
Product Specifications", which definitions when adopted shall
be filed with the Association. (Section 1)

"Any member of the Division may make footwear of higher
quality than any defined in the specifications adopted in

(*) Memorandum Mortimer Wcihback, Legal Division, to Edwin D.

Bran some, Deputy Administrator, July 17, 1934. Deputy's File.

(**) Administrative Order ¥.o . 156-68, Code Record Section Files.
9786

-45-

' Section 1 and in that event shall sell such f oo twoar at a
proportionately higher price than his filed list, which shall
"truly reflect the increased cost of such footwear. The prices,
discounts and terms of sale cf such footwear of higher quality
shall "be filed with the Association from time to time promptly
upon such issuance. (Section 3)

"ho member of the Division shall make footwear of lower
quality than the lowest defined in the "Standard Product Speci-
fications"; provided, however, that if this section works an
unjust hardship on any member of the Division, such member may
arrocal to the Divisional Authority for an exemption."
(Section 4) (*)

This provision, in Section 3, specifically guards against use
of the specifications adopted as mandatory maximum standards, but
requires price increases for superior qualities. On the other hand,
manufacture of substandard goods is absolutely banned, setting of
the standards is entrusted to a "Specification Committee" and the
Division is empowered to adopt these without reference to the Na-
tional Recovery Administration or any other public agency for ap-
proval. "Reasonable tolerances", however, are provided for.

In several other divisions some provision concerning the method
of disposal of seconds, closeouts, etc. is contained which as ad-
ministered may have proved to be restrictive in nature. (**)

The Rainwear Division listed "standard sizes" for infants1,
girls1, boys', mens' and women's garments, and provided for pro-
portionate additional charges for extra size garments. (***)

Shore is no available evidence in the ITRA files as to the op-
eration of any of these standards provisions of the Rubber Manu-
facturing Code, The Field Staff compilations of trade practice
violations show none for the code dealing with standards, with the
exception of a single substandard violation. A very considerable
quantity of field work would be required to develop the complete
story of standards in this code.

3. Cordage and Twine Industry - (Code ITo. 303.)

This code as approved contained, among others, the following
standards provision:

(*) Chapter IV, Art. Ill, Codes of Fair Competition, Vol. IV,

pp. 93, 94.

(**) Code: Chapter III, Article V, Section 2 - Rubber Flooring

Division; Chapter VIII, Article III, Section 3, Sponge
Rubber Division.

(***) Art. VI, 4, Chapter X, Codes of Fair Competition. Vol. IV,

9786 P* 117«

-46-

"Upon the expiration of thirty (30) days after the affec-
tive date of this Code, no member of this Division shall manu-
facture or cause to be manufactured products included in the
Cordage Division or upon the expiration of six (6) months after
the effective date of this Code, cell or offer to sell any such
product, except as provided in this Section, or as otherwise
provided by the Code Authority, or as provided in Section 10
of this schedule". (*)

This Schedule made mandatory certain maximum and minimum scales
of the "Becker Reflectance Values", a highly to clinical test based
upon the color of hemp materials used, the theory being that the
lighter the strand of manila hemp the better the quality. The test
as cot -up provided, in effect, a mandatory upper limit in color as
m»ll as a lower, which would apparently have established both a max-
imum and a minimum standard of permissible quality. On the other
hand, varieties of sisal homp, of inferior quality to manila, tent
higher in the Becker Scale, and it appears to have been partly at
least to affect the competition from these that the test standard
was adopted.

A principal purpose of the standards provision in general, as
advanced by the industry at the code hearing, was to prevent price
cutting through concealing of grades (selling first grade material
at second grade prices), and to prevent consumer deception by the
reverse substitution. One industry member opposed the provision as
too drasticj and the Consumers' Advisory Board representative
questioned its restrictive nature. (**) The code was approved with
the provision as proposed.

Other objections to the provision which were voiced either be-
fore or after adoption of the code included (l) claims of discrimina-
ti on by manufacturers using materials beyond the standard range,
and (2), the fact that necessary test apparatus for complying with
the code requirement was so costly as to be prohibitive to smaller
members.

The technical points involved made the whole standards ques-
tion difficult to evaluate. In any case, the files indicate that
the standards provision, along with the price provisions and others,
never operated- satisfactorily, and the industry requested that
Schedule A be suspended. This was done on September 22, 1934. (***)

(*) Schedule A. 8 ( c) . Codes of Pair Competition. Vol. VII p. 269,

(**) Transcript of Hearing, p.. 277.
(***) Administrative Order ITo. 303-12.

9786

-45-

Scction 1 and in that event shall cell such footwear at a
proportionately higher price than his filed list, which shall
truly reflect the increased cost of such footwear. The prices,
discounts and terms of sale cf such footwear of higher quality
shall "be filed with the Association from time to time promptly
upon such issuance. (Section 3)

"ITo member of the Division shall make footwear of lower
quality than the lowest defined in the "Standard Product Speci-
fications"; provided, however, that if this section works an
unjust hardship on any member of the Division, such member may
appeal to the Divisional Authority for an exemption."
(Section 4) (*)

This provision, in Section 2, specifically guards against use
of the specifications adopted as mandatory maximum standards, but
requires price increases for superior qualities. On the other iiand,
manufacture of substandard goods is absolutely banned, setting of
the standards is entrusted to a "Specification Committee" and the
Division is empowered to adopt these without reference to the Na-
tional Recovery Administration or any other public agency for ap-
proval. "Seasonable tolerances", however, are provided fcr.

In several other divisions some provision concerning the method
of disposal of seconds, closeouts, etc. is contained which as ad-
ministered may have proVed to be restrictive in nature. (**)

The Rainwear Division listed "standard sizes" for infants',
girls', boys', mens' and women's garments, and provided for pro-
portionate additional charges for extra size garments. (***)

There is no available evidence in the j?RA files as to the op-
eration of any of these standards provisions of the Rubber Manu-
facturing Code. The Field Staff compilations of trade practice
violations show none for the code dealing with standards, with the
exception of a single substandard violation. A very considerable
quantity of field work would be required to develop the csmplete
story of standards in this cede.

3. , Cordage and Twine Industry - (Code No. 303.)

This code as approved contained, among others, the following
standards provision:

(*) Chapter IV, Art. Ill, Codes of Fair Competition, Vol. IV,

pp. 93, 94.

(**) Code: Chapter III, Article V, Section 2 - Rubber Flcoring

Division; Chapter VIII, Article III, Section 3, Sponge
Rubber Division.

(***) Art. VI, 4, Chapter X, Codes of Fair Competition. Vol. IV,

9736 P' 117'

-46-

"Upon the expiration of thirty (30) days after the effec-
tive date of this Code, no member of this Division shall manu-
facture or cause to "be manufactured products included in the
Cordage Division or upon the expiration of six (6) months after
the effective date of this Code, sell or offer to sell any such
product, except as provided in this Section, or as otherwise
provided "by the Code Authority, or as provided in Section 10
of this schedule". (*)

This Schedule made mandatory certain maximum and minimum scales
of the "Becker Reflectance Values", a highly technical test "based
upon the color of hemp materials used, the theory being that the
lighter the strand of manila hemp the better the quality. The test
as cot up provided, in effect, a mandatory upper limit in color as
woll as a lower, which would apparently have established both a max-
imum and a minimum standard of permissible quality. On the other
hand, varieties of sisal hemp, of inferior quality to manila, test
higher in the Becker Scale, and it appears to have been partly at
least to affect the competition from these that the test standard
was adopted.

A principal purpose of the standards provision in general, as
advanced by the industry at the code hearing, was to prevent price
cutting through concealing of grades (selling first grade material
at second grade prices), and to prevent consumer deception by the
reverse substitution. One industry member opposed the provision as
too drastic, and the Consumers' Advisory Board representative
questioned its restrictive nature. (**) The code was approved with
the provision as proposed.

The technical points involved made the whole standards ques-
tion difficult to evaluate. In any case, the files indicate that
the standards provision, along with the price provisions and others,
never operated satisfactorily, and the industry requested that
Schedule Abe suspended. This was done on September 22, 1934. (***)

(*) Schedule A. 8 ( c) . Codes of Pair Competition. Vol. VII p. 269.

(**) Transcript of Hearing, p. 277.
(***) Administrative Order ITo. 303-12.

9706

-47-

4. Pyrotechnic i-ianufac taring Industry - (Code No. 143)

What might be taken as a form of maximum standard, basr.d rn
a safety hazard, was adopted "by the Commercial' Fireworks Division
rf this industry.

The code as originally appro-ved contained the following enab-
ling clause for the purpose rf effecting standardization:

"The Divisional Planning and Fair Practice Agency is
empowered to designate certain items that are generally manu-
factured by the division as staple goods. On items so de-
signated it shall, subject to the approval of the Adminis-
trator, prescribe limits of size, weight, and other specifica-
tions necessary for a reasonable standardization." (*)

Pursuant to this clause an amendment was adopted which set
a maximum limit to the amount of explosives to be contained in
certain types of fireworks, and also set a maximum length of 4"
and an outside diameter of 5/8" for firecrackers. She amendment
further provided:

"3. The Planning and Fair Practice Agency of the Com-
mercial Fireworks Division of the Pyrotechnic Industry is
hereby empowered to formulate and recommend such rules and
regulations regarding the manufacture and specifications cf
items of commercial fireworks a.s may be necessary for the
protection and safety of the users cf for other reasons,
which rules and regulations, when approved by the NBA, shall
be binding on all members of this Industry.

"4. These subsections shall become effective July 6,
i .CL.19$5." (**)

In view of the final proviso, and the date of the Schcchtcr
decision, there is no compliance history available with respect to
the standards provisions of this code.

(*) Art. VII, Sec. 2, p. Codes of Fair Competition, Vol. Ill

p. 603.

(**) .Amendment 2, April 10, 1935. Codes of Fair Co mpetition,
Vol. XXII, p. 399.

9786.

-48-

C G-rade Standards and Labeling.

As r/is pointed out in the introduction to this general section of the
report, "grade" as here used does not refer simply to general conceptions
such as "high grade" or "low grade" hut means clearly defined "hands" of
quality covering the range of the product, which are made possible of deter-
mination "by uniform, accurate and acceptable test methods. Grade standards
■ are considered of particular utility, especially from the consumer's view-
point, in cases vrhere several factors enter into a determination of quality
or suitability, and -'here s\ich factors cannot readily be judged by inspec-
tion.

The problems which characteristically arise in attempting to establish
grade standards concern (l) the formulation of satisfactory criteria of
comparative quality, to be used as basis of the standards, and ('2)- the dev-
elopment Of readily applicable test methods for determining as to conform-
i t;^ of goods to the standards in any giv.'n case.

C-rade standards, as has been previously suggested, generally repre-
sent the most highly developed form of quality standard, evolved character-
istically after the less complete forms have proved inadequate, because
they aim to provide definite guides as to comparative quality throughout
the entire range of the commodity in question they find particular axorov-
al among those whose interest is in the fullest possible informing of the
buying public as to the nature of what it purchases. For the same reason
thcrr are likely to encounter strong opposition from those elements nithin
an industry which have, through heavy advertising investment or otherwise,
built their sales appeal. primarily upon the prestige of a trade name.

Two principal instances of 'the adoption, or attempted adoption, of the
grade type of standards and labeling under the Codes are given below:

1. Canning Industry - (Code lb. 446)

Various grade standards for the Canning Industry had been devjlopcd
under two federal statutes prior to the code period, (*) The amendment of
1923 to the U. S. Warehouse 'Act empowered the Secretary of Agriculture to
establish grades for canned. goods under which grade certificates night be
obtained for placing goods in bonded storage as security for loan. The
acceptance of such grading was purely voluntary on the ^>art of the c li-
ners desiring to obtain a certificate.

On July 8, 1930, the McMary-LIapes amendment to the Pure Food and Drugs
Act gave the Secretary of .agriculture power to establish minimum standards
of .quality, condition, and fill, and required all canned products felling
below the standards so established to be labeled "3ZL0V U. S. STAi:DAlfD-
G00D FOOD -HOT HIGH GRADE", To labeling as to grades above the "standard11
level ■ -as required.

(*) For detailed summary of this Code, see Appendix II, Exhibit C.

9786

-49-

Prior to the code period there had been a growin ; demand from c.^svcier
interests for more adequate labeling of canned products, and the industry,
facing loss of consum r confidence and competition from fresh fruits and
vegetables, had also shown an interest in the subject.

The proposed codev however, contained no standards provision. Various
consumer, groups urged the inclusion of a provision calling for a grade label-
ing program but without result, and the code as finally approved had not
even an enabling provision concerning standards.

However, the Executive Order of Kay 29, 1934, signed by the President,
which approved the canning code, contained the following proviso:

"(l) That the Industry shall designate a committee whose member-
ship shall be subject to the approval of the Administrator and
who shall cooperate with the Administrator in the formulation of
standards of quality for products of the Industry and to make
recommendations to the Administrator within ninety (90) days for
the inclusion in said Code of provisions "dth respect to such
standards and labeling requirements." (*)

The story of the work of this committee is detailed in Exhibit C of
Appendix II of this report. It resolved itself largely 'and at length into
a debate as to the relative merits, of grade labeling on a simple A, B, and
C basis, which was advocated "oj the consumer's interest and generally
supported. by MELA, and a more elaborate "descriptive" type of labeling
which was favored by the industry.

On behalf of the grading method, it was contended that descriptive
labeling is inadequate to enable the buyer to obtain readily the inform-
ation needed in order to judge- of quality in relation to price.

The industry held that gre.de labeling for their product was imprac-
ticable. It questioned whether grades could be devised which would be
sufficiently accurate and comprehensive to serve the buyer's purpose, and
saw no adequate objective standard for grading such a factor as "taste".

The proponents of grades countered with the facts that grading was
already in use, apparently with success, in Canada; that grading was in
widespread use in the industry itself for its own purposes; and that
"descriptive" labeling had all of the defects as to indef init.eness and in-
accuracy claimed for grading, without its virtues of simplicity end under—
stan&ability.

The standards committee of the industry finally, on September 27,1934,
submitted their final recommendations in which grades were rejected ; nd
modified descriptive labeling advocated. The recommendations were not
accepted ~oy 1JHA and, so far as the codes were concerned, this was the end
of the matter,

(*) Codes of Pair Competition, Vol. XI, p. 25.

9786

-50-

An indication of the Industry1* present position on the question ncy
"be fordid in a speech by LIr. Howard Orr, President of the rational Cam- >ers »
Association, before a meeting of the I^tional-American 'holes.-. le Grocers'
As,soci tion, in which ; e ca led for continued cooler, tion between the careers
and wholesale probers to protect the industry's position with respect to
the- possible imposition of compulsory government grade labeling. (*)

2. Silverware Ilanufacturing Industry -(Code Ho. 177)

Another attempt to establish grace standards and marking imdc:. the
codes is presented bv the Silverware iJanufacturing Industry. 3?or moro then-
fifty --ears this industry had had va: ious voluntary quality standards as
set up- by the industry itself, or throu h Simplified Practice Reconri nda-
tions. But the grade markings usee, -ere not always uniform. Due to the
pressure of competition in the prc-code period, noreover, the practice of
stamping false grade marks on cert? in types of ware had increa-ed; e::cecc«J
ivo tire uarrntees for indict:."/ products were us d; aid there - -as a lack
of air/ suitable strndards for "stainless steel".

She code as a-oproved contained the following enabling provision con-
cerning standards :

"The Code Authority, shall, within sixty (60) days after the
effective date of this code, establish a series of quality stand-
ards to nark the.v rious grades and qualities of the products
of the industry > which when approved he the Administrator, nay
be used by all ^embers of the Industry. (**)^

In consequence of this, on ITebruf ry 23, 1934, the code authority
offered an amendment setti y up quality grade standards for flat ware :21c

stainless steel. Use of these standards was not made- mandatory, but an-
other section of the code prohibited the sale of any article sgfcaapd'd with

a quality nark established b" the code authority unless the actual qualitjr |p
of the article conformed to the standard so established:

"No member of the Industry shall sell or offer for sale any
article on which the manufacturer has stamped any quality '.-.ark
established by the Cod<= Authority and approved by the Adminis-
trator as provided for in Section 4 of Article 711 unless the
actual quality of said article conforms in all respects to the
standard so established: Provided, horrever, that this provision
shall not become effective for &> oeriod o^ ninety (90) days after
the arm-oval of such established quality narks by the Administrator, ''
( * ) (***)

(*) Reported in the Journal of Commerce, Nev York, November 13, 1935.

(**) Silverware Ilanufacturing Code, Article VII, Section 4, Codes of Pair
Competition, Volume IV, page 397,

(***) Code, Article VIII, Section 17. Codes of Fair Competition, Vol. IV,

p. 399.
9786

-51-

The standards were opposed by the Consumers' Advisory Board on the
ground that the grading terms adopted were confusing ("hidden grades").
"Al" or "Strnd'-rd" was in fact, the lowest of six grades, the highest
grs de being "Quadruple" or "XXXX."

The auestion was asked by the Board's representa tive (*) whether
it would not he preferable to "make a radical change and draft an
entirely new system of marks which would clearly indicate the relative
value of tne grades." The principal industry objections to this pro-
posal were:

(.a^ .In such a system none of the old designations could
be used, as they would be confusing.

(b) If a numerical system of grades were adopted, for
example l'to 6, it is probable that at some future time a
grade higher than the present best grade (l) would be marketed,
in which case new and equally confusing marks would be required,
such as 1- or 11, etc.

(c) The most serious objection to indelible numerical grades
in seauence is that they convey an impression of inferiority
which would interfere with the sale and use of the lo^ grades,
even though they were suitable for their purpose and repre-
sented good vr:lue for the price paid

The Consumers' Advisory Beard further Opposed the grading uro-
visions as proposed, on the ground that they were not made compulsory.
The standards were, however, approved. by FRA on August 7, 1934. (**)

One reason for the industry's adoption of grade standards was
as a substitution for performance guarantees. This purpose was
further effected by the following provision: (***)

"UP member of the Industry shall publish or otherwise announce
any guaranty, whether limited, or unlimited, for a specified
period of time in connection with the lasting or wearing quali-
ties of plated ware, or encourage or continue to sell to any
distributor or dealer who persists in publishing or otherwise
announce such a guarantee in connection with the plated ware
of the manufacturer concerned."

(*) Mr. W. Blum, Chemist, Bureau of Standards; in conference with
industry committee, May 3, 1934. (Letter of May 9, 1934,
addressed to Dr. R. A. Brady, Consumers Board files).

(**) Administrative Order lo. 117-10.

(***) Article VIII, Section 20. Codes of Fair Competition,
Vol. (V, p. 400.

9786

-52-

Grade labeling, it was also, claimed would be more desirable from
the standpoint of the consumer than perform; nee guarantees based upon
no uniform or scientific determinations. According to t he assistant
deputy administrator in charge cf the code, the industry considered
that one of the greatest benefits -of the code was the elimination
of time guarantees for plate. It was felt that while plated rare
under some cir.cums.tanc.es might hold up to the guarantee, it was im-
possible to guarantee that the finish on products would last for a
designated period of time under all circumstances and under all con-
ditions. (*)

As has been pointed out, the grade .'.standards adopted were not re-
quired to be employed by members of the industry. Use was entirely
optional, the retirement being simply that if the ouality grade marks
as adopted should be used, the goods carryir- them must conform to
the standards set. There is no evidence 'in the FRk file records or
the available compliance field data to show the extent to which the
code grade standards were actually used in ..the industry, or how faith-
fully the grade marking tallied with the corresponding' standards of
quality when used.

Contact w?, however, made in the course, of this study with the
Executive Secretary of the Silverware Manufacturing Institute and
former code authority secretary, who stated that the code provisions
relating to standards and marking were very generally observed by
members of the industry, and that, little or.no complaint of violation
had been brought to the attention of the code authority. . ,( **)

Other contact made with individual members of industry indicated
that while the above situation with- resoe.ct to compliance with the
positive code requirements was as stated, tie permissive nature of
the standards adopted had in fact resulted in very little actual grade
marking, and that the situation was in this regard very little changed
from what it had previously, been.

With respect to the "hidden grade" question Mr. Vincent stated that
tne grades used were those which had been en.p.loyed in the industry for
many years; that their use had been proposed under the code not pri-
marily as a medium of consumer information, but rather as a means to
enable the organized industry to check upon quality "chiselers" among
the manufacturers, and the practice indulgec* in by some retailers of
demanding grade marking higher than tlr t jw tified by the quality of
the article.

(*) In conversation with representative of Trade Practice Studies
Section, October 2?, 1935.

(**) Mr. A. Vincent, Hew 'Yorlr City, in conversation with representative
of Trade Practice Studies Section, December 19, 1935.

9786

-53-

Pointing to the past success of the trade association in abating,
with the assistance of the Federal Trade Commission, trade abuses in
the watch-case industry, such as "20-year" and "life" guarantees, and
5kim»ing in the thickness of the -plating, Mr. Vincent expressed the
opinion that a strengthened Trade Commission Act would solve the
industry's standards problems in the silverware field.

Just what gains, either from 'the industry's or consumers' stand-
point, resulted from the standards provisions of the silverware manu-
facturing code, however, in the form adopted, is not clear from the
evidence available.

These two instances of attempts to establish grade labeling under
the codes emphasize the tendency of industry and consumer interests to
differ ^s to the methods to bo employed in achieving the aims sought,
even when these latter are appa.rently agreed uiDon between the two.
In the case of the canning industry, where the grade labeling program
was intended to be made mandatory, it was never possible to reach a
reconciliation of these differences. Under the Silverware Manufac-
turing Code the grade marking proposals finally agreed to were ontional
only, and thus were not productive of any extensive results-. -

9786

:4-

D . Labeling for j e'en tit 7.

Labeling for identity, unlike some of the stanflarf izing devices
which have "been dealt with thus far, is wholly a matter of supplying
comj-.ioo.it;' information. It is primarily a in- ans for preventing misre-o-
resentation and deception of the buying public, both in the interest of
that public and of the honest industry product.

The need for identifying products, or the materials or ingredients
of which they are composed, is of two principal sorts; (1) to dis-
tinguish a genuine article from simulations, imitations, or substitutes;
and (2) to snot? relative quantities of the constituent ingedients of a
commodity consisting of materials of different intrinsic values. Stan-
dards of identity, unlike grades, give no indication of quality except
insofar as the nature of the components themselves so indicate. Identity
labeling imposes no restrictions upon production, and the legality of
such Labeling requirements, as embodied in both federal and state statutes,
seems to be unquestioned-.

In principle, labeling for identity is one of the most widely ap-
plicable of all standardizing devices. In practice the chief problems
which arise are first, the development' of a uniform and acceptable system
of nomenclature; second, the practicability of replying the marks or
brands embodying this information to certain types of merchandise (such as
fine fabrics) so that no injury will be done, or so that the mark vrill
not be too e.-.sil}^ detached or effaced; and third, the expense to the
industry which may be involved in a labeling program.

The following are some of the principal examples of identity label-
ing requirements found in the codes;

1. Wool Textile - (Code Ho. 3)

The basic code for the "lool Textile Industry contained no provisions
for marking or labeling products.

However, Administrative Order ITo. 3-S, (*) under Rules of Practice
merchandising for the Blanket Division of the TTool Textile Industry, Article
X, Unfair practices, contained the following provisions;

"1. It shall be an unfair practice to market blankets not composed
entirely of nool without being labeled in accordance with the
Federal Trade Com lission requirements as embodied in the Com-
mercial Standard issued by the Bureau of Standards of the
United States Department of Co imerce and numbered CS 39-32, and
supplements thereto . . "

The Co.: ercirl Standards C3 39-32 referred to had been issued October
6, 1932. It contained the following' provisions:

(*) A" 'roved i arch 27, 1934, Code Record Section Files

978C

"Standard Percentage of Wool Content

3. Ho finished "blanket containing less than 5$ wool shall carry
the word "wool" in any form.

4. Blankets labeled with the word "Wo- 1" in any form and containing

(a) Between 5 and 25 per cent wool shall he labeled 'Part wool
not less than 5 per cent wool'.

(b) More than 25 per cent xtooI shall be labeled with the guaranteed
(minimum) wool content in percentage,

5. The -'oo 1 percentage above refers to the fibres employed and means
the percentage of -ool in the entire blanket and not in the fill-
in." alone. (This statement to appear in the Commercial Standard
but not on the labels or tickets used in connection with wool and
part wool blankets.)"

Even prior to the code, a ocording to Mr. Arthur Tesse, President of
the national Association of Wool Manufacturers, (*) the voluntary agree-
ment represented by the 6o:.unercial standard quoted_ above had been very
largely lived up to by wool blanket manufacturers. It is not apparent
that taking the standards mandatory by incorporating them in "the merchan-
dising rules for the blanket division added appreciably to their observance.

One serious difficulty in maintaining the labeling program, according
to Mr. Besse, and one which the code was unable to reach, is the lack of
cooperation by some retailers. Many identity labels attached to blankets
by the manufacturers are removed by the retail stores before the goods are
offeree, to the public. Related to this is the nature of much of the
blanket advertising run by the retail stores. Attention was called to this
situation during the code period by Mr. Robery Amors*-, President of ITasirua
Manufacturing Company (**). Referring to a study of the subject made by his
company Mr. Amory stated:

"In the last fourteen weeks 2,5?8 retail advertisements
featuring Part Wool Blankets were clipped (from the newspapers) .
Of these, 1,741, or 73.2 per cent, advertised Part Wool without
any mention of the percentage content."

The general success, however, which the industry felt had attended
the standardization efforts of the blanket division has led the industry-,
since the invalidating of the codes, to take further steps with respect
to the labeling of wool and part wool fabrics. At a Trade Conference
held in Mew York City on December 16, 1935, under the auspices of the
National Bureau of Standards, a Commercial Standard for woolen fabrics(***)
was proposed by the Industry, from which the following pertinent paragraphs
are quoted;

(*) In conversation with field representative of Trade Fractice Studies
Section, ITMA. December 13, 1935.

(**) in speech before National Retail Dry Goods Association, January 15,1' 34

(***) Known in its present form as TS-2?02

9786

-56-

5. "Should any fabric in manufacturing or processing have its
freight augmented by non-fibrous materials (sizing or metallic
compounds, etc.) in excess of 5 per cent of the tone-dry
weight of the finished product, such fabric shall be clearly
designated as "weighted".

6. "The terms '100$ wool', 'all wool', 'pure wool* and the like are
synonymous and may be utilized only in labeling or otherwise
referring to fabrics, the fibre content of which shall be IOCKj

- : wool.

7. "The term 'wool' when used witnout Qualification may be
utilized only in labeling or otherwise referring to fabrics
of which the wool fibre content is not less than 95 per cent
by wieght of the total fibre content.

8. "The term 'wool' when utilized in labeling or otherwise referring
to fabrics of which the <\too1 fibre content is less than 95 per

cent by weight of the total fibre content shall be preceded b2r a f
figure indicating the guaranteed minimum percentage of wool fibre, ^
viz., 'SO^'wool'. The figure stating the guaranteed percentage
of wool shall be as visible, clear and distinct as the word
»wool»."

Since the standardization work of this industry has been carried on .
both before and since the code, it seems doubtful whether incorporation
of CS-39-32 in the latter had any great effect in encouraging this activ-
ity.

tfith respect to the general question of standards and labeling, this
industry's efforts emphasize the necessity that labeling requirements, if
they are to be fully effective, must in some way be made applicable to
distributors as well as to manufacturers, and : that furthermore, for such
effectuation of their purposes advertising representations must also
come into line.

2. Fur Manufacturing Industry - (Code Ho. 436)

The code for this industry provided for the accurate making of furs
in the following words (Art. VIII, Sec. 4):

"I!o member of the incustry shall knowingly withold from or
insert in any quotation or invoice any statement that makes
it inaccurate in any material particular. The Trade name,
where it is not descriptive and not qualified by the true
name of the skin shall be deemed inaccurate in a material
particular. Uhen the Trade name is not descriptive, the true
name shall be printed on the ticket attached to the garment
at the tine of sale." (*)

The code for the Pur Dressing amd Dyeing Industry (Ho. 161), however,
and that for the Pur Dealing Trade (Ho. 331), contained no specific provi-
sions reciuiring that furs be accurately labeled, although they did contain

(*) Codes of Fair Competition, Vol. X. p. 282

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general prohibitions of false marking or branding of industry products.

Due to the inability of the general Retail Trade Code Authority/1 to
obtain cooperation from the various fur industries with respect to proper
marking of their products, ( *) a Trade Conference was held in Washington,
D. C. on August 23, 1934. At this conference it was agreed that fur
manufacturers and dealers would abide by the Trade Bractice Conference
rules concerning labeling nhich had been approved by the Federal Trade
Commission on : arch 7, 1928. (**) These provisions r ad:

"Resolved, That in determining what is proper and what is
improper in the naming of furs, the following rules are
hereby established;

Rule 1. In order to describe a fur, in every case the correct
name of the fur must be the last word in the description, and if
any eye or blen is used in simulating another fur, the word "dyed"
or "blinded" must be inserted between the name signifying the fur
that is simulated and the true name of the fur; as, "Seal Dyed
Iluskrat" , or ""Mink Dyed Ilormot".

Rule 2. All furs shaded, blended, tipped, dyed, or pointed must
be described as such; as, "Black Dyed Fox", or "Pointed Fox".

Rule 3. Where the name of any country or section is used, it shall
be actual country of the origin of the fur, ss "American Opossui" .
Where the name of a country or place is used to designate a color,
the fact shall be indicated, as; "Sitka-dyed Fox" .

Rule 4. Where goods are sold under a registered trade mark, the
trade mark should not, by intent or otherwise, be capable of mis-
representation by the public.

In ca.se of trade marks heretofore established in common use, the
advertisers should invariably indicate by suitable descriptive
matter in addition to the trade mark .just -hat the fur is, or better,
the trade mark should be modified so as to include the descriptive
natter." (***)

Following the conference there was considerable publicity given to
the question of the proper marking of furs, and it was stated that the
old game of "chasing the asterisk" (i.e. locating the true name of the
article by means of a small type reference not in the body of the adver-
tising text') was about a thing of' the past. For a time at least there
was a noticeable improvement in the make-up of fur advertisements.

An additional effort to obtain correct labeling of furs was attempted
by the Consumers' Advisory Board of NRA. The Board obtained the assistance
of the Deputy Administrator of the Retail Code, who agreed to interpret
Article IX, Section 1, of that code (prohibiting false or misleading

"(*) Information from : .r . Henri Sokolove, Retail T:.ade Division URA.
(**) Federal Trade Commission. Trade Fractice Conferences, June 30, 1933 p 10
(***) All Group II rules (approved by the Commission as "expressions of the
trade", but not legally required.)

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advertising) in accordance with the Trade Practice rules of the Federal
Trade Commission mentioned above. (*)

TJliile this action "by the Administrator of the retail code could
not ensure satisfactory labeling, it was aimed at consumer protection
through requiring accurate advertising. This once accomplished, cor-
rect labeling would have been more easily secured.

This industry's experience is an instance of the difficulty which
inevitably is encountered in seeking to obtain changes in nomenclature,
and in marking and labeling practice, which run counter to industry
customs which have become established over a long period of years. It
is also, as in the case of the wool textile industry, an illustration
of the inevitable relation between the question of labeling requirements
affecting manufacturers, and the practices of retailers in their adver-
tising and selling of the manufactured goods.

3. medium and Low Priced Jewelry Industry - (Code ITo. 175)

The products of this industry include articles of jewelry of medium
price, a large part being novel ty and costume jewelry. Being composed of
gold, silver, or mixtures of these two metals, these articles readily
lend themselves to consumer deception unless they are marked with some
kind of quality marks indicating the relative quantities of the precious
metals contained.

The provisions for marking contained in the code ^ere permissive
and not mandatory, and in this respect resembled the practice of the in-
dustry under the Federal Stamping Regulations of 1905 and 1906. These
pLegulations simply specify in detail exactly in what manner the jewelry
must be marked, if marked at all, and stipulate that the contents must
agree with the marking.

The code included the above regulations by reference as follows:

Article VIII, Section (k):

"To stamp, brand, mark or invoice with any work, symbol, mark
or quality mark, any article of merchandise in violation of
Federal or State Stamping Laws (or any commercial standards
covering such articles issued by the U. S. Department of
Commerce) governing the stamping and marking of gold, gold
filled, rolled gold plate, gold plate, gold electroplate,
and other gold covered articles, or articles of other pre-
cious metals" (is prohibited). (**)

(*) Letter of kiss Constance Dane to Mr. Willard Thorp, Consumers'
Division, National Emergency Council, August 29, 1934, C.A.B.
Files.

(**) Codes of Fair Competition, Vol. IV, p. 365.

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That is, no Mandatory requirement was set up that industry pro-
ducts should be narked or branded, but only that when and if marked and
branded, thfr,- should be marked in conformity with the regulations spe-
cified.

T7ith reference to Commercial Standards mentioned in the code pro-
visions above, two Standards have been accepted "oj the Industry during
1934 and 1035. These arc CS. 47-34, "Liar-king of Gold Tilled and Rolled
Gold Plate Articles other than Watchcases", and CS-51-35, "Harking
Articles hade of Silver Combination with Gold". The necessity for CS -
47-34 arose through the circumstance that the rational Stamping Act does
not properly cover modem usage of Gold Tilled and Rolled Gold Plate,
and likewise CS- 51-35 is intended to provide control for marking of
sterling silver and gold combinations (largely fraternity jewelry and
trophies) which are not taken care of under CS- 47-34.

Compliance files indicate no difficulties coning under the quoted
provision of the code. Here again, however, as in the case of silver-
ware manufacturing, the marking of products was purely voluntarv in char-
acter, and it has not been possible to determine to what extent the mark-
ings were actually used during the code period.

The provisions in CS- 51-35 "ere not satisfactory to the Consumers'
Advisory Board, which wrote to the 3ureau of Standards in April, 1935
and expressed the belief that such suggested markings as "Sterling and
1/5 10 K" would mean little if anything to the ultimate consumer. The
Board suggested that no standard nomenclature would be entirely satis-
factory short of the rational method of expressing the actual amount of
gold and silver either as a percentage of the total weight of the ar-
ticle, or if not in percentages, then in fractional form. (*)

4. Coffee Industry - (Code ITo. 265)

A form of identity labeling applying to various components of the
industry1 s product other than coffee was approved in this code Article
VI, Sec. 3)":-

"The following shall be deemed unfair methods of competition:

"Adulteration and Misbranding. The use of cereals, chicory,
coffee screenings, or other products compounded with coffee,
unless containers be plainly and conspicuously labeled to
indicate the presence of such fillers and the percentage con-
tent of such ingredients other than coffee or chicory." (**)

(*) Letter from Standards Unit, Consumers' Advisory Board to
i.r. I. J. Fairchild, Chief, Division of Trade Standards.
Kational Bureau of Standards.

(**) Codes of Pair Competition, Vol. VI, p. 275

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-30-

A single protest agaiust this provision is recorded:

"The provision is directed against a snail roaster in the
Ozarks of Missouri located at Springfield, Missouri. It
is a poor section of the State and he has "been helping
the poor people of that sectio„ by giving then a cereal
raid so-called screening mixture, and complied rath the
Federal Pure Food Laws in all particulars." (*)

The Consumers' Advisory Board also criticised the provision as
proposed, in the following terns, "but without effect:

" Ue heartily approve of the general nature and con-
tent of this section, with the exception of the last two
words: 'or chicory'. Their inclusion would nake it unnecesr „,
sary to indicate either the presence or percentage of
chicory in the coffee, and we "believe the consumer should
he informed as to the chicory content and percentage as
well as the cereal, coffee screenings or other adulterant.
Tie therefore recommend the deletion of the last two words
of this section." (**)

Available compliance records for this industry show 11 trade prac-
tice complaints concerning violations of the identity labeling provision
referred to 1IEA for action. Seven of these were closed by signing of
certificates of compliance, one was referred to the Federal Trade Com-
mission and dismissed hy it for want of jurisdiction. There is no
record found as to disposition of the other three.

The code authority for this industry complained of the failure
of II?A to support the authority in its efforts to obtain compliance,
particularly on the point of acceptance of certificates of compli-
ance. (***)

As to the general effect of the labeling provision kr. W. F.
Williamson, managing agent of the code authority, wrote:

"The provision of our Code prohibiting the use of adulter-
ants, except where adequately narked for the protection of
the consumer and of competitors, was of genuine value to
the trade. The difficulty encountered in securing complete
enforcement involved two factors: one, the lack of a

(*) Letter of I7m. Schotten Coffee Company, August. 27, . 1933.
Deputy1 s Files.

(**) Letter of Geo.B. Haddock, Consumers' Advisory Board, to Walter
White, Divisional Administrator, January 17, 1934.

(***)See also section on this Industry in part I of this Report,
Chapter Four, III, B.2.

9736

-51-

clear-cut decision as to the Committee's authority, over

adulterated coffees that are manufactured and sold ex-
clusively intrastate, and, second, the lack of uniformity
in enforcement procedure as betmeen various Regional of-
ficers of the II. R. A.

"If the Code Authority had actually had the authority it
was presumed to have had under the Act and under the Code,
it woxilc have been Doscible to have eliminated entirely
the fraudulent adulteration of coffee, and the administra-
tive -oroblem rrotild have "been relatively simple."

5. Llacaroni Indast ry - (Code ITo. 236)

In addition to various other standard provisions for this industry
previously referred to under sxibsection A, mandatory minimum standards,
above, this code contained also a requirement as to identity labeling:

"A macaroni product shall be deemed to be misbranded if it
fails to conform to the following standards and requirements:

"Standards of Identity. If it purports to be or is repre-
sented as a macaroni product for which a definition of iden-
tity has been -orescribed by this Code and fails to comply
therewith. (Sec. 2, a)

"Commencing on the effective date of this Code, except -as
provided in Article VII, Section 3 (c) , if its label fails ,
to bear a trae statement of the names of the farinaceous
ingredients used in order of predominance by weight.
(Sec. :;.,c,2.)

"hacaroni products except water noodles or noodles (egg
noodles) made from semolina, farina, flour, or mixtures
thereof, shall bear a trae statement of the names of the
farinaceous ingredients used, except that all labels,
wrappers, cartons, or otner printed packaging materials
on hand or in stock on the effective date of this Code
mill be exempt from this provision, provided that the
manufacturer files with the Code Authority within ten (10)
days from the effective date a complete certified inven-
tor]- of such supplies, uith subsequent inventories every
sixty (60) days; and further provided that such labels,
wrappers, cartons, or other printed packaging materials
do not bear statements -.Thich are false or misleading; and
further provided that the names of the farinaceous ingre-
dients appear on the shimming containers." (Section 3,c)(**)

(*) Letter to Assistant Demuty Administrator Chas. T. Estes,
June S, 1935,

(**) Codes of Fair Competition, Vol. V, pp. 532-533.

S786

-62-

Tlie industry apparently had considerable trouble with this parti-
cular provision, substitution of inferior flour products being one of
the frequently employed "chiseling" devices. Field Office tabulations
of trade nractice complaints shovr 30 violations of the labeling provi-
sions referred to 1JJ3A for action. Other available data indicate that a
large proportion of these had to do with failure to identify ingredients
properly on the label .

In this code, also, as with that of the coffee industry, there ws s
complaint by the code authority that lach of 1'BA support in compliance

was a principal obstacle to making the code provisions concerning stand-
ards and labeling effective. (*)

6. Hosier3r Industry - (Code IIo. 16) .■ ••

The problems involving standards of identity in- this industry arise
from the fact that the ultimate consumer can not "oy inspection determine
(a) the grade of the material, or (b) the nature of the fibre (silk,
rayon, etc.) of which it is composed.

Prior to the code this industry had done some standardization work
of various hinds, but none apparently dealing --ith the labeling of in-
dustry prodxicts with respect to the identity of the component fabrics.

Provision for identity labeling mas made in the code in the follow-
ing terms:

12. "misrepresentation of materials.- (a) If any definite sec-
tion or sections of the hose be made of a material entirely
different fro:: that of the bulk or body of the stocking, when
such material gives the appearance cf silk, the hose must be
stamped with the names of both materials.

(b) IIo material or content shall be stamped on any hose un-
less it represents at least five per cent (5 j) of the hose by
weight. When two or more contents exist, if any content is
stamped on the hose, all contents constituting five per- cent
(5,j) or more of the reight of the hose shall be stamped and
in the order of major content." (**)

ho contest arose over these provisions in the code-making stage.
With reference to compliance with the standards provisions in general,
it is difficult to arrive at a conclusion. The code authority for this
industry enjoyed the reputation of being one of the most effective in
code enforcement. (***)

(*) Cf. the other sections of this Report dealing roth this industry;

Subsection A, 4, referred to above, and Chapter Four, 111,3,6,

of Part I, misrepresentation and Deception.
(**) Codes of Pair Competition, Vol.1 , p. 246, See also modifications in

Amendment 6, April 6,1935, ibid. Vol XXII, p.

(***) Code History of the Hosiery Industry; Deputy Piles, Y.2.. A.

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Houever, the difficulty of obtaining compliance with the fair trade
practice provisions was admitted in the following statement from the
code authority (*):

"Compliance -,'iti: fair trade practice orovisions is more
difficult to secure. Paturally much commliance- requires
the highest cooperation by the manufacturer hinself. A
good lany manufacturers, hoveve", try to take advantage
over competitors, and such transactions are difficult to
reveal or prove "because both parties thereto naturally
protect each other."

As must be the c?se with any consumer goods of this general type,
the task of inspect ior. and policing as to violations of the labeling
requirements was undoubtedly heavy, -and probably impossible to perform
excent in a general, may with the facilities available. (**)

(*) Letter fro;:: Director of Code Authority to Ur. A. 0. King,
Deputy Administrator1 s Files, Hosiery Industry, IT.H.A.

(**) For detailed general discussion of standards in this industry
see Exhibit, E, Appendix II, of this report.

?786

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E. Substandard Labeling

'Thereas labeling for identity aims t i suppl3r information as to the
materia1, content or composition of merchandise, and grade labeling
indicates the relative quality of that content throughout the entire,
range of quality variations of the article, substandard labeling simplj'
divide;; an industry's products into two broad classes, - nne class com-
prising all grades Thich are regarded ar at least meeting a general
minimum standard, for the goods, and the other comprising all goods --hich
fall bclo-' the single dividing line.

Substandard labeling, if less fully informative than gra.de labeling,
has a. very considerable consumer value as a orotective device, provided
its form of application is not such a.s Till tend to exaggerate unduly in
the buys 's mind the undesirability of the substp.nda.rd merchandise, and
so impel him to avoid*, goods '■'hich have utility and a legitimate market
in their own price range. An ertamp1 e of substandard labeling '-'hich is
informative, while avoding the extreme referred to, is found in this form
of phrasing, prescribed by the pood and Drug Administration - " Belo"
U. S. Standard - Good-Food -Hot High Grade." (*)

On the side of industry, substandard labeling frequently finds
favor as offering a means of discourage the extreme "chiseling" with
respect to quality upon "'hich destructive -orice-cutting is often based,
while not involving such thoroughgoing commitment as to the quality of
products at a.ll levels as is called for by grade labeling.

Several examples of substandard labeling in the codes have been
referred to in connection "ith the section in Mandatory Standards above
(Mayonnaise Industry, Plumbing Fixtures, etc. ). Various other instances
of the type of labeling requirement a.re dealt with below.

1. Hat Manufacturing - (Code Ho. 359)

This:' code "as marked by a special controversy over the subject of
substandard labeling of made-over hats, revolving primarily about the
urecise form of the designation "hich was to be employed.

The cod.e covered the industry engaged, in the manufacture of men's
straw and felt hats. This industry is a considerable one. In 1929 its
total production amounted in value to approximately $130,000,000. In
1931, however, this figure had fallen away to $79,000,000. Employment
in the industry during the latter year averaged 13,450 -'orkers.

The code authority for the industry "as corraosed of members of the
Hat Institute, Inc., and. affiliated associations. These groups rep-
resented 70Jo of the volume of business of the industry, but only "T.-
of the membership of the industry. There "as no member of the Made-Over
Hatters Association represented on the code authority.

The provision as to labeling of made-over hats as -oroposed for
inclusion in the code, and as subsequently approved "ithout change, "as

(*) See Canning Industry, Apoendis II, Exhibit C of this report.
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as follows:

"Atricle VI, Section 15. i.!ade-Over- Used-Hats. - Selling or
o^Tering for sale, old, worn, used or discarded hats which have been
cleaned and/or fitted with ribbons, sweatbands or linings, unless
and until there is stamped upon the exposed surface of the sweat-
bands of such hats the words "I.lade-Over-Used Hat" in metallic letters
at least one quarter of an inch high or clearly embossed letters as
prescribed by the Code Authority." (*)

In support of this provision the following statement was made at
the code hearing:

"The importance of including in the Code the Federal Trade
Commission ruling relative to the marketing of used, second hand,
made-over hats seems apparent. The ruling calling for nine firms
to cease and desist from the unfair practice of selling used, se-
cond hand hats not so marked should be sufficient reason for its
inclusion. Many thousands of dozens of these old hats are being
sold to the public without marking.

"The State of Connecticut and New York have passed laws en-
forcing manufacturers to indelibly mark on the sweatbands, in Eng-
. lish, the words, 'used, second hand hat.1 In Connecticut, the Com-
missioner of Labor has jurisdiction over the enforcement of this
law. In New York the law is in the penal code with heavy fines
for violation. It should be required and placed in ou*- Code that
all manufacturers, wholesalers, jobbers and retailers display a
sign plainly printed in the English language, so that same may be
easily read from a distance of fifty feet, that used, second hand
hats are sold here, and that each hat of this description be in-
delibly marked 'used1, 'second-hand hat' with the manufacturer's
name and address on the sweatband thereof." (**)

It appears that the reauirernent of the Federal Trade Commission re-
ferred to was that made-over, second-hand hats must be labeled, "made-
over", "second-hand", or "used", but not that the word "used" must be
employed along with "made-over", as called for in the code. This is an
important distinction to note as it seems to have been the crux of the
controversy which later developed.

The provision as proposed was adopted without recorded protest by
any elements of the industry, or of any of the N3A advisory groups. The
Consumers' Advisory Board representative sought to bring into con-
sideration the subject of futher standard reauirements, but with little
response from the industry representatives, as the following exchange of

(*) Codes of Fair Competition, Vol. VI. p. 201.

(**) Statement of Samuel Shethar, of Paul B. Hendel, Heading, Penna.
Transcript of Hearing, August 17-18, 1933, p. 55.

9786

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views indicates:

L. F. 3offey, (Consumers Board, WBA) "I would like to know if
there are established standards of ouality in hat manufacturing, and
if so, whether those standards cover the specifications endorsed \>y
the Federal Specifications Board, the Bureau of Standards, "

I!r. Ferry, (President of Ka-t Institute) "*7hen vre speak of
standards, we speak of cualit3'-. I would say that is impossible.
There are no standards that govern quality. In making up this
quality of a hat, there are 5 to 8 kinds of material .that are
blended through a more or less secret rjrocess in each factory. The
cost is the only thing that governs the ouality."

Mr. Boffey: "77e have an amendment that second-hand or old hats
should be labeled, "ill it not be possible to go further than that?
There is an amendment that the ERA label should be attached to new
hats. 7/ould it be possible to establish a label that will enable
the purchaser to know that he is getting for the price he pays the
quality he should get?"

Mr. Ferry: "...I do not think that is possible, because hats go
through channels to the retailer, and eventually to the consumer.
Some retail stores manufacture their own goods. Some factories pro-
duce for wholesale, which eventually gets into the hands of the re-
tailer. I think it would be impossible to control that." (*)

Shortly after approval of the code the ERA was petitioned by the
G-ilman Company of New York City, and twenty others, for exemption from
the requirements of Article VI, Section 15, claiming that the combined
term "made-over-used hats" was not accurately descriptive of the re-
novated product, and that the reouirement descriminated against their
trade. The application was denied. (**)

The controversy continued, however, and numerous meetings were held
between the code authority and members of the i Jade-Over Hatters Association
in an effort to compose the difficulty. A compromise was finally agreed
upon which took form in the following official HRA order conditionally
staying Article VI, Section 15, subject to the following:

"PROVIDED, HOWEVSH, that members of the industry manufacturing
hats included under the terms of said Article VI, Section 15, shall
mark such hats with the words 'Made-Over Hat', 'Second-Hand Hat1, or
'Used Hat', in legible embossed letters of at least three sixteenths
(3/16) of an inch high, in a straight line, separated from any other
design; except that so-called 'blockers' (old hats which are cleaned
but not re-trimmed) shall be marked with the word 'blocker' in
legible, embossed letters at least three sixteenths (3/lS) of an inch

(*) Transcript of Hearings, op. cit. supra, p, 242.

(**) Administrative Order 259-7, June 11, 1934. Code lecord Files.

9786

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high, in a straight line, separated from any other design; and
"PROVIDED, FURTHER, that this Order shall in no sense relieve the
operations of any Member of the Industry from the -• pplication of
the provisions of any State or Federal law, or of any Order, de-
cision or ruling of any Governmental body or agency." (*)

A concise statement of the essence of the controversy and the view-
point of the made-over hat manufacturers is contained in the following
extract from a memorandum commenting on the above Order:

"The present Order will have the effect of disposing of a con-
troversy of long standing. This controversy has arisen primarily
as a result of a variation in the standards set by the Federal Trade
Commission and the Code. Thereas the Federal Trade Commission has
for some time reouired that this particular type of merchandise be
labeled simply 'Hade-Over Hat', the Code has reauired that they be
labeled 'Made-Over Used Hat', Manufacturers of this type of mer-
chandise have objected most strenuously to the use of the latter
term, alleging that it has made it practically impossible to dis-
pose of their merchandise. They further allege that the term 'Made-
Over-Hat' adequately describes the nature of the product and that
the. term 'Made-Over Used Hat' is not a true description. The re-
solution adopted by the Code Authority at its meeting held March 14,
1935, is a result of a long series of conferences and has the effect
of making the Code standards identical with the standards set by
the Federal Tra.de Commission." (**)

On the sar e subject the Consumers' Advisory Board commented - "The
reconstruction of used hats results in the production of a sanitary
article which is improperly described if the word 'used' is applied to
it." (***)

A very full statement of the new-hat manufacturers' side of the
case is presented in the following extracts from an "Economic Affidavit"
presented in connection with the provision:

"A form of competition that members of the industry have found
it difficult to control or compete with is the marketing of made-over
hats that are sold to the consumer as a new hat. This competitive
practice was -conceived during the period of the war when hat manu-
facturers, especially felt hat manufacturers, found it difficult
to purchase raw material and semi -processed material to manufacture
hats and satisfy the market demand. During that period of time

(*) Administrative Order 259-42, May 11, 1935. Code Record Files.

(**) Memorandum form Burton E. Oppenheim to M. D. Vincent, Div. Adminis-
trator, April 17, 1935, Deputy File, Folder "Stay of Art. VI, Sec.
15." . .

(***) Memorandum to Deput3-r Administrator, May 8, 1935. Deputy Files.

9786

selling made-over hats proved to be a -profitable operation. Many
operators continued in this field after the war. Today there are
approximately 20 plants concentrated in the city of Tew York, and
some in Chicago, ^ho. do nothing but re-make old hats and market them.

"The manner in. which they operate is to purchase old, worn-out
hats for approximately $1.00 a dozen, clean the body of those hats
and have it so prepared that for a minimum of cost they can put them
into condition for resale. The legitimate operator pays $8.00 .a
dozen for the body of his hat and them, by employing specialists,
prepares that body into a commercial object* The hats that are
cleaned and blocked and made over can be distributed at a good pro-
fit for $9.00 a dozen. The same hat cost the legitimate manu-
facturer $24,00 a dozen to distribute-. Through this competitive
subterfuge, men. are attempting to capture that part of the market
appealing to those persons who are financially able to purchase only
a low-priced hat. The majority of this class of product is shipped
to the South.

11 If this activity wa.s a competitive element and not a destruc-
tive element and entered the field of commercial activity as such,
manufacturers would be in a position to protect their interest and
the interests of the public' The mad-over hat opera/tor does not
live on competition. He depends entirely upon the activities of
the legitimate manufacturer to maintain a market for his product
and furnish him with the material used. This material comes from a
'consumed market'. This class of manufacturer has no financial
responsibility. He is not required to employ skilled employees.
He disregards trade marks and trade styles. He is most active
during a period of depression, and depends almost entirely upon a
disorganized market to produce the greatest benefits to him." ( *)

From the foregoing expressions of opinion it would appear that the
insistence upon the more derogatory form of substandard labeling was
directed primarily toward an undesirable form of competition rather than
practices prejudicial to the consumer. The Consumers Board feeling seems
to have been that.. labeling as "made-over11 was suff iciently informative to
the consumer; and the above expression of the majority industry view states
that the greater part of the controverted product is shipped south and
sold, "at a price that cannot be equaled by a legitimate manufacturer",
to "persons who are financially able to purchase only a low-price hat."
This would indicate a legitimate market for the prcduct.

The situa.tion seems to illustrate again a tendency to employ a de-
vice which is inherently needful for abating unfair practices, to a de-
gree which tends to divert it to the ends of competitive restriction. It
also emphasizes the very individual nature of the problems concerning
standardization which confront different industries, and the significance
of the precise form of the standards and labeling requirement which is
employed.

( *) Industry Study '.Tori: Sheet prepared by J. C. 'Torthy, former

Assistant Deputy in charge of the Code. (Copy in Trade Practice
Studies Section Files.)

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2. Broom Manufacturing - (Code Ho. 465.)

This was one of the later codes, being approved on June 18, 1934.
The n bure of the industry is indicated by the following quotation from
the report forwarded with the code for approval:

"(There are a ) large number of one and two-man shops (man?/ on
the farms or as a fill-in occupation.) This is an unemployment
industry. A handicapped person can quickly learn to make brooms,
peddle them from door to door, and make some wage for himself, even
though small. This type of labor makes up about half of the total
for the industry and will not come under this code." (*)

Article IX, Section 5, of the approved code contained the following
provision concerning substandard labeling:

"Substitutes.- Any broom containing any particle, piece or part
of any grass, straw, or fibre as a substitute for broom corn shall
have attached thereto, in such manner as to be plainly visible to
the purchaser thereof, a separate label at least one inch removed
from the regular label, plainly printed in not less than 10 point
bold face type in black letters on white paper, the legend: 'This
broom contains (here give thc3 common trade name of the substit\ite) ,
a substitute for broom corn.'

failure so to mark is a violation of this Code." ( **)

One protest on the subject of standardization is recorded;

"This ouestion of standardization has been before the trade
for a number of years and after studying the proposition carefallv,
we find that all the standardization plans are impractical and will
not '-or1-. It can only cause a lot of trouble with no desirable re-
sults. T7e therefore recommend that all standardization -schemes be
left out of the Code." (***)

The nature of the product appears to be such as to invite substitii-
tions. A report of the Administration Member of the code authority states;

"Among other things a scarcity, and consequently high prices of
broom-corn encourages the use of inferior substitutes .. .This is a
product in which it is comparatively easy to incorporate substitute
and inferior materials, and where misbranding, not only as to quality
but as to size, was general." (****)

(*) Codes of Fair Competition, Vol. XII, pp. 20-21.

(**) Ibid. p. 33.

(***) Letter of Chicago Broom Manufacturers Association to Ernst &
Ernst, Washington, D.C. Transcript of Hearing, March 9, 1934,
p. 46.

(****) Report of W. S. Giele, Consolidated Industry Tile, Administration
Member.

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Qn this same subject the Trade Practice Complaints Committee of the
code authority reported:

"The principal complaint reaching the cole authority is that of
failure to attach the siibstitute label to brooms containing straw,
grass, or other fibers used as substitutes for broom corn." (*)

However the records indicate only 8 trade practice conrolaints re-
ceived by the committee. The code authority appears to have been gen-
erally active^ and to have carried on a considerable amount of educational
work during the code period. On February 1, 1935, a circular was ad-
dressed to all members stressing the labeling reauirements and illustrating
proper compliance with these. The circular stated:

"Judging from the various samples of labels that are referred
to the Code Authority there seems to be a misunderstanding or lack
of knowledge as to the size of type required. lelow is given the
form of label printed in ten (10) point bole' faced tjrpe in black
letters as designated by the code;

"It is recommended, in order that the label will extend en-
tirely around the handle of the broom, so the ends will overlap
and sdal, that the label should measure approximately 3 l/2 to
3 3/4 inches in length and 1 l/8 to 1 l/4 inches in width, the
printing should be nearer one end so as to provide space for the
ovc-r'~lap - as illustrated." ( **)

This would indicate that there was a general tendency to comply
with the provision, even if the method employed was not exactly in accord
with the requirements. The circular makes no reference to failures to
comply entirely with the provision.

3. Bleached Shellac - (Code Ho. 403.)

Article VIII, Section 5, of this code provided as follows concerning
standards r>nd labeling for the industry's products:

"Selling any product which is not in full compliance with legal
and trade definitions and free from adulterations. Trade defini-
tions include those contained in the Code or approved by the national
Bureau of Standards and legal definitions include those pronounced.
by the Courts and those rulings of the Federal Trade Commission
which provide that (a) the terms 'shellac' or 'pure shellac' shall
not be used in describing any product unless such product consists'
solely of shellac, either dry or dissolved in alcohol, and that such
terms mean that the product so described is free from adulterations,

( *) Llinutes of Meeting of the Committee, St. Louis, !'o . , March 1, 1935,
Consolidated Industry File, Trade Practice Complaints.

(**) Circular from H. F. Ledlie, Secretary, Code Authority Broom ilanu-
facturing Industry, February 1, 1935. Commodity Information File,
KSLL.

978S

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uoclif ication or reduction, and consists solely of shellac gun,
either dry or dissolved in alcohol; (b) the terms 'shellac com-
pound', 'compound shellac' or 'shellac mixture' shall not be used
in describing any product, compound, or mixture unle ss such pro-
duct, compound or fixture consists of alcohol in which has been
dissolved resinous material only, of which resinous material not
less than fifty percent by weight consists of pure shellac gum;
(c) any product, compound, or mixture the soluble content of which
consists of less than fifty percent by weight of pure shellac gun
shall be described only as 'shellac substitute.'" (*)

The provision as originally proposed by the industry was consider—
ably less specific, simply prohibiting in general terms the selling of
products "not in full compliance with legal and trade definitions and
re ciui regents, and free from adulterants." (**)

The Consumers Advisory Board urged the inclusion of more definite
references to existing standards.

The above provisions, it will be seen, set no limits upon pro-
duction or sale of substandard shellac, but followed the Federal Trade
Commission in providing for three levels of labeling, based upon standards
of content, (1) "pure" shellac, entirely free from adulterants; (2)
shellac "compound" or "mixture" containing not less than a specified per-
cent of pure shellac gum; and (.3) "shellac substitute" for anything
falling below the above minimum.

There is no evidence as to complaints of violations of this pro-
vision, and it seems probable, in view of the extent of previous stand-
ardizing work of the industry itself in cooperation with the Bureau of
Standards end the American Society for Testing Materials, and the atti-
tude of the Federal Trade Commission, that the standards situation was
to a considerable degree in hand even before the adoption of the code.

4. Hosiery Industry (Code ilo. 16)

In connection with identity labeling, above, there was pointed out
the need for information in connection with hosiery products arising
from the fact that the -ourchaser - at least the ultimate purchaser -
ordinarily is not able to determine by inspection either the nature or
auality of the fibre of which the goods are composed.

It is eaually difficult for the consumer purchaser to detect minor
imperfections in fabric or worljaa.nship which make the difference between
standard or first-grade hosiery goods, and "seconds", "irregulars", or
even "thirds." Owing to a 'oersistent tendency in this industry for "sec-
onds", etc. to be marketed without any indication of tueir being such,
often specifically represented as first-grade products, there was recog-
nized a, need for substandard labeling requirements in addition to those
with respect to identity.

( *) Codes of Pair Competition, Vol. IX, p. 437.

(**) Text of proposed code, Code Becord Section files. Also Deputy's files,

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Efforts had. been made by the organized industry to deal with this
subject prior to the code period. Certain generally recognized trade
standards as to first, seconds, etc. existed and were employed in the
industry itself and by the retail buyers of hosiery, and the custom of
marking "seconds" as such aras observed to some extent. ( *)

To make this practice general, when the code was adopted there
were included, in addition to the identity labeling requirements and
other standards provisions, the following rules as to substandard
labeling:

ARTICLE VIII -

"8. Sale of merchandise other than first duality. -

(a) The sale of irregulars or seconds in the packing
of firsts, with the intent or effect of deceiving
the purchaser or the ultimate consumer, is unfair
trade practice.

(b) All fiill-fashioned hosiery',, and all seamless hosi-
ery other than bundle goods, which is not first
quality, shall be stamped or transferred either
"Irregulars" or "Seconds" on the toe or sole of
each hose, except that goods of a lower classifi-
cation commonly known as thirds must be stamped

or transferred "Thirds."

(c) All stamping of this nature must be indelible.
The words "Irregulars", "Seconds", or "Thirds",
must be in full-face type letters of not less
then three sixteenths of an inch in height.

9. Sale of mill runs. - To sell hosiery commonly known
as "Mill Runs" containing hose which according to
proper inspection as generally practiced by the
industry would be classified as "Irregulars" or
"Seconds", with the intent or effect of deceiving
the ultimate cons\uner, is unfair trade practice. "( **)

Later this provision was clarified and amplified by Amendment 5,
approved April C, 1935, in the following terms:

"3. Classification of Hosiery. - (a) Hosiery shall be
classified as follows:

(1) Firsts: There shall be only one classification
of firsts for any given style.

(2) Other than firsts (Imperfects): Under this
heading there may be the following sub-classifica-
tions only:

Irregulars

Seconds

Thirds
A mill choosing not to have four classifications
may eliminate classifications of either "Irregu-
lars" or "Seconds."

"("*) Bulletin of National Better Business Bureau, Inc., June , 1927.

( **) Codes of Fair Comnetition, Volume 1, p. 246.

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(t>) The sale of a lot of hosiery, containing more than
one of the above given classifications, as "Hill
Runs", is an unfair trade practice.

(c) All hosiery which is not first quality shall he
stamped or transferred either "Irregulars", "Sec-
onds", or "Thirds" on the toe, sole, or outside
the welt of each hose according to classification.

All such marking must be visible and indelible,
in full face type letters of not less than 5/32"
in height, except that in the case of infants'
hose the letters may be l/3" in height.

(d) The end label of all boxes, containing goods other
then first qxiality, shall be marked in accordance
with the stamping of the goods therein,- in full

face type letters of not less than " in height."(*)

It 'Jill be noted that these provisions set no uniform standards for
grading as to "firsts", "seconds", etc., this grading being left to the
practice of the individual manufacturer. These practices were rendered
fairer uniform by custom, however. Also, the substandard labeling pro-
visions applied only to full-fashioned and seamless hosiery. The Con-
sumers Advisory Board sought to extend the requirement to apply to cir-
cular knit hosiery as well, but the industry held that there were techni-
cal difficulties which precluded such marking.

The general remarks as to the difficulties of obtaining full compli-
ance with the marking provisions of this code presented with respect to
identity labeling, subsection D, 6 above, apply likewise to substand-
ard labeling. In addition there was a tendency for trade buyers to
bring pressure to bear to obtain from the manufacturers unmarked sec-
onds and irregulars.

Hr. Earl Constantine, former Code Director for the industry,
pointed out (**) the difficulty of holding members in line with these pro-
visions, due to the refusal of some retail buyers to purchase "seconds"
if marked as such, or their willingness to pay a higher price for such
goods unmarked than if marked.

Since the passing of the code, Mr, Constantine also stated, many
manufacturers are continuing to mark their goods, but the voluntary com-
pliance is not so good as was the code compliance, in spite of the con-
stant efforts made by the hosiery manufacturers' trade association to
keep its members in line.

A more full discussion of all aspects of this industry's standards
experience \uider the codes, as well as of subsequent efforts which have
been made "by the industry and by consumers' representatives to increase

(*) Codes of Fair Competition, Vol. XXII, pp. 362-363.

(**) In conversation with representative of Trade Practice Studies Sec-
tion, December 13, 1935.

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the standardization of hosiery products, will be found in Exhibit E, Ap-
pendix II, of this report, below.

5. Safety Razor and Safety Razor Blade - (Code Ho. 489)

This code contained the following substandard labeling provision,
in Article VIII, Section 17:

"Ho member of the Industry shall sell blades 'seconds' (sic)
or resharpened used blades unless they are clearly marked as such
on the package, merchandise cards, and advertising material in con-
nection with which they are sold." (*)

This- provision, it will be noted, attempted to carry the substand-
ard informative requirement even beyond labeling, and into the general
field of advertising.

Ho protest of the provision was recorded in the hearings on the
proposed code. There were, however, frequent references to misrepre-
sentations and frauds upon the consumer, unscrupulous distribution meth-
ods, etc. in connection with the use of the names of large manufacturers*
products to describe similar goods made by the smaller manufacturers.

The industry i?icluded seven manufacturers of razors. But there were,
it was clained, hundreds of brands of razor blades on the market, mo.de to
fit one or nore of the types of holders manufactured by these seven. The
use in advertising and labeling of the name of the maker of the holder
which such blades would fit - "made for the Gillette type razor", etc. -
was greatly objected to by these makers. The blade makers, on the other
hand, claimed that the names of the holders had become "generic". Differ-
ing court decisions had upheld both sides of the controversy.

The code contained various labeling requirements as to name of maker,
origin, etc., but no other standards provision than Article VIII, Section
17, above. The Consumers Advisory board had sought to have an enabling
provision calling for a Standards Committee incorporated in the code, but
this suggestion was not acted upon.

There is no indication as to difficulties in compliance, with re-
spect to the substandard labeling provision. Trade practice complaints
were almost wholly concerned with sales below cost and the use of manu-
facturers' names as above.

6. Retail Rubber Tire and Battery - (Code Ho. 410)

This code contained the following provisions with respect to the
marking of several types of substandard merchandise:

"Article VII -
Sec. 25. Recapped or retreaded tires must be marked
•Recapped.' or 'retreaded'.

(*) Codes of Fair Competition, Volume XIII, p. 216.

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Sec. 29. Ho battery shall be sold as 'rebuilt1 un-
less all the plates and separators shall
he new.

Sec. 30. 'Rebuilt' and 'repaired' batteries must he
so marked." ( *)

There seems to have been no controversies whatever over adoption
of these provisions, and no difficulties- as to compliance, as indicated
by the following quotation from the Code Authority:

"These provisions (those quoted above, among others) prohibit
only those practices which are already either unlawful or generally
considered bad business practice. We have had, during the entire
life of this code, no cases of violations called to our attention. "(**)

In audition to such specific provisions concerning labeling of
substandard goods, it may be noted that a great number of the codes pro-
vided that the marketing of seconds, discontinued or obsolete goods,
damaged or shopworn numbers, etc. was t o be subject to such conditions
as the code authority might prescribed - which conditions might or night
not include labeling requirements. These provisions, of course, were
aimed primarily at prevention of evasions of the various minimum price
provisions .

Generally speaking the substandard labeling provisions seem to
have been reasonably well complied with, and to have aroused no parti-
cular difficulties where they were employed simply to achieve their pri-
mary purpose of supplying due information, and not applied in a. manner
calculated to have restrictive effect or to subserve competitive advan-
tage*

.Legally, as contrasted with the provisions attempting to prohibit
entirely the sale of substandard goods, the right of the State and fed-
eral governments to impose substandard labeling- requirements, seems to
be thoroughly established in principle ■■(***-) .although there might in any
individual case be a question as to the specific form of substandard
designation which might properly be prescribed.

( *) Codes of Fair Competition, Volume IX, p.. 535.

(**) Code History, F. TJ. Lipps, NRA, June 27, 1935, p. 63.

(***) See Chapter IV, Part II of this report, below.

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F. Simplification

a a ^lt 1 practice is not, strictly speaking, a question of stan-

^"C1^ ^l0SClT r°lated t0 i£' lt does not concern itself with
quality hut with number and aiversity of items. The primary object of
,i I ^ Practice program is to reauce the excessive variations in
size style, color, _ or other physical characteristics of the product
iSn ™thS S1ZGS ■■*>* containers, or quantities or amounts, in
whicli unit sales may be made. Such programs are generally carried out

t L^iduli°f f %lfeti0nal 3— of Standards/and adherence to hem
by individual industry members is purely voluntary.

t^aJlTJ^- industry standP^*t the 'objects of simplification are
., t , ffxc" n(T? and. /conomy, the elimination of needless productive
items \!wlnn °f invento^ prying costs, concentration u.on

items for which there is actual demand. The consumer's interest in

^trZl fT " iarS9ly nCgative - thG Prevention of a progiam being
carried to such a -roint as to deprive him of a sufficiently l«rgo

he Ant? n rylGS and.sizes fe0 m^ *±b real needs. Theoretically

ejected bv rrSnl o/^"^ ^^^ in that P****** the savings
i™^* • T °f the Pr°gram will find some reflection in a

mendaSralrS^8-'^^ *? S°me termS Simplified Practice Pecom-
, ad.1SS11Cd by the Sureau of Standards. These did not

Sire Z tlTellTl X ^ °T "° Pr°blemS °f «»plla»»e except
r^nlXZ or'wL ?v tne Code Pulsion, the specifications were made
ScTas^rice. 7 *W8 link°d in S°mc Wa* to othGr Provisions,

made Sr^W gSen^vf^ T^ *£*** "-*«*■

Provisions iJT g ln sutsection B, Other restrictive

^ SSltoySfS.Pru2S o^tSeT °f W^" P-visions
dealt with in detail in Ap'endiv Tl nT £™ ^t t0 bC consldercd ls
briefly summarized here. PP 1S rCp°rt* th°y are vcry

1. Wood Cased Lead Pencil - ( Code No. 291 )
rrirn^/iZ : I. '• md taiton st0I>s t0 to"! Simplified

oori;ain classes of product.

nha -■^^^s^ysTE^Er "* l6\r aro™d by

■ton, Article VIII. (2) ' ' purfuant to » enabling

pro vi si

(*) Uodcs of Pair Competition, Vol." VII, prg

c 12:

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Prior to this the industry had submitted a schedule of mandatory
minimum trices under Article X, Section 4, which would in effect have
required that all yellow pencils sell at 5 cents. This was op-oscd
by the Consumer's Advisory Board and other UFA groups as attempting
to set up an artificial price standard having no basis in the quality
of the -oroduct; and further on the ground that, as admitted by the
industry, yellow pencils have for some reason the greatest sales
appeal and are the most widely marketed.

What the combination of the simplified practice and the minimum
price schedule would have done was to require that no pencil in the
color most popular with the public could be purchased at a price less
than five cents. The minimum price schedule was, however, never approTF-

There is no record that any attempt was-. hade to use SPR 151 purely
as a simplification effort after disapproval of the price schedule(*).

2. Paint and Varnish ( Code Ho. 71")'

The Paint Industry code provided detailed simplification
requirements limiting both as to number of possible shades, grades,
etc. of product which might be manufactured, and also as to number of
sizes of containers in which the product might be marketed(**). The
provisions were based in part upon Bureau of Standards recommendations,
v/hich, however, were expanded and made mandatory by the code.

The sinnlification limitations as to the product itself do not
appear to have met with opposition when adopted, and only two complaints
as to the observance of the provision are to be found.

With respect to the requirements for limited number of container
sizes, the industry also presented a schedule of mandatory price
differentials for the different size packages provided. This was
opposed by representatives of the consumers and the Consumer's
Advisory Board, on the grounds that the proposed differentials unduly
penalized the purchaser of the smaller sized packages.

An industry group also opposed the proposed schedule, claiming
that is set up prices greater than were justified by the additional
costs involved in packaging the smaller sizes(***) . This proposal for
differentials was not accepted in the code. (****)

(*) For location of a detailed summary of the standards history of thi
code see Appendix II, Table of Contents, of this report.

(**) Code, Schedule A - Code of Pair Competition, Vol. II, page 184.
Schedule B, adopted by Amendment 1, included similar provisions
for the Putty Division,- Ibid, Vol. VII, page 643.

(***) Transcript of Hearing, pp. 180, 204.

(****) See location of detailed summary, Table of Contents, Exhibit I.

9786

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Al though marketing of low-grade paint was admittedly one of the
serious industry problems throughout, no attempt to control as to stan-
dards of quality for paint was made under the code. Definite time
guarantees on the life or service of the products of the industry were,
however, prohibited. (*)

3. Mayonnaise ( Code Ho. 349 )

The Mayonnaise Code adopted, in addition to its other standards
provisions, simplification specifications for containers limiting the
sizes used to 4 oz., 8 oz., 16 oz., 32 oz., 128 oz., and gallon.

multiples. It further provided '' and the use of containers of

any other size is hereby expressly forbidden". The text of the -nro-
vision follows - (*'*) :

"Section 1, 4 oz., 8 oz., 15 oz., 32 oz., znc 128 oz. containers
and whole gallon multiples thereof are hereby declared to be the
standard sizes for containers of the products of the mayonnaise
industry.

The aforementioned ounce measurements shall be applied in
terms of fluid measurements, and the aforementioned 16 oz.,
32 oz., and 128 oz. containers snail be labeled in terms of
pints, quarts and gallons respectively.

"Section 2, Standard sized containers only may be used by members
of the industry, and the use of containers of any other size is
hereby expressly forbidden, provided, however, that members of
the industry who at the time of approval of this code are
. selling products of the industry in containers not of the

standard sizes above set forth may continue to do so until their
present supply of such odd sized containers is exhausted, but
in no event shall such use be continued after six months after
the effective date of this Code, and no purchases of such odd
sized containers shall hereafter be made by any member of the
industry. "

-'•nese provisions were protested by one concern which claimed it
had developed an extensive business based upon two odd-sized containers,
- 3s oz. and 11 oz. respectively - not included among those permitted
by the Code. They further claimed that the provisions were discri-
minatory and unjustified, and would be destructive of their business.

The industry attitude was that the permitted sizes were sufficient
to meet the requirements of the trade, and that odd sizes tended to
create confusion in the mind of the purchaser. There was some evidence
that competitive issues were also involved.

Following the granting of several temporary stays of the provision
relating to container sizes, a compromise agreement was reached whereby
the company in question was permitted to adopt a 12-cz. size in place
of the 11-oz. size previously in use, while abandoning the 3-V - oz.

(*) Code, Article XVIII, (b); Codes of Fair Competition, Vol. II, p. 180,
(**) Codes of Fair Competition, Vol. VIII, p. 282.

9786

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4. Fertilizer Industry ( Code ilo. 67 )

The principal problem related to standardisation in this code had
to do with reduction of the number of grades of fertilizer made, in the
interests of economy and lowered costs. Minimum standards of content
for mixed fertilizers and mandatory marking of formulae on the
containers were already matters of law in most States of the Union.

Since fertilizers are sirmly physical mixtures of certain basis
ingredients containing nitrogen, phosphorus, and potassium, an indef-
inite and iractically unlimited number of mixtures can be made, each
corresponding to a "grade". Due to competition for sales, manufactur-
ers have been led to make a great number of economically needless
mixtures, thus com >licating manufacturing, packaging, storing and ship-
ping requirements.

The code contained in Article VII, provision's for the establish-
ment of a standard list of acceptable grades for each state or zone.
Once established any departure from this list was considered to be an
unfair trade .■nractice. Provision was made, however, for certain
"special" mixtures which might be made "on order", but which were not
to be quoted or carried in stock as of regular manufacture. Moreover,
an additional price was to be charged for such "special" mixes to
cover cost of mixing. (**)
The text reads as follows:

"Section 1, Seduction in llumber of Grades of Mixed Fertilizer.
In order to eliminate waste and reduce the cost of manufacture,
bearing in mind the economic interest of the farmer, a list of
grades suitable to meet the agricultural needs of each State or
of each zone, as the case may be, may be established by the pro-
ducers in such zone or State, acting through a zone committee, in
cooperation with agronomists and other Federal and State agri-
cultural officials, subject to the approval of the national
Recovery Administration. After such grades have been established
for such State or zone, the sale or offer for sale therein of
mixed fertilizer not conforming to the grades so established shall
be considered an unfair trade practice, provided that the sale of
special formulas may be made to satisfy bona fide orders from
customers if adequate additional charge is made for mixing costs
as determined for the particular plant under the uniform
accounting methods prescribed in Article VI plus the extra cost
of special materials used; and provided that this shall not pre-
vent any producer from sellinQ or offering for sale two extra
grades for lawns and gardens in 'various-sized packages not to
exceed 100 "oounds a package."

(*) For further details of this incident see Appendix II, Exhibit D,
below.

(**) Codes of Fair Cormetition, Volume II, page 128.
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The Consumers' Advisory Board, prior to the adoption of the code,
urged that this permissive -orovision be carried further and made man-
datory, stating that, "Expert opinion is that the existing number of
grades and formulas are a source of economic waste which must be borne
by the consumer". (*) This suggestion was not accepted.

During the code period several grade reduction programs were ap-
proved. On iTovember 26, 1334, lists of grades were approved for Texas,
Louisiana, Mississippi, and Arkansas, - 23, 27, 15 and 17 respectively.
On December 10, 1934, twenty-nine grades were approved for llorth Carolina
in place of some 167 grades before the code, Of these, one single for-
mula represented more than 57Jo of the total fertilizer sales for the
State. At about the same date, agreements -'ere reached for Virginia,
West Virginia, Maryland, and Delegare for 50, 18, 22 and 14 grades re-
spectively. When it is realized that the industry had for some years
been making in excess of 1000 different grades (**), with as man;'' as
200 for a single State, the above program indicates a real accomplish-
ment in simplification.

Extensive surveys made by the national Fertilizer Association (***),
indicate, however, that in a majority of the States from 10 to 15 grades
vrill supply 80 to 90$:of the fertilizer 'actually needed.

Since June, 1935, this simplification program has continued to go
forward with reduction in grades in five southern and seven control
States. (****)

In the foregoing instances of incorporation of simplification pro-
visions in the codes it appears that some progress was made where the
pirn, of the provision was limited to the normal avowed purposes of a sim-
plification program. However, as has been seen to the case elsewhere
where mandatory restrictive provisions have been employed, other objec-
tives tended to make their appearance, and either superseded, or by their
presence neutralized, the strictly simplification aims.

(*) Report of Consumers' Advisory Board to General Williams, Deputy Ad-
ministrator, October 10, 1933, Consumers' Advisory Board Files.

(**) "Application for Presentation of the Code of Fair Competition to the
National Recovery Administration." August 2, 1933, page 5.

(***) Survey of the Plant Food Consumption in the United States; reprint
from proceedings of the 11th Annual Convention, National Fertilizer
Association, Washington, B. C.

(****) See also, Appendix II, Table of Contents, Exhibit J.

9786

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*.(*)

4. Fertilizer Industry ( Code ITo. 67 )

The principal "iroblem related to standardization in this code had
to do with reduction of the number of grades of fertiliser made, in the
interests of economy and lowered costs. Minimum standards of content
for mixed fertilizers and mandatory marking of formulae on the
containers were already matters of lav; in most States of the Union.

Since fertilizers are simply physical mixtures of certain basis
ingredients containing nitrogen, phosphorus, and potassium, an indef-
inite and practically unlimited number of mixtures can be made, each
.corresponding to a "grade". Due to competition for sales, manufactur-
ers have been led to make a great number of economically needless
mixtures, thus complicating manufacturing, packaging, storing and ship-
ping re qui rement s .

The code contained in Article VII, provisions for the establish-
ment of a standard list of acceptable grades for each state or zone.
Once established any departure, from this list was considered to be an
unfair trade practice. Provision was made, however, for certain
"special" mixtures which might be made "on order", but which were not
to be quoted or carried in stock as of regular manufacture. Moreover,
an additional price was to be charged for such "special" mixes to
cover cost of mixing. (**)
The text reads as follows:

"Section 1, Seduction in Humber of Grades of Mixed Fertilizer.
In order to eliminate waste and reduce the cost of manufacture,
bearing in mind the economic interest of the farmer, a list of
grades suitable to meet the agricultural needs of each State or
of each zone, as the case may be,' may be established by the pro-
ducers in such zone or State, acting through a zone committee, in
cooperation with agronomists and other Federal and State agri-
cultural officials, subject to the approval of the National
Recovery Administration. After such grades have been established
for such State or zone, the sale or offer for sale therein of
mixed fertilizer not conforming to the grades so established shall
be considered an .unfair trade practice, provided that the sale of
special formulas may be made to satisfy bona fide orders from
customers if adequate additional charge is made for mixing 'Costs
as determined for the particular plant under the uniform'
accounting methods prescribed in Article VI plus the extra cost
of special materials used; and provided that this shall not pre-
vent any producer from selling or offering_for sale two extra
grades for lawns and gardens in various-sized packages not to
exceed 100 "oounds a -vackage."

(*) For further details of this incident see Appendix II, Exhibit D,

below.

(**) Codes of Fair Competition, Volume II, page 128.
9786

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The Consumers' Advisor;/ Board, prior to the adoption of the code,
urged that this permissive provision he carried further and made man-
datory, stating that, "Expert opinion is that the existing number of
grades ajid formulas are a source of economic waste which must he borne
by the consumer1' . (*) This suggestion was not accepted.

During the code period several grade reduction programs were ap-
proved. On November 26, 1934, lists of grades were approved for Texas,
Louisiana, Mississippi, and Arkansas, - 23, 27, 15 and 17 respectively.
On December 10, 1934, twenty-nine grades "ere approved for llorth Carolina
in place of some 167 grades before the code, Of these, one single for-
mula represented more than 57$ of the total fertilizer sales for the
State. At about the same date, agreements were reached for Virginia,
West Virginia, Maryland, and Delegare for 50, 18, 22 and 14 grades re-
spectively. When it is realized that the industry had- for some years
been making in excess of 1000 different grades (**), with as many as
200 for a. single State, the above program indicates a real accomolish-
ment in simplification.

Extensive surveys made "by the National Fertilizer Association (***),
indicate, ho"ever, that in a majority of the States from 10 to 15 grades
will supply 80' to 90$ of the fertilizer actually needed.

Since June, 1935, this simplification program has continued to go
forward with reduction in grades in five southern and seven control
States. (****)

In the foregoing instances of incorporation of simplification pro-
visions in the codes it appears that some progress was made where the
aim of the provision was limited to the normal avowed purposes of a sim-
plification program. However, as has been seen to the case elsewhere
where mandatory restrictive provisions have been employed, other objec-
tives tended to make their appearance, and either superseded, or by their
presence neutralized, the strictly simplification aims.

(*) Report of Consumers' Advisory Board to General Williams, Deputy Ad-
ministrator, October 10, 1933, Consumers' Advisory Board Files.

(**) "Application for Presentation of the Code of Fair Competition to the
National Recovery Administration." August 2, 1933, page 5.

(***) Survey of the Plant Food Consumption in the United States; reprint
from proceedings of the 11th Annual Convention, National Fertilizer
Association, Washington., D. C.

(****) See also, Appendix II, Table of Contents, Exhibit J.

9786

-81-

G. Miscellaneous Standards

1. Standards of performance

Standards requirements which have "been so far considered relative
generally to identity and/or quality of materials entering into the
manufacture of a product, the relative proportions of its ingredients,
or other factors affecting its physical composition or method of manu-
facture. Performance standards, on the other hand, do not concern them-
selves with the makeup of the article, "but with the manner in which it
rail perform under actual conditions of use. It is "based upon the prin-
ciple that as long as the- goods give satisfactory service their construc-
tion may "be left to the manufacturer..

Performance standards are frequently employed with respect in indus-
trial materials, machinery and equipment, etc., "but are much less used
with respect to consumer goods. At least, information concerning the
commodities from this viewooint is seldom supplied the prospective "buyer.
In the codes, performance standards '-ere adopted for several industrial
or building equipment industries,: including Shovel, Dragline, and Crane;
Unit Heater; and I-Ionferrous and Steel Convector. (*)

In one or two instances some move was made towards setting up such
standards in consumer goods industries.

a. Household Ice Refrigerator - (Code Ho. 183)

At the time of the setting uo of its code this industry was in a
difficiilt position, due to overezroansion of its own productive facilities,
the depression, and the competitive inroads of mechanical refrigeration
systems. Industry data supplied in connection with the code proposals
showed the following (estimated); number of concerns, 16; invested capi-
tal, $10,000,000; productive capacity, $10,000,000; annual sales, $5,000,000
(compared with $12^,000,000 in 1928, $10,000,000 in 1930, and $8,000,000 in
1932); number of employees 3,000 (5,000 in 1928), (**) Of 1,397,000 re-
frigerators sold in 1931, 432,000 were ice refrigerators.

The code was ap ^roved on December 30, 1933, and contained the follow-
ing enabling druse concerning performance standards:

"12. It shall be the duty of the Code Authority to adopt and
prescribe through the channels of the Association mini-
mum standards for each of .several grades of ice refriger-
ators. In the develqnment of such standards, the. said
Association shall coopera.te with the Sectional Committee
of the American Standards Association on Standards and
Specifications for Refrigerators (Art. VI). "(***)

(*) Codes 102, 271 and 272.

(**) Volume A. Code Records, Consolidated Piles

(***) Codes of Pair Competition, Vol. IV, page 480.

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-83-

Consumer interests, represented by Hiss Alice Edwards, Executive
Secretary of the American Hor.e Economics Association, appeared at the
code hearings held on. hovemoer 14, 1933, and the following statement
T7as inserted in the record:

"The Association ,hearii3y approves Qf Sections 1 and 2 of
Article VII - Trade Practices, which prohibits the false
marking or branding and the misrepresentation or false or
misleading advertising of the products of the housenold
ice refrigerator industry. However, the Association con-
siders that those provisions do not go far enough; they
do not specify that any specific information he supplied
to the consumer. The American Home Economics Association
urges that the following clause he added to Article VII;
- Unfair Hethods of "■Competition, * 'Failure to Supply In-
formation on ITame Plate. •- The failure to attach to any
household ref rig-orator -oroduced hy the industry a name
plate, which states (l) the name of the manufacturer, (2)
the usable storage s-oace (stated, in cubic feet), (3) the
i":e capacity stated in pounds, (4) the average temperature
maintained under standard test conditions in the milk com-
partment and in the food compartment, (5) the amount of
ice required to maintain the terperature under standard
test conditions oyer a 24-hour period, (6) a statement as
to the durability of the refrigerator or the length of time
during which it will maintain under normal conditions of
use the temperr tures as given.1" (*)

The full suggestion set forth aJbove was not adopted, but the follow-
ing labeling: provision van incorporated in the code:

•"18. Each manufactur'er shall tag or brand ea.ch ice box
• ' < showing usable* storage -space (stated in cubic feet),
and the ice capacity stated in pounds." (Article VII)

Consumers'; representative and the Consumers' Advisory Board continued
to interest themselves in the' question of .-oerf ormance specifications for
this industry, • and efforts were made to bring about action on the part of
the Code Authority pursuant to the enabling clause quoted above. On April
30, 1934, a. very comprehensive set of recommendations for standards for the
industry was set forth in a reoort of the Consumers' Advisory !3oard (***).

(*) Statement of Hiss Alice Edwards, Transcript of Hearing, Nov. 14, 1933,
'pr-e 29, Consolidated files.

(**) Code of Fair Competition, Vol. IV, page 432.

(***) "Reoort of the Consumers' Advisory Board of 'the 1IRA Recommending
Standards for the Household Ice Refrigerator Industry"; Rewort
ITo. 5, April 30, 1934.

9786

-83-

This report sot forth the necessity from the consumers' point of
view of suitable standards, gave suggested specifications for three
^r-^des of refrigerators, and re corn -ended that a permanent committee be
net up under the code authority to study the entire question of standards
and labeling, and to "recommend to the coo.e authority standards for adop-
tion covering quality, perf ormance, and consumer-understandable labeling
system".

On August 17, 1954, proposals were publicly heard by HRA for amend-
ments to this code. These proposals did not include any standards provi-
sions, but a somewhat more explicit type of labeling was put forward, as
follows:

"All refrigerators offered by this industry shall bear a label
as follows:

STAIOARD LABEL
Household Ice Refrigerator Industry

The usable storage sorce of this refrigerator is cubic ft»

Its rated ice capacity is -oounds

Its rated shelf area is square ft.

The .above measurements nsde according to methods approved by the
Code Authority "on April 25, 1934. "(*)

This proposal was not adooted.

A committee such as suggested in the Consumers' Advisory Board's He-
port ITo. 5 was set up by the code authority, but with little result. The
difficulties of the industry and the reasons for its reluctance to proceed
more rapidly, in spite of recognition of the need in various respects, are
brought forth by the followi?ig extracts from letters received from industry
members:

"As already advised at the public hearing, the manufacturers
of Household Ice Refrigerators hrve suffered very severely
from the competition of the Electrical Refrigerator manufac-
turer, and it has been found that in order to sell Ice Refrig-
erators it is necessary to oroduce something at a very low
price.

"We grrnt that it would be ideal for- the consumer if he could
have a refrigerator made as recommended by this report, but
it could' '.not well be supplied him and sell at a retail price
at an average of about $16.35."

"To give you an idea of our own stand I enclose herewith a
page clipped from our catalog, a leaflet for our dealers' use,
describing our labeling system and one of the labels that is
posted on each refrigerator. The shape of the label, by the
way, has been changed since the leaflet was printed.

(*) Transcript of Hearing, August 17, 1934, pp. 15-67. (This citation
includes an extended brief with respect to this label),

9786

-84-

"I think I can guess your instant reaction to our plan* The
labeling is not clear enough for the consumer to read and
interpret* Granted* But it is as far as we dare go in the
present state of the industry, and as far as our dealers wish
us to go. So long as the overwhelming majority of all ice
refrigerators sold is of a very low grade it would he dan-
gerous for a single manufacturer to emphasize too much the
inefficiency of his product.

"I am not trying to build up with you a 'holier than thou'
attitude towards my competitors* There is much to" he said
for their fear of coming out in the open* We cannot at pre-
sent build all high grade boxes* ITone of us can* The deal-
ers don't want them* They demand price and nothing else.
And the manufacturers all fear that if they plainly label
everything they make they will kill a large part of their
sales." (*)

The attitude of the consumers' representatives was that a part of ^
the difficulties of the industry arose from inferior grade boxes which
used undue quantities of ice and deteriorated rapidly in quality, there-
by producing consumer dissatisfaction and undermining confidence in the
industry's product. Standardization, it was held, would aid in improv-
ing the industry's competative position.

A sidelight on other pitfalls in the way of standardizing programs
is seen in the strong protest registered by another Industry manufactur-
ing materials mentioned simply rs a standard, of comparison in Report Ho,
5 referred to above. This ' industry held that manufacturers "might draw
certain inferences" from the report which might react unfavorably to their
own product.

Although considerable correspondence continued between the Code Auth-
ority and the Consumers' Advisory Board representatives (**), nothing fur-
ther was done officially as to standards during the code period. On the
other hand, considerable tendency on the part of individual manufacturers to %
meet the desires of the consumers' groups by employing more informative
labels was seen. One of these labels, for example, gives the rating of
the refrigerator on the basie of tests devised by the American Society
of Refrigerating Engineers, and specifies the following seven spef idea-
tions: usable storage space (cu ft.); rated ice capacity (pounds); rated
shelf area (sq« ft.); A.S.R.B. Performance Rating - (Cu. ft.); I*M*R.
(ice melting rate), pounds per day; mean cooling effect (degrees F*);
and temperature differential (difference between temperature in the warm-
est and coolest places in the provision chamber). (***)

(*) Excerpts from copies of correspondence of industry members and Con-
sumers' Advisory Board representatives* C.A.B. Files

(**) See Industry Pile, Standards Unit, Consumers' Advisory Boafd.

(***) Sample in- Industry Pile of C.A.B.

9786

~85~

b» Hosiery Industry - (Code No. 16)

In addition to the standards work noted for this industry under
Section D and E above, some efforts toward development of performance
standards were begun during the code period and have continued since.
These were initiated principally "by the General Federation of Women's
Clubs, who enlisted the cooperation of the Bureau of Standards in de-
veloping performance test methods.

The Bureau developed a testing machine in which the durability of
hose is estimated on the basis of "wear" or "resilience". The test is
based on the number of "cycles" which a hose will undergo on the machine
without having reached a permanent "distendability" beyond a fixed amount(
The relative "resilience'' of the hose is presumed to "be an index to its
resistence to actual wear.

The industry,-, a.t the" same time, was working along the lines of " con-
struction" standards* Some further details of these projects will be
found in the hosiery code summary, Exhibit' E, Appendix II, of this re-
port.

9786

•86-

2. 3iological .Standards _

a. Dog Food Industry - (Code !'To. 450)

Something in the nature of a performance standard was rt term ted
in this industry, witich sought to develop a ['biological standard"
for it's Product, to be based upon the feeding properties of the food'
as developed by Rctunl test.

Due to the recent and very rapid growth of this industry, (*)
various undesirable practices' .'.had become prevalent, including the
use of exaggerated and often unfounded claims as to the merits of the
product, find substitution of low-grade ingredients as a means to des-
tructive Trice competition.

The proposed code for this industry was originally submitted to
AAA, and was transferred to ERA in January, 1934. The attention of
the Consumers' Advisory Board was directed to the code* by officials
of the consumers Counsel of AAA, and the Breeders and Veterinarians
Association. The< Board was also assisted at the code hearing by the
Bureau of Animal Industry r:nd the 3ureau of Fisheries.

The industry proved to be receptive to the subject of code tiro-
visions concerning standards, rnd the following enabling provision
was approved :

Article VII - Definitions and Standards of Identity.

"Section 1. The code Authority shall establish reasonable defini-
tions and reasonable standards of identity and biological value
for canned dog food, necessary to prevent deception, fraud, and
unfair competition in the sale of canned dog food. Within
ninety (90) days after the date when this Code becomes effective
the Code Authority shall present to the Administrator recommended
standards and a plan for their enforcement.

"Section 2. The Code Authority shall establish such definitions
and standards in pursuance of such hearing procedure rs nay be
prescribed by the Administrator, and they shall be subject to
approval by the Administrator, and effective on n date approved
by the Administrator.

"Section 3. Each member of the industry shall comply with the
definitions and standards of identity established under this
Article. "(**)

In addition to this, Article VITI provided similarly for the
establishing of labeling requirements, and Article VI provided stand-
ard weights in conformance with which canned' .dog food. should be packed.

(*) See section on this code in Part I, Misrepresentation and Decep-
tion, Chapter Four, IIT, ?, 3.

(**) Codes of Fair Competition, Vol. XI, p. 104.

■87-

Little was accomplished during the 90 day -oeriod provided, following
approval of the code (May 31, 1934), and time extensions for complying
with the provisions of Articles VII and VIII were granted by NBA. (*)
Contemplated Federal Trade Commission action with respect to certain label-
ing practices of the industry helped to influence the code authority to
act, and in January, 1935, it submitted the following proposed "Standards
of Biological Value and a Plan for their Enforcement".

The proposed standards prohibited in very broad terms the use of in-
jurious substances or unsuitable ingredients, harmful preservatives or
coloring, etc.; and required that "Canned dog food shall have the biolog-
ical and nutrative value (a) represented by -its dog food name or designa-
tion or (b) alleged upon its label or in its advertisement or otherwise
in its sale." (**)

The proposed labeling requirement called for the name of the food and
of the manufacturer, weight or measure, ingredients properly described and
listed, and "percentage content of protein, fat and fiber respectively".
(*** )

A public hearing on these standards was held on February 12, 1935.
The proposals were op-oosed by the Standards Unit of the Consumers' Advisory
Board on the grounds that they were inadequate to set up any satisfactory
biological standards and fell short of meeting the stated objectives of the
industry itself.

The following excerpt from the statement of the Standards Unit of the
Consumers' Advisory Board as presented at this hearing gives the Board's
objections in greater detail:

"The Consumers' Advisory Board does not consider these requirements
adequate for the fulfillment of the aim of the industry as stated
in Bulletin 57. These reauirements do not prescribe in a positive
manner the permissible ingredients but merely provides that ingredients
be listed on labels and that no injurious or unwholesome ingredients
be used. The Consumers' Advisory Board considers such provision too
broad and holds that the industry should incorporate more specific
requirements in these standards covering this point. ITo maximum
water content is prescribed but rather the standards would only
provide that water be listed on the label as one of the ingredients
but not the percentage of water present.

"This section required considerable interpretation if it is to have
meaning. .Without definitely specified ajid required nomenclature
Section 1 will prove valueless and would ten to; lower the standard
of quality rather than raise such standard, for those manufacturers

(*) Administrative Order Efo« 450-7, Code Record Section files.

(**) See draft of proposals, Deputy Administrator's file.

(***) Ibid.

9786

so wishing to juggle or misuse nomenclature and terms can compete
with honest manufacturers packing quality merchandise, in a manner
not only unfair but vicious. Ho minimum standard is either pre-
scribed or implied in this section. This Article IV only reiterates
the objectives sought to be accomplished, and as such does not go
nearly far enough; the plan provides no effective procedure for
accomplishing those recognized objectives." (*)

This statement further averred that "The Consumers' Advisory Board
sees in this Section 4 virtual evasion being accomplished under the guise
of compliance with the code provision requiring the establishment of
standards of biological value."

Objections to the proposals were also offered by the Breeders' and
Veterinarians' Association which presented evidence, drawn from a question-
naire submitted to veterinarians and dog owners throughout the country, in
favor of biological standards. Certain elements of the industry also op-
posed the proposal submitted. (**) The question resolved itself into one
of the comparative merits of chemical analysis as a basis for dog food
standards and a biological test consisting of a three generation feeding
test of the product to establish its value as a complete diet for a dog.

The principal objection of the industry to the biological test rested
upon the cost and', length of time involved, as brought out by expert testi-
mony at the hearing. As a result a compromise plan was proposed which
called for mandatory chemical analysis and permissive biological ratings
obtained from the Scientific Council set up by the proposals, and the
Code Authority was instructed to redraft the standards -oroposals in accord-
ance with this plan. In May, 1935, the revised standards were submitted
to NBA.

Significant sections of these revised proposals are quoted below:

"Article I

"Definitions and Standards of Identity

"Section. 2. (a) A canned dog food shall consist of an edible
substance or a combination of edible substances, which is fit and
suitable for use as dog food.

(b) No canned dog food shall contain (l) any sub-
stance which is unwholesome or injurious to the dog; or (2) any
substance which is unsuitable for use or which has no justifiable
use in dog food; or (3) any substanoe the' use of t which is effective
to deceive the purchaser; or (4) any amount of a substance which is
so excessive or inadequate as to have the result of injuring the

(*) "Statement on Dog Food Standards", Consumers' Advisory Board,
Deputy' s file.

(**) Deputy's file.

9786

-89-

dog or deceiving the purchaser. Therefore no canned dog food
shall contain any preservative or coloring or filler having
that result.

"Article II

"Staidards or Biological Value

"Section 1. (a) A canned dog food shall have a nutritive
value sufficient (1) to promote a normal growth of the dog; and
(2) to maintain a normal state of health in the dog; and (3)
to procure normal laxation by the dog; and (4) to permit normal
reproduction and normal lactation by the dog.

(b) The criteria for use in determining whether
a canned dog food complied with the standard prescribed by this
section shall be: (l) such food shall have a minimum energy value
of 500 Calories per pound of the food; and (2) such food when fed
to the rat as the sole article of diet together with water, shall
have the nutritive value defined by that standard, for the rat.

(c) But this standard shall not apply to a canned
dog food having less nutritive value, if it is plainly and correctly
labeled to declare its limited nutritive value and is sold upon

the basis of that value.

"Section 2. (a) A canned dog food shall have the nutritive value
alleged upon its label or in its advertisement or otherwise in its
sale.

(b) ITo allegation of the nutritive value of a canned
dog food shall be made in its sale, unless and until there is sufficient
evidence to justify it.

"Article III

"Labeling Requirements

"Section 1. The label of a canned dog food shall plainly and
correctly state (l) the name of such food; and (2) the name and
address of a vendor responsible for its sale; aid (3) its net
weight, measure, or numerical count; and (4) its ingredients
properly-'listed; and (5) its percentage content of protein, fat,
and fiber, respectively; and (6) its energy value in the terms
of Calories ner pound of the food; and (7) its limited nutritive
value, if it has a nutritive value less than that prescribed by
paragraph (a) of Section 1 of Article II; and (8) directions for
feeding it.

"Section 2. Ho label of a canned dog food shall contain (l)
any false or misleading -representation; or (2) any representation
unfairly disparaging a competitive dog food or unfairly derogatory

of the dog food business." (*)

(*) "Definitions of Standards of Identity, etc." revised, Deputy's file.

J786

-90-

Owing to the invalidation of the codes shortly after, no official
action with respect to these revised proposals was ever taken. The ques-
tion of "biological standards had, however, aroused a great deal of inter-
est, not only in the industry hut also in the Department of Agriculture
and among veterinarians and scientists. A very full account of the
various negotiations, and much correspondence, are to he found in the
Deputy Administrator' s files on the subject.

Field contact with the industry in connection with this standards
study reveals that the trade association of the dog food industry went
out of existence subsequent to the passing of ERA, and there is no evi-
dence of any further work along standards lines. Action with respect to
several cases of mishranding has, however, been undertaken by the Federal
Trade Commission. (*)

3. Service Standards

Cleaning and Dyeing Trade ( Code No. 101 )

This industry was one of the few included under the codes which had
to do with "service" . rather than "materials". The problem of the industry
was that of preventing price cutting precipitated largely by "cash-and-
carry" dry cleaners (**). There were no recognized standards of quality
in the industry, and due to the fact that the customer himself could not
accurately determine the quality of the cleaning done, the quality of the
service could be reduced to agree with almost any price. Dry cleaning
was being done for as low as 19 cents a garment and much damage was re-
sulting to the fabrics handled. (***)

The code contained a provision designed to meet the situation des-
cribed, through the declaration that "Selling below standard quality

shall be an unfair trade practice". (Article VII). (****)

Recognizing that the above provision would-be meaningless without
setting up an actual quality standard the code further provided for a
technical committee.

"This Committee shall have the power under the Recovery Executive
Committee to investigate and advise as to minimum standards of
quality for cleaning, finishing, and other processing . (AArticle
VI ) . (*****)

(*) See section relative to this industry in Part A of this
report, Chapter Four, III,B,3.

(**) See detailed summary, Exhibit H, Appendix II, below.

(***) Testimony of Mr. Harry Van Horn at Hearing on Prices and Code
Violations, etc. December 11, 1933.

(****) Codes of Fair Competition, Vol. II, page 560. ■

(*****) Ibid, page 557.

9786

-91-

Ho^ever,. in snite of the fact that the members of the Technical
Committee rere active and prepared a prel miliary report on a quality
standard, due to the condtior. of uncertainty within the industry, the
committee's recommendation were never accepted and acted upon. The
committee's final report was sent to the industry on the very day that
Executive Order I-To. 6723 of May 26, 1934, suspended all but the labor
provisions of the code. (*)

Efforts on the part of the industry outside the 'codes to meet the
lack of quality standards have been varied and generally unsuccessful,
One of the most ambitious attempts was made by the Pennsylvania Dyers
and Cleaners, who set ud graded standards with the technical assistance
of Dr. Pauline Beery Hack of the Pennsylvania, State College. Two grades
were established, "Pennsylvania A Grade", and "Pennsylvania Minimum
Standard Grade". Late information is to the effect that these standards
are being little used. (**)

Two States have enacted laws which provided for Trade Boards to
control prices and quality for the dry cleaning industry, New Jersey
and Delaware. (***) In both States the Trade Boards have set minimum
retail and wholesale prices, and established a minimum standard of
quality. Both States forbid the. sale of services below the minimum grade.
The cons tut ionality of the law is being questioned before the New Jersey
courts at the present time (February 1935). Similar laws have been enacted
in Florida and Wisconsin (State Recovery Act).

That quality standards rather than r>rice restrictions offer a so-
lution to the problem of price cutting and consumer complaint is the
opinion of Dr. Mack, who has perhaps had more experience in this field
than any one other individual. To quote Dr. Mack:

'(It wq.s my qpinion last year, and is still my opinion, that if
minimum hours, wages and standards had been set up and enforced
within the industry, and that if. all work which did not measure
up to the standards had been required to carry conspicuous sub-
standard lables on the clean garment and in the advertising, the
problem would have been solved for the cleaning trade." (****)

(*) See Appendix II, Exhibit IT, for details of the standards proposed.

(**) Letter of Dr. Mack to the .Commodity Information Unit, K.H.A. ,'
December 12, 1935.

(***) State of New Jersey, Chapter 281, Laws of 1935
State of Delaware, law passed April 1935.

(****) Letter to Consumers' Advisory Board under date of January 2, 1935

97 ^6

-92-

It is to be noted that nowhere has any attempt teen ma.de to set up
minimum standards with sub-standard labeling. The legislative attempts
have been directed towards price fixing and minimum standards, with work
of a lower quality entirely outlawed, an effort of doubtful nature from
the public standpoint as well as from the legal point of view.

H. Enabling Provisions.

As previously stated in connection with a discussion of the standards
provisions as a whole, 135 of the 244 code provisions which contained
standards references were in the form of enabling clauses empowering the
Code .Authority in s^me terms to take steps in the general direction of
standardization. These clauses showed wide variety, ranging from an in-
direct reference to future classification of industry products to a manda-
tory clause setting a specific date for the appointment of a committee and
a report to NBA.

Eighty-nine of the enabling clauses were mandatory in terms, and 46
permissive. Thirty-six set a definite time limit within which some action
was to be taken. Ninety-seven required that any standards proposed to be
established should be submitted to ERA for approval; the remainder did not
specifically require such approval. (*)

As to the results obtained pursuant to these clauses, in only 14 cases
were some sort of standards actually submitted to the NBA and approved by
it. These codes included: numbing Fixtures, Wood-Cased Lead Pencil,
Silverware, Fertilizer, Bias Tape, California Sardine Processing, Electro-
plating, Excelsior, Ru'ober (Auto Topping), Lumber (Red Cedar Shingles),
Motor Fire Apparatus, and Hack Saw Blade.

For 6 codes, standards were submitted and not apnroved by NBA, i.e.
Canning, Dog Food, Ruboer Tire, Upholstery Spring, Bank and Security Vault,
and Lumber and Timber Products.

In 13 other industries some standards work was initiated pursuant to
the enabling clause, but no proposals were ever submitted or other definite
action taken; and in 71 codes the standards provision was productive of no
result whatsoever. (**) Information is lacking as to the other 31 codes
which had enabling clauses.

A number of reasons may be adduced for this showing. There is little
doubt that in many instances the standards clause was placed in the code
to please or placate some outside interest, or for appearance, without
any genuine purpose to take steps under it. On the other hand, the De-
puties report that many of the industries had seriously discussed standard-
ization and were planning to proceed, when the end of the codes came. It
is probable that another year of life for NBA would have seen .a number of
developments under it in the standards field.

(*) The data presented here are drawn from the analysis of enabling
clauses contained in "Analysis of Standards Clauses in Codes",
Consumers' Advisory Board.

(**) Based upon data obtained from contact with the Deputy Administrators
of these codes. Op. cit, supra.

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-■ Again, in certain cases industries which had manifested genuine
interest in standards found themselves impelled to forego action for con-
crete reasons. Some of these, as definitely stated, -^ere:

1. Industry products did not admit of satisfactory stand-
ardization. - (Reclaimed Rubber Mfg.; Monumental Granite.)

2. Objective standards impossible to achieve. - (Fisheries
Industry)

3. Lack of funds for carrying on the standards work. - (Baking
Industry) (And probably various others)

4. Whole code inactive. -» (Rolling Steel Door)

5. Too many other code administration problems, - (Cotton
Garment; Optical Wholesale) (*)

Whatever the reasons, it is evident that the sum of the results
of the enabling provisions during the code period was very largely negative
in nature.

(*) Or), cit. supra.

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I. Compliance Data

Compilations of the records of trade practice provision violations
made by the Field Section of the Division of Review from data supplied
by the State Compliance Offices of NRA have been consulted in an effort
to obtain some view of the results of compliance activities of the code
authorities with respect to standards, as reflected in the cases re-
ferred to the NRA for action. Very little information of a positive
nature has been obtained from this source.

Tabulations covering 595 available basic and supplementary codes
show a total 'of only 601 reported violations of the various standards
and labeling provisions, including infractions of rules regarding
sales of sub-standard goods. Of the total number of 595 codes, only
70 show any. violations of this type whatever. Many of the codes with-
out a record of violations doubtless contained no standard provisions.
On the other hand, of the 70 which do show violations a large pro-
po»portion indicate only one or two each. The following is a list of
the principal codes in the group, with the number of violations re-
ported for each:.

Code Violations

Bedding Industry 296

Macaroni Industry 50

Baking Industry 40

Scientific Apparatus 32

Electric Storage Battery... 22

Plumbing Fixtures 15

Retail Jewelry 10

Blue Crab 8

Beauty & Barber Shop Equip-
ment . . 6
Crushed Stone, Sand, etc... 6

Retail Lumber 6

Broom lifg 5

Retail Monument 5

6 Codes show 4 violations

each. ... 24
6 Codes show 3 violations

each. ... 18
11 Codes show 2 violations

each. ... 22
36 Codes show 1 violation

each. ... 36

Total... 601

Since some of the codes included above have no specific standards
or labeling provisions it is probable that the violations have to do
with disposal of sub-standard goods contrary to the regulations re-
garding price. Other codes with no reported violations we know to
have had considerable activity with respect to standards. Explana-
tions for the latter may be (l) that the provisions were well com-
plied with, or (2) that the code authority was able to settle its
compliance questions without reference to NRA, or (3) that for reasons

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of its own the Code Authority did not care to enlist NRA aid in dealing
with the standards question. In some instances, it is probable that
violations of standards and labeling provisions were reported as mis-
representation cases, and so would appear elsewhere in the tabulations. (* )

General disposition of the 601 standards and labeling cases, as
shown by the Field Office breakdown, was as follows: "adjusted" (vio-
lations found and case settled), 293; no violation found, 126; case
dropped (for lack of evidence or other reason), 166; pending on May 27,
19S5, sixteen. .

The above figures show 49 per cent of the total number of.- standards
and labeling cases adjusted, as compared with 62 per cent adjusted for
the misrepresentation cases presented in the section of Part I of this
report above referred to. The nro-nortion of the total number of trade
practice cases adjusted in that tabulation was 57 per cent. Standards
and labeling cases dropoed amounted to approximately 28 per cent of
all such cases, whereas only 12 "oer cent of the misrepresentation cases
were disposed of in that fashion.

Generally speaking, therefore, it would appear that more diffi-
culty was found in obtaining conclusive action with respect to com-
plaints of standards and labeling violations than with the negative
commodity information provisions, - the prohibitions upon misrepresenta-
tion and deception. In view of the lack of details as to the com-
pliance cases, however, no definite assertions on the point can be
made. Only a very thorough field investigation would serve to make
clear the conroliance history of the standards and labeling provisions
in most of the codes which contained them.

J. Relation of Standard Provisions to Price Provisions.

The general relation of standards provisions to price or minimum
price provisions under the codes does not seem to have well recognized
or given particular consideration by the great majority of the in-
dustries which included such price provisions in their fair practice
schedules. Standard requirements "o;/ themselves, as has previously .
been pointed out, do. not ordinarily tend to any rigidity of price
structure. On the other hand, there is a purnose to attempt any
fixing of prices, need of some miiform standards, would appear to bo
evident, since mere price without relation to the nroducts furnished
at that price has littl^ meaning. Similarly, efforts to obtain the
filing of comparable prices would presuppose the use of at least com- .
parable product classifications for filing purposes.

1. Minimum Prices.

Whereas few instances cf direct price-fixing are found embodied
in the codes, the large majority of the industries were undoubtedly
interested in settin^ some sort of a ijrice floor for the checking of
destructive price-cutting, this interest t.?kins the form in the codes
largely of prohibitions upon sales below cost. Such ;orice-cutting,
however, had been often based upon slashes in wages or in quality of
products, or both. The wage and hour provisions of the codes were
designed to prevent the first. Relatively few of the industries

(*) See Compliance Section of Part A of this Report, Chapter Four,

• ■ - III, E.

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at tempted, however, to check the second, even to the extent of labeling
requirements to penalize low-grade goods. Mere prohibitions upon mis-
representations in advertising and selling, ' without definite quality-
requirements behind them, were hardly adequate to check quality
"chiseling." In relatively few cases did the selling below cost pro-
hibitions actually become effective.

One illustration of the difficulty encountered in effectuating a
•prohibition against sales below cost without standardization of prod-
ucts is found in the following quotation concerning the Paint and
Varnish code:

"Analysis shows that the 'trouble' related mainly to
the cost formulas developed under Article. XXII, pro-
hibiting selling below cost. The lack of standards
doubtless caused part of the dissatisfaction in the
administration of the provision. For, although a
classification of products was called for, such
classification into twenty-three classes for the
purpose of calculating proceeding costs, was made
on the basis of types only, not of grades, hence
the costs of products and prices filed for products
of different grades could not ,be easily and accurately
compared," (*)

In a few instances where standards actually were incorporated in
the codes there were claims that these were employed as part of a
general mechanism to "stabilize" prices unduly. (**) On the other
hand, an example of the results of open price-fixing where no standards
are employed is found in the Cleaning and Dyeing code.

This code (***) provided for fixed minimum prices, without reference
to any standard of quality for the services to be performed at the
price. Heed for standards in the industry was recognized, however,
and a Committee set up for studying such standards. The pricing pro-
visions, together with the other trade Practices of this and the other
service trades, fell down for various reasons, but among them were
these: without standards requirements there was no cost factor to
influence the price-cutting member to maintain price; and without such
standards, recognized by the public, the high-grade group could not
maintain an 80 or 90 cent price for a service not evidently or
demonstrably superior to what could be offered for less than half the
price.

Proponents of standardization of services in that industry claimed
that had the code provided for different standard grades and prices of
service the price-fixing would have proved successful. (****).

(*) For location see Appendix II, this report Table of Contents
Exhibit "I".

(**) e.g. See discussion under Mayonnaise Industry, Exhibit D,
Appendix II of this report,

(***) See Exhibit H. Appendix II, below.

(****) Ibid.
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2. Open Price Filing.

The trade practice study of --trice filing being made by this
Section brings out the importance, in obtaining proper filing of pricos,
of proper standardization of products to provide comparability.

"The step after the requirement that all terms and
conditions be filed is that these products, terms and
conditions he uniform. The usefulness of price filing
is in large part dependent upon the comparability of
the filings. Lac": of comparability was one of the most
exasperating features of price -publicity under the Codes.
This lack was inherent in the nature of some of the in-
dustries attempting price filing, inasmuch as the prod-
ucts were so diverse in nature that there was little
hope of getting an uniform basis for comparison of units
of production of the Industry. "(*)

Among the industries noted as having found lack of standardization
one of the chief difficulties in the way of successful filing of prices
are:

Machine" Tool and Forging Canvas

Scientific Apparatus Paper and Pulp

Shovel, Dragline and Crane Folding Paper Box

Marking Devices P.etail Monument

On the other hand, in the case of codes dealing with other types
of commodities, as for the Coffee Industry (**), the general familiarity
of the Code Authority and the trade with the products marked by the
industry was held to be such that even without uniform grading or
classification for price filing purposes prices for those products
could be compared with sufficient accuracy for the purposes of the
price provisions.

What is intended to be brought out in this section is simply that
standard requirements, or the lack of them, in many but not all cases
had an important auxiliary relation to the various provisions in the
codes relating to price. Whether or not their employment in such an
auxiliary function wa.s desirable would depend upon the broader
questions of the objects and effects of the price provisions them-
selves, issues which more properly belong to the studies of the price
provisions v/hich are being made by this Section.

(*) Preliminary Report, Price Filing Unit, Trade Practice Studies
Section, MBA. p. 173. (Underscoring not in original)

(**) Statement of Mr. W. F. Williamson, former head of the Code
Authority, to representatives of the Trade Practice Studies
Section.

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K. Conclusion.

In the foregoing pages there lias been presented in summary form
the record of standards and labeling activity in a considerable number
of codes as the available sources reveal it. The codes considered
have been grouped according to the type of standardizing work which
their experience principally illustrates; and comment and discussion
have been included in the different sub-sections where these seemed
called for. It is believed that the general picture offered in this
cross-section treatment presents a very representative view of the
standards experience of the IIRA as a whole.

A general summary of the findings and conclusions which are felt
to be indicated by the data which have been assembled has already been
given at the head of this Part 3 of the report, and the limitations
of the scope of the study as imposed by circumstances have been noted.
It does not appear that any repretition is called for here.

The remaining portions of the report are given over to a survey
of other agencies which are influential in the field of standards,
and to a discussion of some of the letoal considerations which the
development of a standards and labeling program involves.

The three Appendices which conclude the report review the
methods which have bee'1, employed in pursuing the study; suggest re-
spects in which the work already done may be profitably extended;
present more extended standards histories for ten codes in which the
subject was of special importance; and develop in detail the policy
and procedure which governed the handling of standards and labeling
questions by HRA with respect to the codes as a whole.

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CHAFTER THREE

OTHER STANDAIffll ZING AGENCIES AND ENACTMENTS

In this chapter a view will he given of various other agencies and
activities, both public and private, which are influential in the stand-
ards and labeling field, together with a summary of some of the national
legistlative proposals now pending which may have important bearing upon
the subject should they be adopted.

I. FEDERAL STANDARDIZING AGENCIES

A . The Food and Drug Administration.

The Federal Food --nd Drugs Act of 1906 was designed primarily to
prevent adulteration and misbranding of foods and drugs. The short Title
of the Act is -

"AN ACT for preventing the manufacture, sale, or transportation
of adulterated or misbranded or poisonous or deleterious foods,
drugs, medicines, and liquors, and for regulating traffic therein,
and for other purposes." ( *)

Since 1906 the Act has been amended several times. The most import-
ant amendments are: the Sherley Amendment, designed to give more effective
control over the labeling of proprietary medicines; the Net' Weight Amend-
ment requiring the quantity of contents to be declared on food in packages;
the McNafy-Mapes Amendment providing the formulation of food standards
having the effect and force of law for canned products only and the pro-
mulgation of forms of statements for canned goods below the standard; The
Sea Food Amendment, authorizing the Secretary of Agriculture upon request
of a packer to designate inspectors to examine the sea food, containers,
etc., and to permit the packer to mark the food, indicating the conformity
with regulations prescribed by the Secretary of Agriculture.

Considerable misapprehension is frequently encountered as to the
extent of the standardizing powers conferred by this legislation. The
Food and Drugs Act of 1906 gives the Secretary of Agriculture the authority

"To make uniform rules and regulations for carrying out the
provisions of this Act, including the collection and examina-
tion of specimens of foods and drugs manufactured or offered
for sale. " (**)

No authority is given the Secretary to set up legal standards, ex-
cept in the McNary Mapes Amendment. All the definitions and standards
for food products for use in enforcing the Food and Drugs Act are advisory
standards established under the broad powers of the Act mentioned above.

(*) The Food and Drugs Act, June 30, 1906 (3.4 Stat. 768) as amended

(**) Ibid; Sec. 3

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-100-

The following very concise statement of the scope of the Act, its
legal requirements for enforcement, and the difficulties imposed "by these,
is made by Dr. W. G. Campbell of the Food and Drug Administration. (*)

Labeling: "The present statute is largely negative in its require-
ments as to labeling. It provides not for what must be stated
upon the label but for what mtist not appear thereon. It enjoins
truth, but does not. enjoin the whole truth. Its prohibitions are
against false and misleading statements, but it does not insist on
positive and informative- statements",, except declarations of the
quantity of contents on foods in package form and certain other
very limited specific declarations."

Advisory Standards: "The present law gives the Department of Agri-
culture no authority to establish legal standards for food products
except in the limited field of canned, foods. The food standards
announced by the Department are wholly advisory in character and
compliance is a voluntary matter on the part of the manufacturer.
Such advisory standards are based upon the consensus of consumer
understanding and upon good manufacturing practice. In order to
prove that a product so^d within the jurisdiction of the Food and
Drugs Act which fails to comply with the advisory standards is
adulterated or mif branded, it is necessary for the Department to
present to the cour o arc1 jury convincing evidence that the advisory
standard represents the actual composition of the product expected
by the consumer and re^cgnissd by the majority of the trade. Proof
that the product on trial qcss not meet the advisory standard is
of no avail unless ''the validity of the standard is first established.
This imposes a double burden nf proof p-poi Ihe Government, as well
as the expense of bringing into couru- trade and consumer witnesses
"who are prspare.d to testify that the advlsfcry standard accurately
represents .'be product. It has ..long been recognized that this
necessity Virposes & handicap of ur>duc proportions upon the Govern-
ment pad that the lack of legal standards ' is a distinct disadvantage
to etbic.p.l nanuf rv ^ ure .,■ s who pie forced to compete to their cost
with products which differ from the advisory .standards. *****"

It will be seen from the abo^e .that the present scope of the work
of the Fool and Drug Administration with tvsoect to quality standards is
restricted plmost wholly to uhe- pretention of adulteration, and to the
requiring of sv.b standard labeling fc-i' nan:ded goods. The function princi-
pally performed by the advisory standards for other foods is to provide
positive citexia for determining a ■ to misrepresentation and deception
in their labeling and "branding. Ib.3 influence of theae standards in im-
proving the quality of foods produced and marketed is largely determined
by the extent of the voluntary compliance with them by food manufacturers.
As to power of the Food and Drag Administration to control misrepresenta-
tion and deception in the marketing of food, it must be noted that this
extends only to mislabeling and misbranding. The present Act confers no
authority over the general advertising of food products.

That within the limitations of the authority conferred by its Act
the Food and Drug Administration has done effective work in its primary
function of protecting the consuming public from misrepresentation and

(*)Food and Drug Review, Food and Drug Administration, Department of Agri-
culture, Vol. 17, July 1933, No. 7, p. 121-122

-101-

adulteration of its food supply, and further has aided in improving com-
petitive standards in the industry itself, is generally recogni2ed.

Various proposals for widening the powers of the Pood and Drug Ad-
ministration have been put forward. One example of such proposals, as
embodied in the Copeland Bill, S-5, now pending in Congress, will be
noted in detail in a following section dealing with pending standards
legislation.

As compared with the nature of the standards work under the NRA,
the work of the Pood and Drug Administration is first of all concerned
with public interest, with competitive industry problems a secondary con-
cern. Advisory standards and administrative regulations are in general
drawn as and when the Administration feels that the circumstances require,
rather than at the instance of the industry concerned. Acquiescence of
the industry is not necessary, although its point of view is given con-
sideration.

The NRA situation was almost wholly the reverse of this. Standards
proposales were advanced by the individual industries as the competitive
interests of the industry seemed to make this desirable, and there was no
tendency of the Recovery Administration as such to insist upon standards
requirements. The basic theory of the NHA called for agreement by the
industry with the provisions incorporated in its code. At the same time
it is obvious that there were few industries under NRA in which the pub-
lic interest with respect to standards was at all comparable with what it
is in the general food and drug field.

As to the food industries which were codified under NRA, in only a
few instances (as, Macaroni, Freserve, Mayonnaise) were there any standards
actually put into effect beyond the scope of the Food and Drug Act. One
conspicuous instance of an attempt to extend existing standards require-
ments, but without success, was the grade labeling proposal in the canning
industry.

B . Other Federal Standards Statutes

Various Federal statutes have been passed from time to time by Con-
gress setting up some form of standards requirements for one commodity
or another, some of these laws being in effect supplementary to the Food
and Drug Act, and most of them coming under the administration of the
Department of Agriculture. Some of the more important of these are noted
below:

The Grain Standards Act (*) authorizes the Secretary of Agriculture
to investigate the handling, grading, and transportation of grain, and to
fix and establish standards, as soon as possible, of quality and condition
of corn, wheat, rye, barley, oats, flaxseed, and such other grains as in
jusdment the uses of the trade may warrant or permit. Such grades are
made official. The Act prohibits shipment in interstate commerce unles-s -
the grain in such shipments is inspected and graded by licensed inspectors
and provides further that the grades used shall be those established in
the Act .

(*) Grain Standards Act, 8/ll/l6, Fublic Act #190 64th Congress.
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-103,

The Cotton Standards Act (*) authorizes the Secretary of Agricul-
ture to establish gradings which shall apply automatically to the Ootton
Futures Act-. These standards are mandatory in designating all cotton pre-
pared for any transaction in interstate or foreign commerce.

The wool Standards Act (+*) coas not go as far as the Cotton Act
in that it provides simply for an educational program relative to the
standardizal' ;cn, grading, preparation for rarket, marketing, utilization,
and transportation and promotion of the use of wool grades in accordance
with standards. The program has not reached the stage where the use of
the grades is mandatory.

The Meat Inspection Act (***) authorizes the Secretary of Agricul-
ture to cause inspection of the premises ussd. for the preparation of meat
products and of the animals, either "before or after slaughtering, and to
inspect, and pass or condemn the products inspected.

The Federal Warehouse Act (****) provides for standards for deter-
mining quality and value of certain specified agricultural products, for
the purpose of making possible the issuance of negotiable warehouse re-
ceipts against the products covered Ly the Act. The Secretary of Agri-
culture is authorized to establish and promulgate standards, with the
proviso that all standards already adopted or to be adopted in the
future for any agricultural product are adopted for the purposes of this
Act. The standards set up under the Warehouse Act are limited to the
administration of this Act, and pre standards for no other purpose.

Examples of federal legislation that has virtually resulted in the
disappearance of the article regulated from the channels of commerce are
the Filled Cneese Act (a/) and the Mined Flour Act.(b/) Both Acts were
passed under the taxing power and v/ere designed to regulate the commerce
in these articles. The tax, however, made the manufacture of these two
products unprofitable and both have ceased to be articles of commerce.

The Standard Butter Act (p_/) is unusual in that Congress sets
definite standards for a specific product. The Act defines butter as the
produce made exclusively from milk aru/or cream with or without salt or
color, containing not less than BO'1} by weight of milk fat, all tolerances
being allowed for. This act is supplemental to the Fure Food and Drug Act,

(*) Cotton Standards Act, 4/4/23, 42 Stat. 1517

(**) Wool Standards Act, 1/18/27, 44. Stat. 907

(***) Meat Inspection Act. 6/0O/O6, 'Public Act ;f382, 59th Congress.

(****) Federal Warehouse Act, 7/24/19, Public Act 7fl90 '64th Congress

(a/) Filled Cheese Act, 6/6/1G96, 29 Stat. 203, Chapter 337.

(b/) Mixed Flour Act, June 13, 1896, 30 Stat. 467, Chapter 448

(c/) Standard Butter Act, 4/4/23, Public Act /f 159, 67th Congress.

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The Filled Milk Act , ■-" defines "Filled Milk" and prohibits its
manufacture in the territories or the District of Columbia and its ship-
ment in interstate commerce. This Act is also administered in connection
with the Food and Drug Act.

The Naval Stores Act (**) authorizes the Secretary of Agriculture
to establish standards applicable to Naval Stores, principally turpen-
tine end resin. The Act makes it unlawful to sell naval stores in inter-
state or foreign commerce except in accordance with United States
Standards.

The Export Standards and Grades for Apples and Fears Act (***) makes
it unlawful to ship any aprles or pears in packages which are not accom-
panied by a certificate of the Secretary of Agriculture to show that the
fruit is of a federal or state grade which means the minimum of quality
established for the export of such goods by the Secretary of Agriculture.

The Imported Tea Act (****) establishes a board of tea experts to
assist the Secretary of the Treasury in establishing standards of purity,
quality, or fineness in respect to tea. It prohibits the importation of
tea which falls below the standards set by the Secretary.

Other Acts of a similar nature include the Imported Milk Act (a/) ,
the Imported Seed Act (b/) , the Virus and Anti-Toxin Act (c./) , and the
Steamboat Inspection Act (d/) which provided for standards for kerosene.

The Federal government has also enacted legislation for the estab-
lishment of standard sizes for shipping containers. The Standard Barrel
Act (e/) gives the dimensions of a standard barrel and prohibits the
use of other barrels in interstate or foreign commerce. Other Acts con-
tain provisions peculiar to the shipping .containers used by particular
industries such as the lime industry, the apple industry, and the small
fruits and vegetable industry.

Certain of the standards provisions of the Insecticide Act have been
considered in connection with the code for the Agricultural Insecticide
Industry, (f/) and note has been taken of the labeling requirements of
the Federal Alcohol Administration Act under Chapter Five, Section I, B,
of Part A of this report.

(**) Naval Stores Act. 3/3/23, 42 Stat. 1435.

(***) Export Standards and Grades for Apples and Fears Act, 6/10/33

Fublic Act. if 3, 73rd Congress
(****) Imported Tea Act, 3/2/1887, 29 Stat. 604, Chapter 358
(a/) Imported Milk Act, 2/15/27, Public Act ff 625, 69th Congress
(b/) Imported Seed Act, 8/24/12

(c/) Virus and Anti-Toxin Act , 6/30/l4, 37 Stat. 832.
(d/) Steamboat Inspection Act, February 28, 1871.
(e/) Standard Barrel Act, 3/4/15 Fublic Act f307 63rd Congress
(f_/) Summary of Standards, Exhibit G, NRA Archives

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C . The National Bureau of Standards

The principal activities engaged in by the Bureau of Standards
which ber-r upon the general question of standardization are the following:

1. Fire Scientific Research..

2. Frc:v.ulgrr'/ion o~ Stpnlard Tas/tiing Methods.

3. Pr.ep.?.rpticn of qualit-y and test specifications for material

bcufiht by the Government

4. Froraotio'i av.C use of Standards in industry:

(a) Simplified Fr.actice Recommendations (SPR) .

(b) Commercial Standards (CS).

The most important of these, from the viewpoint of this report, are
the two parallel activities under (4). The following are the definitions
of these activities, as given by the Bureau itself:

"Simplified Practice is the elimination of excess or unnecessary
variety of si?es, dimensions, types and immaterial differences
on the basis, of production and demand.

"Commercial Standards or commodity standards are specific limi-
tations below or beyond which the grade, quality, composition
or dimensions of a commodity shall not be allowed to fall." (*)

The procedure for the establishment of "Simplified. Practice
Recommendations" or recognized specifications as "Commercial Standards"
is practically the same except for the acceptance, which is required
to be 80$ of each-branch of the industry in the case of Simplified
Practice Recommendations and 65^) in the case of Commercial Standards.

Briefly, the procedure begins with a written request to the Bureau
of Standards for cooperation in preparing a standard, the request coming
from either a producer, distributor.,-- or. consumer group, called the
"Proponent Group" .

After certain preliminary steps, a tentative standard is prepared.
A review of this Tentative Commercial Standard is made by the proper
technical division of the Bureau of Standards. After this review^ and
necessary adjustments and corrections, the Tentative Commercial Standard
is submitted to the Froponem, Group for review and authorization to call
a general conference of interested manufacturers, distributors and con-
sumers. At this conference the proposed Commercial Standard is dis-
cusses, modified if necessary and after a verbal approval it becomes
the "Recommended Commercial Standard."

The Bureau of Standards sends out a copy of a recommended Commercial
Standard to each unit of the whole industry, including manufacturers, dis-
tributors and' organized consumers, for written acceptance.

A Standing Committee is appointed for further contacts between the
Division of Trade Standards and the Industry.

(*) "The Commercial Standard Service and its value to Business",
U. S. Depti of Commerce, Bureau of Standards, p. 5.

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Upon receipt of signed acceptances, representing at least 65$ (80%
for a Simplified Fractice Recommendation) of production and consumption
"by volume, the Recommended Commercial Standard "becomes a Commercial
Standard. An announcement is made to this effect and the date upon
which the Commercial Standard becomes effective is specified.

There were reported in existence on September 1, 1935, a total of
81 Commercial Standards approved by the Bureau. Simplified Practice
Recommendations to the number of 162 have been approved.

Standards approved by the Bureau of Standards are in no way "legal"
standards. They have no mandatory effect, and failure to observe them
carries no penalty. Trey do, however, exercise considerable influence
in the commodity field. For a comprehensive statement as to the value
of the Bureau's standards work to the producer, the distributor and the
consumer, see "Commercial Standard Service and Its Value to Business",
U. S. Department of Commerce, Bureau of Standards, p. 24-26.

Note has already been made above (*) of the frequent inclusion of
references to Commercial Standards or Simplified Fractise Recommendations
in the NRA codes, or of clauses calling for cooperation with the Bureau
in their formulation. Further service to the cause of standards is given
by the Bureau through its work in the development of standard testing
methods, without which, standardization for many types of commodities - -
is impracticable. The work of this type done in the hosiery field at
the instance of consumer interests is dealt with in Exhibit F of Appen-
dix II , below.

With respect to most of the forms of standardisation work in which
the Bureau engages it has no authority to take the initiative. In
practice the requests for such work come chiefly from industry groups,
and as was the case under NRA, are initiated by them primarily for the
furtherance of industry ends. The Bureau is not authorized to make
available to the consuming public the information as to the relative
merits of specific products or brands which it has accumulated through
its work in the formulation of commercial standards and test specifi-
cations for government purchasing, other than as indicated with respect
to the Bureau's Certification Plan, mentioned below. (**)

D . Federal Furch-jsing Specifications.

Due to the great influence exercised by purchasing on the scale
done by the Federal Government, the purchase requirements set up by the
Federal Specification Executive Committee (formerly the Federal Speci-
fication Board) have their effect on general industry standards.

The duty of this committee is to "coordinate the requirements for
supplies and material purchased by the various Government departments,
and to establish scientific, uniform, purchasing standards." The Com-
mittee consists of a Chairman, Vice Chairman, Technical Secretary, and

(*) Chapter Two, Section II, supra.

(**) Sub-Section III, 7, of this chapter.

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As particularly affecting standards, an essential condition for
the control mentioned above was that the raw materials be graded on the
basis of standards established by the Department of Agriculture, by a
State, or by a Control Committee.

"The Marketing Agreement and License for the Canners of Cling Feaches
Grown in the State of California," July 6, 1934 and July 12,. 1934, stated:
that:

"Article VI - Receiving and Facking of Cling Feaches.

Section 1. No canner shall receive for canning any cling
peaches of a grade, as determined by the 'Receiving and
Grading Committee1 established pursuant to Article VII,
section 8, subsection (f) hereof, lower than No. 1 cling
peaches, "

„ "The Marketing Agreement and License for the California Ripe Olive

tb Canning Industry," December 9, 1953 and December 13, 1933, provided for
minimum prices to distributors bneed on rine olives graded according to
variety and size. Mandatory grading was provided for as follows:

"Article X - Miscellaneous

Section 2. No canner shall sell any olives which are not in
accordance with the grades established by the statutes of
California except with the express permission of and arrroval
of minimum sale price by the Control Committee."

Ripe olives were graded on the basis of 9 grades. "Standard" being
the smallest and "Super-Colossal" being the largest.

"The Marketing Agreement the Handling of Walnuts Grown in California,
Oregon and Washington," October 15, 1935, provided that no walnuts should
be sold except those graded as "mercnantable" . Exhibit A of the Agree-
ment lists the Fack Specifications for Merchantable Walnuts (names and
sizes) , while Exhibit B consists of specifications for the "Quality
Grades" of English walnuts.

Turning to Agreements affecting fresh fruits and vegetables, the
Marketing Agreement with respect to watermelons for the Southeastern
States may be taken as an illustration. This Agreement, dated August
20, 1934, -provided for a control of the amount of fruit shipped and
specified the grades to be shipped as follows:

"Article II, Section 5.

If the total quantity which will be on track

exceeds the probable consumptive demand the

Control Comn-'ittee may issue and order or orders

(a) Frohibiting shippers from shipping from the South-
eastern States watermelons of a United States grade
or grades other than United States Grade 1 "

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Various other work which is done by Federal agencies affecting
standards in limited .special fields might be cited, but the foregoing
indicates the principal scope of the national government's work.

978'

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II. STATE AST MOHICIPAL AGENCIES

A great number of standards and labeling statutes dealing with various
classes of commodities are. to be found on the books of the various States.
These deal principally with food products of all sorts, with paint and
varnish, turpentine, etc., and with agricultural commcdities of various kinds,
including fertilizers and stock feeds. Further mention of these is made in
the following chapter, dealing with somp legal questions concerning standards.

In addition, nearly all importand municipalities have numerous require-
ments as to various commodities., principally food, sold within their bound-
aries. Large cities such as New York, as well as the states, also generally
have testing laboratories and technical staffs in connection with their pur-
chasing department to develop specifications, similar to the Federal specifica-
tions already mentioned, to_; cover their- buying.

A comprehensive survey of the standards and labeling laws of the cities
and States, and their other contributions to standardizing work, would make
a valuable supplement to the work which it has been possible to include within
the present scope of this study.

III. PRIVATE STANDARDIZING AGENCIES

There are numerous private, or non-official, agencies which make contri-
bution of one kind or another to the subject of standards. Probably the most
prominent of these are the American Standards Association and the American
Society for Testing Materials, both of which work frequently in cooperation
with the Bureau of Standards.

A. The American Standards Association

The American Standards Association is a Federation of forty national
technical societies, trade associations and Federal Government Departments
which form its basic membership. The purposes of the organization are: (*)

"To serve as a clearing house for standardization work in the United

States;

"To further the standardization movement as a means of advancing national

economy;

"To serve as a bureau of information on standardization matters;

"To act as the authoritative American channel in international

cooperation in standardization work."- •

The last-named function is carried out through its membership in the Inter-
national Standards Association (ISA), through which the various national
standards bodies carry on their cooperative activities.

The following are the principal types of standardizing activity in which
the Association engages:

1. Nomenclature.

Definitions of technical terms used in specifications and contracts
and in other technical work.

(*) "The American Standards Association^' P. G. Agnew, Secretary, p. 1,
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Abbreviations

Symbols for quantities ased in equations and formulas.

Graphical symbols (ideographs or pictographs).

2. Un:f3rmity in -dimensions necessary to secure fits; and to
- provide for the ir.terehengeability cf parts and supplies,

and- the interworking of apparatus.

3. Quality specifications fo±- materials and equipment, both
for producer goods and for consumer goods*

4. Methods of Test.

5. Ratings of machinery and apparatus which establish test limits
under specified conditions as a basis of Purchase specifications,
or which establish requirements as to performance, durability,
safety,, etc. , under operation.

6. Provisions for safety.

7. Rules for the operation of apparatus and machinery in indus-
trial establishments.

8. Concentration upon the optimum number of types, sizes, and
grades of manufactured products.

The Association, in its method of functioning,. (1) brings together trade
associations, technical societies, governmental bodies, et<*. , directly interested
in the promulgation of a particular standards; (2) helps to organize a
Technical Committee composed of delegates especially interested in the
Standard Project; (3) after a substantially unanimous approval of the
Standard by the Technical Committee, the American Standards Association
has a proof that the standard is of national interest; (4) the Standards
Council of the American Standards Association then gives its approval and
the standard becomes an "American Standard" or "ASA Standard"; (5) the
fact that a standard becomes as "ASA Standard" gives it prestige not only
among the manufacturers', distributors or consumers of this country, but
also abroad.

The National Bureau of Standards acts as "sponsor" for any completed
and approved Commercial Standards if their approval as "American standards"
is desired.

To date more than 300 standards have been approved by the American
Standards Association, and approximately 200 are under consideration. More
than 600 national organizations are officially participating in this work,
and approximately 3000 officially accredited representatives from every
branch of the industry are serving on the various committees and participa-
ting actively in the Association's Work.

- The work of the Association has, in general, had to do in very largo
part with industrial goods. Under a reorganization plan adopted on April
25, 1935, however, a resolution providing for the creation of an Advisory
Council on Ultimate Consumer Goods was approved, and a number of national
consumers groups, retail trade associations, and Government bureaus were

9786

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invited to send representatives to undertake the study of various aspects "o"f"~~
consumer goods standards.

B. The American Society for Testing Materials

This soceity is one of the member-bodies of the American Standards
Association, Its objects are "the promotion of knowledge of the materials
of engineering and the standardization of specifications and methods of
testing. "

The ASTM's membership includes (1) producers of raw materials, semi-
finished and finished products in metals, ceramics, petroleum products,
timber, coal, textiles, etcc , (2.) consumers of materials and products (rail-
roads, industrial consuners, construction concerns, Federal, State and
Municipal governments, (3) general interest groups (engineers, technolo-
gists, testing experts, etc. ) -

. The types of standards dealt with by the ASTM include definitions and
I nomenclature; qudity and property specifications of raeterials and products;
process specifications; methods of testing materials.

A proposed standard or revision of existing standard originates in a
Committee having jurisdiction over particular materials or products. After
a study of standards is made by individual members of the Committee, the
results are submitted at the meeting of the Committee and if approved, a
report is presented by the Committee at tie next annual meeting of the ASTM.
If accepted the standards are publibhed as "Tentative ASTM standards" in
order to elicit criticism and comments. A "Tentative ASTM Standard" becomes
an "ASTM Standard" after a two-thirds favorable vote of the ASTM.

Approximately five hundred standards have been approved by the ASTM
and many are under way. The ASTM, in addition to the standards, . issues
many publications? Proceedings, ASTM Bulletin, Year Book, etc.

k C . Other Agencies Affecting Standards.

Besides the above, various professional and business organizations
and consumer groups are exerting some form of influence with respect to
standards. Some of these organizations, with the general scope of their
standards activity, follow. .

1, The American Medical Association.

The American Medical Association is active in developing and promul-
gating standards for medicinal' preparations, A very important part of the
work of the association is the setting up of standards far advertising of
foods from the consumer's standpoint. The association is publishing the
names of approved products, and the names of disaoproved products only in
case the manufacturer refuses to change the wording of the advertisement,
or pictures of the product, in order to meet the standards requirements of
the Association,

9786

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2. The American Dental Association.

The American Dental Association is participating in work similar to
the American Medical Association and is also publishing a list of approved
dental preparations.

3. The American Home Economics Association.

The American Home Economics Association is one of the outstanding
organizations taking an active part in the promotion of performance specifi-
cations for consumer goods and informative labeling of products. The member-
ship of the Association is mainly made up of teachers, dietitians and home
economists, and it is a very important agency in educating consumers in re-
gard to buying problems. . The American Home Economics Association is a
Member-Body of. the American Standards Association.

4. Better Business Bureaus.

The National Vigilance Committee, composed of advertisers, and its
affiliated Better Business Bureaus have been responsible for improvement in
advertising ethics, and the latter groups are also cooperating with many
standardizing organizations and trade associations in setting up standards,
especially for consumer goods.

5. Newspaper and Magazine "Institutes" and Services.

The following "Institutes" are connected with newspaper and magazines:
The New York Herald Tribune Institute, the Good Housekeeping Institute, the
Delineator- Institute, the Popular Science Institute.

Most of these "Institutes" have testing, engineering and chemical
laboratories and a staff of technicians. The standards specifications and
test methods- prepared by these "Institutes" are not published and conse-
quently cannot be analyzed, commented upon or criticized. Only lists of
articles, advertised in the magazines and approved bv the institute, are
published. Since the "Institutes" are financed by the magazines and their
survival depends largely on the amount of advertisements, it is rather diffi-
cult to estimate the help and service offered by these "Institutes" to the
consumer.

6. Other Groups.

In addition to the groups listpd above, important women's organiza-
tions such as the General Federation of Women's Clubs, the National League
of Women Voters, and the American Association of University Women are in-
fluencing the adoption of consumer standards by focusing the attention of
their membership upon consumer problems and assisting in the spread of
consumer education.

In the individual industry field. a great deal of work is being done
by large industrial associations such as the National Electrical Manufactur-
ing Association (NEMA) and numerous others which it is not possible to
enumerate here.

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7. Certification rians and Agencies.

Various plans for "certifying" products as complying with suitable

standards, and indicating such certification by some form of label, are ^

in use0 These range all the way from methods sponsored by non-commercial
or technical organizations of the highest type down to mere schemes for
selling labels.

The Certification Plan sponsored by the Bureau of Standards is described
in the quotation from the Bureau which follows:

"The certification plan consists in the compilation and distribu-
tion by the Rational Bureau of Standards, of lists of sources of
supply of commodities covered by certain selected Federal Specifi-
cations and Commercial Standards. These lists contain the names of
firms who have indicated their willingness to certify to purchasers,
upon request, that the material supplied by them on contracts based
on the selected specifications and standards does actually comply
with the requirements and tests thereof and is so guaranteed by them. "(*)

Self certifying labels or registered symbols also may be employed by
the manufacturers as a certification of quality and to the effect that the
products meet the requirements of the "Commercial standards".

Schemes of the label-selling type are generally based upon no standard
specifications which are made publicly available, and insofar as they are
ignorantly accepted by the purchasing public as guaranteeing merit in the
article certified they may be regarded as obstacles to the development of
genuinely informative product labeling.

The American Standards Association made a study of this subject and
has set for-ch the following policy:

"Any program of certification, labeling, or grade marking, in order
to be adequate, should be basDd upon specifications which are
publicly available and nationally recognized.

"It is for the grouas substantial"1 y concerned with the specifications
to decide in each case whether there is to be certification or label-
ing.

"Any certification or labeling program should be effectively super-
vised by a properly qualified body; e.g., a trade association, or
a testing laboratory operating under proper administrative management."

IV. PROPOSED LEGISLATION CONCERNING STANDARDS AND LABELING

In the first section of this chapter various Federal agenci.es and
enactments affecting standards were noted. Brief mention will be made here
of certain proposed measures which if adopted would have considerable bear-
ing upon the national standards and labeling situation.

(*) "The Certification Plan: Its Significance, Scope and Application To

Selected Federal Specifications and Commercial Standards", Division of
Codes and Specifications, National Bureau of Standards, page 1.

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A. The Cope land Bill

This Mil, S 5; which passed the Senate on May 28. 1935, is intended
as a new Federal Food and r.'rug Aet„ Ellis bill extends control to cosmetics
and the?*apeu':i c devices, in addition to food rmd drugs: prohibits false
advert i=: in g '-' these cowcuitips as veil as false labeling and branding;
and differs froa the 19' H" Act in other important particulars, some of which
.have been analyzed as follows:

"1. Provides for '■•he prbirulgatioa of standards of identity and a
reasonable standard of quality for food6 (A standard of
quality is auchjrized by the present law for canned food only.)

"2. Requirer. the labeling of unstandardized food to disclose the

ingredients by rjune. except colorings and flavorings, which may
be declared simply as coloring and flavoring*

"3. Prohibits traffic in food which is dangerous to health. (Tha
present law p.^inits regulation of dangerous food only in the
event thai; the poison i s addede )

"4. Requires label declaration of artificial colors and artificial
flavors in all food,

"5. Requires fully inf orma'oive labeling of infant and invalid food.

"6. Prescribes slack-filling and the use of deceptive containers for
feed and drugs.

"7. Prescribes the use of poisonous containers for food, drugs,
and cosmetics,

"8. Requires that claims of effect of drugs and devices be supported
by demonstrable scientific fact's or substantial and reliable
medical vt scientific opinion. (i'hc present law makes fraud,
that is, wilful intent to d?-eive, an element cf the offense;
unwarrani;?d therapeutic claims resulting from sheer ignorance
of the manufacturer are not -ctionable) .

"9. Prohibits traffic in drugs and devices which are dangerous to
health under the conditions of use prescribed in the labeling
or advertising.

"10. Requires that food, drugs and cosmetics be prepared and handled
under conditions of reasonable cleanliness. "

Certain administrative changes are also proposed, some of which ~ such
as modifications in the provisions as to "multiple seizures" and criminal
sanctions, and the right of the owner of seized goods to call for trial in
his home jurisdiction rather than where the seizure occurred, - have been
pointed to as weakening, in these resuects, the existing law.

9786

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The Capner Bill.

"Truth in "Fabrics"

This Bill (*) which is quite similar to other bills introduced into
Congress for several years past "by Senator Capper of Kansas, provides for
the marking and labeling of all textile materials and all garments made
therefrom. It provides for three catagories for labeling: "virgin wool",
for material containing virgin wool only; "mixed woolen goods" for all
other woolen materials; and ''mixed textile goods" comprising all other
fabrics and garments. The Bill is designed to cover all goods moving in
inter-state or foreign commerce and requires that all. manufacturers of
such goods register with the Secretary of Agri culture.

C. The Huddle st on Bill.

For a number of years Representative Huddleston of Alabama has intro-
duced a bill designed to empower the Bureau of Standards to require grade
quality, or other appropriate labeling or branding for the various articles
of commerce. The revised text of this bill is as follows: (**)

A_BI_LL
To prevent frauds in commerce, and for other ourposes.

Be it enacted by the Senate and House of representatives of the
United States of American in Congress assembled.

That the Bureau of Standards is authorized to adopt and prescribe
marks indicating the quality, durability, usefulness, size, strength,
grade, quantity, composition, origin, date and process of production,
weight, and measure of all of the objects of commerce, and to adopt
regulations for the use of such marks thereon.

Sec. 2C It shall be unlawful to place in interstate commerce
any subject cf comnerce without having complied with the regulations,
if any, applicable thereto which may have been adopted under the
authorization of the first section of this Act.

Sec, 3. It shall be unlawful for any dealer, or any person who
has acquired same for the purpose of resale, to remove from any subject
of commerce any mark placed thereon in compliance with this Act,

Sec. 4„ Violations of this Act shall be punishable by imprisonment
for not more than two years and a fine of not more than $5,000, either
or both.

(*) S 2318, 74th Congress, March 13, 1935.
(**) H. E. G213, January 3, 1934.

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D. The 7ftieeler~Rayburn Bill

This Mil to amend the Federal Trade Commission Act- (*), now pending,
provides that not only are ''unfair methods of competition" unlawful, as
now provided by Sec- 5 of the o-riginal Act, but else "unfair and deceptive
acts and practices'1.- in commerce generally.* This broadening of the scope of
the Act is designed to eiahlo the Co'iJ.ri ssion to proceed against practices
which are unfair to' the public 9 whether specifically unfair to competitors
or not. It is not possible to say definitely in advanca, but it appears
that this phrasing, if adopted, might be construed as including within its
scope the power to impose, in some circumstances, reasonable standards and
labeling requirements.

(*) H.R. 10385, 74th Congress, 2d session.
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CHAPTBR FOUR
SOM3 LEGAL ASPECTS OF STANDARDS £HD LABELING-

•She following chapter will deal "briefly with certain of the
legal questions which may be involved in the adoption of standards or
labeling requirements through Federal or state legislation.

The scope of the principal Federal statutes effectuating stand-
ards regulations has been pointed out in the preceding chapter. Prac-
tically all states have one or more statutes dealing with grading or
labeling of products. These are concerned primarily with foods for
human consumption, with drugs, and with various agricultural commodi-
ties, such as fertilizers, sprays and' disinfectants, stock feeds, seeds,
etc.

State statutes usually fix standards by one of three methods:
adoption of the standards' fixed by the Department of Agriculture pur-
suant to federal statutes (*); firing standards in the statute itself(**);
or delegating to an appropriate state agency the power to fix grades and
standards. (**.*)

Whatever the method employed, questions of constitutionality as
involved in the commerce clause, or the due process clause, or the dele-
gation of regulatory power, are frequently encountered. The general con-
stitutionality of a state statute delegating power to an appropriate
state agency to establish standards or labeling regulations has been
tested and upheld by several decisions. (****)

ITo specific instance of a court decision dealing with the validity
of code provisions dealing with standards and labeling during the NRA
period has been found. Restrictive provisions such as those contained

(*) Thirty-two, states have such statutes, applicable to various

commodities, For example, see Ala. Code (1923) s. 169 (cotton);
Idaho Comp. Stat. (1919) s. 2032 ( farm products) ; a.nd Pa. Stat.
Ann. (purdon, 1930)3s.21 (farm products and containers), 3s. 164
(nayal stores) and 3s. 372 (grapes).

(**) Cal. 'Codes and Gen. Laws (Consol. Supp.,1927) s. 2805b, 2809

(fruits and vegetables) ; l.Iich. Comp. Laws (Cahill, 1929) s.5593
(apples); and Iowa Laws 1927, c. 64 (eggs).

(***) Every, state except ITeva&a has at least one statute of this type.
For example, see Hew York Consolidated Laws (Cahill, 1930)
c.l.s. 158, (apples).

(****) Marshall v. Dept. of Agriculture of Idaho, 44 Idaho 440, 253

Pac. 171 (1927); Detweiler v. Welch. 46F (2nd) 71 (Idaho. 1931).

9736

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in the codes for the bedding industry and the plumbing fixtures industry-
did not reach a court test for reasons indicated in the discussions of
those codes in a previous chapter. (*) It is unnecessary to cite the
ruling as to undue delegation of power in the national Industrial Re-
covery Act as a whole laid down in thi Schechter decision.

Various decisions dealing with specific types of standardizing
activity, state and Federal, and touching both the commerce and the
due process clause are cited below as indicating the legal status of
these particular forms of control.

A. Mandatory 'Minimum Standards.

Legislation which is designed, or in effect serves, to set up
complete prohibitions upon the manufacture or sale of goods falling
below or outside of certain fixed specifications as to quality, grade,
design, etc., where there is no sufficient issue of public welfare con-
cerned, will generally be held unconsitutional . The only warrant under
:the Constitution for the suppression of otherwise legitimate business
appears to be through exercise of the police power in the promotion of
public safety, health, and general welfare, the latter being interpreted
to include the prevention of fraud upon the public.

The following arc citations which illustrate this general posi-
tion, although in one or two instances there appears t» bo a broad con-
struction of the welfare scope of the legislation.

1« Atlantic Refining Company ct al v. Trumbull, Gov, et al.
43 F (2nd) 154 (D. C. Conn. 1930)

In this case the State of Connecticut attempted to forbid the
sale of motor oils not meeting a definite Government specification.
The Court held that the prohibition of the sale of merchandise below
a specified grade is unconstitutional, unless it involves hazards to
publ i c , heal th , etc.

2. Weaver v. Palmer Bros. Co.
270 U. S. 402 (1926). .

In, this case the State ,of Pennsylvania attempted to prevent the
use of "shoddy" (second hand, reworked wool) in the manufacture of
bedding. The evidence was held to show that shoddy can bo sterilized
so as to make it harmless to health, and the Supreme Court therefore
held the law to be unconstitutional. (Dissent: J. J. Holmes, Brandeis
and Stone) .

(*) Chapter Two. Section III, A. supra.

9786

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3. lEhe. People of t.hfi £t..^t.p. of Illinois v. - Tfeiner
271 111. 74 (1915)

This case, similar to the one mentioned just above, questioned
the right to use second-hand material for bedding. The Court found
that second-hand material may "be made safe by sterilization, and de-
clared, the law unconstitutional.

-• Sli^h v. Kirkwpod
237 U. S. 52 (1915)

This case involved the right of the State of Florida to declare
it unlawful for anyone to market any citrus fruits which are immature
or otherwise unfit for consumption. The Court held the law as being
constitutional on the grounds of public welfare, and especially men-
tioned .the welfare of the industry in question:

"It is competent for the Legislature to find that it was
essential for the success of that industry that its repu-
tation be preserved in other States wherever such fruits
find the most extensive markets."

A large number of state codes contain prohibitions upon the
sale of fertilizers which fall below a specified minimum content ef
available plant food, or specified ingredients. ( *) Such laws would
appear to run counter to the general principle concerning prohibition
of 'substandard goods stated above, in that fertilizers of lower con-
tent might be held to have definite plant food value, while being more
within the price range of some purchasers. The state laws however ap-
pear to be based upon the general intent of preventing fraud in the
marketing of a commodity with respect to which misrepresentations are
difficult to detect.

5, Federal Legislation.

The Federal Government, under the commerce clause and in tie
interest of the export trade and credit of the country, appears to
have the power to enact mandatory minimum standards applicable to
goods for sale abroad. The Federal Export Apple and Pear Act (**),
among other provisions, maizes it unlawful to ship or pffer for ship-
ment to any foreign destination any apples or pears in packages not
accompanied by a certificate authorized by the Secretary of Agriculture
showing that the fruit arc of a Federal or State grade which meets the
minimum of quality established by the Secretary of Agriculture for ship-
ment in export. In the preamble to the Act the following as to its pur-
poses is stated!

(*) e.g. Code of the State of Mississippi, 1930, Chapter 97, Sec. 4035,
4037, 4044. ■ '

(**) 48 Stat. 123, 73rd Congress.

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" To promote the foreign trade of the United States in
apples and/or pears, to protect the reputation of- American-
grown apples and pears in foreign markets, to prevent de-
ception or misrepresentation as to the quality of such
products moving .in foreign commerce. and for other pur-
poses.. Be it enacted "

In domestic commerce,, however, the legal powers of the Federal
Government actually to restrict manufacture and sale of .foods, at
least so far as expressed in the present Food and Drug legislation,
extend only to adulterated products. Beyond this the requirements
refer to accurate labeling only.

With respect to general articles of tcommerce within the United
States the programs of Simplification and Standardization undertaken
in cooperation with the National Bureau of Standards are entirely
voluntary as to adheranoe by the individual manufacturer or dealer.
Any attempt to make the 3c ccmpul sor~~ would doubtless run afoul of the
object; ov.s- already noted with respect to mandatory minimum standards.
The Federal Trade Commission has never accepted in its Trade Practice
Conference B'lles, any restrictive 'standards provisions other than
"as expressions of the crade".

It is, even possible that if a voluntary simplification program
should he se universally adopted by an industry as to effect in fact
a limi ta-tion upon the s'^zesj types, etc. of a product available in the
market which was detrimental to the .interests of the purchasing public,
a question of restraint of trade might arise, llo record has been found
of such a. case having boon tested.

IThat has been said above as to restrictions placed upon commerce
in substandard and non-standarO goods in general would apply also to
prohibitions upon "seconds1'. " eloscouts" , reworked and rebuilt goods,
etc.v several of which are encountered in varrous of the codes.

B. han-latory Grading of Goods

Rceuirements for grading of goods have generally been upheld as
a proper exercise of legislative power both by the Federal Government
and the States. •,

1. Do two il or et al v. Welch

F (2nd) 75 (C. C. 9th, 1930)

.An Idaho, statute requires that when potatoes are offered for
shipment within or without the St •■to they shall be graded according to
standards set by the U. S. Department of Agriculture, and are to be
packed in containers in conformity with proscribed rules. The consti-
tutionality of the law vra,s questioned in the above case on the basis
of the due process clause. The Court held the law constitutional saying:

9786

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"The Act was designed to promote the general welfare
of tile Industry,' which in turn would promote the gen-
• ' eral welfare of the State. It is alleged in the Act
that potatoes comprise tic major agricultural crop of
the State of Idaho " .

Requirements for grading end inspection by the Federal Government
with respect to products moving in interstate commerce are contained
in the Cotton Standards Act, the Grain Standards Act, and others. Grad-
ing is done by the Department of Agriculture under the Food & Drugs Act,
the Federal Warehousing Act, etc. but is not mandatory upon producers
of such products; except in special cases, such as to comply with the
loan requirements under the latter Act. ifumerous state grading and in-
spection acts, both mandatory and permissive, exist,

C. Manda,tory Labeling acquirements.

Mandatory labeling requirements appear to be established as a
proper exercise of< the police power for the prevention of fraud and
misrepresentation, Fumerous state laws exist calling for various spe-
cific forms of labeling for a wide variety of goods, including foods,
paints, fertilizers, feeds, and fabrics. One decision upholding such
an act may be cited:

State v. W. S. Buck- Mercantile Co. et al.
58 Wyo. 47, 264 Pac. 1023 (1928)

A Wyoming statute known as "Truth in Fabrics Act" prohibited the
sale of any yarn, cloth or garment containing or purporting to contain
wool, without placing- thereon a conspicuous label showing the "true
character and quality of the wool content thereof". The Statute nro-
vided further that the label should indicate the article to be one of

the following: "All virgin wool"," $ Virgin wool", or "no virgin

wool"; and that no manufacturer or wholesale vendor should, upon re-
quest, refuse to inform as to "the true quality of the virgin wool con-
tent of this article".

The defendant companies were charged with violation in that they
sold a blanket containing wool without placing a label on article giv-
ing the information regarding quantity of virgin wool content of the
blanket. They contended that the Act was unconsitutional, as violative
of the 14th Amendment. Said the Court:

"The foregoing legislation is an attempt to exercise the
police power.... and one of the main objections raised is
that an attempt to regulate the sale of such goods is an
arbitrary interference with private business, and that the
welfare of the people is in no manner advanced thereby; in
other words, that the attempted legislation does not come
within the purview of the police power. The objects of
that power may be of the order, safety, health, morals, and

9786

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general welfare of society. The prevention of
fraud is included therein*, . .laws requiring the
contents of certain goods to "be shown "by label,

have generally been approved, and the Courts

holding that a purchaser has the right to know the
contents of the goods which he buys and that a law
requiring a seller to disclose such contents does
not deprive him of any constitutional rights."

Examples of Federal Requirements as to labeling include " sub-
standard" labeling applied to canned goods under the IviciJary-Hapes
Amendment to the Food and Drug Act, and various labeling regulations
set up by the Federal Alcohol Control Administration.

D . Container Standards .

The constituionality of a statute prescribing the use of stand-
ard containers and methods of packing was upheld in the case of
Detweiler et al v. Welch, noted under B, above.

Support of the right cf legislative enactment to prescribe stand-
ard types of containers for products in commerce was also given by the
Supreme 'Court in the following case:

Pacifi c ;'t-tes 3o:: and Basket Co. v. TThite
80 Adv7 Op. 153. 56 Supp. Ct. P.ep.

This appeal presented to the Supreme Court a question as to the
validity of an order of the Department of Agriculture of the State of
Oregon which prescribed, among other things, the size and shape of con-
tainers for strawberries and raspberries. The statute under which the
order was issued makes it unlawful for anyone to pack for sale or trans-
port for sale, or sell, the article in a container, unless the latter
conforms to the standards fixed, and penalties are prescribed for vio-
lations.

Considering first the contention that the order violates due proc-
ess, the Court pointed out that it was conceded that one of the earliest
exertions of the police power was the regulation of trade to preserve
the condition of merchandise, to protect buyers from deception, and to
prevent unfair competition. The Court further stated:

"Different types of commodities require different types
of containers; and as to each commodity there may be
reasonable difference of opinion as to the type best
adapted to the protection of the public. Whether it was
necessary in Oregon to provide a standard container for
raspberries and strawberries; and, if so, whether that
' adopted should have been made mandatory, involve questions

9786

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of fact and of pones'-, the determination of which
rests in the legislative branch of the state govern-
ment. The determination may be made, if the consit-
tution of the State permits, by a subordinate admin-
istrative body. With the wisdom of such a regulation
we have, of course, no concern. We may inquire only whether
whether it is arbitrary or capricious. That the re-
quirement is not arbitrary or capricious seems clear.
That the type of container prescribed by Oregon is an
appropriate means for attaining permissible ends can-
not bo doubted,"

Types of Federal legislation concerning standard containers are
found in the Standard Barrel Act, (*) the Standards for Hampers, etc.
for Fruits and Vegetables Act, (**), the Standard APPl° Barrel Act, (***),
and regulations under the Interstate Commerce Commission Act.

For a condensed but thoroughly documented discussion of the economic
effects of standards and labeling legislation as it touches the relations
of buyer and seller reference is made to a paper "Legal Issues Involved
in Buying and Selling- under Statutory Commodity Standards", published in
American Standards Association Bulletin ITo . 64. (****)

A thorough compilation of Federal and state statutes dealing with
tho subject of standardisation, and of ruling legal decisions which have
been handed down in the various courts concerning them, is. believed to
be one of the ways in which the study undertaken in this report could be
profitably extended in any future continuation of the work.

(*) 307, 63rd Congress, H. H. 4383, March 4, 1915.

(**) 452, 70th Congress, Senate 2148, .Hay 21, 1318.

(***) 252, H. R. 21430, August 3, 1912.

(****) August, 1931. By Jacob Aronson, Columbia University.

)786

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OFFICE OF NATIONAL RECOVERY ADMINISTRATION
DIVISION OF REVIEW

INFORMATION CONCEIVING COMMODITIES
A STUDY IN JIRA AND RELATED EXPERIENCE IN CONTROL

APPENDICES I, II and III

. . By
Hunter P. Mulford,

WORK MATERIALS NO. 38

Work Materials No. 38 falls into the following parts:

Part A: Misrepresentation and Deception
Fart B: Standards a.nd Labeling
Appendices I, II and III

Trade Practice Studies Section
February 1936..

9786

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OFFICE OF NATIONAL RECOVERY ADMINISTRATION
DIVISION OF REVIEW

INFORMATION CONCERNING COMMODITIES
A STUDY IN NRA AND RELATED EXPERIENCE IN CONTROL

APPENDICES I, II and III

3.7
Hunter P. Mulford

Trade Practice Studies Section
February, 1936.

9786

APPENDIX

INFORMATION CONCERNING COMMODITIES

A STUDY IN ERA AID RELATKJ EXPEDIENCE IN CONTROL

Contents

Page

Appendix I - Methods Followed in Developing the
Study, and Suggestions for Further

Work 127

Appendix II - Summaries of Standards and Labeling

Experience in Selected Industries... 133

Appendix III - NRa Policy and Procedure with
Respect to Standards and

Labeling 224

9786

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APPENDIX - I

METHODS FOLLOWED IN DEVELOPING THE STUDY
AND SUGGESTIONS FOR FURTHER WORK

The primary object of the Commodity Information study was to
examine the different types of control attempted by the National
Recovery Administration in this field, and to determine as definitely
as possible from the evidence available the results of these efforts.
Secondarily, some view of related attempts to achieve similar ends,
such as the Federal Trade Commission or the Food and Drug Administra-
tion, was proposed to be included.

The basic division of the subject matter between, (A) Misrepre-
sentation and Deception Control, and (3) Standards and Labeling, was
dictated by the difference in the issues involved as between the first
group of provisions, which were in general expressions of existing law,
and the second, which involved numerous controversial considerations.

A discussion of the methods employed and sources of information
used, and suggestions for further research dealing with the subject,
are given below for each of the t^o major portions of the study.

I. MISREPRESENTATION AND DECEPTION
A. Method of Procedure.

Following the development of a general outline indicating the
materials desired to be obtained for carrying out the study, a systematic
search of the data dealing with the subject in the NRA files and
records in Washington was made. The object of this search was, spe-
cifically, to uncover evidence as to industry problems connected with
misrepresentation which might appear from the records of headings in
connection with the adoption of the code provisions, or from protests
received and violations recorded during the period of code administra-
tion; also to secure any indications as to success or non-success of
the provisions in operation which might appear from information
emanating from Code Authorities, or from the Compliance Division data.

Since more than 650 codes and supplements contained misrepresenta-
tion provisions it was obvious that some selections of those most
likely to repay careful examination must be made. A list of approximately
60 codes' was chosen, on the basis (l) of the importance of the industry
(2) of the emphasis on the subject of misrepresentation indicated by
the number of related provisions in the code, and (3) and on the
indication of activity of the provision as obtained from a preliminary
survey of the central Compliance records for more than 400 codes.

9786

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A complete examination of the file records for the selected indus-
tries wes then made to disclose any information dealing with misrepre-
sentations; the resulting data being transcribed first uuon work
sheets, and finally put together in organized summary form.

The information. obtained by this method was meagre, ^ost of the
misrenresentation provisions had aiyoarently been adopted without dis-
cussion. Reported violations ^ere few, and expressions from the Code
Authorities or other interested parties were almost wholly lacking.

To surrolement this information a questionnaire was directed, in
conjunction with the Price Filing study, to a large number of former
Code Authorities. The returns from this were classified and tabulated
as to size and type of industry reporting, whether or not mi s re-ores en ta-
tion was an industry problem, success of the provisions, difficulties
encountered, etc.

Similar Questions were put in "oerson by field workers from the
State MA. Comoliance offices to representatives of numerous local and
regional code authority members for 19 codes which had sub-code
authority organization. The results of these were tabulated to give
conroarative data on various points by code and by type of industry.

Conroilations were made from the summary sheets of State Office
compliance data to show the number of violations of the various types
of misrepresentations provisions which were reported, the codes in
which they appeared, the proportion w;;ich these violations formed of
all trade practice violations, the proportion of codes containing no
misrepresentations, the proportion of misrepresentation complaints
adjusted, a comparable figure for all trade -oractice violations, and
other data.

To throw light on the precise nature of the violations involving
misrepresentation, and the exact manner in which they were disposed of,
as large a sample of such ca.ses as was available, in detail, was
analyzed to develop these points.

Finally, such contact with industry representatives or former C'sde
Authorities as could be made in Washington, plus a very small amount of
field work by the Unit, and discussions with members of the former code
administrative staffs of the MA, were resorted to to swell further
the available amount of material.

Summaries of the findings and conclusions indicated by the in-
formation gathered from the various sources shown above were drawn ud
independently. These in turn were combined to obtain the summary
results as to the 1TEA which are presented for the report as a whole.

Data concerning the operation of the Federal Trade Commission were
drawn primarily from the published records of the Commission itself,
supplemented by various text materials on the subject. The facts ob-
tained were analyzed in various ways, as given in the Chapter of Part I
of this report dealing with the subject, first with the aim of giving
a picture of the results achieved by the Commission in the field of
misrepresentation, and, second, to draw such comparisons as might be

9786

-129-

possible between this first agency set up to deal with the subject in
terms of unfair competition on a national scale, and the MIA., having
in part the same object.

A brief survey was included of other types of misrepresentation
control which have been emoloyed, including other Federal legislation,
state statutes, and the efforts of private agencies.

B. Suggestions for Further Work on Misrepresentation.

It is believed that the following lines of inquiry, which for the
most part would serve to extend the research already carried out in
connection with this report, would, be productive of useful results
and would add considerable weight and detail to the findings now pre-
sented, even if their main tenor were not greatly altered.

1. More extended inquiry into the actual experience of the Code
Authorities in administering the code provisions. This should
preferably be done by field contact, and wherever possible should
include examination of the actual compliance and complaint files
maintained by the Code Authorities during the period of code ad-
ministration. At the same time, such field work should include
contact with trade associations and with individual industry
members, in order to obtain as wide as possible a cross-section
of opinion concerning the manner of operation, results, diffi-
culties, desirable and undesirable features of the code method

of restraining misrepresentative practices.

2. More extended analysis of the Federal Trade Commission records,
especially, the records of dismissed cases. A reasonably large
random sample of these would orobably be sufficient. Such general
analysis would seek to determine the proportion of dismissals
dealing with misrepresentative practices, with the principal
reasons for such dismissals; the relative extent to which different
industries have sought the help of the Commission, their chief
types of problem, and the success with which these have been met
by the Commission's work; and more thorough analysis of the legal
and administrative aspects of the Commission's functions.

3. Examination' of the records'- of operation of other Federal agen-
cies exercising some control over ^misrepresentations in labeling, f
-nd/or advertising, such as the Food. .and Drug Adrainistra±ionj.?the
FACAr the Securities Exchange' Commission, and the Post Office
Department, to ap-oraise the effectiveness of their work, and the
advantages and difficulties presented by the form of their respec-
tive statutes and administrative machinery. Particular attention
might well be given to the auestion of overlapping of the administra-
tive function.

4. More extended inquiry into the nature of State statutes af-
fecting false advertising, marking and branding, etc., the extent
to which these statutes are enforced, the criteria which State

9786

-130-

court decisions have developed for judging as t^ violations, and
leading decisions sudd or ting or reversing prosecutions under
the statutes. A thorough tabulation by states, of the different
types of statute in effect would Drovide a very useful back-
ground picture of the Dresent law of misrepresentation throughout
the country.

5. More extended inquiry into the extent and effectiveness of
trade association efforts to develop machinery for dealing with
raisrepresentative Dractices among the members of their respective
industries, or in their dealings with other industries.

6. Final results of the tabulation of NHA Compliance data,
covering the entire body of codes, should be analyzed, along the
lines followed in Chapter Four, III, E, of Part A of this report,
to check the results obtained there from the sample of codes
available at the time of the analysis, and to add any further
points which the total results may indicate.

II. STANDARDS AND LABELING (*)
A. Method of Procedure.

The first s&ep undertaken as a preparation for this section of
the report was the development of a complete and detailed outline, to
be used as a general guide in studying the standards experience of
individual industries, as well as for the standards report as a whole.
The object of' this was to suggest the nature of the material needful
to cover the subject adequately, and to suggest the possible avenues
of approach, without regard to the actual availability of such
material. It was not supposed that this outline could be followed
literally in developing the studies, but it was intended to have before
each person engaged in the research and writing a. picture of the re-
quirements fov a coriplete report, which requirements were to bo met
as fully as the individual case would allow,

The coder chosen for detailed study by the Standards Sub-Unit were
decided upon by the following method. First there' was selected a list
of twenty-six industries with which the former Standards Unit of the
Consumers' Advisory Board had had special experience in' connection
with either the adoption or modification of standards proposals in
their codes, ouch industries included Canning, Cleaning a.nd Dyeing,
Hosiery, Mayonnaise and Silverware Mfg.

To this list there were added other industries chosen on the basis
of the apparent significance of the standards problem involved, as
indicated by the provisions incorporated in their codes. . Finally,
examination was? made of certain other codes in an effort to find il-
lustrative material for specific types of standards problems, seemingly
exemplified by the type" of provision which these codes contained.

(*) Prepared by H. A. Mereness, Standards 3ub-Unit, Trade Practice
Studies Section.

9786

-131-

In general the effort was made to obtain, with respect to each
industry studied, ( l) the industry's pre-code experience, if any,
with respect to standardization; (2) the nature of the particular
standards problem in that industry, and the attitudes and interests,
with respect to the subject, of various competing and consumer groups,
as revealed in the records of adoption, or attempted adoption, of the
code provision; (z) the record of actual operation of the provision
under the code, and the effects thereof; (4) any indications of the
post-code action of the industry with respect to standards, and com-
parison of the post-code with the code experience.

The most immediately available sources of material, and those of
necessity principally relied uoon, we^e the various files and records
of code adoption and administration available in the NRA in Washington.
The most fruitful of these were the records of code hearings and other
data dealing with the code adoption stage, and the files of the
Consumers' Advisory Board, . especially the records of the Standards Unit
of that Board, which already contained a number of special studies of
standards provisions in various cedes made during 1955 and 1954. Files
of the Deputy Administrators who handled the codes under study also
yielded various materials. Later, check was made of code histories
and other industry and trade practice studies rna.de by the IvTRA. Division
of Review, to obtain supplementary data. Outside of the NRA, the
principal source from which general information was obtained was the
National Bureau of Standards.

Check was made of the compilation of State Compliance Office records
as to violations of the trade practice provisions, to determine the
relative frequency of standards and labeling violations, the codes
principally concerned, type of violation, disposition, etc., similar to
that previously commented upon in outlining the procedure with respect
to Misrepresentations.

A very limited amount of field work was permitted with respect to
the standards study, and this was entirely restricted to conta.cts with
former Code Authority officials or corresponding trade association repre-
sentatives. The results of this work were not satisfactory, first,
becap.se of its extremely restricted character with respect to number of
industries contacted, and second, because - owing to the diversity of
interests involved - much wider contact within a. given industry is felt
to be necessary in order to obtain a balanced view of the nature and
significance of the results obtained through operation of the standards
provisions.

The sum of the information obtained for any one industry was, in
most instances, worked into the form of an organized preliminary report,
often of considerable length. Ircm these preliminary reports summaries
were drawn for the cross-section presentation of NRA experience with
respect to different types of standards provisions, incorporated in
Chapter II, Section III of the report. To provide a more comprehensive
view of the workings of the provisions, both as to adoption and as to
administration, in a group of significant industries, ten codes were
chosen for representation by detailed, and documented summary reports,
given in Appendix II.

9786

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As with misrepresentation, attention was given to the work of
other agencies in the general field, and to some aspects of the legal
problems involved*. , The data concerning these, given in Chanters III
and IV of Part 3.; were developed by customary research methods from
official documents, and ether recognized sources to the e::tent that
available time and personnel permitted.

B. Suggestions For Further Work on Standards and Labeling.

It is believed that the following investigations would be of value
in supplying desirable additional information to supplement this
report on standards and labeling:

1. Chiefly, direct contact work with all industries which had
a significant standards and labeling history under the codes.
Such work should include contact with a 11 available interested
elements - former Code Authority members, trade associations,
individual industry members, large and small, and consumer and
distributors' groups.

2. In connection with the above, particular effort should be
made.. ;to. trace the post-code attitudes and activities, if any,

of "the 'industry with respect to standards, and the effect of this
work, or lack of it, as compared with the situation under the
codes.

3. Study pf , the records of operation of other Federal standard-
izing agencies in order to- obtain comparative data as to the
results achieved under various forms of statutes and administra-
tive methods.

4. Study of the standards activities in Canada, particularly
under the new legislation of October, 1935. This should be of
especial value for comparative purposes because of the similarity
in many respects, of the social and economic conditions of the
two co'uhtfrifcs. Other countries whose experience should afford
information of value are Great Britain and Germany.

5. A thorough investigation of the legal aspects of standardi-
zation and labeling, as illustrated by Federal and state statutes
and court decisions. A compilation of all state statutes pro-
viding for definite standards or labeling requirements, classified
by the types of commodity affected, would be of great value for
reference purposes.

6. A special examination of the Federal Trade Commission records to
indicate the extent to which standardization and positive labeling
rules have implemented the Commission's work in preventing mis-
representation and deception in commerce. Material of value in

the developing of this information has already been presented in
the Classification of trade practice .rules of the -Commission's
Trade Practice Conferences made by the NBA Division of Review. (*)

(*) "Trade Practice Conference Pules of the Federal Trade Commission '
(1919-1936): A Classification for Comparison with Trade Practice
Provisions of NPA Codes," S.P. Kaidanovsky, Trade Practice Studies

q„flf.Section, Division of Pevipw 1TOA, i°v

-133-

APPENDIX - II

Summaries of Standards and Labeling
Experience in Selected Industries:

** Exhibit A - Plumbing Fixtures Industry
** Exhibit B - Wood Cased Lead Pencil Industry
Exhibit C - Canning Industry
Exliibit D - Mayonnaise Industry
Exhibit E - Hosiery Industry
Exliibit E - Preserve, Maraschino Cherry, etc.
Industry
** Exhibit Gr - Agricultural Insecticide £ Fungicide
Industry
Exliibit K - Cleaning and Dyeing Trade
** Exhibit I - Paint r Varnish & Lacquer Manufacturing

Industry
** Exhibit J - Fertilizer Industry

** For Industry Studies marked (**) see NBA STUDIES SPECIAL
EXHIBITS, "»V0EK MATERIALS KG. 38, Trade Practice Studies
Section, Commodity Information Unit.

9786

.-134-

APPSNDIX II
EXNI3IT C

STUDY OF
STANDARDS AKD LABELING PPACTICES
OF TEE
CAMING INDUSTRY. (*)

DEFINITION OF INDUSTRY /

(GCDE NO. 446.) ''*"'

"Tlie term 'industry1 means tlie packing and the sale by the
packer thereof on a commercial scale of products of the
industry:, the cleaning and preparation of seed carried on
incidental to packing operations; and sxrch related "branches
or subdivisions as may from time to time be included under
the provisions of this Code by the President after such
notice and hearing as he may prescribe.

"The term 'Product of the industry' means and includes,
without limitation, all foods packed for human consumption
in hermetically oealed container? thereafter sterilized by
heat, arid such food products otherwise paoked as the Ad-
ministrator may include within this Code from time to
time after such notice and hearing as he may specify; pro-
vided that milk rnd meat, however packed, and all other
foods paciced in hermetically sealed containers, thereafter
sterilized by heat, which may be subject to and not ex-
empted from any other approved code of fair competition,
are excluded."

*) Prepared by Karl Kauck, Commodity Information Unit, Trade
Practice Studies Section.

9736

-155-

TA3LS OP COHTMTS

Page

Summary ■'■36

A. He sume 136

B. Source of llateri, .1 136

Chapter One

Specific Industry Problems Underlying Labeling Regulation .... 138-

I. Decline in General Quality of Industry Products Due to

Pressure of Competition 138

II. Decline of Consumer Confidence in Industry Products 139

III. Loss of Markets to Cc npeting Products 139

Chapter Two

Pre-Code History of Standards and Labeling Regulations , 141

I . Regulation by Industry 141

II . Regulation by Federal Agencies 141

A. Food and Drug Administration 141

B. Bureau of Agricultural Economics 14-2

C . Congressional Action 143

III. State- of Statutes and Regulatory Bodies 143

IV. Related Foreign Activities 1^J-

V. Work of Other Croups Influencing Adoption of Standards . . . 144

VI. Effects of Pre-Code Regulation's 145

Chapter Three

Code Experience 146

I. Industry Program for Dealing with Standards and Labeling

Practices as Submitted to 17. R. A 146

II. Consumers' Program for Dealing with Standards and

Labeling Practices as Submitted to h.R. A 146

III. Controversies Arising During Code Making Period 147

A. Between Members of the Industry 147

3. Between Industry and the 17. R. A 147

C. Changes Effected in Original Proposal 147

Chapter Four

Post Code Experience 152

Chapter Five

Issues and Points for Further Study 132

9786

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SUML1ARY

A. Resume

The technical problems as to standards in this Industry were:
(l) the labeling of the product in a manner to enable the consumer to
know exacJly whet the can contains, and {2) do termination of the vari-
ous' factors which go to make up quality, -e.g. , maturity, tenderness,
color, sugar content, freedom from defects, etc.

In order to accomplish the above objectives, the Industry had
the choice of two methods; "grade labeling" end "descriptive labeling".
Under grade labeling a single word or symbol suffices to describe the
nature of the contents of the can, w.ille under descriptive labeling
the1 retail purchaser must weigh ant? consider many descriptive terms to
ascertain whether or' net tie product is what she desires.

From 1923 to about 1939, thore were various groups within the
Industry who recommended grade labeling. however, when representatives
of the wholesale grocers and chain stores were consulted, the sentiment
appeared to favor descriptive labeling in general, and identity' label-
ing for extremely low-grade' canned merchandise. As a result of this
sentiment the Industry endorsed the 5IcUary-i;Iape s Amendment to the Pare
Food and Drugs Act which provided for the establishment of minimum
standards and required' that merchandise below the standard be labeled
" sub- standard" . This Anendrr.cn t was passed on July 8, 1930.

After passage of the National Industrial Recovery Act, ' the
industry presented a' Code to the Agricultural Adjustment Administration,
which was transferred from that agency to the National Recovery Ad-
ministration in January, 1934. Beta the AAA and the NRA recommended
grade labeling, which however, was net acceptable to the Industry.

Since the industry did not voluntarily consent to a grade
labeling program, the -President included a clause in the order of
approval of the code which required the industry to establish a'
standards cormoittee to study this problem. The committee studied the
problem and recommended a descriptive labeling program which proposed
to develop sufficient descriptive wording to describe accurately the
contents of the can, this wording to appar on the label-. ' .The Adminis-
tra.tion felt that this was not sufficient, and that the plan would
not accurately indica.te to the consumer the qua.lity of the canned
merchandise. Therefore the Divisional Adninis traitor and his advisers
disapproved the recommendations of the Cdmmittee and recommended that
some type of grade labeling system be adopted. The Industry's
standards committee went on record as being opposed to any form of
grade labeling and so an iimpasce was reached which continued to the
termination of the code.

B. Soxirccs cf hatcrial.

The writer was connected with the' Canning Code from the date

9786

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Df its transfer to the National Recovery Administration from tie Agricul-
tural Adjustment Administration, first, as tie Consumers' Board Ad-
viser and later as an Assistant Deputy Administrator worhing on specific
problems under this cede. Some of tie information contained in the
report is his ;iersonal knowledge and cannot "be documented by reference
to NRA files.

Lluch of the material iised in this study was obtained from the
transcript of the public hearing on this code, held on February 8,
1333, All of the materiaial supplied by consumer representatives was
included in the transcript of that hearing. In addition to this,
digests cf both the Industry's standards committee and the Administra-
tion's advisers' reports were issued in ERA releases, and supplied a
large amount of tie information. Both the files of tie Deputy Admin-
istrator and the Standards Unit of the Consumers' Advisory Board con-
tain a wealth of material. Copies of all material used in tie pre-
paration of this study will be found in these two files.

9786

-138-

STUBY OF STAIPDAPDS AMD LABELING PRACTICES
POR THE CANNING INDUSTRY

CHAPTER OME

SPECIFIC INDUSTRY PROBLEMS UID' IPLYING LABELING REGULATION

The technical problems as to standards regulation in this Industry
were: (l) the labeling of the product in order that the consumer might
know exactly what is contained in the can, and (2) the establishment of a
scoring method, or the requirements as to maturity, freedom from defects,
color, tenderness, number of pieces or servings, etc., and the degree of
importance of these factors in the determination of grades.

In order to accomplish the objectives mentioned above, the Industry
had the choice of either ore of two methods: "grade labeling" or "des-
criptive labeling". The main point of difference between the two methods
is that grade labeling would summarize the total qualities and express
them as grades, such as A, 3, C, or 1, 2, 3, or Taney", "Choice", "Stand-
ard"; while descriptive labeling "ould put upon the label a description
of as many factors as possible which hrve a relationship to quality; such
as variety, the state of maturit3* or texture, specification of added sugar,
specification of addition of salt, statement of tenderness, statement of
the degree of freecon from discolored pieces, specification of the method
of packing, etc.

As affecting the consumer, the difference between grade labeling and
descriptive labeling is: under grade labeling a single word or symbol
suffices to describe the nature of the contents of the can, while under
descriptive labeling the retail purchaser must weigh and consider all the
descriptive terms to ascertain whether or rot the canned product is '"/hat
is desired.

I. DECLINE IN GENERAL QUALITY OP INDUSTRY PRODUCTS DUE TO PRESSURE OP

COi [PETITION

Pressure of cor.roetition within the Industry has reduced prices in
recent jrears, and this reduction in prices has in turn led to reductions
in quality. Prices for canned goods were considerable lower during the
years 1932-34 than for some years previous, and during this later period
some buyers hove complained that, after having placed contracts for
future delivery, it was practically impossible for them to secure mer-
chandise in conformance with their specifications. (*)

Keeness of competition has been more directly the cause of low
prices than any other factor, and the pressure is not always exerted by
the same group within the industry ■ At times the larger units set a
very low price in a bid for volume. However, it is more common for very
small earners to establish low prices because most of them feel that it
is necessary to sell their merchandise at a lower figure since their
brands are not well-known, and furthermore, being without sales organiza-

tions, practical ly all of their sal s are made through brokers.

(*) Letters r.nf. data in the Consumers' Advisor;'- doard' s files, Canning

Industry,
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II. DECLIJ^E OP CONSUMER CONFIDENCE IN INDUSTRY PRODUCTS.

There has been apparent a steady decline in consumer confidence in
the Industry's products. -This was clearly evidenced "by the testimony at
the public hearing on the canning code, on February 8, 1934, when the
following consumer representatives endorsed grade labeling:

Julia K. Jaffrey, Chairman, Public Welfare Department,
General Federation of Women's Clubs

Mrs. John Boyle, Jr., Chairman, Consumers Council
Washington, D. C.

Alice L. Edwards, Executive Secretary,

American Home Economics Association

Kiss Lena M. Phillips, President, National Council of Women

Kirs. Leota Stauber, Home Makers Group of the District of
Columbia Home Exonomics Association

i.:rs. Paul E. Howe, American Association of University Women

Representatives of Consumers' Research, Inc.

A summary of their testimony is as follows: The consumers have no
guide in buying since price is no sure indication of the Quality one
will receive. At least SO per cent of the canned merchandise on display
in the retail stores is totally unmarked as to grade. There is often a
nice variation in quality found in a single brand. Many can labels con-
tain extravagant claims and misleading brand names, which the quality of
the contents fails to justify. Consumers need grade labeling because
the '.auality of canned foods is necessarily concealed from their inspec-
tion. They have found that frequently wi thing the low price ranges one
obtains either first, second, or third Quality merchandise, and the same
holds true for the highest price ranges. (*)

The above indicates that there is a definite consumer demand for
more information on the labels for canned foods.

III. LOSS OF LARKETS TO COMPETING PRODUCTS.

There has been a steady loss of markets for canned food products in
favor of fresh fruits and vegetables. Statistics published by the De-
partment of Agriculture in their "Year Book of Agriculture", for the
years of 1931 and 1934, which give a fairly conrolete history from 1920
through 1934, point to a steady decline in relative consumption of
canned goods, while at the same time en increase in the consumption of
fresh fruits and vegetables took place. This condition was accentuated

( *) All the consumers' testimony at the mblic hearing will be found in
the release of the Consumers' Advisory 3oard, index =1767, entitled
"Testimony on Standard?, for Consumer Goods at Canning Industry Hearing,
February 8-9, 1934".

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in the period from 1930 to 1934.

During the last few years a her/ process has further extended the
competition caused ~oy fresh fruits and vegetables. This is the quick-
freezing of vegetables and fruits such as "Sirdseye" products. Sufficient
volume has not yet been secured to afiect greatly the market situation,
but these quick-frozen products have had an appreciable effect on the
Industry. Their popularity is steadily increasing end the Sirdseye Com-
pany is endeavoring to reduce retail prices through improvements in low-
cost refrigeration units for retail stores. If this oroves possible,
quick frozen fruits and vegetables may develop into a very real competi-
tor of canned foods.

This growing competition from products outside of the Industry was
an additional factor motivating the industry to seek some form of a
standards end labeling program to meet consumer criticism.

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As a result of this legislation, the Food and Drug Administration
prepared standards for canned perches, pears, apricots, cherries, tomatoes,
peas and dried peas.

The Administration's labeling recruirements specify that all canned
products falling below the aua.lity standard established by the Secretary,
must bear the label "BELOW U. S. STANDARD - GOOD FOOD - NOT HIGH GRADE".
In the case of Slack fill, the words "black Fill" must appear on the
label and in the case of excess packing medium, the words "Contains
Excess Added Liquid" must appear.

B . Bureau o f Agri culture! Economics

Prior to the adoption of the KcITary-Mapes Admendment, the U. S.
Warehousing Act was passes. (*) This Act provided for the establishment
of U. S. bonded warehouses for the storage of farm produce and the esta-
blishment of product grades by the Secretary of Agriculture in order that
grade certificates could be issued to the person using the facilities of
a warehouse to enable him to obtain credit or bank loans on the merchan-
dise stored.

In 1923 an amendment to the act enabled canners to avail themselves
of its facilities. It allows the canners to place their unsold -oacks in
storage, obtain a grade certificate from the Department of Agriculture
and then secure loans. This act is administered b3>- the Bureau of Agri-
cultural Economics.

The following fruits and vegetables have grades established by the
Department of Agriculture under the Warehouse Act:

Canned Snap Beans

Canned Peas

Canned Corn, Cream St^le

Canned Tomatoes

Canned. Applesauce

Torn? to Ketchup, Canned, or Bottled

Tomato Juice, Canned or Bottled

Carried Tomato Pulp

Unpittled Sulphured Cherries

Fitted. Sulphured Cherries

Canned Grapefruit

The following commodities have tentative standards:

Canned Beets

Canned Lima. Beans

Canned Dried Beans

Canned Spinach and other greens, including Turnip and
Mustard Greens

Canned Pumpkin and. Sauash

Canned Succotash

Canned Yellow 01 in --stone Peaches

(*) 39 U. S. Statutes at Large, wage 436, as amended July 25, 1919,
February 23, 1925 and. March 2, 1931.

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CHAPTER TNO
PRE-CODE HISTORY OF STANDARDS AMD LABELING REGULATIONS

I. REGULATION 3Y INDUSTRY

Prior to the code the industry itself did not take the initiative
in establishing standards. However, when the government through the De-
partment of Agriculture began work on duality standards, the industry
became interested and cooperated, A brief history of standards gctivi-
ties in the industry is as follows: In May 1923, the Nestern Canners
Association discussed grade labeling and recommended that labels be im-
proved by supplying information as to grade, quality, size, variety or
nature of contents, in order that the labels might be more intelligible.
They also recommended that the Department of Agriculture -oroceed with
its study of definitions and grades.

The canners negotiated with the National Association of Nholesale
Grocers and Chain Store Grocers concerning cash allowances for spoilage
and to secure an increase in the numbe~ of investigations of alleged
poisoning cases. As a result of thes negotiations, it r,as decided to
promote "Canned Poods 7,Teek", and to establish laboratories for the study
of processing in order to refute the claims that canning destroyed the
vitamins in food.

At a. meeting of the National Canners Association, on February 22,
1925, a resolution was passed providing for more intelligent labeling of
canned foods. The Association invited the National Wholesale Grocers As-
sociation, the American Wholesale Grocers Association and the Chain Store
Grocers Association to appoint a committee to confer with a similar com-
mittee of their Association to work out the problem. An editorial ap-
pearing in the "Canning Trade", issue of November 26, 1928, contained a
discussion of the use o^ grades on labels and endorsed grade labeling.
However, about that time the Industry's ideas apparently changed, as
from then on the National Canners Association no longer supported grade
labeling, but wished simply to establish a minimum standard below which
canned foods should not fall. If the grade was below the standard, they
recommended labeling as "sub- standard".

II. REGULATION 31 FEDERAL AGENCIES

A. Food and Drug Adjninistration

As mentioned above, the Industry was interested in eliminating very
lo1"' quality canned merchandise from the market and in labeling to warn
the consumer as to sab-standard quality. As a result of the industry's
activities the HcKary-J tapes Amendment to the Pure Pood and Drugs Act
was passed on July 8, 1930. This amendment gave the Secretary of Agri-
culture power to establish standards of ouality, condition and/or fill
of container, a.s well as authority to describe ,_'hat must appear on tne
label of merchandise not conforming to these minimum standards. This
amendment covered all canned foods which are in hermetically sealed
containers and sterilised b] heat, except meat and meat products and
canned milk.
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The administration of this act net with no particular difficulties
in view of the fact that com 'O.iance with its reonirements is entirelv
voluntary, only those being affected, who desire to make "are of its
facilities. In order to obtain a loan or. the merchandise to be ware-
housed in a bonded warehouse, it is morel- necessary bo have it graded,
to secure a certificate of the .grade, which then establishes its relative
commercial value. A loan can then be secured through the usual business
channels.

However, in addition to the use of these grades for the purposes of
warehousing and obtaining loans, the Jureau of Agricultural Economics re-
commended that the canning industry adapt them to another use, namelTr,
that of grading all canned merchandise, '-nether or not it is to be ware-
housed, and then informing the consumer of the grade by carrying the
grade designation on the label. So^e few canners did avail themselves
of this service and have labeled their merchandise in accordance with the
grading. This grading is done ,by the use of a scoring system, various
points being allo\:ed for various factors which the Department of Agri-
culture considers essential - such as consistence, colcr, finish, ab-
sence of defects, flavor, unifornit;"- of size, etc. Each one of these
factors has a number of xsoints, and the sum total of the ;oints deter-
mine whether or not the product is C-rade <\, 3, C or D.

C. Congressional Action

In the firsJ" session of the Seventy-first Conrre^s, the Hope Bill
was introduced in the House of Representatives, as H. II. -3921. This uill
would have authorised the Secretrry of Agriculture to establish grades
and an inspection service "o"^ canned foods, in order to facilitate com-
merce therein and to enacle the consumer to purchase canned foods on the
ba.sis of duality", thereby lendling encouragement to the producers of
cjualitv "oroducts. (*) The urovisions of this bill went beyond those of
the hchary-Kaoes Amendment to the Pure Jond '\nd Drugs Act since it would
have established, quality grades, - not merely a minimum standard.

Some canners were in favor of this bill, particularly the Tri-State
Packers Association and the hisconsin Canners Association, while others
were opposed to it. Liany statements about the misrepresentation of canned,
merchandise vno the need, for grade labeling "ere made at the hearings on
this bill. The bill, however, was not passed.

III. REGULATION 3Y STATS STATUTES AKD REGULATORY BODIES.

a few of the states have pacsed laws covering the grading of canr.ed
oroducts, principally -rith respect to the proper marking as "seconds" of
the ooorer qualities. In California the canners recommended such legis-
lation and. v.ere successful in ha via-,- it enacted. In principle it is
quite similar to the -chary- 'apes Amendiinent of the Pure Pood and Drugs
Act. (**)

(*) Hearing before the Committer on Agriculture; louse- of Representatives,
Seventy-first Congress, Second Se Lor. on .'. R. 3931,-! "arch 26 and 27,
1930. Serial X.

(**) California Canned Pruits Standardization Act, Supo. 1925, GL. Act
2809, Sec. 1.

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Visconsin also enacted a canned pea grading law which vas part of a more
comprehensive grading lav covering farm produce. (*)

IV. RELATED FOHEIGF ACTIVITIES.

Canada has a mandatory grade labeling lav for canned goods that ap-
parently is vrorking ouite satisfactorily from the standpoint of both
Industry and the consumer and its results have oeen pleasing to the
Dominion Government. (**) During the code activities, the Divisional Ad-
ministrator in charge of the canning code suggested that accurate data
regarding the functioning of the Canadian Grading Law be secured. As a
result, the Consumers' Advisor;'- 3oard sent a representative to Canada to
make a complete investigation of grade labeling results in that country.
This representative i-,as accompanied, by Mr. Paul T..*illiams of the Bureau
of Agricultural Economics of the Department of Agriculture. A report
'.vas rendered on December 21, 1934. (***) jhe opinion expressed in the
report vas that grade labeling as required oy la'" in Canada vas benefi-
cial to both the canning industry and consumers.

In addition to the aoove report on the Canadian situation, the Na-
tional Canners Association engaged r. New York company to make a survey
of ^rade labeling in Canada. Hovever, to the time of writing, the com-
plete survey has not been made available by the National Canners Asso-
ciation, excerpts only have been released. It is therefore difficult to
dravconclusions. One portion ^leased alleges that 25 per cent of the
retail purchasers use the q-rades as a buying guide, while the rest of the
release tends to shov tha.fc no great benefit is received by consumers
from grade labeling.

V. tfOHK OE OTHER GROUPS IFILUEI'CII'G THE ADOPTION 0^ STANDARDS.

The American Home Economics Association has always recommended the
adoption of quality standards by the canning industry. Their represen-
tative was present at the puolic hearing on the canning code on February
8, 1934. In addition to this, they have constantly ccoperated vith the
Department of Agriculture as '.'ell as "ith the Agricultural Adjustment
Administration during the time the canning code vas under the latter' s
jurisdiction.

Consumers' Research, Inc. ha.s maintained a. ccntunual interest in
quality standards for canned goods, and have kept their subscribers in-
formed concerning the recent development in the Industry. Material from
their "Handbook of Buying" gives a complete history of their activities
\'ith rer'.pocl: to the above subject. (****)

J*) Dunn's Pood and Drug La", Eirst Edition 1927-1928, Vol. Ill, pages

3015-3019.
(**) Letter of Mr. McGillivray, Department of Arriculture of Canada,

read by Alice L. Edwards, Executive Si n '.- r, American Home Economics

Association, at the Public Hearing on the Cannin- Code, Eeuruarv 8, 1934.
(***) Consumers' Ad-.-isory Board' s filei (Ci i Industry) ; and Deputy

Administrator's files, Standards and Lab Lin .
(****) All of their data on canned foods was forwarded to the Standards

Unit of the Consumer^' Advisory 3oard on Sepl 3, 1955, Canning

Industry file.
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VI. EBT'SCTS 051 PPP-CODP HEGULATIOIT

Co'ivoaratively little was accomplished during the ore-code period
due to the fact that the standards promulgated by the Bureau of Agricul-
tural Economics were onlv voluntary standards and as such had no real
effect on either marketing methods (other than the ability to obtain
cash or credit for the owners for that portion of the pack warehoused) ,
or on consumer good will. The iiclIary-Kapes Amendment to the Pure Pood
and Drugs Act has eliminated most of the deception with respect to the
lowest auality of canned ^oo&s, out according to the estimate of the
Pood and Drugs Administration this is never more than five per cent of
a total yearly pack.

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CHAPTEr tkf.se

code experience

After passage of the National Industrial Recovery Ac4;, the industry
presented a code to the r ;ricultural Adjustment Administration which had
jurisdiction at that time. This agency urged the caimers to adopt a
grade labeling program, but it and the Industry could not reach srxf
common ground during the time prior to the transfer of the cannind code
to the National Recovery Administration, January 1934.

I. INDUSTRY PROGRAM FOR DEALING- T7ITH STANDARDS AND LABELING PRACTICES
AS SUBMITTED TO N. R. A.

The following was the proposal of the industry ss to labeling as
presented at the public hearing before the National Recover;'- Administra-
tion on February 8, 1934:

"Article VI, Section 10 - False Label or Advertisement
on Container. No member of the Industry shall (a) sell
a product of the Industry falsely or deceptively laheled
or marked; or (b) falsely or deceptively advertise their
product or (c) use a deceptive container or give s short
weight or measure."

There were no reasons given at the public hearing for the need of
this clause. In the o-oinion of some emembers of the Administration, the
proposal '7a s more in the nature of a gesture for creating consumer good-
vill than " provision to meet an actual industrial need. One industry
representative, Mr. Frank Shook who represented the Tri-State Canners
Association, wished the industry to go farther and adopt grade labeling.
He demonstrated that price was no guide to duality in canned foods. His
views *?ere not shared b~r the majority of industry members at the public
hear in ■-.■.

II. CONSUMERS' PROGRAM FOR DEALING- T.'ITH STANDARDS AM LABELING PRACTICES
AS SUBMITTED TO THE NATIONAL RECOVERY ADi JNI STRATI ON.

The Consumers' Advisory Board proposed that the Industry adopt
grade labeling and also recommended that the inaccurate advertising and
false labeling clauses as contained in the model code be included in the
code. The following consumer representatives all endorsee" a erade label-
ing program:

kiss Charlotte Chatfield, Bureau of Home Economics

Dr. "./ells A. Sherman, Bureau of Agricultural Economics

Dr. Vlard B. Shite, Food and Drug Administration

Dr. Carl T. Schmidt, Consumers Counsel, A. A. A.

kiss Alice L. Edwards, Americ ; I" Icon iraics Association

Mr. William Hapgood, Hapgooc Cannery Co., Indianapolis

Mr. D. H. Palmer, Consumers' I ■ [*ch, Inc.

Mrs. kthilde C. Hader, Consumers' Re: ■ , Inc.

Mrs. Agnes "Jilkinson, National Federation of Post Of "ice Clerks

Miss Lena. Li. Philli is, National Council of '.."omen

9786

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Mrs. Leota. Stauber, Home Makers Group, District of Columbia

Home Economics Association
Mrs. Paul 3. Hove, American Association of University Women
Mrs. Julia K. Jaffray, General Federation of ".omen's Clubs
Mrs. John Boyle, Jr., Consigners' Council, Washington, D. C.

The following is a summary of the reasons riven by consumer repre-
sentatives to support the need for grade labeling: The consumer is with-
out guidance in her choice of canned foods since labels do not bead ade-
quate information. She is thus dependent \voon her experience with the
product after she has opened the can or. upon -.hat the retailer tells
her -. and he seldom knows more about the product then does the purchaser.
According to tests carried on by consumer groups, home economists, and
by the canners themselves, as well as the federal government, prices of
canned foods are not, reliable guides to their quality. These tests have
also proved that the widely or nationally advertised brands are not nec-
essarily superior to the products not advertised. Moreover, the quality
of a given brand does" not necessarily remain uniform from season to sea-
son, or even during the same season. Grade labeling is essential if con-
sumers are to select canned products intelligently. (*)

III. COITTHDFiJJI'SISS ABISIPG DURI17G THE CODE MAKIMG PERIOD

A. Between Members of the Industry

There ras practically no objection on the oart of the small units
to the proposals of the Consumers' Advisory Board in favor of grade label-
ing. Host of the objections were made by the large national advertisers
who appeared concerned, lest much of their good-will, as well as the ef-
fects of their high advertising appropriations, would be lost. Wholesale
grocers generally were also antagonistic toward grade labeling. The
were apparently indluenced by the same considerations which affected the
large national advertisers.

B. Between Industry and the National Recover"- Administration.

The Administration generally expressed, itself in favor of grade
labeling while the proponents of the code, especially the National Canners
Association, expressed themselves as unalterable opposed to grade labeling,
No agreement was ever reached between the Administration and the industry,
nor was any compromise ever affected. The Divisional Administrator, the
Labor Advisory 'Board, the Consumers' Advisory Board, and the Research and
Planning Division were all in favor of gra.de labeling, the single dis-
senter being the Industrial Advisor'/ Board which reflected the views of
the industry.

C. Changes Effected in Original Proposal

Because the industry and the Administration were unable to agree on
a definite standards program, none was written into the code itself.
However, the Executive Order of May 29, 1934, by which the President ap~

proved the code, contained the following clause:

( *) All the consumers' testimony at the public hearing ,:ill be found in the
release of the Consumers' Advisory Board, index #1767, entitled "Testimony
on Standards for Consumers Goods at Canning Industry Hearing, February
3-9, 1934"
9?R6

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"That the Industry shall designate a committee venose
membership shall "be subject to the approval of the Adminis-
trator and vho shall coopera.te "Tith the Administrator in
the formulation of standards of quality for the products of
the Industry and to make recommendations to the Administrator
within, ninety (90) days for the inclusion in said Code of pro-
visions with respect to such standards and labeling requirements. n(*)

From the preceding paragraph it cm be seen that the Industry was
compelled ~by Executive Order to establish a committee to report on grade
labeling. The following vere the industry members selected by the code
authority and approved by the Administration to comprise this committee:

Fran1: Gerber (chairman) Fremont Canning Co., Fremont, Mich.
Ray L. Pratt, California Packing Corp., San Francisco, Calif.
Thomas H. Blodgett, formerly Snyder Packing Co., New York City •
Guy L. 77ebster, G. ~h. ".Vebster & Co., Inc., Cheriton, Va.
E. B. Cosgrove, ilinn-jsota Valley Canning Co., LeSueur, Kinn.
,. Howard A. Orr, T/inorr Canning Co., Circleville, Ohio
E. E. Chare, Richmond. Chase Co., San Jose, Colif.
"Robert C. Paulus, Paulus 3ros. racking Co., Salem, Oregon
George H. Draper, idlford, Bel.

A. F. Schroder, . Wisconsin Canning Co., "Jinneconne, "Jis.
P. J. Gowe, Campbell Soup Co., C:mden, N. J.
E. S. Throne, Geneva Preserving Co., Geneva, h. Y.
Douglas Torrson, Curtice Bros., Co., Rochester, ¥. '[.

In addition to the industry members of the committee, the following
were appointed by Divisional Administrator Riley to serve in an advisory
capacity to the committee and as special advisers to the Administration.

C. 7. Kitchen, Assistant Chief, Bureau of Agricultural Economics
Vi . D. r.'hite, Chiet, Food Control Laboratories, Food and Drug

Admi ni st rat ion
Karl Hauck, Consumers' Advisor'- 3oard, i^RA

On June 11, 1934, the Canning Trade, a trade -caper of the industry,
in an editorial endorsed grade labeling and expressed the hope that real
steps would now be taken by the Industry. In a preliminary report of
July 16, 1934, the Standards Committee recommended that a consumer sur-
vey be immediately undertaken to prepare labels for canned goods. They
-lso recommended, that the Food and Drug Administration be provided with
fur.ds to establish standards for more commodities under the LIcNary-Mapes
Amendment of the Food and Drugs Act. (**)

(*) See Order of Approval, Code for Canning Industry, Codes of Fair
Competition, Volume XI, page 25.

(**) Copies of all reports and recommendations of both the Administra-
tion's Advisory Committee, the Industry's Standards Committee, and other
pertinent data to the Grade Labeling Problem are contained in the Can-
ning Coda Labeling Files of the Consumer*' Advisory Board (Folders A-
E) . Also available in the Divisional Administrator's files.

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On August 1, 1S34, the three Government Advisers took exception to
the recommendations of the Canning Standards Committee, pointing out that
the resolution did not adeoualsely comply' with the provisions of the Exe-
cutive Order. The r further recommended that prompt steps be taken to
formulate quality standards for a few products at least, and therefore
recommended that the Committee promptly submit recommendations for pro-
visions in the Code requiring canners to label in accordance with a
grade labeling system. (*)

On -"ugust 16, 1934, a. Committee of uhain Jood Operators and "Thole-
sale Grocers v-as appointed bv Divisional Administrator Riley to work in
conjunction with the Canning Standards Committee since their interests
were also materially affected. The National Wholesale Grocers Association
passed a resolution opposing grade labeling. Jowever, the Food and Grocery
Chain Stores of America offered its active support in an effort to establish
grade labeling.

On August 30, 1934, the Standards Committee of the industry defin-
itely expressed its disapproval or the A, B, C, or any similar gracing
system. They recommended descriptive labeling and requested that the
Admini strati on approve this type of labeling. The following is Quoted
directl^ from their recommendations:

"On the other hand the descriptive labeling proposed by the
canners contemplates the use of specific terms and a des-
cription of individual characteristics as 'tiny', 'small1,
'medium' or 'large', to describe size; 'very tender', 'tender',
•mellow1, or 'firm' to describe texture; 'cut', 'whole',
'sliced', 'pitted', 'ufrpitted ' , 'sealed', 'unsealed' etc. to
describe style of packs; 'unsweetened light syrup' , 'medium
syrup' or 'heavy syrup' to describe sugar content; names of
varieties where these are significant to consumers; number of
pieces or servings or volume of contents in common terms such
as 'cupfuls'." (**)

The committee also asked for an additional thirty days in which to
draw up specific recommendations for descriptive labeling of at least
four important products. This additional time was approved bv the Presi-
dent. On September 4, 1934, the Administration's Advisers reported that
they felt the canners' recommendations were helpful and that they might
form a real working basis for further development. In the opinion of
the Advisers, the industry, through its descriptive labeling plan, was
actually using many of the factors which must necessarily be included in
any scoring system for grade labeling, furthermore, they felt that the
industry would ultimately realize that this descriptive labeling plan,
when worked, out in detail, would be so similar to a scoring system that
much of the industry.' s objection to -rade labeling "ould be automatically
removed.

On September 25, 1934, the Canners Committee on Labeling submitted

(*) N.H.A. Release '#6927., August 1, 1934.

(**) iT.R.A. Official Release #7545, August 30, 1934.

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their final recommendations. They rejected aualitv ~rades, such as A,
3, C, and tennis such as "Fancy", "Choice", and "Strndrrd". They advo-
cated a method of descriptive labeling for consumers' information con-
sisting of an elaborate system of terms and descriptions to he placed on
the can. In order to comply with this plan, it would have jeen neces-
sary for canners to use members of different labels. For instance, one
grade of canned corn, described as "Cream Style Corn of Firm, LTot Tough
Consistency", would have required 36 different labels. (*)

The Administration's Advisory Committee criticized the Canners La-
beling Committee's report. The points of criticism v/ere: First, that
the proposals in the report failed to meet the needs of the ultimate
consumers for quality standards and labeling, because the average house-
wife does not sufficiently understand the various technical expressions
used to describe canned fruits find vegetables to be able to judge prop-
erly the quality of the merchandise from the description given, if des-
criptive labeling alone were used. Second, that the use of such a
great number of different terms and labels, as recommended by the Canners'
Committee, would be confusing rather than helpful to the buyers. Third,
that what was "anted was simple concise words 'and/ or symbols which would
have definite meanings to the purchasers, and be legally 'enforceable- as
to labeling. It was suggested that if the canners wished to use des-
criptive labeling in adidition to the above, such information might quite
properly be included on the labels.

In answer to the criticism made by the Canners' Committee that the
basis for Grade Labeling was not sufficiently accurate for a guide to
ultimate consumers, due to the lack of "objective" standards for such
factors as "taste", the Administrations' s Committee renlied that if this
was a weakness, it held equally good for the descriptive labeling system.
The latter committee also pointed out that the grades suggested, - A, 3,
C, and Sub-standard, had been in use for some time within the Industry
for grading under the Jarehouce Act and. had apparently been found satis-
factory as a means of grading canned! ^oods in order to secure commercial
loan?. (**)

The Consumers' Advisory Board submitted a special report, agreeing
in general ruth the report of the Administration's Advisor" Committee,
and urging ouality grading in place of descriptive labeling. (***)

The Great Atlantic and Pacific Tea Company, which sells aoout 124
of the country's annual pack of fruit and vegetables, endorsed the grade
labeling program proposed by the Administration, and. began slowly to in-
troduce grade labels on its. canned goods. The Food and Grocery Chain
Stores of American on December 3, 1954, recommended ouality grade label-
i 1th orief modifying descriptions. This was the status of the con-
troversy from December 1934 until the termination of the Code. The industry

(*) "Final Report of Committ.e on Labeling Appointed. Pursuant to the Exe-
cutive Order of May 29, 1934", dated September 23, 1934, Consumers' Ad-
visors'- Board ' s files, Canning Industry, Folder S.

(**) Letter from the Committee to the Administrator, Dated September 28,
1934 - Consumers' Advisory Board's files, Folder A.

(***) U.R.A. Official Release #8087 i dated October 4, 1934.

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recommended one system, the Administration and Consumers groups recom-
mended another, and their vievs could not he reconciled.

9786

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CHAPTER POUR

POST-CODE EXPERT ENCS

There has been little which can be reported as -oost-code develop-
ments in the labeling situation in the canning industry. Since no de-
finite standards were ever adopted by the industry under the code, the
lapse of the code effected no change in the basic situation. There is
no record of any further activity on the part of the Canners1 Committee
which was formed under the code to deal with the problem.

However, an article appearing in the Consumer, publication of the
Consumers1 Division of the N.R.A., for Kb v ember 1, 1935, urging grade
labeling, and a modified descriptive labeling program advanced b" the
National Canners Association, at their convention in Chicago in January,
1935. (*) were added manifestations that the proponents and opponents
of grade labeling were still actively sustaining their respective views
in the controversy. In the meantime, the one chain store mentioned and.
an increasing number of the smaller concerns began using grade labeling
on their cans and initiated advertising calling attention to the fact.

V. ISSUES AND POINTS POP FURTHER STUDY

Since the Great Atlantic and Pacific Tea Company is labeling some
of its products in accordance with the A, 3, C grade labeling plan, a
study should be made of their experience, the ease of application or
difficulties encountered in its use, consumer reaction, and its effect
on sales.

In addition to the above, further developments in the Department
of Agriculture, particularly in the Bureau of Agri cultural Economics,
should be studied; and the Pood and Drug Administration should be con-
sulted for their objections to the standards and scoring systems recom-
mended by consumers.

A real consumer survey should be made to determine the actual desires
of consumers and the percentage in favor of any given labeling plan -
either descriptive, informative or ;rade labeling.

(*) Journal of Commerce, p. 14 - January 22, 193G.

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TABLE OP CONTENTS

Page

Summary -j_gg

A. Resume 155

B. Sources of Material 155

I. Introduction 157

II. Problems Underlying Regulation 158

A. Consumer Deception 158

B. Price Differential Between Mayonnaise and

Salad Dressing 159

C. Loss of Consumer Confidence 160

D. Public Health 160

E. Waste and Inefficiency 160

III. Pre-Code Regulatory Efforts 161

A. Pood and Drug Requirements 161

3. Federal Specifications 161

C. Simplified Practice Procedure 161

IV. Code Experience 162

A. Code Administration 164

B. Proposed Amendment to Article VIII 165

C. Relationship of Standards Provisions to Other

Code Provisions 167

D. Standard Container Provisions 168

E. Hearing !*?ore Industrial Appeals Board 168

P. Decision of Appeals Board 169

V. Post-Code Experience 169

VI. Points for Further Study 170

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SUMMARY

A. Resume.

i.iayonnaise has "been manufactured commercially for about 25 years
in the United States, nationwide advertising following the World War,
a dietary evolution caused by an aversion to obesity, and emphasis
upon the vitamin theory during the same period, caused manufacturers of
mayonnaise to enjoy increased sales. About 193C, salad dressing, a
somewhat different product, cheaper to manufacture but similar in
appearance and use, appeared on the market. Through price appeal,
this product soon outstripped the older product, mayonnaise, until in
1934 salad dressing nroduction more than doubled that of mayonnaise.
While both products are commonly produced by most manufacturers,
specialization soon divided the industry into rival camps; a price
differential caused by the lower costs of manufacturing salad dressing
soon developed into an alarming problem facing mayonnaise producers.
Efforts of manufacturers of both products to obtain a full share of the
phenomenal increase in sales volume were frequently characterized by
consumer deception, slack filled jars, and uneconomic production and
distribution methods. Unified action on the part of the industry
was imperative if these problems were to be met and solved. The
mayonnaise Institute attempted tc organize the members of the Industry
and encourage corrective efforts.

Not until the 1TIA code- period, however," Titer e these^cf-forts '-v~t into
operation. The proposed code for this industry established qualitative
standards for both mayonnaise and salad dressing; set up labeling re-
quirements; and provided for sales in a limited number of container
sizes. Valid objections to these proposed standards were presented
by AAA advisers, based upon fears of monopoly or oppression of small
manufacturers. The code was transferred, with others, to PRA, and was
approved Mar. 21, 1934. Code administration was characterized by minor
difficulties caused by deviation from the standards provisions; these
ultimately came to a climax when certain producers found it possible
to label products effectively so as to evade the letter of the pro-
vision. To meet this, an amendment prohibiting sales of oil sub-
standard products was proposed. This being found to be opposed to NRA
policy, efforts were made to erect stringent requirements governing the
labeling of substandard products as such. Code procedure was termina-
ted prior to approval of this amendment.

B. Sources of Material.

Principal sources of material for purposes of this study were: the
Transcript of the Public Hearing held under AAA procedure, Transcript of
Hearing on Amendment to the code (April 12,1934), Transcript of Hearing
before Industrial Appeals Board, Pood and Drug Administration, Bureau
of Foreign and Domestic Commerce, Mayonnaise Institute, National Bureau
of Standards, Piles of the Consumers Advisory 3oard, Code Record Files,
and an incomplete Code History as prepared' in the office of the Deputy
Administrator.

-156-

All material obtained from these sources may be classified as:
Testimony in support of the code; testimony r?nd briefs objecting to
the code; and technical material obtained from the Food and Drug
Administration and other government agencies.

9786

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STUDY .

STANDARDS AND LABELING FRACTICZS

FOR THE

MAYONNAISE INDUSTRY

I. Introduction

While it is said that "mayonnaise" was first perfected by the
Due de Richlieu 'and widely used in France ever since the 17th century,
not until 1880 was this product introduced in America. Commercial
production of mayonnaise began in this country about 1010. Sales of
the product advanced and as competition of the various firms with each
other increased, a new tyoe of dressing appeared on the market — salad
dressing. While mayonnaise is composed of oil and egg primarily, salad
dressing usually contains less oil than mayonnaise, some egg, a moisture
absorbing agent, spices and water. (*)

The chart below, drawn up by the U. S. Department of Commerce
(Division of Foreign and Domestic Commerce) indicates marked expansion
of the industry in late years. (**)

CHANGES III PRODUCTION OF MATON AI SF AND RELATED PRODUCTS
(based on figures of 62 identical concerns)

~ ' — " " / PERCENT

PRODUCT 1.954 1953 CjlANGE

, (Gallons) (Gallons)

Mayonniase 8,264,486 7,992,311 3.4

Salad Dressing 17,760,710 12,723,294 39.6

Sandwich Spread 2,413, 519 1 , 950, 897 23. 7

Thousand Island, French

Russian and Others 869,163 760,364 14.5

TOTAL 29,307,878 23,426,866 25.1

These figures indicate that salad dressing continued its con-
sistent advance, being nearly 40 per cent larger than the 1933 pro-
duction, after having shown a gain of nearly 50 per cent in that year
over 1932 arid a rise of 52.5 per cent in 1932 over 1931.

As further indication of the rapid increase in sales volume ex-
perienced by manufacturers of salad dressing, the following is pre-
sented: (***)

(*) See "History of Salad" Dressing" by Code Authority for

Mayonnaise Industry, in industry files of Commodity In-
formation Unit, Trade Practice Studies Section, NRA,
Division of Review, p.l.

(**) "Survey of Production of Mayonnaise and Kindred Products" by
U.S. Department of Commerce, 1935, P. 3.

t***s nWe,i.nry nf salad Dressing" op. cit., supra, (pp. 1 and 2)

-158-

" Commercially, the sale of mayonnaise grew to a point,
where in 193? it became the leading selling product of
the industry.

"Prior to this time, salad dressing. . .was a minor
selling product,. Suddenly in 193,?, it enjoyed
nearly a 50'i increase and as a commercial product,
enjoyed a volume closely equaling that of mayonnaise.-

"In two years from that time - namely during 1933 and
1934, accordin., to the reports of the United States
Department of Commerce, the increase in salad dressing
sales alone exceeded its total sales in 1932, and
salad dressing has (now) become the largest volume
selling product in the Mayonnaise Industry." (*)

A. Definition of the Products of the Industry.

The product which we know as salad dressing today closely re-
sembles mayonnaise in appearance, consistency, and flavor. It is
made from practically the same ingredients except that a filler or
moisture absorbing agent is' used to offset the deficiency of oil and
egg in this product, mayonnaise bein,,, composed entirely of egg and oil
except for condiments and other flavoring products.

There is, however, a noticeable difference between this product,
salad dressing, and mayonnaise in that the latter is more oily and
has a bland flavor, whereas salad dressing has, what may be called,
a sour- sweet flavor.

Members of the mayonnaise industry, also manufacture various
other dressings such a.a thousand island dressing, russian dressing,
french dressing, and tartar sauce, but • manufacture of these account
for a very small percentage of the output of the various firms. The
only products under consideration in this study are mayonnaise and
salad dressing, with particular emphasis uoon the latter.

II. PROBLEMS UNDERLYING REGULATION

A. Consumer Deception.

Keen competition among manufacturers of salad dressing accom-
panied the phenomenal advance of that -oroduct. As a result of this
competitive struggle for the lucrative salad dressing business, manu-
facturers of that product frequently altered their salad dressing
formulae, substituted synthetics, and otherwise cheapened their
iroduct in order that costs might be reduced, thereby increasing
sales volume through the medium of price appeal.

A statement prepared by the industry is pertinent:

"It is also an undisputed fact that you cannot remove

costly and nutritive oil and cx>K from a product of this

(*) "Survey of Production of Mayonnaise and Kindred Products".
Page 1 , supra .

9786

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typo and substitute water or a paste of flour and water
in their place, without injuring the quality, flavor and
nutritive value of the -product. Therefore, it is self-
evident that whenever a consumer purchases a product in
the belief that she is buying salad .'dressing, the con-
sumer is being deceived as to the value of the product,
and is being grossly cheated in the transaction." (*)

The industry also stated:

"....the quality of the product has been cheapened. This
was made possible because of the absence of any Federal
or State standard governing this product. In this
connection no product lends itself to a greater extent
to deceiving bhe merchant and the public than does salad
dressing. By the addition of an increased quantity of
starch, it has been found possible to incorporate larger
and larger quantities of water, until firms desirous of jr^
protecting their reputation with products of good standard
quality were forced to compete with inferior products
containing as much as 50$ water and upward." (**)
Kany members of this industry are of the "one-mixer back-kitchen"
type, nevertheless such competitive practices when indulged in by these
members, made alarming inroads in the sales volume of larger manu-
facturers, and frequently precipitated price wars. With regard to this
it was stated:

"....as competition developed, price cutting became
rampant, forcing the salad dressing portion of the
industry down to a destructive leval." (***)

B . Price Differential "Between Mayonnaise and Salad Dressing. .

Just as keen competition and the accompanying "deception for
trade advantage" characterizes the sales efforts of the many manufacturers
primarily producing salad dressing, so does it exist on a large scale
as between the two products themselves - mayonnaise and salad dressing.
The use of substitutes, such as water for some of the oil, in the
manufacturing of salad dressing probably went far toward facilitating
lower prices on that product and making possible the rapid advance
which characterized salad dressing sales. The differential thus
created between the prices of the two products has caused mayonnaise
manufacturers to experience a cessation of the volume increase enjoyed
prior to 'the time when salad dressing, appeared on the market.

This situation, while not a problem facing manufacturers pro-
ducing primarily salad dressing, did constitute a serious problem for
manufacturers specializing in mayonnaise. Efforts of mayonnaise manu-
facturers to meet this problem are discussed below.

(*) ' "History of -Salad Dressing, op. cit. supra., p. 3.

(**) Statement by I.?,!,.. Tut tie atr;Qode Rearing,- transcript of

Public Hearing for Mayonnaise . Industry before AAA Oct. 20, 1933,
p. 21.

(***) Ibid. p. 21.
9786

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C. Loss of Consumer Confidence.

The fear that consumer confidence in the newer' ■-•roduct - salad
dressing - might be lost if quality was rot controlled, impelled manu-
facturers of that product to make efforts towards maintaining a
satisfactory standard for the product. If salad dressing volume was
to be maintained and advanced, consumer good will had to be held.
Standards and labeling were looked upon as a means to this end.

D. Public Health. :

As an integral part of the daily diet of thousands .of people,
both mayonnaise and salad dressing have distinct public-health con-
siderations. Competition and' resultant substitutions of synthetic
for genuine ingredients gave rise to a fear that some unhealthful
products might reach the public. This problem is of course specifi-
cally covered by the Federal Pood and Drugs Act. ■(*)' But punitive
action on the part of the Food and Drug Administration would have an
adverse effect upon consumer confidence, which the industry particular-
ly desired to retain.

E. Waste and Inefficiency.

The belief held by the industry that a serious inventory problem,
involving much waste and inefficiency in marketing, was caused by the
wide variation in sizes of containers in which the oroduqt was marketed,
found substantiation in 1928.

A survey made in that year by the Foodstuffs Division of the
Bureau of Foreign and Domestic Commerce of the United States Department
.of Commerce, disclosed that mayonnaise, salad dressing and sandwich
spreads were marketed in at least twenty-five different size con-
tainers. This, survey indicated also that only six of these sizes were
required for distribution of about 85^ of the total product. It also
appeared that approximately 75$ of the sizes in which mayonnaise Jars
were manuf actured could be eliminated without any trade inconvenience.
A survey made in the following year revealed that the percentage
packed in each of the three principal sizes -3-g oz., 8 oz., and the
pint size, had increased considerably during that year.

It will be noted from the above discussion that certain of thes©-
basic problems concern only one distinct group within the industry,
while other problems concerned another faction. For example: the
price differential between the two products - mayonnaise and salad
dressing, concerned the mayonnaise manufacturers particularly since
their volume was adversely affected by th . On the other hand, the
maintenance of consumer confidence was primarily the concern of the
n.aroifacturers of the newer Product - salad dras^ing; for" consnamer con-
fidi.nc' destroyed through consumer dece fcion .i jht fe i expected to have
an. cdv-rn. effect ujon salad drossir.^ sales in f^ivor of mayonnaise.

(*) Federal Food and Drug Act of 1909 and subsequent amendments.

9786

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In the remaining pages of this study the efforts of both the -
industry and the government to solve the above problems are discussed.

III. PRE-CODE EXPERIENCE

Because of the comparatively recent origin of this industry in the
commercial sense, the problems discussed above arc of equally recent
origin. Thus it is not surprising that corrective efforts were largely
lacking until the code period. Such efforts as did precede the code
period were essentially unorganized.

A. Eood and Drug Admini strati on Requirements.

As mayonnaise attained commercial importance, the Eood and. Drug
Administration found it essential to draft a "definition standard"
for that product in order to enforce the Eederal Pood and Drugs Act. (*)

This standard as in effect today -provides:

| "MAYOITPAISE DRESSING

Mayonnaise, mayonnaise dressing, mayonnaise salad dressing,
is the semi-solid, emulsion of edible vegetable oil, egg yolk,
or whole egg, and vinegar, and/or lemon juice, with one or
more of the following: Salt, other seasoning commonly- used in its
preparation, sugar and/ or dextrose. The finished product con-
tains not less than 50 per cent of edible vegetable oil.
(Fifteen types of edible vegetable oils and fats are enumerated
and defined in the standard. )

Until the code period, this was the only standard applicable to
products of this industry, no standard for salad dressing having been
established by the Pood a.nd Drug Administration. The standard pre-
sented above is as amended in 1933, the former standard having re-
quired a combined sum of oil and egg equal to 78^ of the total.
This apparent relaxation of the former requirement was due to the
I desire of the Pood and Drug Administration to operate on a basis of
f a minimum standard rather than a requirement which approached a
maximum standard.

B . Federal Specifications.

On January 6, 1931, the Federal Specification Board approved a
Federal Purchase Specification for Salad Dressings the requirements
of which, except for packing and other similar provisions, approximate
the definition "standard" as prepared by the Pood and Drug Adminis-
tration. This Federal Specification, indexed EE-D-G91, is applicable
to all purchases of mayonnaise by the Federal Government.

C . Simplified Practice Procedure;

The influence of the Bureau of Foreign and Domestic Commerce's
Survey together with the convictions of members of the Mayonnaise
Manufacturers Association, led to a request being presented to the
( * ) U. S . Depar tmen F of Agricultural Food and Drug Administration"Service and
Regulation Announcement" ,1933, p. 16. In files of Commodity Information
Unit of Trade Practice Studies Section, Division of Review, KRA -
Mayonnaise Industry.

-162- ••■ '

National -Bureau of Standards that that organization secure from the
manufacturers of mayonnaise and kindred products an opinion as to the
desirability of reducing the variety of their containers.

A general conferer.ee was held at the 3ureau of Standards on
June 30, 1931 at which time a recommendation of the 1 lay onnaise Manu-
facturers Association was presented and approved.

This was indexed as Simplified Practice Recommendation R-131
and made effective January 13 1931. f Glass containers for Mayonnaise
and Kindred Products). 3PE 131-32 recommended that all mayonnaise and
kindred products be packaged in the following container sizes: 3 fluid
oz., h pt, 1 qi., and 1 gal. (*),

It is significant that this simplification program was the only
regulatory effort initiated by the industry and designed to meet the
fundamental problems set forth above. The Food and Drug requirement was
drafted essentially for guidance in enforcing the Pood and Drug Act,
while the Federal Specification EE-D-691 -as drafted by the Federal
Government to facilitate government jurchasing.

It has already been pointed put that the other underlying prob-
lems manifested themselves just prior to the code period and this
fact largely explains the lask' of efforts made by the industry to meet
such problems until the code period. Efforts ma.de under the code are
discussed in the following section of this report.

IV. CODE EXPERIENCE

A. Codo Hearings.

In June, 1933, immediately after the passage of the FRA, a
general meeting of this Industry was held in Chicago. The manufacturers
decided to submit- a proposed code to the 13RA in Washington and it was
also decided at that meeting that this code should contain for the
first time a. standard for salad dressing which would result in the
maintenance of fair and reasonable quality in that product. The in-
dustry had already agreed that the oil content of salad dressing was
fundamental to its quality, and thsiefore the proposed standard was
based upon 350 oil content. This was the first and boldest effort
made by the industry to meet the problem cf consumer deception, and
that caused by the existing price differential between mayonnaise and
salad dressing.

The standard as incorporated in the proposed code provided:

"Article V - Standards

The standards set forth below shall be adhered to by all manu-
facturers:

(*) 3 oz. requirement amended to provide for 4 oz. in 1935. See

SPR 131-35, In files of rational Bureau of Standards Simplified
Practice Division.

9786

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1* i.Iayor.naise: Mayonnaise, mayonnaise dressing, mayonnaise
salad dressing, is the semi-solid emulsion of edible,
vegetable oil, egL /oik or whole egg, vinegar, and/or
lemon juice, seasoned v/ith one or more of the following:
Salt, sugar and/or dextrose, spices commonly used in
its preparation. The finished product contains not less
than fifty (50$) per cent of edible vegetable oil, and
the sum of the percentages by weight of oil and egg yolk,
is less than seventy (70)."

2. Salad Dressing: Salad Dressing is the wholly or partly
cooked or boiled semi-solid emulsion of edible vegetable
oil, egg yolks or whole egg, vinegar, water and/or lemon
juice, with one or more of the following: Salt, other
seasoning commonly used in its preparation, sugar and/or
dextrose, starches, gums or other fillings, and without
artificial color. Where any fillers are used the same
must be declared on the label, but no filler may be used
to conceal inferiority. The finished product contains not
less than thirty-five (35$) per cent by weight of edible
vegetable oil."

At an informal conference (September 13, 1933) AAA advisers
questioned the necessity for drafting standards more stringent than that
of the Food and Drug Administration. However, a representative of the
Pood and Drug Administration explained that there should be no ob-
jection to a nroperly drafted standard exceeding the requirements of
the Food and Drug "definition standard" since the latter was essentially
a minimum requirement. The effect of the provision upon small pro-
ducers was likewise discussed at length. AAA. advisers feared that
these stringent standards might force small producers out of business
due to the fact that their costs would be increased in order to meet
these requirements. The question was raised as to how many manu-
facturers made salad dressing below 35^ in oil.

Mr. Tuttle, representing the Trade Association, answered:

"A good many, but they did not start out doing that;
they were driven down to it ^oiT the destructive price
cutting in the industry, so that even these manu-
facturers who live up to that standard welcome any

code that give them that will provide for an

elimination of that practice and they realize that
it is not a desirable practice and possibly at this
time 60 per cent of more of them realize that there
is much of their production that the consumer will
not demand and that it has cut down the demand for
a long period of time." (*)

In answer to a question concerning increased costs, Mr. Tuttle
replied:

"It will increase the cost, slightly, of course..." (**)

(*) Transcript of Public hearing for Mayonnaise Industry before AAA
Cct. 20," 1933, Page 152.

(**) Ibid. p. 152.
9786

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At the Public Hearing (October 20, 1933) the same provisions were
discussed. The Food ana Drug Administration was quoted as follows:

•'The Food and Drug Administration is in sympathy with
any attempt on the part of the Industry to set uo
standards of excellence of quality that would be above
the legal standards that cculd oo required under the
Food and Drugs Act.1' (*)

The standard^ container requirement was also considered at this
hearing. It provided that all products of the industry be sold in
3 oz., 3 oz.j 16 uz., and 128 oz,, and gallon multiples (3 oz. later
changed to provide for 4 oz., before approval of code). In this
connection, I.r. Edwin 7. Ely, Chief of the Division of Simplified
Practice of the Department of Commerce, was quoted: (**)

"This is believed to be an a jpropriate and consistent
Sucn for an industr ■ to take,"

Blue Seal Food Products, Inc., Francis H. Leggett Co., and others
submitted briefs opposing these provisions,' on grounds that the re-
quirement would injure such manufacturers as themselves who had built
up reputations- oyer a period of years using sizes other than those
specified.

The code was transferred to FRA on January 8, 1934. Official
objection to the standard containers provision was made by the Con-
sumers' Advisory Board, which held that the list of sizes appeared
to be too limited. But no steps were taken by the National Recovery
Administration to meet the objections of that Board. * There is no
record of objection to the provision on quality standards by any of
the ERA advisory boards. The code was approved Karen 31, 1934. (***)

A. Code Administration.

Ho serious compliance difficulties ax-e recorded insofar as the
standards or labeling provisions themselves were concerned. Minor
infractions involving misbranding or improper labeling were generally
corrected by the code authority without resort to NBA Compliance
procedure. Some relaxations of the rules were granted to meet special
circumstances* (****) There is no record of any violation of the
standardsprovision being reported to the Compliance Division of FRA
which called for chemical analysis to determine concerning compliance.
Such analysis would have bee., necessary for final decision as to
violation.

(*) Ibid., p. 144.

(**) Ibid., p. 156.

(***) The standards provisions (Article VIII and IX) were in

substantially the same form as submitted by the Industry.
Codes of Fair Competition, Vol. VIII, pp. 281-382.

(****) Throe exemptions were granted from Art. VIII, Sec. 2, and eleven
exemptions from Art. IX, Sec. 2, to. permit disposal of stocks
on hand. (Code Record Section records, Mayonnaise Industry)

9786

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Whilethe standards and labeling provisions were quite generally
observed as to their literal terras, methods of indirect ••vasion were
found and to some degree employed. Makers of oro ducts failing to con-
form to the code standards could not legitimately label them either
"Mayonnaise" or "-salad dressing." They coald, however, designate
such lower-grade products as simolv "John Doe's Dressing" and label
or advertise them a.s "neither a mayonnaise nor a salad dressing, but
just as good as (or 'better then', 'preferred by many to', etc.)
either." This, obviously, was within the strict terms of the code
requirements, but it also obviously served to keep the sub-standard
product, in the mind of the consumer, in a competitive position with
the standard oroducts; and so to that extent nullified the intent of
the code.

While such tactics were emploved by only a relatively small por-
tion of the industry, they were sufficient to cause considerable annov-
ance to the remaining producers, and even to threaten the continued
effectiveness of the labeling provisions. To meet the difficulty the
code authority oroposed to the NRA an amendment embodving the drastic
remedy of prohibiting the marketing of sub-standard products entirely.

B. Proposed Amendment to Article VIII.

On Aoril 12, 1935, a hearing was called to consider this amendment
to Article VIII. This provision as suonsored by the industry would
prohibit the sale of all sub-standard merchandise (below code standard
but not unfit for food.) One group within the Administration (Con-
sumers' Advisory Board) questioned this amendment on grounds that it
was in restraint of trade, and urged the NRA to inform the industry of
the unsuitable character of the amendment. At the hearing, the indus-
try submitted an alternative orooosal requiring the labeling of sub-
standard products as "imitation" mayonnaise or salad dressing. This
was done after the industry learned that the original proposal was
unacceptable.

Some members of the industry voiced objections to this second
oroposal both at the public hearing and in briefs submitted after
the hearing, (*) maintaining that the use of such terms as "imitation",
or even "substandard", would have the effect of stigmatizing the
product in the mind of the consumer to a degree practically amount-
ing to a complete orohibition of such substandard dressing. Following
this hearing efforts were made to draft an amendment meeting these
objections, and at the same time acceptable to the NRA. A large por-
tion of this effort involved the Standards Unit of the Consumers' Ad-
visory Eoard. Conferences were held with that group, the Food and Drug
Administration, and the code authority. The amendment as ultimately
drafted for approval read as follows:

"PROPOSED AMEND! EFT TO ARTICLE VIII OF THE CODE
OF FAIR COMPETITION FOR THE MAYONNAISE INDUSTRY

(*) See Transcript of Public Hearing on Mayonnaise Industry, Applica-
tion for amendment. Aoril 12, 1935.

9786

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11 Amend Article VII I by renumbering Section 3 so as to
designate it as Section 4.

"Amend Article VIII by inserting the following section:

"Section 3. Any member' c?.f the Industry selling or offering
to sell any oroduct which, in effect resembles mayonnaise or
salad dressing in general content and appearance, and which
is sold or offered for sale for the same purpose as mayon-
naise and/ or salad dressing, and which does not conform
to the standards for mayonnaise or salad dressing as set
forth in this Article, shall have conspicuously printed
on its label, in plain identical, uncondens'ed capital let-
ters not less than three-fourths (■§) of the sire and bold-
ness of the largest letter on any label on the container
of such oroduct, in which the prodifct is offered for sale
to the consumer, but in no event less than one-fourth inch
(i»), the words 'SUBSTANDARD SALAD DRESSING', which words
shall appear in seauence immediately after the brand name
of the article. Every such oroduct shall in addition
have printed on its label clearly and conspicuously the
common or usual name and percentage by weight of each
ingredient therein contained, including water if used,
in the order of predominance by^ight in the product. Con-
diments, salt, spices and flavoring, if used, may be
grouped as condiments."

Pertinent oortions of the report of the Standards Unit on this
amendment are presented: (*)

"The Standards Unit recognizes the DOssibility that this re-
auirement (**) may not be sufficient to meet either the de-
sired aims of the industry - fair competition and industry
stabilization; or the requirements of consumers - adequate
quality information. The present proposal of the industry
is designed to overcome this weakness in the original Code.

"The Standards Unit has no , objection to requiring the
labeling of substandard products as such, provided, the stan-
dards established as a base is adequately drafted for con-
sumer information and industry protection. The Standards Unit
is not convinced that the standard for salad dressing meets
these conditions. It. was arbitrarily drafted by the Industry;
it. is based on but one of the orimary ingredients of the
product. - oil; and it is only a broad standard of identity.
As such it is our belief that the standard does not promote
a desirable elevation of the quality of the produet, that
it presents little incentive to manufacturers to improve or
go beyond the minimum requirement of 35 > oil, and that its

(*) Report to Deputy by Standards Unit of Comsuners' Advisory Board -
May 24, 1935. In files of Comsuners' Advisory Board, MA, t'ayonn-
aise Industry Code.

(**) Refers to original or'ovision in Article VIII of the code as approved.

9786

lack of grades does not make for an adequate competitive
price structure.

"The present proposal results in a sti0ma being sttached
to products not complying with this minimum, while there •
is no requirement that the various qualities above the
minimum be presented in their ;rue values -o the purchaser."

The Consumers' Advisory Board, through its Stanua.rdf TJ.nit, re-
commended in part:

"1. That the -3ronosed amendment be ap-oroved by the I>IR3
for a period not to exceed 90 days

"2. In the interim the Cole Authority for the Mayonnaise
Industry in conjunction with the Cossuners' Advisory Board
of the I7RA and other agencies, as may oe mutually agreed
to by the above two parties, shall review and revise the
standard for salad dressing as no1;' incorporated in the
Mayonnaise Code so as to provide for consumers' standards
based on a 1, 2, 3 or an A, 3, C system of nomenclature to
cover all grades and qualities of salad dressing above a
specified minimum. "

Fo further action was taken on this amendment due to abrogation
of the Code procedure following the Schechter decision.

C . Relationshi-Q of Standards Provisions to Other Code Provisions.

While there is no clear evidence that either Art. VIII (standards
of quality) or Art. IX (container sizes) was designed to directly facil-
itate maintenance of a rigid Tnrice structure, it may be assumed bhat
one of the nrincinal objectives of Art. VIII was that of meeting the
problem caused ''oy the existing differential between mayonnaise and
salad dressin0 prices. Viewed in this light, Art. VIII appears to
have a very direct relationship to pricing policies of this industry.
In treating the question of price differentials between mayonnaise and
salad dressing it must also be -pointed out that a very similar differ-
ential between nationally advertised products of this industry (e.g.
mayonnaise and salaxL dressing) and non-advertised and local -products
existed.

One investigator has prepared a confidential report treating the
pricing policies of this industry, in which the nrice differential
problem-both as between nationally and locally advertised products
and as between mayonnaise and salad dressing — is emphasized. In
this report the standards provision is shown to have had a direct
bearing upon the solution of this problem. That study points out
that an important -oart of the general program of keeping up the price
level of salad dressing, thereby facilitating a narrowing of the dif-
ferential, was the enforcement of the standards provision. A producer
of substandard products, having lower ingredient costs is presumably in
a position to cut prices. The same report attempts to show that pro-
visions of the code permitting the establishment of lowest reasonable

9786

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costs went far toward solving the differential problem., at the sane
time establishing and maintaining an unwarranted "uice-f ixing de-
vice. (*)

D. Standard Container Provision (Article IX).

The code as approved provided:

"Section 1. 4 oz., .J oz., 16 oz., aid 128 oz*, containers
and whole gallon multiples thereof are hereby declared to
be the standard sizes for containers of the products of
the mayonnaise industry.

"The aforementioned ounce measurements shall be applied
in terms of fluid measurements, and the aforementioned 16
oz., 3? oz., and 138 oz., containers shll be labeled in
terms of pints, quarts and gallons respectively."

The Francis H. Leggett Company was a consistent objector to
this Art. IX, After approval of the code this form sought an exemp-
tion. Temporary exemptions rere granted on two occasions (March 1934
and October 1934) in order that petitioners mj.ght sell material in
stock. On January 17, 1935, Lefagett and Company asked for complete
exemption. This was denied on ^rounds that petitioner had present-
ed insufficient proof of the need for such exemption. An appeal was then
taken to the Industrial Appeals Board of l-TLA. by the Leggett Co.
(March 20, 1935.)

E. Hearing Before the A-o-ocals Board.

On A'oril 4, this case was heard. The -Tetitioner based his case
upon priority in the field of packaged salad dressing (for about 25
years); consumer appeal of the 11 oz. container; established good will;
and demand for a fair trial ,of code sizes simultaneously with their
own odd sizes. (**)

• The code authority favored the provision as written in the code
on the terounds that it minimized any tendency to consumer deception;
and that marketing and production economies bad been realized through
the simplification efforts. (***)

(*) This para raph summarizes mayonnaise study contained in "The
Price Study: Report Ho. 10, The Emergency - a Device for
Price Control", C. C. Linnenberg, Jr., for Cabinet Committee
on Prices. 1935. pp. 43-90.

(**) For full and detailed arguments, sec transcript of Hearing

Before Industrial Anneals Board - Ap-oeal of Francis H. Jieggett
Co. April 4, 1935.' In BRA files.

(***) See Transcript of Hearing, supra,.
9786.

-169-

The basis for a compromise ruling was found in Leggett and Com-
pany's agreement bo abandon its Zh oz. container for the 4 o ., and
its willingness to pack in a 12 oz. r. ize if the code was amended to
provide such in addition to those specified.

The Standards Unit of the Corasu*iers '• Advisory Board recommended
thqt a comoromise he effected hy requiring Leggett and Company to
abide by the code insofar as the 3? oz. size! was concerned, and by
suggesting that this firm initiate an amendment, to the code adding
a 12 oz. size. . .

F . Decision of Appeals Board.

On the basis of evidence taken at the hearing, briefs submitted
after the hearing, and reports'; of the various Advisory Boards of the
NBA, the Appeals Board rendered a decision on Jfey 7, 1935. This de-
cision read in part:

"It is the recommendation of the Board, therefore, that the
appellant be given a thirty (30) day exemption from the
provisions of Section. 1 and 2 of Article XX of the Code
of Fair Competition for, the Mavonnaise Industry, during
which time it shall be incumbent upon the appellant to
initiate the proper code amendment procedure which shall
provide for the addition of a 12 oz. size to the permiss-
ible container sizes.'1'

There is no record of any action having been taken by Leggett
and Comoanv, since the Gchechter decision was rendered in the same
montn.

V. POST-CODE EXPERIENCE ........ V ■

A field interview' between a, representative of the Trade Practice
Studies Section and the Assistant to Mr. W. F. L. Tuttle, Manager of
the Mayonnaise and Salad Dressing Institute, December 15, 1935, elicit-
ed the following information concerning the post-code history of this
industry relating to standards:

The quality of mavonnaise, being controlled by the standards set
up by the Food and Drug Administration, was not affected by the passing
of the code, and continues to be maintained in general above the min-
imum oil content specified by the Food and Drug regulations. The Insti-
tute has endeavored to hold the members of the industry to an observance
of the 35;o minimum oil content specified by the code for salad dressings,
but there is still found a considerable amount of chiseling as to qual-
ity in this class of products. This situation also obtained to a degree
under t he code, however, and it is not asserted that there has been any
marked increase in the tendency to lower quality content since the codes
lapses.

The Institute has sought to discourage the marketing of less-
than-35$~oil salad dressings by advertising and editorials in trade
publications, by literature sent to members, and by other forms of

9786

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poblicity. Samples of Salad dressing are obtained in the open mar-
ket, and analyses of their content made. Shortly after the passing
©i the codes the Institute took up with the Food and Drug Adminis-
tration the question of setting up standards and labeling require-
ments for salad dressings similar to those already prepared for
mayonnaise. No progress has been made with this, however, as the
Food and Drug Administration, following the attitude adopted by it
with respect to products of the Preserve, Maraschino Cherry, etc.
Industry, (*) wished to rectuire use of the words "substitute" or
"imitation" in the labeling of products of less than standard con-
tent, while the industry wished to employ the less derogatory term
"substandard" .

The industry records since June, 1935, it is reported, show
no adverse price tendency with respect to industry products, a con-
dition attributed in part at least to the stability of prices of
raw materials which has obtained in the intervening period.

VI. POINTS FOP FURTHER STUDY

After studying the fundamental problems of the mayonnaise in —
dustry with regard to standards and labeling, efforts of the indus-
try to meet these problems, and the success attained through such
efforts, certain points for further study and exploration arise. The
proposal as suggested by the Consumers' Advisory Board for the
grading of both mayonnaise and salad dressing should be the subject
of careful technical investigation. Likewise, legal implications
of this proposal should be subjected to proper study and analysis.

Also *-he orice-f ixing implications as emphasized in the con-
fidential report by fhe cabinet committee on prices should be stud-
ied in order that any future attempt to control quality in this
industry may be divorced from any improper price controls.

(*) See Exhibit F, page , of this report,

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APPENDIX II
EXHIBIT 3

STUDY OF
STANDARDS AND LABELING PRACTICES
OF THE ....
■ HOSIERY I INDUSTRY (.*) . .

DEFINITION CF INDUSTRY

(CODE NO. 16)

"The term 'Hosiery Industry' , as used herein, includes the
manufacturing, finishing, repairing, selling, and/or dis-
tributing lay manufactur.ers at wholesale or retail, or
distributing by wholesalers and selling agents, of hosiery,
and ether related branches, as may from time to time be
included under the provisions of .this Code."

(*) Prepared by Elinor S. Barr, Commodity Information Unit,
Trade Practice Studies Section.

9786

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- I

CONTENTS

Page

Summary . 173

A. Resume 173

B. Sources of Material 173

I. Specific Industry Problems 174

A. Price Competition 174

B. Decline in Quality 175

II. Pre-Code Activity 176

A. Regulatory Efforts 176

B. Efforts toward Standardization 177

1. By Industry . . . 177

2. By Consumer Groups 177

III. Code Experience 178

A. Proposed Provisions 178

3. Background of the Provisions 180

C. Controversies Arising During Code Period 180

D. Aiaendments 181

1. Anal ay sis of Provisions 181

2. Relation of Provisions to Standardization . . . 182

IV. The Operation of the Provisions 184

A. Interpretations, Exemptions, etc 184

3. Compliance 185

V. Standardization Activities Outside the Code 186

A. By Industry 186

1. Specifications Prepared by Industry 186

2. Criticism of Specifications 187

B. By Consumers 187

9786

-173-

SUl.il.iAEY

A._ Eosurao.

Recognition of the fact that the quality of hosiery can readily
"be cheapened, and that this cannot generally be detected by the pur-
chaser, has stimulated interest in star.da.rds specifications among
manufacturers, distributors and consumers. As a result, the grading •
and labeling of "seconds" and "irregu.la.rs" had been accepted as a de-r
siroble pra.ctice by the Industry.

To afford fair competition for the merchandising of first grade
hosiery and to protect consumers, the Code of Fair Competition for
the hosiery Industry included provisions for the labeling of "seconds",
"irregulars", and "thirds". But the code contained no provision for
the establishment of grades of quality based on scientific test methods.
Consequently grading of merchandise was left entirely to the judgment
of each manufacturer.

Because of the limited information concerning compliance with the
labeling provisions, it has not been possible tc determine fully the
effectiveness of these provisions. It seems certain, however, that
they' fell short of the desired object.

During the code period the industry developed "construction"
standards, but these were not incorporated in the code. At the same
time, at the request of consumers, a grading system based on "perform-
ance" standards was developed at the hational'.B'U'ea.u of Standards.

B. Sources of Llaterial

The sources consulted in the preparation of this report covered:
(a) N3A files; (b) special studies; (c) Code Authority liinutes and
Bulletins; (d) Transcripts of hearings; (e) trade publications.
The NHA files comprised those in the Deputy's office, Consumers' Ad-
visory Board, the Standards Unit of the CAB, the Compliance Division,
and the Legal Division. The transcripts referred tc are those on the
original code and the code amendments. Special studies covered the
"Code Administration Study" h/ the Division of Research and Planning;
studies on quality specifications for hosiery, made by the National
Bureau of Standards and the Industry. The trade papers comprised the
"Underwear Review", Bulletins of the National Retail Dry Coods Asso-
ciation, and Bulletins of the National Better Business Bureau.

9786

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3TUDY

OF
STANDARDS AND LABELING PRACTICES
FOE INE
HOSIERY INDUSTRY

I. SPECIFIC INDUSTRY PROBLEMS

A. Price Competition.

Prior to the code the industry problems revolved around price.
Very large inventories of stock were piled up during the early years
of the depression, which could not be moved at prevailing prices. In
common with other textiles, hosiery prices rea.ch.ed record low levels
in early 1933, when they were as low as forty-five (45^) percent of the
1929 prices. Between the spring of 1935 raid the effective date of the
Code (August 25, 1933) prices rose to seventy-five (75'i) percent of
those for 1929. They fell again to fifty-seven (57,1) percent of that
base in August 1934, and have risen but little since. (*)

An illustration of the prevalence of price cutting is to be
found in a statement in the publication, The Textile 'Jorld, June 1931:

"The following may or may not be symbolic of the present
condition of the full-fashicned hosiery market. A
smart specialty shop on Lexington Avenue, New York,
this week devotes a window display to an offering of 3
pairs of $1.95 full-fashioned hosiery for ;?4.00 . . .
and an extra pair free. The stockings are fine gauge
and are available in all the current shades."

Concerning the situation durin^ the latter part of 1933 and early 1934,
Mr. Earl Constantine, Director of the Nosiery Code Authority stated: (**)

"The condition of over-production continues to give us
keenest price competition of a character which makes
ineffective that provision of cur Code which "prohibits
the sale of a product below the manufacturer' s individ-
ual cost. Prices today are so low and unstable as to
discoura.ge, rather than to encourage, buying. "

(*) A Preliminary Draft Rep rt on the Nosiery Industry. Division
of Hesearcii and Planning, NEA, February 11, 1935.

(**) Letter of Code Authority Director to lir, N. 0. King, NEA,
iky 24, 1934, Deputy Files.

9736

-175-

Destructive price competition was the "basis of the indus-
try's argument when it applied for an amendment permitting it to set
prices in an emergency. Mr. Constantine said at this '..earing: (*)

"They (the buyers) have certainly depressed prices
in hosiery down to a ridiculous point, and hosiery
is selling today with no profit - generally speak-
ing, with no profit at all; an industry of our
size, in that condition, requires emergency treat-
ment, and that is why we are ashing for it today."

3. Decline in Quality.

This depressed condition of the market resulted in a deter-
ioration in the quality of hosiery which, because of the nature of the
producti can readily be misrepresented. Thus Lir. A. Prooper, executive
if a, large Chicago department store stated: (**) :

"'./omen's hose. . . is mere or less a blind article.
Any manufacturer, unknown to us, or anybody, can
easily take sometliing out of a hose, tho.t we don't
know has been taken out until we find... that
something has marred the wearing quality of the
hose, Courses can be dropped, inferior silk can
be used, threads can be tightened, and other small
manufacturing qualities that are net discernible
to the naked eye con be cheapened."

Various forms of quality degradation are described in a book-
let issued by a manuf acturer of unbranded hosiery (***) as - skimping
by reducing length; reducing number of stitches in the serin; use of
lower- twist thread; elimination of reinforcements; insufficient number
of courses; dropping of needles in the knitting bar; eld stock sold as
new; failure to identify fiber, etc.

That price competition hod induced these and other manipula-
tions in quality was alleged. To quote again from Lir, Propper' s
speech,

"Ue all know that it is cosy to cut h:siery down
to a price... that is all we have been doing in
the past, cutting it down to a price."

(*) Transcript of hearing, hodif ication Proposal, Hosiery In-
dustry, Hay Id, 1334.

(**) Speech before the Basement Managers Groin, April, 1933.
Reported in Bulletin of tlie National Retail Dry Goods
Association.

(***) "hidden Pacts about Hosiery Quality", issued by the Trojan
hosiery Mills- approximate date, 1933.

9786

-176-

Selling hosiery as "firsts" whiali are "irregulars" or "seconds" is a
form of misrepresentation of which price-cutting manufacturers and re-
tail ars take advantage. According to the report of the Standards Unit
of the Consumers' Advisory Board (*) at least 15,o of the normal produc-
tion of the mill falls into the class of "seconds" and "irregulars",
whereas not more than 5yj or 6j of the output of most mills is being
sold at present as sub- standards. The report states that frequently
the run of the mill is purchased by wholesalers and put on the market
as "firsts".

The more responsible retailers have attempted to cope with the
problem even before the Code period. In the spring, 1933, issue of
the Bulletin of the National Retail Dry Goods Association, the mer-
chandise manager of a prominent Hew York City department store asserted
that :

"Hosiery buyers should not buy from mills that do
not stamp their seconds as sucn or call them ir-
regulars, imperfects or whatever term is descrip-
tive. If buyer? of the better hosiery departments
would refrain from purchasing from such manufac-
turers, the latter would stamp their seconds and
soon all the manufacturers would be brought into-
line. Some manufacturers claim that they refrain
from stamping hosiery as seconds, due to pressure
from careless buyers. The customer1 s interest
would be served best.. .if the store insists upon
seconds being marked as such, and also, by estab-
lishing this practice, the cheap price-cutting
manufacturer would find it no longer profitable to
operate on that basis."

This quotation establishes the fact that the marking of "seconds" was
a custom in the trade, frequently not observed. They also point to
the fact that manufacturers and retailers alike were talcing advantage
of the lack of identification of "seconds" and "irregulars".

II. PEE-CODE ACTIVITY

A. Regulatory Efforts.

In the summer of 1926 a number of manufacturers, distributors,
and retailers of hosiery, in cooperation with the National Better
Business Bureau, met to discuss the problem of suitable identification
of hosiery other than first quality. Subsequently, manufacturers who
made approximately 7-5/j of the silk hosiery sold in this industry,
pledged themselves to identify such hosiery by labeling. According to

(*) "Consumer Feeds for Hosiery Standards", Report issued by the
Consumers' Advisory 3oard, April, 1954.

9786

-177-

the June 1927 Bulletin of the National Better Business Bureau, Inc. ,
tlie following resolution was adopted by the. industry:

"1. That all hosiery not of first quality he indelibly
marked to that effect on the toe of each stocking;

"2. That all hosiery of other than first quality 'be

designated by one of the following terms: 'Seconds',
' Imperfects' , ' Sub- standards' , ' Irregulars' ;

"3. That the National Better Business Bureau be auth-
orized to circularize manufacturers, jobbers and
dealers and ascertain if it is possible for the
industry to adopt one of the above terms as a
standards designation for all hosiery of other
than first quality;

"4. That in all advertising, hosiery of other than
first quality be affirmatively designated as

SUCll . "

This issue of the Bulletin pointed out that most of the department and
specialty stores approved this marking policy; but a few retailers
declined to purchase 1. perfect hose unless the markings be left off.
The Bulletin also points out that ordinances and State laws in several
localities have been passed, mailing it incumbent upon the seller of
merchandise other than first quality to declare the facts affirmatively.

B. Efforts Toward Standardization.

1. By industry.

Prior to the approval of the code, the hosiery industry
had adopted a Commercial Standard on lengths of hose. In September
1931, the National Association of Hosiery and Underwear Manufacturers
prepared a specification for men's, women's and children's hosiery
lengths with a view to its adoption as a commercial standard. The
purpose was to provide "standard methods of measurement and standard
me .surements. . . . in order to eliminate confusion resulting from a
diversity of measurements and methods and to provide a uniform basis
for guaranteeing full length." After conferences between manufacturers,
distributors and users of hosiery, the adoption of the standard was
announced, to become effective July 1, 1S33. This specification
adopted through the National Bureau of Standards, is known as Commer-
cial Standard CS 46-33.

The industry maintained a research assistant at the
Bureau of Standards, by whom the work on hosiery lengths was carried
on. In addition, studies were also started on fabric construction.

2. By consumer groups.

The subject of standards of quality for hosiery has en-
gaged the attention of cons\rner groxips for many years. Studies have

9786

-178-

been made "by Home Economics Study Clubs and Home Economics departments
of universities. In 1932, Dr. Rosemond C. Cock of the University of
Cincinnati presented a recommendation for standard classification of
staple hosiery to the Katie-Hal Association of Hosiery and Underwear
Lianufacturers, This recommendation comprised specifications for vari-
ous classes of hosiery. It was not accepted "by the Association ""be-
cause of the exigencies of the depression".

Early in 1933 the General Federation of "."/omen's Clubs
undertook the development of specifications for women' s full-fashioned
hose as a basis for labeling these goods. Their standard specifica-
tions included three lengths - 27", 30", 33"; a standard for durability;
and minimum specifications for measurement of reinforcement of heel,
upper heel and toe. This organization applied to the national Bureau
of Standards to provide suitable test methods for such properties as
elasticity, bursting strength, and ability to resist runs. In re-
sponse to this request, the Bureau developed a. machine for these tests.
Stockings which stood 1,000 oscillations of this machine are considered
to have standard durability.

Tiie 3ureau of Standards has carried on considerable work
on the physical characteristics of hose. In April 25, 1934, the
Bureau of Standards issued a pamphlet entitled, "A Basis for Perfor-
mance Specifications for Women's lull-Fas-iioned Hose" prepared by
Herbert F. Schiefer and Richard S. Cleveland. The bureau recommended
the following for use in a. performance specification for women1 s full-
fashioned silk hose: - minimum limits for "distensibility" , "recover-
ability" and "stretch and durability" of the stocking; a classifica-
tion of the hose based upon the thickness of two layers of the leg
fabric of the stocking; tolerances for size and length of the stocking,
and a, requirement for color fastness to laundering.

III. CODE EXPERIENCE

A. Proposed Provisions.

The code proposed by the industry contained a number of
clauses, set forth in the proposed Article VIII, which dealt with
standards and labeling requirements:

"Minimum Standards

"The Association will cooperate with the United States
Bureau of Standards to establish minimum standards
for fabric construction.

"Commercial Standard Co 11-29, on Regain of Mercerized
Cotton Yarns, and Commercial Standard CS 4-6-33 on
Standards for Hosiery Lengths, which lave already
been adopted by the Industry, are made a part of this
Code. Deviation below established standards will be
unfair trade practice.

Article VIII, Section 8.

9786

-179-

" Sale of Merchandise Other than First Quality .

"a. Eie sale of irregulars or seconds in tie packing of firsts,
with tie intent or effect of deceiving the purchaser or
the ultimate consumer, is unfair trade 2">ractice.

"b. All full-fashioned hosiery, and all seamless hosiery sell-
ing at $2.25 or more per dozen pair, which is not first
quality, shall be stamped or transf erred either ' Irregulars'
or "Seconds' on the toe or sole of each hose, except that
goods of a lower classification commonly known as thirds
must be stamped or transferred "Thirds'.

"c. All stamping of this nature must be indelible. The words
' Irregulars' , 'Seconds', or 'Thirds' must be in full-face
type letters of not less than t. .ree-sixteenths of an

inch in height,

"Sale of i.iill Runs.

Article VIII, Section

"To sell hosiery commonly known as 'hill fiuns' containing hose
which according to proper inspection as generally practiced by
the industry would be classified as 'Irregulars', or 'Seconds'
with the intent or effect of deceiving the ultimate consumer,
is unfair trade practice.

Article VIII, Section 10.

"Misbranding and Irmro~oer Marking

"To sell hosiery marked or branded falsely with the effect of
misleading or. deceiving purchasers or the ultimate consumer
with respect to. price, quantity, quality, gauge, grade,
substance or value of 'the merchandise is unfair trade prac-
tice."

Article VIII, Section 12.

"hisrepresentation of Materials

If any definite section or sections of the hose be
made of a material entirely different from that of
the bulk or body of the stocking, when such material
gives the appearance of silk, tie hose must be
stamped with names of' both materials.

Ho material or content shall be stamped on any hose
unless it represents at least 5 percent of tie hose
by weight. tttien two or more contents exist, if any
content is stamped on the hose, all contents con-
stituting 5 percent or more of the weight of the
hose shall be stamped and in the order of major con-
tent."

Article VIII, Section 13.

9786

-100-
11 Selling Below: Cost

"c. All clcse<aits of discontinued styles and/ or
sizes and/ or "broken assortments, if sold "be-
low' cost shall, "be; stamped 'Discontinued' on
each hose with an indelible stamp or transfer
ordered only through the Association. "

Article VIII, Section 4(c).

B. Background of the Provisions.

In tie "brief submitted by the National Association of hosiery
Manufacturers in support of their code, the raanaging director stated
that the provisions as proposed under Article VIII on trade practices,

i' are based on the actual experience of our indus-
try. The provisions are in many instances similar to
- - these "which have been established r.n different indus-
tries in iilie pfidt in cooperation with the Federal
Trade Commission,"

The first clause of the proposed Article VIII was a recogni-
tion of the industry1 s interest in construction standards.

The code proponents attempted to make universally applicable
the Commercial Standard on hosiery lengths, which had recently been
approved through the Bureau of Standards, and which had already be-
come the standard practice in about three-fourths of the industry, as
well as an old-established standard on the regain of mercerized yarns.

As indicated earlier, one form of price competition was the
selling of "seconds" as first quality goods. The need for identifi-
cation was realized by the trade and was crystallized in the adoption
of a pra.ctice of labeling, in 1926. Tlxe lack ~yl adherence to this
practice, pointed out in an earlier section of this report, was sub-
stantiated at. the first public hearing on the hosiery code, in the
testimony of Mr. Uorman Heed (*) who asserted that his firm had for
a long time been stamping their "seconds" and "irregulars" but were
forced by competition to eliminate this pra.ctice because they found
it impossible to sell the goods as "seconds" if they were stamped.

C. Controversies Arising During Code Period.

Industry members did not offer any objection in connection
with the labeling requirements in the proposed code, however, the
Consumers' Advisory Board adviser raised a question as to the adequacy
of the Commercial Standard on hosiery Lengths which was to be made a
part of the code. In its memorandum on the code, the Consumers' Ad-
visory Board (**) suggested that this section be amended to make it

(*) hearing on Code of Fair Competition for the hosiery Industry,
August 10, 1933, pp. 129-131.

(**) Memorandum by C. C.Balderstcn to the Consumers' Advisory Board,

August 12, 1933, CBS files, hosiery Industry.

Memorandum of the Consumers' Advisory Board to Dr. Lindsay Sogers,
978G August 14, 1933, CBS files, hosiery Industry.

-181-

clear that the Commercial Standard CS 46-33 applies only to hosiery of
medium length and that the industry be permitted to .make shorter and
longer lengths providing these were clearly marked. This Commercial
Standard had aroused the disapproval of two consumer organizations.
The American home Economics Association had indicated, in a canvass
made "by the American Standards Association in hay 1934, that they "be-
lieved this standard should not "be approved, since it provided for
only a single length of hose. .The' C-eneral Federation of "./omen's
Clubs had indicated that the specifications which they had prepared(*)
provided for several lengths.

As a result of a misunderstanding of the position taken "by the
Consumers' Advisory Board, this 'provision was deleted from the final
draft of the code. lir. Constantine .advised the C.A.3, in a letter
written November 16, 1933;

"In the conference which followed the Hearing, we were
advised "by NBA Coojisel that your hoard had requested
a withdrawal of the mentioned prevision. " (**)

No documentary evidence of the position taken by the Legal Division
in reference to tnis provision could be found in the files of the
Lega.l Division cr elsewncre.

With respect to the price limitation en the marking of seamless
hose in the proposed Article VIII, Section 9, the Consumers' Advisory
Board adviser asked that all seamless hosiery as well as all full-
fashioned hosiery "be marked. Mr. Constantine alleged that the reason
for this was the cost of stamping, and the difficulty of making the
impression stick on coarse hose. This price limitation was dropped
from the final draft.

D. A:iendncnt s

1. Analysis of provisions.

After about a year of code operation, the cede authority
ap died for modification of Article VIII, .for the purpose of clarify-
ing its provisions. The proposed modifications offered by the indus-
try at a public hearing on July 9, 1934, were approved on April 6,
1935 as Anendment ho, 6.

Several references are made in the Cede Authority kinutes(*!
to "can-eful consideration" to proposals to amend different sections
of Article VIII but no mention is made of the underlying reasons.

(*) See page of this report.

(**) Consumers' Advisory Board Pile, hosiery Industry.

(***) Code Authority kinutos, November 11, 1933; April 22, 1934.
(Trade Practice Studies Section Library.)

9736

-182-

Amendment No. 6 effected changes with reference to labeling require-
ments; Sections 8, 9, 10 and 11 "'ere deleted and new sections substitut-
ed. Section 8 refers to classifications of hosiery into "firsts" and
"other than firsts", with a sub-classification for the letter into "ir-
regulars" aai "seconds" and "thirds". A mill choosing not to have four
classifications may eliminate either "irregulars" or "seconds". This
section further provides that hosiery containing more tlv-n one of the ab-
ove classifications may not be sole as mill runs. (*) The stajnping of all
hosiery not of first quality was required, with fhe designation of "ir-
regulars", "seconds" or "thirds" on the to^, sole or outside the welt of
each hose. Such marking w^s to be visible and indelible, in full face
type of not less th*m 5/32" in height except in the case of infants' hose
where the letters were to be at least 1/3" in height. (This differs
somewhat from the original provision). Labeling is defined further by
requiring that the end label of -oil boxes containing goods other than
first quality shall be marked in accordance with +he stamping of the goods
inside. (This was not in the original code). 'The exact size of type is
stipulated.

The Section on Misbranding and Misrepresentation of Materials con-
tains +he original provisions and two additional clauses, as follows:
One provides that in hosiery having all-silk or all-rayon or a mixture
of rayon and silk body or boot, with cotton top and/or cotton1 toe, he<=l,
sole qnd high-splicing, the "-eight referred to in this clause shall ex-
clude the ^eights of the cotton portions mentioned. Such hosiery may be
marked respectively "silk", "rayon" or "rayon and silk" without refer-
ence to the cotton content. The second clause provides that if hosiery
is marked as to material content in terns of percentage, the amount of
each material must be shc-n.

Explanation for these additions 'was offered by Mr. Constantine at the
hearing on the amendments, held July 9, 1934. Heferrine- to the original
Section 12(b), he said:

"That is the type of provision which, if you enforce it lit-
ally, you impose an undue burden on the industry. Under a literal
interpretation you would have 'to say thnt the foot or the body is of
silk, the welt is of cotton, and the foot is of lisle, and '■'hen vou
are through you would have a billboard. So, being so impractic-1,
there is a very large degree of resulting violation of it, and no
code authority would have the heart to try to enforce it literally."

The provision which required the -arking of all closeouts of discon-
tinued styles was amplified by permitting a choice from four labeling
designations,

2. ^el-tions of provisions to standard ization.

In connection with the code classification of hosiery it is import-
ant to point oat that the code does not define a "first" or "second"

(*) Tht' provision regulating the sale of "mill runs" ws intended to con-
trol a practice b' means of which manufacturers were alleged to
grant orice concessions.

9786

-183-

or "irregular". Apparently this classification was offered in an ex-
peri.mental way for, in his presentation at the modification hearing
on July 9, 1934, the Code Authority Director , replying to questions
from advisers said: .

"... in addition to establishing standards of construction, eo
called, we are developing a standard method for the gauging and
segregation of full fashioned stockings into first, seconds and
thirds, something a. year ago our manufacturers would have said
was an impossible thing to do, because they would say it depends
on the human eye, and no two human eyes are the same, but wc have
made considerable progress, and rre think we have a proposal that
is practical, and it will at least ; o far to bring about results
whereby firsts anywhere will mean substantially the same" thing,
and seconds the same thing, and thirds the same thing, and this
reference here must be in that language I have read pending the'
acceptance of those standards and their incorporation as the stand-
ards of the industry."

"I think that the average manufacturer, setting aside, on the one
hand, here, what, according to his standards and judgment, is
clearly first-quality goods, and finding in doing so he lias cer-
tain goods that are mora or less in a twilight zone between firsts
and seconds, 'so that he hesitates and debates whether to put them
among the first or among seconds, and then does put them among
seconds, has a feeling that perhaps those goods were somewhere
in between first and seconds, and he calls them "irregulars" .
They are in between. Buyers nave more or less formed an opinion
in their own minds that the irregular is a quality of goods some-
where in between first and second. They are first-quality goods,
perhaps, or goods that just fail to make the grade, and yet you
would not throw them into seconds, with the result that there is
a market for those irregulars, and from the standpoint of sale-
ability and the standpoint of worth in the eve of the ultimate con-
suner, I would say that there is less resistance on the part of the
lady to buy a stocking marked "irregular" than there would be to
buy one marked 'second'" (*)

At this public hearing the Director of the Code Authority inform-
ally, re-introduced the provisions stipulating the establishment of standards
for the products of the industry, in a form similar to the preliminary
draft of the code. This proposal did not appear in the mimeographed form
of the proposed amendment. It read as follows:

"When and if standards of construction and inspection shall be
officially established by the Hosiery Code Authority, such standards
shall govern." (**)

(*) Transcript of hearing, Modification Proposal - July 9, 1934,
(**) -Ibid, page 183.

2786

-184-

This provision was later discarded. The explanation offered by
the Deputy's office for the deletion was that such a provision would
probably be embodied later in a separate amendment. The Consumers'
Advisory Board at this hearing asked that these standards when estab-
lished be submitted to NRA for approval. The Code Authority Director
replied that the Industry would prefer to submit their standards di-
rectly to the National Bureau of Standards, (*)

IV. THE OPERATION OF THE PROVISION.

Evidence concerning the operation of the provisions on standards
and labeling practices is inadequate. A scrutiny of the data available
in NRA has offered only fragmentary information on the operation of
trade practices, and especially with reference to the subject under
consideration.

A. Interpretations, Exemptions, etc.

It would seem that all interpretations, explanations, exceptions
and exemptions, rules and regulations, were made by the Executive
Director and later given formal approval by thf code authority. The
code history for the industry states that during the latter part of
the code period, and after many protests from NRA, the code authority
did submit such matters to NRA for approval.

A review of the code authority minutes, brings to light several
discussions on labeling, upon which rulings were made by the executive
director or +he code authority. (*$) Two interpretations to explain
the amended provisions on labeling are found in the bulletin issued
by the code authority. The April 13, 1955 issue offered an explanation
of section 10, concerning misbranding. Illustrations were offered
to clarify the scope of the provision, as follows:

"1, If the body or the boot is all silk or all rayon the hose
may be respectively marked 'silk' or 'rayon' disregarding
the weight of the cotton portions.

"2, If the body or boot of the hose is of silk and rayon and each
of these elements constitute 5$ or more of the weight of the
body alone (disregarding the weight of the cotton portions)
the hose may be marked with the names of these two commodities
but the one which weighs the more will have to appear first,

"3. If the body of the hosiery is of rayon and silk, and one of
these constitute only bp or more of the weight of the body
(disregarding the weight of the cotton portions) that com-
modity can be marked. For instance, if the body is consti-
tuted of 97% rayon and Z% silk, the hose may only bp marked
'rayon'."

(*) Ibid, page 191.
(**) Code Authority Minutes, October 10,1933; November 11, 1933;
March 4, 1934; April 22, 1934; October 10, 1934; January 21,
1935; February 18, 1935; Aoril 19, 1935. (Trade Practice Studies
Section Library).

-185-

In the July 9, 1954 issue of their bulletin, the percentage mark-
ing of hosiery is explained as follows: . .

"Attention has been- drawn to a few instances in which the joint per-
centage of. two or more contents is stamped on hosiery. Such stamn-
ing can be. misleading to the consumer, and a. rule thereon has been
made; by the Fair Trade Practice Committee as follows:

'If in compliance with the provisions of Section 12, Article
VIII of the Hosiery Code a member of the industry desires to

. stamp the contents of hosiery in terms or percentage, the per-
centage of each content must be given separately.

'To illustrate the type of practice it is intended to correct,
we mention hosiery which is stamped "60$ rayon and vrool" or
else "60% rayon and wool, 40$ cotton". In the case of either
of these stamps the exact or aporoxinate contents of rayon
and wool are in no way indicated because both of these con-
tents are covered by the 60>t>,n.

B. Compliance

The code authority for this indastry enjoyed the reputation in UFA
for being one of the most effective, forceful, and a^gresive in code
enforcement. (*) However, the reports on violations of labor provisions
far outweigh the violations reported concerning other provisions of ■ the
code. With reference to this situation, the director of fhe code auth-
ority observed (**) that interpretations rel- tine- to labor provisions, ■
and precedent with regard to the methods of applying these, had become
practically automatic but that trade practice compliance had bepn some-
what neglected. He suggested as a remedy, broader understanding and the
use of the cost manual; securing more general use of uniform conditions
of sale; energizing application of remaining fair trade practices. .In
a letter (***) to Mr. A. 0. King, the director of the code authority
said:

"Compliance with fair trade practice provisions is more dif-
ficult to secure. Naturally much compliance requires the highest
cooperation of the manufacturer himself. A good many manufacturers,
'however, try to take advantage over competitors, and surh trans-
actions are difficult to reveal or prove because both parties there-
to naturally protect each other, "

A scrutiny of the data available in HRA has offered only fragmentary
information on trade practice violations. Out of a total of 1067 com-
plaints received on violations discovered, -for, the period from September
1933 to March 1935, there were 154 complaints covering trade: practices.
(****) These were not itemized as to wha.t' provision of +he code ^as In-
volved.

(*) Code History on the Hosiery Industry, (deputy Files)

(**) Code Authority Minutes, Aaril 19, 1935.

(***) Deputy Administrator's files.

(****) Code History of the Hosiery Industry, IIRA. (deputy ^iips)

9786

-186-

V. STANDARDIZATION ACTIVITIES OUTSIDE THE CODE

A. By Industry. • ■

The research. work which the industry carried on at the Bureau of
Standa-rds has -been referred to. ' As an extension of this activity, the
National Association of Hosipry Manufacturers appointed a- .committee of
twenty-four manufacturers at the beginning of "1934, to prppare suitable
standards for full-fashioned hose. This '"as in effect, carrying out the
intention of the clause. in the provisional code providing for the es-
tablishment of standards, which was deleted before the original code
was approved. It may be presumed that the oerformance soecif ications
prepared by the General Federation of ".("omen's Clubs gave impetus to
the appointment of the manuf aotiirers1 committee* The Committee on Stand-
ardization of Full-Fashioned Hosiery presented its recommendations in
June 1934." Their final report was' submitted to the Industry at a. 'con-
vention -in April 1935. According to Mr. Constantine, the majority of
those present recorded, themselves as approving the standards proposed. (*)

Several suggestions come out of,, the conference, and a. special sub- com-
mittee undertook to study them, A final draft was £xoected soon there-
after, and the Association planned to proceed with its effort to get the
industry to adopt these standards. With respect to the future of these
standards, Mr, Constantine sr.id: (■**)

"It is our, purpose to!, attempt to secure an overwhelming consent
from the Industry befor3 proceeding m the direction of establishing .
the standards as Commercial Standards, so as to assure the success of
the. .undertaking. The procedure.' of the Bureau requires an industry,
conference, and such conference will be arranged for as soon .as we -
feel that .the industry is well enough informed to be able to act in- .
telligently . on them, and we hope affirmatively,"

1. Specif i cat ipns. prepared by industry.

The specifications set up by this conmittee are ' of ■ two -types:- con-
struction standards and inspection standards! The minimum construction:
standards embodied four constructj on J actors - width of needle bar, num-
ber of flare nar rowings, total length of stocking, number Of courses from
picpt to heel loose course. . Three classifications were drawn up -Grace A.
for highest quality; Grade B", representing medium quality; Sub-standard,
representing any grade below "Br.

On the matter of labeling, the committee recommended that Grade A
merchandise shall, not be stamped but the stamping of other classifications
shall -be made mandatory, including the stamping' of "irregulars", or
"seconds", of each clas. ification. Practical inspection standards were
recommended in accordance with which merchandise was to be graded as
"firsts", "irregulars" and/or "seconds".

(*) Letter from Earl Constantine to Commodity Information Unit, October
2';, 1935. Hosiery Folder.
(**) Ibid :

9786 * ' .

-187-

2. Criticism of specifications.

In the opinion of the Bureau of Standards and the General Federa-
tion of Tibmen's Clubs, construction specifications a::e inadeouate for
standards of quality. The Committee on Stano.ards of Full-Fashioned
Hosiery, on the other hand, has concluded that "while there may he scie
advantage to he obtained through recognized testing efforts already
vised in this Industry, these tests cannot successfull-g accomplish our
purpose until specification standards have teen set and adopted by the
Industry", and that methods of testing for stretch, abrasion, etc.,
of the fabric "should be a secondary matter for consideration after the
first step has been taken in adopting what are known to be correct
principles of standardization in the manuf -'cture of our product." (*)

B. By Consumers.

Many consumer groups p.re interested in obtaining quality stand-
ards for hosiery. In acdition to the program of the General Federation
of women's Clubs referred to in Section II of this stidy, and the studies
conducted in Home Economics departments of Universities, is the effort
of the County Councils of the rational Emergency Council to spread in-
formation on the - e-'.rability of hose. Much literature on the subject
is available to consumers through articles in the Journal of Hone hcon-
omics, through leaflets prepared by the American Association of Home
Economics, and by Country Councils, and through the report prepared by
the Consumer's Advisory Board, to which reference has been ma.de.

The "performance" standard proposed by the General Federation of
Women's Clubs expresses the attitude of consumers towards hoisery stand-
ards, while "construction" standards meet the recuire'ents of industry.
After the "construction" standards are accepted by the industry it rill
be necessary to obtain a reconciliation between ronsuiers1 and manufact-
urers' viewS,frora which a. Commercial Standard will be possible.

(*) Introduction to Final Report of the Committee on Standardization,
February 5, 1£35. Commodity Informa+ion Unit File, ERA, Hosiery
Folder.

;736

-188-

APPEIDIX II.
EXHIBIT F.

STUDY OP

STANDARDS AIJD LABELIITG PRACTICES

OP THE

PRESERVE lifiSASOKINO CHERRY

AID. GLACE PRri.: I1IDU3TRY (*)

DEPIEITIOjI OP I1DUSTRY
(CODE ilO. -160).

"The terras 'Preserve, Maraschino Cherry and
Glace Fruit Industry' pnd 'Industry' as used
herein 'mean the manufacture on p, commercial
scale paid subsequent s; le "by the manuf acturer
of Troducts 01 the Industry.

"The torn 'Predicts of the Industry' as used
herein means (a) Fruit jams, fruit preserves,
fruit jellies, fruit marmalade, fruit pie
fillings, fruit butters, compounds, mixtures
pnd limitations thereof; and (b) Maraschino-
type cherries, ;lpce fruit, candied fruit
nnd candied fruit rind."

(*) Prepared by Karl Hauck, Commodity Information Unit, Trade Practice

Studies Section.
978S

-189-

TABLE OF C01ITE1TTS.

■■■ -Page

Summary 190

A. Resume ....... 190

B. Sources of Material «• 190

I» Specific Industry Broblens Underlying Regulation........ 191

A. Decline in General Quality of Industry Products

Due to Pressure of Competition 191

B» Destructive Price Competition Based Upon

Lowered Quality of Products < .... 192

II. Functions Intended to be Achieved "by Regulation 193

III. Pre-Code History of Stanu&rds and Labeling Regul at i ons. . 193

Pood pnd Drug Standard Definitions. 193

Pood and Drug Labeling Regulations...... - 194

IV. Code Experience -.... .,...;. 195

A. Industry Program for Dealing with Standards and

Labeling Practices as Submitted to 1T-.R-.A 196

B. Controversies Arising During the Code Making Period.

Standards as Contained in Approved Code.......... , 196,

C. Standards for Raw Materials. ..................... .... 199

D. Relationship of Standards Provisions to Price......* 199

E. Consumers' Program for Dealing with Standards and

Labeling Practices as Submitted to 1T.R. A. ...... . 200

P. "Operation of the Standards Provisions 200

V. Post Code' Experience . .. 201

Industry's Petition to Federal Trade Commission.

VI. Issues' and Points for Further Study** 206

9786

-190-

STUDY
• • ■ OP ■
STANDARDS A1ID MBELI2IG PRACTICES
OF THE
PRESERVE, MARASCHINO CHERRY
AND GLACE FRUIT IIJDUS'TRY

SUMMARY • •

A. Resume--. •

The first stew toward the establishment of standards for this indus-
try was taken' by the Pood and Drug Administration in 1906 through the- es-
tablishment of definition standards under- the- -general power grafted to the
Secretary of-- Agricusbture in the Rare Food and Drugs' Act. These definition
standards, as well as' the labeling regulations promulgated by the Food and
Drug Adminis.trati-ony. established three' grouos of products - namely', the
"pure" product, defined as containing 45 pounds of fruit per 100 pounds; a
" compound,!'-, "-spread" , or "special name" product containing, from 25 to 45
pounds of fruit; and an "imitation" product containing less than 25 pounds
of fruit. "

The industry ,- -ever -since the formation of its trade association in
1918, has endeavored to secure more rigid standards. Many members of the
industry tfished'-to •eliminate -all •border-' line. products (the middle groups
given above), or else compel these also to be labeled "imitation" and there-
fore they 'sP6ns6red: the Reed-Jones Bill which was introduced in the 71st
Congress.' However, ' the Bill was not passed, and so they had to. rely solely
upon the Podd'aJi&'Drug Administration's requirement until the advent of the

N.R.A. ''"»t'IHMll»|!!!U!»l,:

» « » , \ 1 f ■ i'

When the industry presented its code to II. R. A. the code' contained more
rigid requirements' than those of the Pood and Drug Administration. These
were based' upon' the' standards contained in the Reed-Jones Bill*.' Only minor
changes in these were made at the suggestion of the Food and Drug Adminis-
tration. ' As' 'a' result, • f or' the' first- time-' in.' its history, the Industry ob-
tained in' its code the type of standard it desired. Compliance with these
standards was very good and the industry felt that it received more benefit
from standard' prbviisloh-S-' than' from any other code provision. _ i •

Immediately upon the termination of the code, the "border-line" pro-
ducts again came on the market. The industry felt this to be so detrimen-
tal that it is petitioning the Federal Trade Commission for a Trade Confer-
ence in order to have the Commission approve the standards which were in
the Code, and so help end the Misrepresentation and unfair trade practices
which existed before the N.R.A. and which were again entering the industry.

B. Sources of Material.

Much of the material used in this study was obtained from the trans-
cript of the Public Hearing on this code held on February 26, 1934. In
addition to this, statements were secured from Mr. Daniel R. Forbes, coun-
sel for the trade association and the code authority* A lesser part of the
Material is from the 1T.R.A. files, both those of the deputy administrator
and the Standards Unit of the Consumers' Advisory Board.
9786

-191-

STUDY or
STANDARDS AID LA3ELI1TG PRACTICES
OP TEE
PRESERVE, LIARASCIIDTO CHERRY
A1TD GLACE. FRUIT INDUSTRY

I. SPECIFIC I1DUSTEY PROBLEMS UiiDERLYIllG REGULATIOIu

Ever since 1913 the Industry has faced a problem in merchrndising.
The problem has "been the lack of adequate standards, which resulted in
many trade practices which the Industry considered to be unfair. To ob-
tain a clear understanding of this problem, it is necessary to study the
cost relationships of the ingrediei\ts used in the making of preserves,
jams and jellies. 3y decreasing the amount of fruit used and increasing
the sugar content and with the addition of rater and pectin, rather ride
variations in costs can be obtained and therefore it is -oossible to sell
lower quality products in advrntageous nrice conroetition with high qual-
ity oorducts. This condition tended to reduce the quality of the indus-
try's products as a whole - v/hich the Industry felt was detrimental to
their interests. Prom the data obtained from industry members the fol-
lowing seemed to have been the -practice during the past years. TThen the
prices of fresh fruits were high, due to crop shortage or other reasons,
many members would increase the amount of oectin, a relatively cheap in-
gredient, thereby reducing costs and making it difficult for the manufac-
turer who continued to 'orodo.ee s. quality product to compete. At other
tines, when fruit costs .'ere lower, there was less inclination to reduce
the fruit content and dilute the product. Therefore, this form of compe-
tition remained, in what night be termed a state of flux in the ye<ars pre-
ceding the depression.

A. Decline in General nuality of Industry Products Duo to
Pressure of Competition

During the years of the depression, due to steadily increasing com-
petition, a decided decline in the quality of the industry's products
occurred. This was a natural result of endeavoring to reduce costs and
by so doing keep selling prices at a fairly low level in an effort to
either retain or obtain volume. This is easily understood when the fol-
lowing cost figures are considered. At 3.5 ce?rts oer pound for fruit,
when 53 lbs. of fruit are used to make 100 lbs. of pure preserves, the
cost per case is $1.33, but when only 21 lbs. of fruit are used to make
100 lbs. of preserves, the cost is only 53rf per case, (*)

Therefore, it can be clearly seen that by reducing the amount of
fruit and increasing the amount of water, plus oectin, considerable sav-
ings in costs can be made. Industry representatives discussed this at
considerable length at the public herring on their code. (**) They felt
that this lower ing of quality was harmful to the industry as a whole,

(*) Industry's Exhibit #1, submitted at the Public Hearing on the Pre-
serve, Maraschino Cherry and Glace Pruit Industry, February 26, 1934.
Transcript of Hearings,

(**) Transcript of Public -Hearing, Preserve, Maraschino Cherry and Glace

Pruit Industry, February 25, 1934, Pp. 44-55.
9786

-192-

and misleading to the consumers. In their opinion, there was only one
solution to the problem - the adoption of adequate standards. They felt
that the standards promulgated ur the ™ood and Drug Administration did not
go far enough, since these standards did allow the Industry to manufacture
"compounds" and "spreads" which nere , in the opinion of the majority of
the industry, actually imitation preserves, james and jellies, without re-
quiring them to do labeled either "substandard11 or "imitation".

The standards promulgated "by the Pood and Drug Administration required
pure preserves, james and jellies to contain 45 pounds of fruit and 55
pounds of sugar for a 100 lb. batch, They also required than when only
25 pounds or less of fruit was used with 55 pounds of sugar, the product
must' be labeled "imitation" 9 but the standards did not regulate those pro-
ducts made of more than 25 pounds of fruit, but less than 45 pounds, pro-
vided they carried special names and were not labeled preserves, jams, or
jellies and the label clearly showed they were a. compound of fruit, sugar
and pectin, with the percentage of each ingredient clearly indicated. It
was thos;.' border-line products which were causing difficulty to the Indus-
try and the Industry wished to eliminate them entirely and have only two
types of product, the standard product and the "imitation"' product - in
other words, one containing at least 45 pounds of fruit and the other con-
taining decidedly less than 45 pounds.

B • De struct! ve Price Competition Based Upon Lowered Quality
of Products

These compounds '(between 25 lbs. of fruit and 45 lbs.) were sold a.t
only a. slightly lower price thru the standards product. Usually they were
priced just low enough to harm the sale of the higher grade product. The
price did not bear a true relationship to either the ingredient cost or
the quality delivered. This resulted in unfair competition with true pre-
serves, jams and jellies, and in the deception of the public. It was the
contention of the Industry that even though those border-line products
could not be labeled "preserves" , ■ "jams" or "jellies", the retail consumer
purchased them as such. The Department of Agriculture's analysis of some
of the compounds on the market showed that in some cases the consumer wa.s
actually purchasing sugar a 33(zf per pound. (*) It was these abuses which
hte Industry wished to correct.

The following is quoted from a statement of Mr. Daniel Forbes, the
trade association's counsel: ' (**)

"The Association was born and organized in 1918 for the
single purpose of obtaining legal, enforciable defintions and
standards. ,u .The pure Pood Law as it is now written does not
provide for the promulgation of standards and definitions which
have legal effect. ••••We found through the years in cooperating
with the Government in securing enforcement of the law, to pro-
secute even our own members of the Association, that we cannot
carry out the provisions of the law."

(*) Letter from Arthur 17. Hyde, Secretary of Agriculture to Hon. Daniel
A. Reed, House of Representatives, April 29, 1929.

(**) Transcript of Public Herring, Preserve, Maraschino Cherry and Glace
Fruit Industry, February 25, 1954, page 44.

Q70£

-193-

II. FIM5TIOI7S IUEHDHJ TO BE ACHIEVED BY SSGULATIOII ■

The Industry desired ("both, prior to the Code and then through the
Code) to eliminate from the narket all "special name" merchandise, such
as "compounds", "spreads", etc. and have just. two classes of products -
the true preserve, jam cr jelly and the "imitation" ;oroduct. They were
unsuccessful in accomplishing this prior to the code due to the inade-
quacy of the Pure Pood and Drug laws - at least insofar as previous in-
terpretations were concerned - and through the failure of legislation
sponsored "by the trade association. This is discussed 'in detail in the
following chapter.

III. PRE-CODE HISTORY OP STANDARDS AND LABELING REGULATIOHS

The Pure Pood rnd Drug Act does not enable the Pood and Drug Admin-
istration to promulgate standards. However, under the broad powers granted
the Secretary of Agriculture in the Act for its enforcement, identity
standards have been formulated. Definition standards for preserves, jams
and jellies were first formed in March, 1906 and were published in Circu-
lar 17, they were also published-* with minor revisions in phraseology in
Circular 19, June 1906o Both of these ''-ere prior to the passage of the
Pure Pood and Drug Act, which was signed on June 30, 1906.

On January 17, 1916 the standards were reaffirmed by the Pood and
Drug Administration. These standards were revised July 3, 1926. All the
standards, e.g. from the earliest date to the latest revision, were essen-.
tially the same, and their basis is 45 -pounds of fruit and 55 pounds of
sugar axe required for each 100 pounds of -oure preserves, jams and jellies*
When less than 25 pounds of fruit was used, the product must be labeled as
an "imitation". The following are the definition standards and labeling
regulations in detail:

"Preserve, fruit preserve, jam, fruit jam, is the product
made by cooking to a suitable consistence properly prepared
fresh furit, cold-pack fruit, canned fruit, or a mixture of
two or all of these, with sugar or with sugar and dextrose,
with or without water. In its preparation not less than 45
pounds of fruit are used to each 55 pounds of sugar or of sugar
and dextrose. A product in which the fruit is whole or in re-
latively large pieces is customarily designated a "preserve"
rather than a "jam".

"Jelly, fruit jelly, is the semisolid, gelatinous product
made by concentrating to a suitable consistence the strained
juice or the strained water extract from fresh fruit, from cold-
pack fruit, from canned fruit, or from -a mixture of two or of
all of these, with sugar or with sugar and dextrose.

"Glucose fruit preserve, corn sirup fruit preserve, glu-
cose fruit jam, corn sirup fruit jam, is the .irodu-ct made by
cooking to a suitable consistence properly prepared fresh
fruit cold-pack fruit, canned fruit, or a mixture of two or
all of these, with glucose or corn sirup. In its preparation
not less than 45 pounds of fr.iit a.re used to each 55 pounds
of glucose or corn sirup.
9786

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"Glucose fru.it jelly, corn sirup fruit jelly is the semi-
solid, gelatinous product me.de by concentrating to a. suitable
consistence the strained juice or the strained water extract .
from fresh fruit, from cold-pick fruit3 from canned fruit, or
from a mixture of two or all of these, with glucose or corn
sirup.

"Citrus fruit marmalade is the jellylike product made
from the properly prepared, peel and juice, with or without
the pulp, of citrus fruit, with sugar or with sugar and dex-
trose, by cooking with water. It contains, embedded in the
mass, pieces of the fruit peel.

'lApple butter is the semisolid product obtained by cook-
ing to a, suitable consistency the strained edible portion of
apples with sugar and/ or dextrose, with or without one or more
of the following: Apple juice, boiled cider, spice, salt.
In its preparation not less than five parts by weight of the
strained apples used to each two parts by weight of sugar
and/ or dextrose. The product has a characteristic apple
fia.vor and is commonly spiced.

Labeling op substandard jams, preserves,
ard similar products

"Under the provisions of the Federal food and drugs act,
products of the general character of preserves and jams in
which pectin or pectinous solution is used and which contains
less fruit end more sugar than is required by the Department's
definitions and standards for jam and preserve are not en-
titled to the unqualified name "Jam" or "Preserve". The de-
finitions and standards for jam and preserve require the use
of not less than 45 pounds of fruit to each 55 pounds of sugar.
Pending further announcement,1 the Department will 'take no action
on the ground of deficiency in fruit against products made from
less than 45 but more than 25 pounds of fruit to each' 55 pounds
of sugar, containing pectin or pectinous solution as a partial
substitute for fruit having the normal consistency of a pre-
serve or jam, if they are designated -

" 'Compound Pectin, Sugar and Strawberry (or other fruit)
Perserve (or Jan) Prepared from — fo Pectin Solution, — c/t> Sugar
and — - fo Strawberry (or other fruit).'

"In recognition of the variations in concentration of pectin
solutions, the percentage composition may be calculated by assum-
ing the sugar used, whatever the weight, to be 55 per cent, cal-
culating the weight of fruit to the same percentage basis and
estimating the pectin solution as the difference between the sum
of these percentages and 100 per cent. The expression "Compound
Pectin, Sugar and Strawberry (or other fruit ( Preserve (or Jam)"
should be in type of the game size and prominence and on a uniform
background. The declaration of percentage eonpn3i tion should
follow without intervening descriptive matter and should be made

9~786~

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in type of sufficient prominence" to -be readily legible, Tne
words of this statement should likewise be Given in type of
uniform size aid prominence 0:1 a uniform bac]:ground.

"The words "Pectin" and "Pectin Solution" as used in this
label are applicable to pectin solution, dry pectin, ao ue
pomace extract, extract of evaporated apply products, fresh
apple extract, and any other source of added pectin. There
is nonobjection to substituting for the words "Pectin" and
Pectin Solution the specific name of the ingredient that has
been employed as for example, "Evaporated Apple Products Ex-
tract." The requirements of the Federal food and drugs act
governing the labeling of conpoun&s will not be regarded as
having been met unless there are inserted in the declaration
of ingredients the percentages of pectin solution, sugar,
and fruit used in preparing the product. The presence of
added acid when used either directly or as an ingredient of
pectin solution should be clearly declared by a supplemen-
tary label statement.

"Products of the composition described above which con-
tain added color, or products containing less than 25 parts
of fruit to each 55 parts of sugar, with pectin solution and
with or without added color, are regarded as imitation jams
or imitation preserves and should be labeled plainly as such,
with an additional, statement of those ingredients, including
artificial color, acid, and pectin which give to the article
the i r imi tat i on charr cter • "

The Pood and Drug Administration did not feel that these were adequ-
ate standards, but they also felt that this was as far as they were able
to go in view of the fact that these standards were not legal,. their be-
ing no specific provision for their establishment in the Act, and they had
to depend upon custom and practice in the Industry and secure the Indus-
try's sup-jort when taking a case into any court. Also, orevious court de-
cisions rather confirmed then in this view. Ko-ever, a change has taken
place very recently in the attitude of the Pood and Drug Administration
and a discussion of this appears in Chapter V, Post Code Experience.

The industry approved the intent of the labeling regulations promul-
gated by the Pood and Drug Administration, but they did not feel that the
regulations went suff icientl]?- far, and therefore they sponsored the Reed
and Jones Bill which was introduced in the 71st Congress, S. 3470, H.R.
8571. This bill contained definition standards practically identical with
those proposed by the industry for inclusion in their Code. The standards
were approved by both the Secretary of Agriculture and the Food and Drug
Administration. The bill did not >ass, but the reasons for its defeat .
are not clear. It would be necessary to make a search of the records of
the 71st Congress and it wn.s not felt to be of sufficient importance to
warrant taking the time necessary for this. * . .

In audition to the standard;- and labelin,; requirements promulgated
by the i'ood and Drug Administration, the Federal Specifications Board
promulgated the following specifications:

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Jams, Fruit 3-J-71 3/31/31

Jellies, Fruit Z-J-191 3/31/31

Preserves, Fruit Z-P-631 3/31/31

Anile Butter Z-A-616 3/31/31

These do not make a real contribution to standards in this industry
other than that they use the method of determining the soluble solids
which was included in the standards contained in the approved code,
namely their determination by refractomumter at 20°C.

IV. CODE EXPERIENCE.

A. Industry Program for Per! in,-: with Standards and Labeling
Pracbic es as Submitted to *T«Ii>.A.

The industry presented a ver^j arabitous standards -orogram by actually
establishing standards in their definitions of the products of the Indus-
try. These ^-ere rigid standards, using the 45 pounds of fruit, 55 -oounds
of sugar ratio which has been established by the Food and Drug Administra-
tion, but they ruled out all :l ;order-lineH products in so far as labeling
was concerned — »al7- woiild have to conform to the standards or be labeled
"imitation". Mr. R. U. Delapenha, President of E. U. Delapenha & Co.,
Inc., made the following remarks when speaking for the Industry:

"It is my judgment that our Code goes even a little farther
than most of tnose they have already heard and disposed of, be-
cause we will protect the consumer both a.s to quality and ;orice,
by offering for sale only those jams, jellies and preserves manu-
factured under standards that ■"ill bear scrutiny." (*)

No member of the industry, in so far as sentiment voiced to N.R.A.
is concerned, was opposed to these standards or to the elimination of
the special names, corroounds and spre* Is.

B . Controversies Arising During the Code-; irking Period.

No controversies arose during the code making ueriod. The Food and
Drug Administration reised some minor ooints, mainly concerning the word-
ing, such as adding the underlined words to the following phrase: "Strained
fruit juice exclusive pi' all added ■r.ter." and also concerning the ref Tacto-
meter method of determining the auount of water soluble solids. The indus-
try was willing to cooperate with the Food and Drug Administration (**)
and after collaboration between the industry and this Bureau, rigid stan-
dards, including the ref Tactometer method of texting to determine the
amount of water soluble solids, were included in the approved code. These
standards again used the 45 pounds of fruit and 55 pounds of sugar as the
basis. The following are the actual standards as included in the approved
code:

(*) Transcript of Public Hearing, Preserve, Maraschino Cherry and Glace
Fruit Industry, February 26., 1934, page 15.

(**) The Food and Drug Administration's remarks will be found on pages 55
to 63 of the Transcript of the Public Hearing, Preserve, Maraschino
Cherry and Glace Fruit Industry, February 26, 1934.

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Fruit preserves and fruit jams shall be understood to
mean the clean, sound product possessing definite character-
istic flavor of the preserved fruit named on the label, made
by cooking to a pulpy or semisolid consistency properly pre-
pared fresh fruit, cold-packed fruit, canned fruit, or a mix-
ture of two or all of these with sugar or with sugar and
writer, with or without spice and/or vinegar or harmless or-
ganic acids other than acids or a.cid salts generally recog-
nized as chemical preservatives, and in the preparation of
which not less than forty-five (45) pounds of actual fruit
are used to each fifty-five (55) pounds of sugar. In the
case of fruits deficient in pectin, or whose composition or
texture prevent the preparation of preserves or jams as de-
fined herein of the desired consistency, pectin or' pectinous
material may "be added; provided, however, that when pectin
or pectinous material is added as herein provided, the ratio
of not less than forty-five (45) pounds of fruit to each
fifty-five (55) pounds of sugar shall he maintained, and
the finished product containing such added pectin shall con-
tain not less than sixty-eight (68) per centum watersoluble
solids derived from the fruit and sugar used in its manufac-
ture, as determined "by ref ractometer at twenty degrees (20°)
centigrade without correction for the insoluble solids pre-
sent.

Fruit jelly shall "be understood to mean the clean, sound,
semisolid, gelatinous product possessing definite character-
istic flavor of the fruit named on the label, made "by concen-
trating to a suitable consistency the strained jiice , or water
extract, from fresh fruit, from cold-packed fruit, from canned
fruit, or from a mixture of two or all of these, with sugar.
In the case of fruits whose compositions prevents the prepara-
tion of jelly of the proper texture the necessary quantity of
pectin or pectinous material and/ or harmless organic acids
other than acids or acid salts generally recognized as chemical
preservatives may he added; provided, however, tha.t such jelly
containing said pectin or pectinous material or added acidulents
shall contain not less than sixty-five (65) per centum water-
soluble solids as determined by refract oraeter at twenty degrees
(20°) centigrade, and its composition shall correspond to not
less than fifty (5.0) pounds of actual pure fruit juice, exclu-
sive of added water, to each fifty (50) pounds of sugar in the
original batch.

Apple butter shall be understood to mean the clean, s jund
product nado by cooking, with SYgar or apple juice, or- both, th?
properly prepared ^entire- edible porbi'onj of apples, cither fresh
cold-packed, canned, or evaporated, to a homogeneous semisolid
consistency with or without vinegar, salt and spices, or harm-
less organic acids other than a.cids or acid salts generally re-
cognized as chemical preservatives. Apple butter shall contain
not less than forty-three (43) per centum watersoluble solids
as determined by ref ractometer at twenty degrees (20°) centigaade

9786

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without correction for the insoluble solids present, and
be prepared from not more than twenty (20) pounds of sugar
to each fifty (50) pounds of fresh rpples, or its equivalent
in cold-packed, c.anned, or evaporated apples, exclusive of,
the cores and skins; provided, however, the -apple butter
preprred with dried apples shall bear upon its principal
Ifbel the statement, "Prepared with evaporated fruit" iri
plain and conspicous type*

All food products made in simulation of preserve, jam, ,
jelly, or apple butter and used or sold for the same purpose
for which said products are used, but which fall below the
standards and definitions therefor as defined in Section 1
to 3 inclusive of this Article, except cirtous fruit marma-
lades, fruit pie fillings, fruit sauce, mint and wine jel-
lies, salves foot jellies labeled and sold as such, shall
be understood -to be imitation preserves, jams, jellies, or
apple butter, as the c; se nay be; provided, however, that
jams, preserves, jellies or apple butter in which honey or
corn syrup has been substituted in -hole or in part for
sugar, shall not be deemed to be imitation jap, imitation
preserve, imitation jelly or -imitation apple butter, as the
crse may be, if the honey, corn sirup and/or sugar are
stated on the label as part cif the name of the product in
the order of their predomin?nce by weight in the product. (*)

In addition to these standards, the following labeling provision
was included in the code which required labeling in accordance with the
standards:

Section 2. Imitation Products. — li'o member of the In-
dustry -.hall sell a product that is an imitation preserve,
imitation -jam, imitation jelly or imitation .apple butter
as defined in Article VI, Section 4 (Strndrrds Provisions),
which is not conspicuously Labeled "Imitation Freserve,"
"Imitation Jam," "Imitation Jelly", or "Imitation Arole
Butter", as the case may. be; and if the names of the in-
gredients of -:hich it is comiosed be not plainly strted
on the label in close proximity to and direct conjunction
with the name of the product in the order of their pre-
dominance by weight in the product. (**)

(*) See Article VI 'of Code for Preserve, Maraschino Cherry, etc. Industry,
Codes of Pair Competition Vol. XI. P. 253.

(**) See Article VII of Code for Preserve, Maraschino Cherry, etc. Industry,
Codes of Pair Competition Vol. XI, p. 254.

9786

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C. Standards for Raw Materials.

The industry' felt that standards for the finished product alone
were not sufficient to guarantee the consumers' receiving a satisfactorily
-oure product* Therefore they proposed to include in the Code a clause
which would enable the code authority to formulate additions to the
standards in order to provide for the minimum requirements of quality
for each type of fruit used in the products of the industry, which re-
quirements 'Tould include maximum mold and yeast counts, etc.

The industry realized that this could not be done immediately, and
that it "as a field requiring the study of experts. The need for it was
cited by stating that man;.'' member-; had used moldy and partly decomposed
strawberries in the past. The use of very low qualit" ingredients is
closely related to costs. An unscrupulous manufacturer can reduce costs
considerably by using fruit which is not fit for consumption. There p.re
instances of manufacturers purchasing fruit that has been shipped consid-
erable distances and in shipping has not been properly refrigerated.
llaturally, the partially spoiled fruit will sell under the prevailing
market price for sound fruit. There have -also been instances of manu-
facturers purchasing fruit which has spoiled in warehouses. The use of
fruit such as this not only is unfair price competition, since it can
be sold at low prices due to the reduction in costs, but it may also be
harmful to health. (*) Therefore, the approved Code contained a clause
providing for the establishment of a committee to submit specifications
for the qualit}'- and grade of fruit, the degree of perfection as well as
mold and yeast counts, and the use of fruit below such minimum specifi-
cations would not be allowed. These recommendations and specifications
would be submitted to the Code Authority, which in turn would submit
them to 1I.R.A. for approval.

D. Relationship of Standard Provisions to Price.

There is no evidence that the industry through the standard pro-
visions sought to raise jrices artificially or to eliminate low priced
products from the market. Low cost products could still be manufactured,
but products only slightly below the standards and previously known as
"compounds" and "spreads", it was believed, would be eliminated. Instead >
of having three general classes - namely, a. standard, a "compound" only
slightly below the standard, and an "imitation" considerably below the
standard - there would be only two, the standard and the imitations*
The industry felt that the price which could be obtained from the public
for a. product plainly labeled "imitation" would not be sufficient to
justify the cost of producing products which would compete with the
genuine. Manufacturers ^ould have either to adhere to the standard or
use considerably less fruit and thus have a true "imitation" product.
The public could still purchase either a high or a. low priced article
as it desired.

(*) A full discussion of this will be found in the Transcript of the
Public Hearing, Preserve, liaraschino Cherry and Glace Fruit Indus-
try, February 25, 1934, peges 245 and 250.

9786

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E. Consigners1 Pro~;ran for Berlin.-; '"ith Str.nclr.rcls nail -Labeling
Practices a.s Submitted to II. R. A.

The Consumers ' Advisory Board and other consumer groups presented
no program for standards. The Consumers1 Advisory Board felt, that the
industry presented a very comprehensive urogram and one that net with
the approval of the Department of Agriculture, and therefore the pro-
gram was satisfactory to the Board,

?o Operation of the Standard Provisions.

Since neither the il.H.A. files nor the bulletins of the code auth-
ority reveal anything as to the effectiveness of the operation of the
sta.nda.rds provisions included in the approved Code, iir. Daniel E. Forbes,
Counsel for the Association and code authority, was consulted and the fol-
lowing information was supplied oy him. His statements are the only evi-
dence that cpii be secured.

Compliance with these standards provisions was very
good. Host members of the Industry voluntarily abided
by them. There were a few ca.ses where manufacturers at-
tempted to 'deviate from the approved standards, but the
Code Authority through cooperation and explanation was
able to secure their voluntary compliance* It r'as un-
necessary to send a single case to the IT.H.A. Compliance
Division. The Code Authority was most successful in se-
curing 100 oer cent compliance with the Code.

The standards provisions gave the Industry more real
benefit than any other provisions in the Code. The Indus-
try was in complete harmony in that. Competition was
raised to a higher level than had ever before existed in
the Industry, since pra,ctically ; 11 unfair competition
was eliminated.

The code authority did not officially make recommendations regard-
ing the quality of the fruit used in the mailing of preserves, jams -and
jellies. However, the Executive Officer of the code authority submitted
to the Assistant Deputy Administrator in charge of this code, a tenta-
tive proposal on April 16, 1935 with the following statement:

"The committee appointed for the ournose of writing
these standards has failed to properly function ...
but we are submitting these with the suggestion tha.t your
office consider then and determine /hether or not. . .
these or other standard:; should be adopted ?.:\d. incorpor-
ated in the Code." (*)

(*) This letter is in the Deputy Administrator's files, and conies of
it together with copies of the suggested standards is also in the
files of the Consiimers' Advisory Board, Standards Unit.

9736.

-201-

These proposed standards specified that all fruit should not "be
below the U. S. No. 2 grade (this is a fresh fruit . standard established "by
the Bureau of Agricultural Economics and is the standard grade, any-
thing "below it being sub-standard) ; outlawed the use of decayed or
moldy fruit; and specified the tolerance for mold or decay as that
established by the Food and Drug Administration. They also specified
how fruit must be pared and washed and also the degree of freedom from
defects, etc. No Board or Division of N.3.A. reported unfavorably on
these proposals. However, no action was taken due to the lack of in-
terest on the part of the Industry. This lack of interest (during the
late winter or very early spring) can well be understood since most
manufacturers have sufficient raw material on hand to supply their
needs. However, during the late spring and summer, interest would be
much more keen due to the fact that it is during that time of year
that most of the raw material purchases are made. Also the early
termination of the code was a contributing cause to the lack of fur-
ther action.

V. FOST CODE EXFEHIENCE

There was no evidence available in N.3.A. of the post code ex-
perience of the industry. Therefore, Mr. Daniel R. Forbes, Counsel
for the Trade association, was consulted and he supplied the follow-
ing information:

Immediately after the Supreme Court's decision (Schechter
Case) some members of the industry began to make "compounds" and
"spreads", etc. These are legal under the limited provisions of the
Fure Food and Drugs Act, but were illegal under the standards pro-
visions of the Code. Neither the Industry nor the Department of Agri-
culture approves of this type of merchandise.

At the present time the situation is not quite as bad as it was
immediately preceding the adoption of the Code, but it is continually
growing worse and the Industry is alarmed and not in sympathy with
these tendencies.

There is one factor which is probably contributing much to this
situation, namely the relatively high price of fruits. There has been
a decided advance in fresh fruit prices, as well as canned and cold-
pack fruits this season. This naturally increases the material costs
of the Industry and one way these material costs can be reduced is by
reducing the amount of fruit used in one pound of product. When this
is done, it is necessary to change the label from that of either
"preserve", "jam", or "jelly" to either "compound" or "spread", or
some special name, in order to conform to the Food and Drug Adminis-
trations' s labeling regulations.

The gravity of the situation and also the real benefits accrued
to the Industry through the adoption of standards in the Code can now
be appreciated. Therefore, the Industr;/ unanimously approved a reso-
lution to petition the Federal Trade Commission for a Trade Fractice
Conference, in order to have that body approve the standards which were
contained in the approved Code, and by so doing bring an end to much of

9786

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the unfair competition and misrepresentation which is apparently en-
tering the Industry once 'again. This resolution was passed at the
September 12, 1935 meeting of the National Preservers Association in
Fittsburglu

The petition has- not yet "been submitted to the Federal Trade Co-
mmission even though it is all prepared. A little over 50 per cent of
the Industry has signed it, but it will not be submitted until over
60 per cent have signed it.(*)

Later pages o'-f this study contain copies of the letter circulated
to all members of the Industry explaining the petition and also the
petition itself.

About the middle of November, 1935, the Food and Drug Administra-
tion decidec" to enforce the standards as contained in the approved
code. Labeling will be required to be in accordance with these stan-
dards and not in accordance with the Food and Drug Administration's
own definition standards which permit a "border-line" group, 25 to 45
pounds of fruit, known as "compound", "spreads" and "special name"
merchandise. The Food and Drug Administration is not approving the
code standards as its own, but has merely announced to the Industry
that it will require all merchandise to be labeled in the same manner
the code required.

Up to the present time, these standards are the only ones con-
tained in any code or fair competition which tne Food and Drug Admin-
istration has decider) to enforce in place of its own definition stan-
dards.

national Preservers association

INCORPORATED

839 Seventeenth Street
Washington, D. C.

September 18, 1935.

TO ALL FRESERVE MANUFACTURERS :

At the Fittsburgh meeting of the Association on September 12th,
it was unanimously decided to petition tne Federal Trade Commission
for a Trade Fractice Conference for the r/urx>ose of obtaining from the
Commission Rules of Fair Competition which would make the standards
and definitions of products, as contained in the Code, legally enforce-
able.

(*) In conversation with representative of Trade Fractice Studies
Section, Oct. in, 1935.

9786

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This action was made necessary by reason of the failure of the
Congress to enact the Copeland Bill. The Copeland Bill may or may not
be enacted next session. Even if then enacted, it might require a
year of effort to get our standards officially adopted. The manufact-
urers at Fittsburgh reasoned that as all members of the industry seem
to agree that the immediate establishment of enforceable standards is
essential, the industry is required to appeal at once to the Commission,
which is the only agency which can provide the relief that is necessary.

If we can obtain Commission approval of our standards, there will
be found certain advantages in working under the Federal Trade Commis-
sion rules which are not provided for even in the Copeland Bill.

A violation of the standards so approved would constitute an act
of unfair competition in violation of Section 5 of the Federal Trade
Commission Act. Punishment for such violation is not by fine, such as
is imposed under the Food and Drugs Act, but by the issuance by the
Commission of an "Order to Cease and Desist" from any repetition of
the acts complained of. This is in the nature of a permanent injunc-
tion. If the Commission finds the defendant violating that order, it
asks the United States Court of Appeals for a mandate to compel com-
pliance with the order. Violation of the mandate amounts to contempt
of Court, punishable by imprisonment, or fine. Few have the timerity
to show contempt for the U. 3. Court of Appeals.

Under present practice before the Federal Trade Commission cases
are handled and decided with expedition. Certainly faster than those
cases brought under the Food and Drugs Act where jury trials are de-
manded and skilful counsel obtain lengthy delays. Furthermore, it has
frequently happened that after s\ich a trial is delayed for a year or
more, a moderate fine is imposed which in actual effect amounted to a
mere license to adulterate, and freedom to continue the practice for
another lengthy period before having to again pay a fine.

Even if the Copeland Bill should be enacted at the next session
of Congress, the operation of the Federal Trade Commission rules would
be of great value in supplementing the actions brought under the Food
law, especially against those who consistently sell substandard pro-
ducts and who are not afraid, of paying an occasional fine for so doing.

Every manufacturer must realize the danger of continuing without
enforceable standards. The procedure decided upon at Fittsburgh is the
only one which we can presently follow. The Commission will not hold
a Trade Practice Conference unless the majority of the industry ask
for it. It is, tnerefore, essential that every manufacturer join in
the petition* A copy of the netition which will be filed is enclosed
herewith. The exhibits referred to, of course, cannot be enclosed.
They are samples illustrating the crying need for standards.

The rules which we will ask the Commission to approve, and which
the Commission will require to be discussed at an open public hearing,
are the standards and definitions of jams, jellies and apple butter
which you will find in Article VI of the Code, and Sections 1 and 2
of Article VII of the Code, which prohibit deceptive labeling and

9786

• -204-

adyeftising\. ' If any member or any group of members of the industry
desire to offer amendments or suggest;1 additional rules, it may be done
at the Conference, or by mailing .surest ions to the Association's
office. All the petition asks is that a Conference be held, so those
who want standards or rules- different from those we had in our Code
should, nevertheless, .join in the petition. It is asked , that you
sign- and remail the attached request that your name be added to the
list of manufacturers who favor a Conference for the adoption of stan-
dards for the Industry.

Please do this BY R3TTTRH MAIL. You do not have to be a member of
the Association to do this. .

Respectfully, ,

NATIONAL PRESERVERS ASSOCIATION

UNITED STATES OF AMERICA

EEFGRS THE
FEDERAL TRADE COMMISSION

FETITION-

FOR A TRADE PRACTICE CONFERENCE

'■'.'■;■'..; FOR THE

PRESERVE INDUSTRY

The National Freserveris Association, on behalf of the manufacturers
of fruit jams, preserves, jellies, and fruit butters whose names are
signed hereto, respectfully petitions the Honorable, the Federal Trade
Commission to hold a Trade Practice Conference for the purpose of es-
tablishing rules of fair competition for the industry.

The products manufactured by the petitioners include jams, jellies,
preserves, fruit butter, marmalades and fruit pie fillings. All of
these petitioners are engaged in interstate commerce.

The total wholesale value of the products of the industry pro-
duced during the year '1934 was approximately twenty-six million dollars.
The wholesale value of the products of the industry produced by these
petitioners during the year 1934 was approximately thirty million
dollars. These petitioners 'therefore represent approximately seventy
per cent of the production of the industry.

In the course of manufacturing their products these petitioners
assemble from fruit growing sections of tne country fresh, canned,
frozen and dehydrated fruit's of - many varieties, and with sugar and
other ingredients such as are commonly employed in the preserving of
fruits in the home kitchen, concentrate these fruits by boiling to a
suitable consistency such as has: been found acceptable to the consuming
public. In the production of. these preserved fruit products in the
factory substantially the same recipes or formulas are used as were

9786

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employed "by housewives a century ago, and as commonly fp.llpweci in home
preserving today.

By reason of the common ooserva'hce of &iibs-.t'ajS.t'i'ally the same re-
cipes and formulas, by both tne commercial and domestic' preserver pro-
ducts sold' as " .jams" , '" jellies" , "preserves" ,' etc . are known and under-
stood, by both the public, and the trade, to be commodities of definite
composition, and in which the' proportion of fruit" to sugar is substant-
ially constant .

For illustration, ancient household practice established the some-
what crudely expressed recipe of "a cup of fruit to a cup of sugar",
and where "weak" fruits are used, and for improving flavor the home
cook added either a little apple or an acidulant such as vinegar, or
both. Approved factory practice' expresses this recipe as "not less
than forty-five pounds of fruit to each fifty-five pounds of sugar".
In place of the housewife's apple, the factory uses a small amount of
"pectin" (extracted from apple or other fruits) to improve the con-
sistency where "weak" varieties of fruit are preserved, and pure fruit
acids, such as citric or tartaric, in place of vinegar. To that ex-
tent the factory has improved on the home kitchen.

As indicated above, rectin is the substance in- fruits which per-
mits fruit juices to "jell" '-her: boiled with sur'gar. Some fruits are
naturally deficient in pectin, and tne f ortif ication of such fruits
with small amounts of pectin (either in the form of added apple, which
is rich in pectin, or in the form of pectin extracted from apple) has
been an accepted and recognized practice in both home and factory for
many years.

There has, however, grown up in this industry the very prevalent
practice of substituting pectin, sugar and w^ter for a part of the fruit
called for in the recii e or formula above described with the result
that members of the consuming public are now receiving as "preserve"
or as "jelly" products which contain much less fruit than they have
been accustomed to and nave the right to expect.

This common practice of aculteration, misbranding and false ad-
vertising is the principal occasion for this petition for a Trade
Fractice Conference.

Out of this practice has grown fraud and deception of the public,
reduced market outlets for farmers growing fruits, and an unfair
competitive situation within the industry which serio-isly threatens
the capital investments and the future of tne industry.

There is now pending' before tne Commission an application for
complaint filed by the representatives of this industry in which it
is shown that a manufacturer who resorts to the practices here des-
cribed can produce two-pound preserves at a cost of thirty cents a
dozen less than the cost to manufacturer who does not employ substi-
tutes for fruit. It is respectfully asked that the Commission refer
to that application file when it has this petition unaer consideration.

9786

Supplementing that evidence of fraud upon the public and unfair
competition with other manufacturers who do not engage in such practices,
there is presented with this petition physical exhibits and manuscripts
which, it is believed, will demonstrate to the Commission the frauds
which can now be practiced, upon the public with apparent impunity.

During the existence of regulation by N.R.A. Codes, the practices
here complained of were voider control of rules of fair competition which
included definitions and standards for the products of the Industry and
specific prohibitions of false labeling and false advertising. ' The in-
dustry is now without the nrolccticn of those rules, and since their
abandonment there has bien a marked increase in the employment of prac-
tices which are condemned by the great majority of the industry as dis-
honest and hurtful to both the trade and public.

This Petition is brought to the Federal Trade Commission after it
has been demonstrated to the satisfaction of these petitioners that
the protection afforded the public and the honest manufacturer against
deceit and unfair competition under the provisions of the Food and Drugs
Act is not inadequate. The inadequacies of tne present Food and Drugs
Act have baen recently brought to the attention of Congress, and they
are probably knO"'n to the Commission and its staff. Fven if Congress
should some day strengthen the hands of the Department of Agriculture
by passage' of the Copeland Bill or its like, the supplemental juris-
diction of the Federal Trade Commission and the enforcement of rules of
fair cbmpe'tit ion by Federal Trade Commission process would be of enor-
mous protection to the public, and to manufacturers in this industry
who have built their business upon honesty and fair dealing.

These petitioners therefore respectfully pray that the Federal
Trade Commission hold a Trade Practice Conference in the City of Wash-
ington as soon as may be convenient to the Commission and give peti-
tioners an opportunity to present to the Commission for its approval
rules of fair competition which will restore fair dealing with the
consumer and fair competition between members of the industry.

Respectfully presented by the National Preservers Association on
behalf of trie following manufacturers of preserved fruit products:

List of Manufacturers Subscribing.

VI. ISSUES AND FOINTS FOR FURTHER STUDY.

There is one study which should be undertaken, namely that of
ascertaining whether two general, types of products on the market are
sufficient, i. e . ,' pure preserves, jams or jellies, and imitation
preserves, jams or jellies., There may be real need for more quality
grades than two. A survey should be made to determine whether or not
an actual erade labeling and scoring system should and can be develop-
ed. Possibly an A - B - C - labelin-- plan, or some similar plan, would
be in the best interests of all concerned.

9786

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APPSIIDIX II
EXHIBIT H.

' STUDY OF
STANDARDS AED LABELING PRACTICES
OF THE
CLEANING AKOD DYEING TRADE (*)

DEFINITION OF INDUSTRY
(CODE HO. 101)

"1. The term 'cleaning and dyeing trade' as
used herein includes all' cleaning and dyeing
establishments.

"2. Tiie term' 'cleaning and dyeing establishment'
as used herein includes any place or vehicle
where 'the service of drycleaning, wet cleaning
as a process incidental to dry cleaning, dyeing,
spotting, and/or finishing any fabric is render-
ed for hire, or is sold, resold, or offered for
sale or resale. The term does not, however, in-
clude establishments where any such service is
performed solely in the course of the original
manufacture of fabrics."

(Note: See Article II of the Code for
further definitions of terms in
use within the Industry).

(*) Prepared by Elinor S. 3arr,
Practice Studies Section.

9786

3on.no dity Information Unit, Trade

TABLE OF CONTENTS

Page

Summary 203

A. Re sume 209

B, Sources of Material' 209

I . Problems Underlying' Regulation 211

Pressure of .Competition 211

Decline in Quality 212

Variation in service 212

Consumer dissatisfaction 213

II . Pre-Code Standards and Labeling Regulations 214

Federal Trade Commission 214

Commercial Standard 214

Legi slation'. , . ; 215

By Industry 215

III. Code Experience 215

Provisions relating to qualtiy 215

Operation of the provisions 216

IV. Standardization Efforts Outside the Code 218

3y the Industry , 218 *

By Legislation 220

ITew Jersey 220

Delaware 220

Other States j 221

Ly consumers 222

V. Problems and I ssues 222

9786

•209-

SUMuARY

A. ?,e sume

Standards of quality for the Dyeing and Gleaning Industry are of
especial interest in that they offer an illustration of standards as
applied to a so-called "Service Industry".

Standards of quality for "services" are in many ways more neces-
sary for fair competition and consumer satisfaction than similar stand-
ards for merchandise, since in the latter case the purchaser may at
least refuse to accept the material, while in the former case it is a
question of having to accept the services rendered with the sole privi-
lege of questioning the price, if thought to be excessive. The essen-
tial difference is_that in the case of "service" industries the material
being serviced belongs already to the person requesting the service,
while in ordinary merchandising the material belongs to the merchant
until the consumer has consummated the purchase.

Standard provisions were included in the code as a result of the
recognition that the minimum price provisions would prove ineffectual
without standards of quality.

The Technical Committee which was appointed drew up tentative
minimum standards for quality but these were neither accepted nor fur-
thered by the industry.

As a result of a general breakdown in the price structure as de-
termined by the code authority, the trade practice provisions in the
code were suspended by Executive Order within a year after the code
was approved. Standard work under the code was therefore ineffective,

Suture action with regard to standards of quality for the clean-
ing and dyeing industry appears to be possible in two directions; first,
through State and municipal legislation; second, by means of some form
of "certification".

The industry offers typical examples of the problems confronting
a service industry in attempting to control prices, that is, to assure
that competition takes place fairly for the different qualities of ser-
vice offered. Failure to provide accurate standards of quality may
have been the major cause for the failure under the code to provide for
fair competitive prices.

-". Sources of Material

The material for this Study has been largely drawn from the files
of the Consumers' Advisory Eoard, and the Standards Unit of that Board,
and the Commodity Information Unit files, Trade practice Studies Section,
all in the !TRA.

9786

-210-

Otlier sources were: the Code History of the Cleaning and Dyeing
Industry; abstracts from articles in the publication called "The National
Cleaner and Dyer*' \ State Lavs of Hew Jersey s Delaware, and Florida; and
the "Holes and Regulations Governing the Cleaning; Dyeing and Pressing
Trade, etc."., by cle Trade Boards for the States of Delaware and New
Jersey.

97SC

-212-

"\ost of the havoc wrought in the cleaning and
dyeing trade is attributed to price cutting.
Partly due to certain economies arising out of
efficiency but primarily due to exploiting la-
bor and rendering inferi-oi quality and service
to the public, a few operators of cut-rate stores
are in an advantageous position to cut prices and
to draw volume away from other plants at will.
Witness the price war that has taken place over
the past three years. The normal charge for
cleaning and pressing a man's suit or a women's
dress was $1.50, but under pressure of keen com-
petition from these operators who entered on an
aggressive campaign for volume of business the
price was gradually reduced to 29 cents; and re-
cently, by way of 'special prices1, to 19 cents."

B. ICCLIKE III QUALITY.

Destructive price competition at the expense of quality is
particularly easy in a service offered to the public which has no
knowledge of the characteristics of that service. Testimony as to
the lowered quality of service which accompanied price competition
wa.s given by the President of the national Association of Better
Business Bureaus, (and by others) at the hearing on prices and code
violations for the cleaning and dyeing industry:

"Our files show that refusal to adjust complaints
is in the majority of cases excused on the basis
that at cut rates the public can't expect service
or responsibility.

"From the consumers' standpoint, low prices have
resixlted in unsatisfactory clearing jobs and re-
sulting destruction of merchandise at a very alarm-
ing rate. (*)

1. Variation in Service

The possibilities of variation in the commodity (service)
called "dry-cleaning" can best be described by a brief statement of
what should constitute dry-cleaning. The treatment agreed on by repu-
table cleaners includes: Sorting as to material and color, removing
of ornaments and brushing of cuffs and pockets; agitating in a mechan-
ical washer containing clean solvent; rinsing in clear clean solvent
and removing excess solvent; drying in a heated, ventilated "tumbler";
spotting, -i.e., skillful removal of stains; finishing, - including
pressing; replacement of ornaments; special treatment for certain ar-
ticles dm. special process on furs, velvets, etc.

To meet competition, these steps were shortened or eliminated. ( **)
( *) Statement of Harry Van Horn, Transcript of Hearings, December 11,1935.

(**) "Consumers and Standards in Dry Cleaning", Consumers' Advisory Board,

17RA - April, 1934.
9786

•213-

It is possible to. do this because the efficiency of dry-cleaning on
dark garments is difficult to determine and a large proportion of
dry-cleaning is on dark clothing where a superficial job may thus be
done. In the case of white clothing the customer can see whether the
work is well done, but on dark clothing the dirt spots will persist if
the garment is not well cleaned. Soap may be eliminated; the time in
the washer reduced; the same solvent used again and again or a very in-
ferior solvent used.

In some cases only hasty sponging and hasty machine pressing is
given. "Spotting" may be entirely eliminated or done in a slip-shod
manner by unskilled persons.

11 In the lower end of the quality scale of both
the large and small plants, the so-called clean-
in.-; may be done, and often is, by merely giving
the garment a hasty rinse in a rancid dirty sol-
vent and a. casual press. In large plants this
may be part of a mass product situation with care-
less, unskilled workmanship throughout. At the
other end of the quality scale, the garment may be
given a thorough cleaning and proper finishing.
Both of these services and all the variety of prac-
tices in-between are sold to the public under the
one undefined term "a dry-cleaning job".(*)

2. Consumer Dissatisfaction

This situation was of concern not merely to the consumer,
but also to the industry itself because of its effect upon the con-
sumer as customer. It is difficult to measure the decline of con-
sumer confidence in this case by objective criteria. General tra.de
depression was reflected in the lowered volume of cleaning; many peo-
ple could not afford cleaning of any sort. On the other hand, the
abnormally low prices offered by the chain stores - 29^, 19^ and even
15(5 for a. garment, afforded an opportunity for the sending of garments
by people who could not afford the prices which prevailed in more nor-
mal times.

nevertheless, consumer dissatisfaction was seen as a. factor.
Mr, Paul Trimble, for four years managing director of the national As-
sociation of Dyers and Cleaners (HAD AC), in a report to the Industrial
Advisory Board of the HHA claimed "proof that consumers in great num— '
bers have been disgusted with both the price and the quality- of dry
cleaning that has been offered them in recent years as well as the lad:

(*) Ibid.

9786

-214-

of responsibility on the part of many of the cleaners offering those
low prices and the resulting low quality of workmanship. ''( *)

A method of Judging consumer dissatisfaction with quality of
service might "be found in the increase in home cleaning, - this fac-
tor might also "be attributed to price - tut it is difficult to deter-
mine whether there has been any increase in the hazardous practice of
home cleaning. The Consumers' Advisory Board of the NRA made an at-
tempt, by writing to a considerable number of sources, to get informa-
tion on the presumptive increase in the sale of cleaning fluids for
h»me cleaning. But the results of this inquiry were wholly inconclu-
sive.

In his testimony, Mr. Earry Van Forn of the National Association
of Better Business Bureaus recited many evidences of general consumer
dissatisfaction, of garments improperly handled and severely damaged,
and of the lowered quality .as a result of unrestrained price cutting. (**)

II. PHE-CODE STANDARDS AIID LABEL IiTC- REGULATIONS

Some attempts to prescribe quality standards for industry services
had been made prior to the code.

A. FEDERAL TRADE CONNISSION

The first attempt to regulate the quality of service by means of
a standard took place through a Trade Practice Conference on Dry Clean-
ing and. Dyeing cervices for the District of Columbia and vicinity. This
was held in November, 1930, under the direction of the Federal Trade Com~
mission. Another trade practice conference for Pennsylvania and adjoin-
ing territory Was held on June 14, 1933. The rules of practice covered
certain minimum specifications for cleaning services. These trade .prac-
tice rules under the sponsorship of the Federal Trade Commission were
set up for the guidance of the industry, - for voluntary adherence. They
are "GroupII" clauses which, according to the Federal Trade Commission
rules, .merely condemn trade abuses and unethical and wasteful practices.

B. COMMERCIAL STANDARD

Another approach to standards was made in the adoption of a Com-
mercial Standard for Stoddard solvent, known as Commercial Standard
CS3-23.. This was promulgated through the National Bureau of Standards
in March, 1928. It specifies detailed requirements for this cleaning
solvent.

(*) Report in Consumers' Advisory Board' s files.
(**) Transcript of Hearing, December 11, 1933, page 112 et seq.

9786

-215-
C. LEGISLATION

The states which had cleaning and dyeing laws prior to the
code are California, Wisconsin and Ohio. However, these laws refer in
general to equipment, hazard and integrity of operators. Standards of
workmanship are not included. Attempts to write such standards into
the legislation did not meet with success.

B. INDUSTRY

The National Association of Dyers and Cleaners has maintained
a Dry Cleaning Institute at Silver Spring, Maryland, which includes a
laboratory. This Institute, aided by the School of Chemistry of Penn-
sylvania State College, and by the Textile Section of the Bureau of
Standards had investigated the methods of measuring dry cleaning service.
As a result of these researches, methods were developed for determining
the efficiency of cleaning processes in various plants, by means of (l)
colorimetric measurements of solvents used to re-rinse the finished
garment; (2) spectrophotometry measurements of soil removed by the
cleaning process from samples containing standard amounts of soil. This
research was aimed at the setting of definite specifications for a stand-
ard of service tt be offered by "certified plants", (*) and to establish
specifications for a minimum standard of service offered by all plants.

III. CODE EXPERIENCE

A. PROVISIONS RELATING TO QUALITY

Two clauses referring to the setting of standards of quality and
selling below standard quality were inserted into the Code# as follows:

"Selling below standard quality. Offering dry-cleaning to the
public below the standards of auality for such work set by the
Recovery Executive Gommittee upon recommendation of the Tech-
nical Committee shall be an unfair trade practice, (Article IV)

"As a protection to the consumer and to assure uniform standards
of workmanship, the Recovery Executive Committee shall appoint
a Technical Committee, composed of one active member of the
National Association of Dyeing and Cleaning, one Technician,
who may be selected from without the industry, preferably from
the United States Bureau of Standards, and one representative
of the American Home Economics Association. This committee
shall have the power under the Recovery Executive Committee
to investigate and advise as to minimum standards of quality
for cleaning, finishing^ and other processing;." (Article XI, 7).

(*) "Certified Plants" are those which aiyree to meet specific .quality
standards.

9786

-216-

In tixe preparation of the standards provision the code committee
had the cooperation of a consumer organization, the American Home Eco-
nomics Association, which .delegated Dr. Fauline Beery hack and hiss
Ruth O'Brien to sit in at the Committee sessions, at the informal re-
quest of the President cf the HADAC.

During code negotiations Lass Ruth O'Brien asked the deputy on
the code for a re-phrasing of the provision with the purpose of strength-
ening it. This view was supported in the memorandum of the Consumers'
Advisory Board which recommended that standards "be made mandatory at a'
specified date instead of merely prescribing "cooperation" toward that
end. (*)

The provision on standards written into the Code was in the form
of an enabling clause: The code provided that the code authority "adopt
and prescribe minimum standards of quality for each of the several types
of service"; and for cooperation with a Technical Committee, with speci-
fied representation. The selling of services below the quality to be
prescribed was declared to be an unfair practice.

The Technical Committee provided for in the code was to consist
of (1) one active member of' the National Association of Dyers and Clean-
ers, to be appointed hy the Board of Directors of the Association; (2)
one member to bo appointed by the American Home Economics Association;
(,;) one Technician who may be selected from without the trade, preferably
from the Bureau of Standards, whose appointment shall be agreed upon by
the above two persons or by the Administrator. This committee, therefore,
included both governmental and consumer representation.

3. OPERATION OF PROVISION

A committee was appointed two weeks after the signing of the code
with the following members: Dr. E. E. Mechling, a plant owner of
Louisville, Kentucky, representing the industry; Dr. Pauline Beery hack,
professor of Textile Chemistry, Pennsylvania State College, representing
the American home Economics Association; and Dr. Warren E. Emley, chief
of the Organic and Fibrous haterials Division, National Bureau of Stand-
ards, was the third member.

Eie committee was appointed by the code authority on November 21,
1933, but was never formally organized. It held its first meeting on
December 10, 1933, and a report was prepared citing the need for four
test methods, and the need for further work on the development of the
fourth method. It wis pointed out this would require additional per-
sonnel and equipment for the industry's laboratory at Silver Springs.
The President of the Association indicated that these would bo provided,
but at the meeting on January 17, 1934, the President of the UADAC stated
it would be necessary to make sure of the support of the industry before

(*) Consumers' Advisory Board's memorandum, October 2, 1933.
9786

• ; -217-

providing increased laboratory facilities. A few months later the
industry°mem"ber of the technical committee declared that the dyers
and cleaners were having so much trouble getting the present provi-
sions of the code enforced that "it would be folly for us to attempt,
at this time, to add any more provisions". (*) A meeting of the full
committee was finally held on hay 14, 1934. Their report was sent to
the industry for its approval. This was coincidental with the Execu-
tive Order of Lay 25, 1934 (Executive Order !To. 6723) suspending all
hut the labor -provisions of service codes, hence, the code authority
as an agency of the industry, and the provisions dealing with stand-
ards, were also suspended.

The technical committee was an advisory committee, but its ad-
vice was not solicited. Kor did the industry further its progress by
extending the necessary facilities. Its advice was, in fact, ignored. ( **)

Destructive price competition was one of the gravest problems of
the industry/ .The overwhelming majority of the trade believed that
"There can never be any stabilization within the industry without price
regulation" (***) hence the code provision for the setting of minimum
prices, and the vigorous efforts of the code authority and the ERA to
obtain adherence to the set prices.

That price setting is meaningless without definite quality regula-
tion and. that _ a standard for dry cleaning would assist in maintaining
a set price, was recognized by the code proponents and evidenced by ex-
perience, hr. H. A. Heinze, a past president of the national Association
of Dyers and Cleaners, admitted that developments have proved that "It is
impossible to fix and maintain a certain price for anything until you _
have, at the same time, certain minimum standards of quality and perform-
ance that may be accepted as commensurate in value with the price fixed.
Cleaners were apparently in a hurry to raise prices without giving any
assurance of delivering a corresponding full value," (.****)

To encourage members of the industry who desired to maintain higher
quality for the higher prices established, the Administrator offered to
the industry a plan by which such members would be identified by the use
of a special service quality insignia. This proposal was in effect a
"certification" plan.

In a. statement approving revised price schedules, following the
hearing on December 11, 1933, the Administrator said in part:

(*) Letter from Dr. W. S. Emley" to Consumers' Advisory Board,
April 7, 1934. Coda file, Consumers Ad. Board.

(**) Ibid.

(***) Letter from Code Authority to Consumer's1 Advisory Board,
hay 7, 1934.

(****) Report ho. 4, Consumers' Advisory Board, recommending standards

in Dry Cleaning Industry, April 15, 1934.
9786

-218-

"To encourage and identify members of the industry who are
prepared to maintain higher qualities of service, the Presi-
dent will enter into, an' agreement with an individual or group
of individuals wherein they will agree to maintain a higher
staridard of service which will be established and announced
by the Code Authority, and to maintain a higher standard of
prices which will for the present be the prices approved by
the Administrator under date of November 22, 27, and Decem-
ber 4th. To each person who enters into that agreement,
MRA will issue a Blue Eagle with a service quality insignia
of appropriate design to indicate to the public that those
who display this insignia have agreed to maintain and are
maintaining higher quality and higher prices." (*)

How far could the establishment of minimum quality standards have
acted as a stabilizer for the industry? It is in order to quote Dr.
Mack, whose years of association with the technical problems of the in-
dustry give a special weight to her opinion: "It was my opinion last
year, and it still is my opinion, that if minimum hours, wages and
standards had been set and enforced within the industry, and that, if
all work which did not measure up to standards had been required to
carry conspicuous sub-standard labels on the clean garment and in the
advertising, the problem would have been solved for the cleaning
trade." (**)

In Dr. Hack's opinion minimum prices would have succeeded if min-
imum standards of quality had been set up and if the "lower end" of the
trade had been permitted to sell services lower in quality than the
minimum standard service, with proper labeling for sub-standard services
at lower prices.

IV. STAFDAPDIZATION EFFORTS OUTSIDE THE CODE

A. BY THE IilDUSTRY

A "certification" plan was proposed to the Industry at a convention
held in Cleveland in January 1932. This attempt involved the setting up
of a selective membership end. the use of an emblem of "quality and depend-
ability" which would be recognized by the consumers of dry cleaning
everywhere. (***)

This plan was rejected by the Industry largely because of the adver-
tising expense involved. The National Association of Dyers and Cleaners
intends to consider the selective membership ( "certification plan") plan
at its 1936 convention in Washington in January 1936.

(*) Appendix H. Code Authority Minutes, - Cleaning and Dyeing Code,
dated December 19, 1933, N.R.A. General Files..

(**) Letter from Dr. Mack to Consumers' Advisory Board under date of
January 2, 1935.

(***) "The national Cleaner and Dyer", August 1935.

3786

-219-

It has been argued that selective membership would have the fol-
lowing advantages to the industry:

''It would set these plants out by themselves with a clear dis-
tinguishing mark (emblem) of quality and dependability which
would be recognized by the consumers of dry cleaning everywhere
by local and national advertising.

"An organization of this selective character would form the
groundwork for stabilization of the industry on increasingly
higher levels. Membership in a highly selective national or-
ganization would have immediate appeal to every dry cleaner who
could measure up to its requirements.

"The established prestige of members would enable them to go
far in preventing or Overcoming the activities of irrespons-
ible price-war promoters.

"A selective organization would automatically establish a
definite, distinct line of demarcation between the capable
and responsiole and those in the outer fringe.

"National organization sponsorship of quality plants would
be the most direct and quickest way to restore public con-
fidence in dry cleaners. Under today's conditions it would
seem clear that most practicable, effective form of national
organization is tha.t which comprises only these of proven
responsibility. "(*)

Certification services of a local nature h-'ve been established in
some sections of the country. In liinnesota, particularly, some plants
inaugurated a so-called "Certified Service", while others formed groups
and pooled their advertising, adopted insignia., etc. Also, the Dry
Cleaners and Dyers Institute of liinnesota established a Code of Ethics
in which they established minimum standards. (**) How successful these
efforts were has not been determined.

An experiment in "certification" wa.s set up by the Pennsylvania
Association of Dyers and Cleaners. with the assistance of the Depart-
ment of Chemistry of Pennsylvania State College, specifications "ere
established for two grades of cleaning. These were designated as "Pennsy-
lvania A GraxLe" and "Pennsylvania Minimum Standard Grade". The speci-
fications cover soil removal efficiency, rated variously for the two
grades, marking and packaging.

The 1' test information (December 1955) however, indicates that no

(*) "The National Cleaner and Dyer", August 1935 issue. Editorial by
Roy Denny.

(**) April 1932 issue of "The national .Cleaner and Dyer" Pages 24-32.

9786

-220-

progress is being ma.de in Pennsylvania in the field of standardizing
cleaning and dyeing. (*)

B. 3Y LEGISLATION!

There are several notable instances of state legislation affecting
the dry cleaning iuchisrCry daring ar.& after the neriod of the Code, which
recognized the need foi quality determination,

Chief among these i j that lor th>;- State of New Jersey, In the sum-
mer of 1925 New Jersey enacted a law which contains "orovisions having
a striking resemblar ce to those in the code, including the oower to
"establish and describe fair and reasonable minimum wholesale and re-
tail nrices". It contains a clause which deals with standards, as
follows:

"Selling or offering to sell below standard ryaality: The
offering or sale of any cleaning and dyeing service to the
nublic below such minimum standards of qualify for such ser-
vice as shall oe prescrimd by the Trade Board for the Clean-
ing and Dyeing Trade' '. (*■'■' ) (is prohibited).

The above regulation is included among Trade Practices provisions,
i.e., it relates to unfair competition.

The State Trade Board for the Cleaning ar.d Eyeing Trade consisting
of three members wes appointed. The board took under advisement pro-
posed standards of minimum quality and standards of sanitation. It
later adopted minimum prices. (■*** )

The State of Delaware has also enacted legislation to regulate the
cleaning and dyeing trads; The law, pass'ec1 iv ftpri'l 1955,. nrovides for
the creation ci a Trade Board, The Ecnrd has se; minimum prices for
cleaning and Dressing, a classification of dresses and coats according
to tyoe, minium^ prices, for retail for bo'.h i;;.';a".h arid Carry" and "Pick
Up and Delivery", minimum wholesale coats , and standards for cleaning
and pressing. Other sections of their rules end regulations cover
licenses, hoars, and trade practices and unfair competition. (****)

For an understanding of the exact 'provisions concerning standards
of quality and the nrices established, tha following covers typical
items auoted from the source mentioned above:

"Men's Wear

Suits, 2 or 3-uc. (Dry-

Cleaned and Pressed)
Hats

Cash and
Carry
$.69

.40

Pick Up and
Delivery
$.85 ■

.50

(*) Letter from Dr. Pauline Beery Mack to Commodity Information Unit,
December 12, 1935.

(**) State of New Jersey, Chanter 281, Laws of 1935.

(***)New York Times, December 10, 1935.

(****) "Rules and Regulations governing the Cleaning, Dyeing and Pres-
sing Trade, State of Delaware, Adopted July 22, 1955 by the Trade
9786 Board for the Cleaning, Dyeing and Pressing Trade, effective August
1, 1935."

-221-

Ties .10 .10

Ladies' Wear

Dresses No. 1 .69 .85

Dresses No. 2 .80 1.00

Dresses No. 1 - Silk or wool, one or two piece afternoon
dresses, street or sports wear, modestly styled with flares,
tucks, or frills, including belt, sockets, with or without
attached slip,

Dresses No. 2 - Evening gowns elaborately styled or pleated,
and velvet dresses.

Minimum Wholesale Costs

Unfinished work; 331/3 percent of the minimum "cash and

carry" retail costs.

Rule II. Section 1. Cleaning: Any article or articles
represented as dry cleaned shall not, if re-rinsed in
wn.ter white solvent (1 gallon to 1 pound of garment
weight) show sufficient soil residue to darken the dry
solvent below 15 Saybolt Chromometer, and shall be free
from solvent or chemical odors, with all spots and/or
stains removed, except those chemically determined as
insoluble without injury to the color or fabric, except-
ing that damage resulting from or traceable to the metal
weighting of silk, carbonization or other defects of mater-
ial shall not be considered faulty or defective dry cleaning.1/

Other states which have enacted legislation regulating this indus-
try are Wisconsin and Florida. The Florida Law authorizes a Board,
similar to those described for the States of Delaware and New Jersey,
to fix minimum prices, and to examine applicants for licenses, and to
"adopt any and all reasonable rules and regulations". ( *) Control of
cleaning efficiency is implied in the test for candidates for licenses
which shall "include such subjects as are taught by the National As-
sociation of Dyers and Cleaners Institute located at Silver Springs,
Maryland". (**)

Legislation affecting cleaning and dyeing in the State of Wisconsin
was included in the- State Recovery Act. This code for the industry in-
cluded minimum prices. (***)

(*) "National Cleaner and Dyer", July 1935.

(**) Ibid.

(***)Article by W. Kemke, Code Administrator (Wisconsin Code), in
"National Cleaner and Dyer", December, 1934, page 30 et seq.

9786

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C. 3Y CONSUME?. S

Special interest in dry cleaning "problems has been shown by the
County Councils of the National Emergency Council. The Marion County
(Indiana) Council has worked out, with the assistance of the .Home
Economics Department of Batlei University and the Department of Chem-
istry of Pennsylvania !Tt'afe Colleges, - de'taiied clan of cooperation oe-
tween cleaners ard dyers' for that coor.ty ' The standards and labeling
methods adopted followed closely thes-: .of tne Pennsylvania Association
of Dyers and Cleaners« It appears, however,, that, after 'considerable work
the plan has been dropped, largely a's the result of lack of support
within the Council. (*) * ,...

The Franklin County (Ohio) Consumers. Council made a survey of the
plant efficiency of some thirty-one ('cleaning and dyeing plants in Col-
umbus. This was a joint enterprise of the Council and the Ohio State
Association of Dyers and Cleaners, under the supervision of Dr. Pauline
Beery Mack of Pennsylvania, State College... The. study ;.was made by means
of trial cleaning of men's suits, into which pieces' or "swatches" of
cloth were sewn. The cleaned suits and swatches were scored according
to a pre-arranged system fpr. the removal of soil and retention of white-
ness in the swatches; packaging; minor" repairs; brushing; spotting;
pressing. In addition, the plants were inspected ..and rated for sorting
and preparation of garments; cleaning procedures.; equipment and personnel
for spotting; and finishing of garments,. . However, the Council has not
yet determined upon a plan fpr the use. of existing., specifications.. -towards
certification of cleaning and. dyeing' establishments. (**) . ..

V. PROBLEMS AIID ISSUES . '•"". ' \. ..'

Since the break-down of price fif-cing under,. the Codes we .have seen
attempts made to control prices and quality of service through State
Laws. Since these Laws set a .ingle minimum standard and prohibit
service of any., quality, under that mizij srjn j we may expect the validity
of the "laws to be questioned. ' It is pobsigl.e that State -laws with re-
gulations based on a mi-i'mra standard bat . allowing the sale of services
of all qualities, with those below the standard marked "Sab-standard" ,
may be lawful and a 'solution to the Industry's price , problems.

Again, "Certif ica'tion"" may prove to be the path along which . the
Industry will choose to. travel.. This method of control is being tested
by the Trade Association in different parts of the country in order to
arrive at some valid conclusions based on actual experience.

(*) Letter of Dr. Earl R. Beckner to the Commodity .Information Unit
MRA, December 17, 1935.

(**) Letter from Chairman of Franklin County Consumers Council to the-
Commodity Information Unit, HRA, December 20, 1935.

9786

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APPENDIX III

NBA PROCEDURE AND POLICY WITH RESPECT TO
STANDARDS AMD LABELING UNDER THE CODES

9786

-224-
lPPENDIX-« III

ERA PROCEDURE AND POLICY WITH RESPECT TO STANDARDS AND LABELING

To round out the view which thin report has sought to give of
the work of the National Recovery .Administration and the Codes in the
sphere of strndrrds and labeling there is appended this account of
general ERA procedure rnd policy for the handling of standards matters,
as the policy and procedure developed through the NBA period. This
more detailed presentation is intended to supplement the brief treatment
of the subject already given in Chapter Two of PART B of this report.

Since, as previjusly indicated, tnere was at no time any general
policy of the Recovery Admini strati on to attempt to encourage the .adoption
of standardization programs in the codes, the initiative with respect to
such activity customarily originated with the code- sponsoring industry,
and was predicated upon industry interests.

Due to the intimate relationship between standards rnd labeling
control rnd consumer interests, however, the Consumers' Advisory Board
from the first concerned itself actively with critical consideration of
of the standards proposals presented by the different industries, as
well as with urging the adoption of standards programs where it felt
that the protection of public interest demanded them.

Unitl September, 1934, the Consumers' Advisory Board was, in
fact, the group within the ERA principally concerned with questions
of product standardization. She chronicle of policy set forth below
is therefore, in the beginning, chiefly devoted to the work in the
field of the Consumers Boards.

Following this there is considered the work on the subject done
by the Research and Planning Division, aid such general NBA policy as
existed with respect to standards and labeling, including the provisions
of the model code, and certain decisions of the Advisory Council.

I. EARLY POLICY DEVELOPED BY CONSUMERS' ADVISORY BOARD

At the first meeting of the newly created Consumers' Advisory
Board, held July 31, 1933, Dr. William F. Ogburn raised the question
of quality standards. A general discussion of standardization .">nd
the various agencies interested in that program was held, and it was
recommended that steps should be taken by the Board to have provisions
inserted in codes of fair competition requiring study of standards and
labeling. (*)

Shortly after this first met ting, Dr. Dexter M. Kcezer, Executive
Director of the Consumers' Advisor;/ Board, worked out a cooperative
plan with the National Bureau of Standards which enabled staff repre-
sentatives of the Consumers' Advisory Board to have on hand, before
each ERA code herring, necessary information concerning standards ■'

(*) Digest of Boa.rd meetings of Consuim rs' Advisory Board. Notes on
Minutes of Me tings of Consumers' Advisory Board, July 31, meeting.
In Consumers' Advisory Board files, Executive Classification.

9786

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standards already extant, or suggestions as to standards which might
be suitable for incorporation in the codes. (*)

The above procedure, following the discussion of st-ndrrds at the
July. 31 meeting, is the first recorded effort made by any group within
ERA for the urpose of dealing with specific st^ndrroiz- tion -ctivities
under the codes. This early interest in standardization on the part
of the Consumers' Advisory Bo; rd increased, and efforts cf that group
exprnded steadily, during tht ITRA code drafting nd code administration
periods.

As soon as it became generally known that the Consumers' Advisory
Board intended to encourage standardization under codes, private and
public standards agencies extended their cooperation. Such organia-
zations as The American Homo Economics Association, The American
Standards Association, and The Burcauecf Home Economics of the Depart-
ment of Agriculture immedicately offered fullest assistance.

Once this concerted effort to focus attention upon standardiza-
tion through Codes of fair competition had begun, it was necessary
for the Consumers' Advisory Board to establish adequate policy for
the guidance of its code advisory staff. The first of these policy
recommendations was contained in a. pamphlet describing the functions
and duties of the Consumers' Advisory Board. This release urged
code advisers tc (l) guard against attempts by manufacturers to dis-
guise price increases by means of quality degradation; (2) to chal-
lenge codes lacking provisions prohibiting false marking and branding,
and (c) to request that codes provide for the use of standard-size
containers. ( **)

A further expression of policy was issued directly to the staff
on September, 1933, which r.eitorated the instructions set forth -bovc
and siiggcsted further that, in all cases where no stand" rds for the
commodity existed, efforts to draft such standards in cooperation with
the National Bureau of Standards be made with a view to subsequent
incorporation of these in the codc.(***)

Under date of October 22, 1933, another memorandum was presented
to the advisory staff. This stressed the importance of the price and
quality relationship^ It was held that low price with equally low
quality was of no benefit to consumers. Advisers were asked to make
every effort to see to the improvement of both commodity -nd service
standards. This release likewise urged that (l) codes be so dra.wn

(*) Ibid. Meeting of Sept. 6, 1933.

(**) "The Consumers' Advisory Board,- a statement of its functions."
September, 1933.' Page 7. In Consumers' Advisory Board files, Library
Classification.

(***) "Suggested Policies in Hrndling Codes", signed by Dexter M. Kcezer,
Executive Director, Consumers' Advisory Board, in Consumers' Advisory
Board files, Library Classification.

9786

226

as to prohibit false cr deceptive 'advertising, (2) that codes provide
the maximum assurance of good quality products to purchasers, and (3)
that standards already promulgated "by recognized agencies be included
in codes wherever feasible. This, memorandum also favored inclusion of
provisions in codes to prohibit deceptive containers by requiring the
establishment of standard container sizes in cooperation with- the Nation-
al Bureau of Standards. (*)

In order further to focus attention upon standards in the codes,- the
Consumers' Advisory Board prepared a memorandum for submission to General
Johnson. (**) This contained a section calling attention to the desir-
ability of making provision in all codes, by means of an enabling clause,
for the development of quality standards for the various industry products,
The suggested clause read as follows;

"The Code Authority shall be responsible for setting up a com-
mittee to develop for the industry a series of suitable standards
for grades of commodities based upon a full and explicit specifica-
tions as possible, and to develop accurate labeling which shall be of
a character to be readily usable by ultimate consumers purchasing at
retail, provided that if the commodity is not sold to ultimate con-
sumers purchasing at retail in the form sold by the industry, the
labeling shall be sxich as to facilitate proper unequivocal labeling
for over-the-counter sale by those subsequently selling the product
in any fabricated form to the ultimate consumer purchasing at retail*
This committee shall report its recommendations to the Code Authority
within sixty days, unless an extension of time is specifically
granted by the Code Authority; and as part of this report it shall
include for the information of the Code Authority all standards and
recommendations as to the desired content of standards available for
the commodity in question, including those developed by governmental,
industrial, technical, and non-commercial bodies. The recommenda-
tions of the committee shall, after review and amendment by the Code
Authority in consultation with the Consumers' Advisory Board and the
industry, become part of this code.""

II. THE "LYED REPORT"

Another effort to facilitate the proper control of standardization
activities under Codes of Fair Competition resulted in the appointment of
an interdepartmental committee to study the entire standards field. Dr.
Robert S. Lynd of Columbia. University served as Chairman on this •

(*) "Suggested Policies in Handling Codes'J supplement, Oct 22, 1933,

signed by D. M.Keezer, Executive Director, Consumers' Advisory Board,
in Consumers' Advisory Board files, Library Classification.

(**) Memorandum dated Nov. 28, 1933, In Consumers' Advisory Board
files, Library Classification.

'J -7:

-227-

committec. (*) The "Lynd Report", as it .was customarily termed, (**)
was publicly released in December, 1933, and was formally submitted to
the United States Department of Commerce with a request that the Depart-
ment give consideration to the development of consumer standards by the
National Bureau of Standards.

The Lynd Report emphasized the need of consumer commodity standards;
of funds necessary to carry on adequately a proper standards program; and
of other requirements necessary to facilitate such an effort.

III. LATER POLICY OF CONSUMERS ADVISORY BOARD

At about the same time that the Lynd Report made its appearance,
the code advisers received from the Board an even more comprehensive
policy memorandum concerning standards. (***)

This memorandum contained the following instructions:

"A^- Doivglcpi.-g -Stnudards and -Accurate labeling;.

Two major elements to be considered in the effort to see that codes
do not work unreasonable hardship oa the consumer are quality and price,
A lov; price, ?x r se? is obviously of no benefit to the consumer if the
quality dilution and thus given cert- in industrial and commercial firms
an unfair competitive advantage over other producers and distributors
as well as over consumers, it is important that a model code definitely
encourage the setting up of quality standards. Without quality
standards ap lying to commodities at every stage of their fabrication
rnd sale, price is today, in view of the complexity of modern fabri-
cation, a highly unreliable guide both for intermediate producers and
for wholesalers and r etailers, and particularly for consumers, It would,
be desirable, therefore, to have all codes include a provision such
as the following. "(****)

On January 4, 1934, the above instructions from the Board were
supplemented by the following:

Quality Labeling vs. Minimus or Absolute Standards,

"In the- effort to eliminate confusion1 and to guard against misuse
of provisions calling far standards in codes, the following distinc-
tions may be useful :-

(*) Kotos on minutes of meetings of Consumers' Advisory 3oard, Oct, 20,

1933, Consumers' Advisory Bcrd files, Executive Classification.

(**) "A Proposal to Develop Standards for Consumer Goods", Consumers'

Advisory Board, Dec. 1, 1933. In Consumers' Advisory Board files,

Library Crlssification.

(***) Issued. December 1, 1933, In Consumers1 Advisory Bo-rd files,

Library Classification.

(****,) The suggested provision was the same as that contained in the

meaorandum of Nov. 28, 1933 to General Johnson, mentioned abave.

9786

-228-

"The consumer desires to ."buy the quality of product which is
appropriate to the intended use at the lowest 'socially necessary1
cost. It is not to his interest tli- t low quality goods should be
taken off the market altogether if (l) lqw quality sells for a
correspondingly low price, (2) it serves a usefulness commensurate
with the price, (3) it does not impede, the acquisition of better
quality at n.ny equally low price or affect costs of distribution
in such a way that the consumer has to pay unnecessarily high prices
for better quality. Specifically, the consumer wants (l) to know
what he is buying, (2) to pay prices which correspond with quality,
and (-3) to ha^e a b^sis for comparing different prices and different
qualities.

i;It is, therefore, in the consumer's interest that there should
be qu"l i ty 1 abeli ,g which:-

(a) Tells him the nature of the material, if knowledge of
the material helps him to judge the product, e.g., peri cent of Wool
in 'part wool' blanket*

(b) Tells him what service the object will give if
there are established standards of service and me-?ns of measuring
them, e.g. adequate guarantees of. tire mileage.

( d) Establishes a minimum below which either injury or
fraud enters in, e.g., food and drug regulations.

(e) Increases efficiency and correspondingly lowers
the cost of manufacture or producti n.

"It is not in the consumer1 s interests that minimum or absolute
standards should be set which: -

(a) Eliminate low grade, low cost products when the
low grade is appropriate to some consumer use,

(b) Restrict improvements in tccnn'1(Tux or the offering
of better quality at the same price. •

"(c) Eliminate variety except as called for by""rcasonablc
efficiency.

(d) Accord n monopoly position to certain producers or
groups of producers.

Therefore, consumer representatives should, in general,
to obtain clauses in codes calling for;-

';(aj True designation of the nature of the material

wherevor this is instructive, e.g. code for Fur De-ling Trad*

'■ consumer representative called for designating the true

9786

-229-

namc of fur as well as, or in substitution for, its trade
name st "11 stages from dealer to ultimate consumer (ejg.
•Manchurian wolf to be designated 'Manchurirn clog' ; 'Hudson
seal' to be 'dyed Muskrat1).

(b) Guarmtees of performance where these are le-
gally sound and so drawn as to inform rather than to milead the
purchaser.

( c) Designation of grade where there .".re available

useful established grades, e.g. the Department of Agriculture' s
grades for canned goods.

( d) %ierever there is an element of (l) hazard, (2)
fraud, (3) price-fixing, incorporation of minimum requirements;
e.g. (l) minimum established for some products under the Food
and Drug Act, where lower quality is not allowed on the market,
in contrast to 'off-grade' quality established by the Bureau of
Agricultural Economics which is healthy but low grade ande'should
be sold, but sold cheap; (2) weighted silk where it would be
appropriate to prohibit the use of the tern 'silk' where more
than a given proportion of the material is tin or lead; (3) dry-
cleaning code where minimum job to be called 'dry-Cleaning' is
necessary as basis for fixed price.

( e) Adoption of simplified practice recommendations or
commercial standards if the practice recommended is b~sed upon
consumer need -s well as trade habit (e.g. 30 inch commercial
standard for hose which is not based or, consumer need) and if it
does not eliminate low but useful qualities, restrict improvement,
or eliminate useful variety.

(f) Where there are no .avail .able bases for quality
labeling, the suggestion contained in Section III of memorandum
on 'Points to be Considered in Handling Codes' is in order.
Consumer representatives should advise pgainst clauses calling for:-
Ce (a) Adoption cf .minimum, standards . except in cases of hazard,
fraud, or price fixing, especially if there is evidence that such
minimum standards are being used by strong interest to eliminate
other producers; e.g. clause in proposed code for cordage and twine

industry limiting grades of twine to the two grades name in Simpli-
fied Practice Recommendation #92-32 when five useful grades had
been manufactured*

(b) Making mandatory of specific requirements such as those
called for in federal specifications, and, frequently, simplified
practice recommendations, which do not effectively .allow for vari-
ations in the direction of better quality or of relatively little
usee, but sometime desired products, e.g. code (proposed) for cordage
and twine industry requiring compliance v.ith Simplified Practice
Recommendation y92~52 whose terms are designed as a minimum for
only two grades.

9736

-230-

IV. ESTABLISHMENT 'OS THE STANDARDS UNIT BY THE CONSUMERS.1 ADVISORY

BOARD.

It soon becrme evi chant to executives of the Consumers' Advisory
Board that in spite of the policy memo rand- set forth above, the code
advisers were unable to handle matters pertaining to standards, together
with their many other duties ■■ nd the pressure of code work at the time.
Therefore, the Board decided -to set up - unit staffed specially to
handle standardization activities under the codes, r\nd so organized as
to be supplemental to the advisory staff, and to work at all tines in
cooperation with the individual code ..advisors. Dr. Robert A. Brady was
summoned from the University of California, .and on Jrnuary 19, 1934,
what was soon to be known as the Standards Unit began functioning.
This step relieved overworked code advisers of a portion of their
mounting burden and facilitated a mare intensive effort to incorporate
standards in the codes.

V. FUNCTIONS OF THE STANDARDS UNIT

i The primary function of the Standards Unit was to analyze and

review all standards provisions, or proposals af footing standards pro-
visions, which were submitted to the Hational Recovery Administration
for approval. Further than this, the Standards Unit was to assist code
advisers on all matters pertaining to standards of quality, quantity,
or labeling and to be prepared to offer industry representatives such
similar advice as night be requested. The Unit also- attempted to
focus the attention of industry upon existing standards, to explain
the functions of all recognized public and private standardizating
agencies, to encourage the use of their facilities by industry, and to
make every effort to have preserved in the codes the results of years
of scientific work performed by nationally known technical societies*
The Standards Unit was clearing house for general consumer commodity
information within the National Recovery Administration. Until Septem-
ber, 1934, when the Division of Research and Planning assumed a supervi-»
sory role, in regard to standardization, the Consumers' Advisory Stan-
dards Unit served as the focal point for standardization activities under
the codes. . . '

A secondary function of the Unit, that of educational efforts to
stimulate widespread interest in standards, was not pushed as in-
tensively as the primary functions. The ftJMMmgement under which the
Consumers1 Advisory Board functioned did not include or contemplate
promotion.'! activities directed towards consumers in general. Rather,
the Consumers' Advisory Board was to confine its efforts to matters
bearing directly upon the various codes of fair competition. However,
by means of close cooperation v/ith the Consumers Division of the
National Emergency Council, the Standards Unit was able to assist with
many educational activities as a purely secondary function.

VI. PROCEDURE ADHERED TO BY THE STANDARDS UNIT

Prior to establishment of tin Standards Unit, organized prodedure
for hand] ' . I ters pertaining to standards was lacking. Analysis of
provision:; for Inclusion in codes was left to the discretion of indivi-
dual advisers, guided by general policy pronouncements issued by the

9786

-331-

Board* One of the first tasks of the new Standards Unit was the
establishment of better coordinated procedure.

At first, the orocedure required that the staff of the Standards
Unit examine all codes in the light of the need for standards for the
products covered by the code, the standards for the product extant and
adaptable, and the general economic effect of such standards if in-
corporated as mandator;/ code provisions. . ilvery effort was made to sub-
mit proposed code provisions concerning standards to qualified experts
in order to obtain expert advice as to their value as code require-
ments. After such advice was received from these technical sources,
the information was assimilated by the Standards Unit and embodied in
a formal report to the appropriate deputy administrator. After the
resignation of Dr. Brady in Hay, 1934, this procedure was altered to
provide for submission of all standards reports to staff Consumer
Advisors, who, in turn, embodied standards recommendations in their
formal reports to deputies on general code matters. With the establish-
ment of this procedure, tne Unit for the first time assumed the true
role of a group supplemental to the advisory staff. All reports of
the Standards Unit were formally addressed to tne Consumers' Advisory
Board. While there was no rigid procedure concerning review of industry-
submitted standards by technical agencies, an effort was made in all
cases to submit such standards to one or more properly qualified tech-
nicians for review anci analysis.

VII. ERA POLICY RECOMMENDATION #12.

While it has already been pointed out that the National Recovery
Administration provided little if any policy for guidance in standards
activities, it should b e indicated that a recommendation for use as
general ERA policy concerning standards and labeling, was prepared in the
summer of 1934 by Dr. Leverett Lyon. (*) The following memorandum was
prepared- and submitted to the ERA by him:

"Policy Recommendation #12
Trade Practice Problems

"INFORMATIVE LABELING;

L. Analysis

The NBA has within recent weeks been sponsoring the principles
open pricing and of publicity in pricing matters. To give publicity
in prices full effect it is necessary that the products to whica
the prices refer shall be as fully understood as possible. Such
knowledge would be furthered by an extension of informative labeling.
The practicalities of informative labeling, b oth for industrial
and consumer buyers, need investigation. While those who have op-
posed effort looking to an extension of knowledge on the Part of
buyers have probably been unduly influenced by self-interest, many
of those who have been the strongest proponents of the extension
of such knowledge have seemed to have too little regard for the
difficulties of arriving at knowledge, or expressing it in ways which
will be truly helpful to prospective purchasers. An investigation
should have a vigorous interest in the possibilities not only of

(*) Dr. Lyon, of Brookings Institution, was employed by ERA in summer of
1934 to assist in drafting policy for handling trade practices under ERA
codes.
9786

-232-

informative labeling but rise, of grating and branding.

It will "be in line with the Current policy of the ERA '
toward open prices arid publicity for it to lend its support to
further development of jj.nformn.tIvc labeling.

1 1 . Rocommonea tions

Accordingly, it is recommended;

"1. That the National Recovery Administration, through r committee
or otherwise, study the extent to which it can - preferably With
the cooperation of the Bureau of Standards, the Department of
Agriculture, and such, other agencies as the Administrator and
representative of those two governmental agencies sir 11 agree arc
appropriate — bring into existence machinery which will forward the
development of such informative labeling of producers and consumers'
goods as:

(a.) Will give prospective purchasers as accurate a descrip-
tion as is practi cable of the significant qualities of given
commodities.

(b) Will provide prospective purchasers with as much informa-
tion as possible for making comp^riuons between -"Iterr.-tive com-

: 10 di ties.

(d) Will not curtail the offering on the market of any
product, unless it is believed to be harmful to its user.

"2. That in the interim spending a definitive report by such a
committee as suggested above, standards be not approved in codes
solely on the recommendation of the industry concerned, and not
until they have been - pproved by the Bureau of Standards, the
Department of Agriculture, or some agency approved by one or
the other of them.

Loverett Lyon"

This policy never received the approval of the National Recovery
Administration and was therefore never effective as an official guide
for groups within ERA concerned with standards and labeling.

VIII. STAEDARDS ACTIVITIES 01? THE DIVISION 07 RESEARCH AND PLAENI1TG.

In spite of the faC'f that the National Recovery Administration
failed to adopt Policy Recommendation #12, at this time there was
evidence of interest on the part of thi Aclministration in standardiza-
tion. This interest manifested itself in tin issuance of Office l.iemo-
r-nidum #292 on September 17, 1934. Si this order sot up a new r
ponsibility for advice about standards, it bee? . necessary to define
the respective duties of the Consumers' Advisory Bo~rd and the Research
and Planning Division r>a regards standards anc1 labclii '.

9786

-233-

Memorandum #292 read as follows:

"STANDARDS, PROVISIONS IN CODES

"1. Whenever, in accordance with the provisions of a Code of Fair
Competition a Code Authority submits to the Administrator

(a) Standards for a product or service of the industry

(b) Standards for safety and health for the industry

such submissions shall be referred to the Division of Research and Plan-
ning for examination and report, which report shall accompany the De-
outy' s recommendations to the Administrator of action to be taken in
the matter.

"2. Deputies will submit to the Division of Research and' Planning the
record on any standards provisions in class "a" and class "b" which
have, prior to this date, toeen passed upon, for such comment as that
Division considers necessary and constructive.

3y direction of the Administrator:

G. A. Lynch
Administrative Officer."

A memorandum which was subsequently substituted for #292- and which
set forth the new arrangement more clearly, read as follows:

"OFFICE MEMORANDUM NO. 298
October 8, 1934

STANDARDS PROVISIONS IN CODES

"1. This supersedes Office Memorandum No. 292, which is revoked.

"2. It shall be the duty of the Division of Research and Planning to
pass upon the adequacy of standards and to evaluate the economic con-
seouences of their establishment. Therefore, whenever, in accordance
with the provisions of a Code of Fair Competition a Code Authority sub-
mits

(a) Standards of quality for a product or service of the industry

(b) ' Standards for safety and^health of employees in the industry

such submissions shall be referred to this Division for examination and
report, which report shall accompany the Deputy's recommendations to
the National Industrial Recovery Board.

"3. The Division of Research and Planning shall check all such propo-
sals with established agencies, such as the Bureau of Standards, the.
Bureau of Agricultural Economics, or the Secretary of Labor's Committee
on Standards for Safety and Health.

"4. Centering responsibility for this review in Research and planning
will in no case prevent those preparing the standards provisions from

-234-

free consultation with these or other agencies.

By direction of the National . Industrial Recovery Board

G. A. Lynch
Administrative Officer"

IX. PROCEDURE ADHERED TO BY DIVISION OF RESEARCH AND PLANNING.

After issuance of Office Memorandum No. 298 a Standards Unit was
established by the Research and Planning Division. Questions concern-
ing standards were referred to the Unit by the Deputy Administrators,
and the Unit's reports as to standards were in turn forwarded directly
to the Deputy Administrators. No specific nolicy pronouncement as to
standards and labeling was issued by the Research and Planning Division
for guidance of its Standards Unit. The procedure followed by the unit
in passing upon proposed standards provisions was generally as follows:

Inquiry was made as to whether there were already in existence
established standards for the commodity in question. If so, the pro- (tfc
posed standards were compared with these, and if the latter were felt
to be suitable, effort was made to have them accepted by the industry,
in preference to attempting the development of entirely new standards.
If no standards already existed, or if existing standards were unaccep-
table to the industry, the proposed standards were analyzed and appraised,
in cooperation with the Bureau of Standards, the American Standards
Association, or other recognized agency, to determine their conformity
with sound standardizing practice. Special attention was given to the
interests of the small manufacturer in the matter : of technical require-
ments, including necessity for complicated inspection or testing, which
would prove unduly burdensome.

With respect to consumer interests, the Research and Planning Di-
vision held ah attitude similar to that of the Consumers' Advisory .
Board as to avoiding prohibitions upon marketing of low grade goods for
which a legitimate market existed, provided such goods .were properly
labeled. By the terms of Office Memorandum No'. 298 the Research and *
Planning Division did not have a charter to initiate or actively es-
pouse standards provisions where these were hot proposed by the industry,
as was done by the Consumers' Advisory Board, and it rarely took such
action. It soon became evident that the Consumers' Advisory Board, with
established policy and procedure', with valuable contacts and associations
built up, and with a limited but valuable "reference library collected,
was better equipped for dealing with certain standards matters than was
the newly created Standards Unit of the Division of Research and Plan-
ning.

A cooperative procedure was agreed upon between these two units
of the National Recovery Administration, whereby the formal reports of
both units were presented to deputies after -such reports had been ex<-
changed between the two units, discussed and checked accordingly. Upon
submission of standards materials by advisers to either of the units,
that unit informed the other in order that duplication be avoided in the
analyzing and checking of such standards .

9786

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X. GENERAL NBA STANDARDS POLICY

To avoid any impression that the National Recovery Administration
established no plicy with respect to standards, some clarification of
the situation as to general NRA attitude on the subject is called for.
Early in the code drafting period, the NRA undertook the preparation
of a set of "model" code provisions in order to promote uniformity and
to otherwise expedite code drafting. Subsequently, this "model code"
was granted a degree of inrnortance practically comparable to formal
policy statements. The Consumers' Advisory Board had assisted in pre-
paring the Model Code, and at its suggestion there was included a sug-
gested standards enabling provision, reading as follows:

"Rule 15. Standards.

n(a) Within thirty days after the effective date of the Code,
the Code Committee shall establish a permanent standard committee,
two members of which shall be appointed by the (National Industrial
Recovery^ Board to represent Government and Consumer interests.

"(b) This Committee shall:

(1) Make studies and investigations for the establish-
ment of classifications, dimensional standards, standards of qua-
lity (grades \ and labeling of the products of this industry, in
cooperation with the American Standards Association or the Bureau
of Standards of the United States Department of Commerce, and sub-
mit recommendations based upon such studies to the Code Committee
within six months of the date 'of the Committee's appointment.

(2) Proposes appropriate revisions of approved standards
from time to time.

(3) Advise the Trade Practice Complaints Committee con-
cerning the enforcement of all such standards as established and
approved.

"(c) Upon submission of the Committee's findings to the Code
Committee, the Code Committee shall immediately submit such
standards either to the American Standards Association for con-
sideration and approval or to the Bureau, of Standards of the Uni-
ted States Department of Commerce for consideration and promulga-
tion; provided, however, that in case of disagreement within the
Committee, the Code Committee shall determine, subject to the
anproval of the Board, the nature of the standards to be submitted
to such standardizing agencies.

."(d) After promulgation and such review as the Board may de-
termine, these standards may be approved as a fair trade practice
to be mandatory moon all members of this trade/ industry pending
the approval of subsequent standards or revisions of standards
which may be established from time to time through the same pro-
cedure as set forth above.

"(e) It is further provided, however, that no standard shall
be approved by the Board which may be construed in any material
particular as prohibiting the manufacture and/or sale of non-stan-
dard industry products clearly identified to purchasers as to their
deviation from such standards, if such non-standard products are
in no way harmful to the users. (*">.

(*) "Board" in the above provision refers to National Industrial Reco-
very Board; the language of the original provision having been edi-
ted to apree with th<= »lteT'af ion°. in tt?/ tprrir'jT.o^v

... -236-

While this, with a few other provisions appearing in this model
code, was not required to be a part of NRA codes, many approved codes
contained this suggested standards provision or one similar thereto.
Also the Review Officer of the National Recovery Administration was
guided in examining code provisions and amendments involving standards
and labeling by the following policy drawn from the model code provi-
sion above.

Standards committee

The code committee will establish a permanent standards com-
mittee, upon which government and consumer interest will be repre-
sented.

Formulation of standards.

This committee will study and formulate standards in coopera-
tion with the American Standards Association or the United States
Bureau of Standards. The code committee will submit such standards
either to the Association or the Bureau for approval. If the stan-
dards committee disagrees, the code committee, with the approval
of MA, may determine the standards to be submitted. After such
review as NRA may consider necessary the' standards will be binding
on all members of industry.

Revision of standards.

The standards committee will observe the operation of com-
pliance with such standards, and will recommend revisions whenever
,( necessity appears. Such revisions will follow the same procedure.

Non-standard products not prohibited

The establishment of standards will not prohibit the manufac-
ture and sale of non-standard products which are accurately labe-
led or otherwise clearly identified to customers, if such non-
standard products are in no way harmful to the users. (*).

The only implied attitude of the National. Recovery Administration
towards product standardization in general can be obtained from the
following statement. (**).

"Standards of product"

Standardization of product is not to be accepted as a univer-
sal prescription, nor is it usually a zone of action into' which
NRA should project itself,. In many cases, the prohibition of false
marking or branding ( 11-1512 ) is a sufficient protection. Where
the industry discloses a strong sentiment for it, however, or

(*") "Policy Statements and Related Subjects," Work Materials #20,
NRA Division of Review, Dec. 1935. P. 45 section 1661-1664.

(**) Op. cit. supra, p. 45, section 1660.

9786

-237-

where there is a strong showing in the public interest, NRA will
lend its cooperation in the manner and upon the conditions follow-
ing (Model, 761-767): (*).

This implied attitude, however, was never allowed tc be so inter-
preted as to conflict with any reasonable and -proper effort on the
part of either consumer groups or manufacturers to have standards of
quality provided by Codes of Fair Competition. And in spite of the
fact that no positive policy statements concerning standards and labe-
ling were officially issued by the National Recovery Administration,
the endorsement of the standards provisions of the model code, and the
centralization of control over code standards activities by means of
Office Memorandum #298, heloed tc effectuate efforts to ap;oly standards
and labeling under the codes.

XI. ADVISORY COUNCIL RECOMMENDATIONS

As a further indication of the attitude toward standards and la-
beling of policy- influencing groups within the NRA, there are quoted
below several decisions of the Advisory Council, under the chairman-
ship of Dr. Willard L. Throp, dealing with thse subjects. (**).

The first of these, Decision No. 142, December 22, 1934, dealing
with Informative Labeling and given here in full, will be found to
contain certain material already presented above, especially that con-
tained in Policy Recommendation No. 12 of Dr. Leverett Lyon. Some
significant changes and additions apoear, however, notably the Coun-
cil's attitude, expressed in the deleted paragraph 3 of the policy
memorandum, that NRA should be free to require industry to follow
certain standards of grading and labeling when public policy would
seem to make such action desirable; and the strong dissent from this
position expressed by the Industrial Advisory Board. The decision
follows:

DECISION NO. 142
December 22, 1934
Trade Practice Policy Informative Labeling

(and procedure)

A, Policy Concerning. Informative Labeling

1. Analysis

The NRA has within recent weeks been sponsoring the principles of

(*) The "conditions following" referred to are those drawn from the
Model code interpretations appearing on the preceding page.

• (**) It is to be noted that "The decisions of the Advisory Council
are in fact recommendations to the Administrator or the Board.
They obtain official status only if and when they are officially
approved." (Footnote to Advisory Council Decisions, Vol. 1.)

9786

-238-'

open pricing and of publicity in priding matters. To give publicity in
prices full effect it is necessary that the products to which the pri-
ces refer shall be as fully understood as possible. Such knowledge
should be furthered by an extension of informative labeling. The prac-
ticalities of informative labeling, both for industrial and consumer
buyers, need to be more thoroughly understood in relation to the parti-
cular industries concerned. Some of those who have opposed efforts
looking to any extension of knowledge on the part of buyers have pro-
bably been unduly influenced by self-interest. On the other hand some
of those who have favored such labeling have been moved by a desire to
secure an advantage for their particular products. Also many of those
who have been the strongest proponents of the extension of such know-
ledge have seemed to have too little regard for the difficulties of ar-
riving at knowledge, or expressing it in ways which will be truly help-
ful to prospective purchasers. A vigorous attempt to further informa-
tion for buyers should be tenpered by a realization of the practical
difficulties inherent in grading and branding as well as informative
labeling.

It will be in line with the current policy of the NRA toward open
prices and publicity for it to lend its support to further development
of informative labeling.

The significance to manufacturers of informative labeling and ac-
curate grading of commodities is also apparent from other angles. Spe-
cifically:

1. A standardization of commodities tends to develop more effi-
cient industrial practice.

2. Informative labeling of an accurate character tends to encou-
rage confidence in quality of goods.

II. Recommendations.

Accordingly, it is recommended:

1. That the National Recovery Administration, through the work of
the various Advisory Boards, the Division of Research and Planning and
the Deputy Administrators, in charge of particular codes, bring into
existence machinery under specific codes which will forward the deve-
lopment of such informative labeling of producers and consumers' goods
as:

a. Will give prospective purchasers and competitors as accurate
a description as is practicable of the significant qualities and other
factors with respect to given commodities.

b. Will provide prospective purchasers with such information as
is necessary to make possible comparisons between alternative offerings
of a commodity.

c. Will not limit ingenuity in providing new products.

d. Will not curtail the offering on the market of any product,

9786

"239-

"uiiless.it is "believed to be harmful to its user.

2. That standards should not be approved in codes solely on the
recommendation of the Industry concerned. Such standards should "be sub-
mitted to the Bureau -of Standards, the Department of Agriculture, or
some other Government agency technically capable of judging the merits
of the proposals, for a report and an expression of approval or disap-
proval. Prior to action by 17RA on any such standards, it should give
due consideration to such report and errpression of approval or disap-
proval by such other Government agency.

Ill, One Controversial Aspect

The report of the Council's Committee on this subject originally
contained a Paragraph 3 under "Policy Recommendations" which read as
follows:

"3. That the program should be developed liy cooperation with the
industry affected and that in general such standards of quality or
labeling should receive the support of the industry before in-
clusion within the code. (This statement should not be interpre-
ted to prevent NRA. from requiring an industry to follow certain
standards of grading and labeling when public policy would seem
to make such a step desirable,)"

The Industrial Advisory Board objected to this paragraph on the
grounds that imposition of grading standards and. labels would be neither
justifiable in principle nor workable in practice. They urged, along
the lines indicated in the attached memorandum, that a positive state-
ment be incorporated in the policy declaration requiring the consent
of a substantial, majority' of -the industry in every case.

The majority of the Council did not agree that the occasion could
never arise when KRA. might find it desirable and defensible to impose
standards in some particular case, and felt that it should not tie its
hands in advance of such a situation. However, inasmuch as the pro-
posed paragraph was nothing more than a statement of the general pro-
cedure now in effect for all code provisions, it appeared unnecessary
and was deleted. This action does not meet the request of the Indus-
trial Advisory Board for an affirmative declaration of a policy of
non— imposition.

B. LISA. Procedure in Regard to Such Informative Labeling.

I. Analysis.

At present the administrative responsibility for the adequacy of
industrial standards, grades and informative labeling is assigned to the
Division of Research and Planning under Office Memorandum 298. However,
previous to the issuance of this memo randan , the Consumers' Advisory
Board had developed a Standards Unit for the purposes of:

1. Studying the general problem of standardization, grading and
labeling in connection with problems of fair competition under
the codes.

9786

-240-

2. The encouragement . of the use of standardization, grading and
labeling as efficient industrial practice.

3. The adequate protection of the consumer.

4. The encouragement of competition on the basis of publicly
known and governmental ly approved standards.

The Standards Unit of the Consumers' Advisory Board was organized
under Dr. Robert Brady and lias published a number of reports on stan-
dards in relation to several industries. Dr. Brady left the Unit in
the early summer and since that time the Unit has not been as adequate-
ly staffed as the Consumers' Advisory Board regards as desirable. How-
ever, the Consumers' Advisory Board has begun the further development
of the Unit.

The working arrangement which has been carried on since the issuance
of Office Memorandum 298 has been as follows:

When proposals for the inclusion of standards, grades and labeling
have come to the deputy and are being considered for inclusion within
the code of a particular industry, these proposals are referred to the
Division of Research and Planning. The Division of Research and Plan-
ning has referred them to the Standards , Unit of the Consumers' Advisory
Board and has asked the Economic Adviser to cooperate with that Unit
in connection with the problems raised by the proposals. For technical
advice the Standards Unit of the Consumers' Advisory Board in turn re-
fers the proposals tc the Bureau of Standards or seme other technically
qualified Government agency for review as to their technical merits.
The report of the Bureau of Standards, or similar agency, is made to
the Standards Unit of the Consumers' Advisory Board which refers it to
the Economic Adviser of Research and Planning. The report submitted by
Research and Planning Division to the Deputy is the proposal agreed upon
by the Division of Research and Planning and the Standards Unit of the
Consumers' Advisory Board.

II. Recommendations:

It is recommended:

A. In view of the general importance of standards, grades and in-
formative labeling, it is felt that the most satisfactory arrangement
for handling of these proposals would be the establishment of a Stan-
dards Unit as a part of the work of the Research and Planning Division.
That this Unit would assume the major responsibility for standards
work within 1TRA. The work of the particular Advisory Boards would be
dictated by the special considerations which affect the work of those
Boards in relation to such a Unit.

However, in' view of the fact that the development of such a Unit
is in the nature of a major change in procedure, we are inclined to
make no recommendation for immediate action along this line.

B. For the present it was felt by the Council that the following
procedure should govern:

9786

. --241-

1. That the responsibility for the review of standards proposals
be be continued in the Research and Planning Division.

2. That the procedure of Research and Planning Division as now
followed shall be continued except that the Industrial Advisory
Board and the Labor Advisory Board snail be notified of proposals
along with the Consumers' Advisory Board. These Boards may name
representatives to participate in the activities of the Standards
:Unit of the Consumers' Advisory Board in such cases as they see

fit.

C. The Consumers' Advisqry Board has recommended a so-called
"standards clause" for inclusion in a number of codes. The Council is
still studying this standards proposal and will make a recommendation
as regards it shortly.

The Industrial Advisory Board Report on Informative Labeling

The Industrial Advisory Board is opposed to the imposition through
codes of labeling requirements which are not assented to by a substan-
tial majority of the industry concerned. The Board takes the .position
that the Recovery Act is emergency -legislation enacted for a limited
period of time in order to promote recovery through the principles
stated in Title I of the Act. In so far as formulation and enforce-
ment of grades and standards may assist in curing unfair trade nracti-
ces .which have 'contributed to the emergency, and in so far as the adop-
tion of these standards has the assent and agreement of industry, we
believe that it is proner to include them in the Coden. However, where
the protection of health or essential public interest requires perma-
nent legislation relative to grades and standards we believe that such
action should be taken through proper permanent legislative channels
and the legislation so enacted should be administered and enforced
through existing administrative branches of the Government already
established for this purpose.

The Industrial Advisory Board believes that the arbitrary and
autocratic extension of Government control of industry by the imposi-
tion of label requirements through the National Recovery Administration
will act as a deterrent to business confidence and business recovery,
and that it will foster the development of bureaucratic regulation of
business through a Government agency which at present is not proper-
ly equipped for adequate administration of such provisions.

For the above reasons the Industrial Advisory Board .believes that
any policy memorandum covering the question of standards, grades and
informative labeling should contain an affirmative statement to the
effect that it is. the general policy of HRA to include in Codes of
Pair- Competition requirements concerning grades, standards and labels
only with the consent of a representative majority of the industry
affected. (*).

(*1 Advisory Council Decisions, KRA, Vol. II, November 13, 1934-Ja-
nuary 11, 1935, pp. 1934-166 to 1)34-169.

9786

-242-

In two earlier decisions dealing with the form of standards pro-
vision in the proposed Aluminum Cooking .Utensils Code (*), the Council
records its' attitude upon several significant points connected with
policy and method of procedure with respect, to standards under the
codes . ......

In Decision No. 16, August 10',. 1934, the council recommended a re-
draft of the entire standards provisions,' embodying the following prin-
cipal points of difference from the form of provisions -proposed:

A. The appointment of consumer and government representatives is
reserved to the Administrator.

B. The change in the order of the words makes clearer that the
cooperation with the Bureau of Standards is to extend to more
than dimensional standards.

C. There is provision for the promulgation of adapted standards

by recognized standards procedure. **

D. Manufacture of non-standards merchandise is permitted provi-
ded it is accurately labeled.

E. Provision is made for the administration and revision of the
established standards. (**).

In a further decision with respect to the same code the council
expresses itself on the general question of coupulsory substandard
labeling as opposed to total elimination of substandard products:

DECISION NO. 25 ;. .
August 31, 1934.
Aluminum Cooking Utensils Industry Standards

It is the sense of the Advisory Council that the concluding sen-
tence of the paragraph of Rule 12 (at the top of page 18 of the re-
vised draft of the Code, dated July 20, 1934} should be- amended to
read as follows:

"Thereafter, all members of the Industry shall follow such stan-
dards of manufacturing, and failure to follow such standards set up
by the Supplementary Code Authority, so approved by members of the In-
dustry and the Administrator, will be an unfair method of competition
and a violation of this Supplementary Code; provided, however, that
products of this Industry if non-s tandard may be manufactured and sold
if appropriately labelled or otherwise identified as not, being within
the standard specifications."

(*) This code was never approved. For further discussion of the

standards proposals in connection with it, see Chapter Two, Sec-
tion III, PART T,.'0, supra, of this report.

(**) Advisory Council Decisions, Vol. I,< June 20, 1934-November 13,
1934, pp. 1934-11 and 1934-12.

9786

-£43*

The underlined words indicate the proposed Amendment which the
Advisory Council believes should be included.

The Advisory Council is ir. complete sympathy with the efforts
of the industry to achieve simplicity, to efiect economies through
standardization of its products. It feels, however, that it is
impossible for any system of stsncerds, however painstakingly
developed, to provide for all these inter-standard or sub-standard
products for which a legitimate market may exist or which mav be
important to a considerable number of consumers. In reaching f or
this dual objective of formal standards to govern the general run
of production, and of some measure of deviation from such standards
which public interest seems to require, the Council felt that the
production and sale of non-standard items ought not to be prohibited
as long as they were so labelled as to prevent deception.

We recognize that a compulsory label indicating that a
product fails to conform to standards to which official recogni-
tion has been given may hamper the sale of such product, but it
obviously c?n not have as completely restrictive effect as outright
elimination. In this way the interests of small manufacturers
are protected as well as those of consumers, (*)

(*) Advisory Board Decisions, Vol, I, June ?0, 1934- November 13, 1934,
p. 1934-17.

9786#

OFFICE OF THE NATIONAL RECOVERY ADMINISTRATION
THE DIVISION OF REVIEW

THE WORK OF THE DIVISION OF REVIEW

Executive Order No. 7075, dated June 15, 1935, established the Division of Review of the
National Recovery Administration. The pertinent part of the Executive Order reads thus:

The Division of Review shall assemble, analyze, and report upon the statistical
information and records of experience of the operations of the various trades and
industries heretofore subject to codes of fair competition, shall study the ef-
fects of such codes upon trade, industrial and labor conditions in general, and
other related matters, shall make available for the protection and promotion of
the public interest an adequate review of the effects of the Administration of
Title I of the National Industrial Recovery Act, and the principles and policies
put into effect thereunder, and shall otherwise aid the President in carrying out
his functions under the said Title. I hereby appoint Leon C. Marshall, Director of
the Division of Review.

The study sections set up in the Division of Review covered these areas: industry
studies, foreign trade studies, labor studies, trade practice studies, statistical studies,
legal studies, administration studies, miscellaneous studies, and the writing of code his-
tories. The materials which were produced by these sections are indicated below.

Except for the Code Histories, all items mentioned below are scheduled to be in mimeo-
graphed form by April 1, 1936.

THE CODE HISTORIES

The Code Histories are documented accounts of the formation and administration of the
codes. They contain the definition of the industry and the principal products thereof; the
classes of members in the industry; the history of code formation including an account of the
sponsoring organizations, the conferences, negotiations and hearings which were held, and
the activities in connection with obtaining approval of the code; the history of the ad-
ministration of the code, covering the organization and operation of the code authority,
the difficulties encountered in administration, the extent of compliance or non-compliance,
and the general success or lack of success of the code, and an analysis of the operation of
code provisions dealing with wages, hours, trade practices, and other provisions. These
and other matters are canvassed not only in terms of the materials to be found in the files,
Dut also in terms of the experiences of the deputies and others concerned with code formation
and administration.

The Code Histories, (including histories of certain NRA units or agencies) are not
mimeographed. They are to be turned over to the Department of Commerce in typewritten form.
All told, approximately eight hundred and fifty (850) histories will be completed. This
number includes all of the approved codes and some of the unapproved codes. (In Work
Materials No .18, Contents of Code Histries. will be found the outline which governed
the preparation of Code Histories.)

(In the case of all approved codes and also in the case of some codes not carried to
final approval, there are in NRA files further materials on industries. Particularly worthy
of mention are the Volumes I, II and III which constitute the material officially submitted
to the President in support of the recommendation for approval of each code. These volumes
9768—1.

*'*

-ii-

set forth the origination of the code, the sponsoring group, the evidence advanced to sup-
port the proposal, the report of the Division of Research and Planning on the industry, the
recommendations of the various Advisory Boards, certain types of official correspondence,
the transcript of the formal hearing, and other pertinent matter. There is also much offi-
cial information relating to amendments, interpretations, exemptions, and other rulings. The
materials mentioned in this paragraph were of course not a part of the work of the Division
of Review. )

THE WORK MATERIALS SERIES

In the work of the Division of Review a considerable number of studies and compilations
of data (other than those noted below in the Evidence Studies Series and the Statistical
Material Series) have been made. These are listed below, grouped according to the char-
acter of the material. (In Work Materials No. 17. Tentative Outlines and Summaries of
Studies in Process, these materials are fully described).

Industry Studies

Automobile Industry, An Economic Survey of

Bituminous Coal Industry under Free Competition and Code Regulation, Economic Survey of

Electrical Manufacturing Industry, The

Fertilizer Industry, The

Fishery Industry and the Fishery Codes

Fishermen and Fishing Craft, Earnings of

Foreign Trade under the National Industrial Recovery Act

Part A - Competitive Position of the United States in International Trade 1927-29 through

1934.
Part B - Section 3 (e) of NIRA and its administration.
Part C - Imports and Importing under NRA Codes.
Part D - Exports and Exporting under NRA Codes.

Forest Products Industries, Foreign Trade Study of the

Iron and Steel Industry, The

Knitting Industries, The

Leather and Shoe Industries, The

Lumber and Timber Products Industry, Economic Problems cf the

Men's Clothing Industry, The

Millinery Industry, The

Motion Picture Industry, The

Migration of Industry, The: The Shift of Twenty-Five Needle Trades From New York State,
1926 to 1934

National Labor Income by Months, 1929-35

Paper Industry, The

Production, Prices, Employment and Payrolls in Industry, Agriculture and Railway Trans-
portation, January 1923, to date

Retail Trades Study, The

Rubber Industry Study, The

Textile Industry in the United Kingdom, France, Germany, Italy, and Japan

Textile Yarns and Fabrics

Tobacco Industry, The

Wholesale Trades Study, The

Women's Neckwear and Scerf Industry, Financial and Labor Data on

9768—2

•

n's Apparel Industry, Some Aspects of the

Trade Practice Studies

Commodities, Information Concerning: A Study of NRA and Related Experiences in Control
Distribution, Manufacturers' Control of: Trade Practice Provisions in Selected NRA Codes
Distributive Relations in the Asbestos Industry
Design Piracy: The Problem and Its Treatment Under NRA Codes
Electrical Mfg. Industry: Price Filing Study
Fertilizer Industry. Price Filing Study

Geographical Price Relations Under Codes of Fair Competition, Control of
Minimum Price Regulation Under Codes of Fair Competition
Multiple Basing Point System in the Lime Industry: Operation of the
Price Control in the Coffee Industry
Price Filing Under NRA Codes
Production Control in the Ice Industry
Production Control, Case Studies in

Resale Price Maintenance Legislation in the United States

Retail Price Cutting, Restriction of, with special Emphasis on The Drug Industry.
Trade Practice Rules of The Federal Trade Commission (1914-1936): A classification for
comparison with Trade Practice Provisions of NRA Codes.

Labor Studies

Cap and Cloth flat Industry, Commission Report on Wage Differentials in

Earnings in Selected Manufacturing Industries, by States, 1933-35

Employment, Payrolls, Hours, and Wages in 115 Selected Code Industries 1933-35

Fur Manufacturing, Commission Report on Wages and Hours in

Hours and Wages in American Industry

Labor Program Under the National Industrial Recovery Act, The

Part A. Introduction

Part B. Control of Hours and Reemployment

Part C. Control of Wages

Part D. Control of Other Conditions of Employment

Part E. Section 7(a) of the Recovery Act
Materials in the Field of Industrial Relations
PRA Census of Employment, June, October, 1933
Puerto Rico Needlework, Homeworkers Survey

Administrative Studies

Administrative and Legal Aspects of Stays, Exemptions and Exceptions, Code Amendments, Con-
ditional Orders of Approval

Administrative Interpretations of NRA Codes

Administrative Law and Procedure under the NIRA

Agreements Under Sections 4(a) and 7(b) of the NIRA

Approve Codes in Industry Groups, Classification of

Basic Code, the — (Administrative Order X-61)

Code Authorities and Their Part in the Administration of the NIRA
Part A. Introduction
Part B. Nature, Composition and Organization of Code Authorities

9768—2.

Part C. Activities of the Code Authorities

Part D. Code Authority Finances

Part E. Summary and Evaluation
Code Compliance Activities of the NRA
Code Making Program of the NRA in the Territories, The
Code Provisions and Related Subjects, Policy Statements Concerning
Content of NIRA Administrative Legislation

Part A. Executive and Administrative Orders

Part B. Labor Provisions in the Codes

Part C. Trade Practice Provisions in the Codes

Part D. Administrative Previsions in the Codes

Part E. Agreements ur.der Sections 4(a) and 7(b)

Part F. A Type Case: The Cotton Textile Code
Labels Under NRA, A Study of

Model Code and Model Provisions for Codes, Development of

National Recovery Administration, The; A Review of its Organization and Activities
NRA Insignia

President's Reemployment Agreement, The

President's Reemployment Agreement, Substitutions in Connection with the
Prison Labor Problem under NRA and the Prison Compact, The
Problems of Administration in the Overlapping of Code Definitions of Industries and Trades,

Multiple Code Coverage, Classifying Individual Members of Industries and Trades
Relationship of NRA to Government Contracts and Contracts Involving the Use of Government

Funds
Relationship of NRA with States and Municipalities
Sheltered Workshops Under NRA
Uncodified Industries: A Study of Factors Limiting the Code Making Program

Legal Studies

Anti-Trust Laws and Unfair Competition

Collective Bargaining Agreements, the Right of Individual Employees to Enforce

Commerce Clause, Federal Regulation of the Employer-Employee Relationship Under the

Delegation of Power, Certain Phases of the Principle of, with Reference to Federal Industrial
Regulatory Legislation

Enforcement, Extra-judicial Methods of

Federal Regulation through the Joint Employment of the Power of Taxation and the Spending
Power

Government Contract Provisions as a Means ;f Establishing Proper Economic Standards, Legal
Memorandum on Possibility of

Industrial Relations in Australia, Regulation of

Intrastate Activities Which so Affect interstate Commerce as to Bring them Under the Com-
merce Clause, Cases on

Legislative Possibilities of the State Constitutions

Post Office and Post Road Power — Can it be Used as a Means of Federal Industrial Regula-
tion?

State Recovery Legislation in Aid of Federal Recovery Legislation History and Analysis

Tariff Rates to Secure Proper Standards of Wages and Hours, the Possibility of Variation in

Trade Practices and the Anti-Trust Laws

Treaty Making Power of the United States

War Power, Can it be Used as a Means of Federal Regulation of Child Labor?

9768—4.

THE EVIDENCE STUDIES SERIES

The Evidence Studies were originally undertaken to gather material for pending court
cases. After the Schechter decision the project was continued in order to assemble data for
use in connection with the studies of the Division of Review. The data are particularly
concerned with the nature, size and operations of the industry; and with the relation of the
industry to interstate commerce. The industries covered by the Evidence Studies account for
more than one-half of the total number of workers under codes. The list of those studies
follows:

Automobile Manufacturing Industry
Automotive Parts and Equipment Industry
Baking Industry

Boot and Shoe Manufacturing Industry
Bottled Soft Drink Industry
Builders' Supplies Industry
Canning Industry
Chemical Manufacturing Industry
Cigar Manufacturing Industry
Coat and Suit Industry
Construction Industry
Cotton Garment Industry
Dress Manufacturing Industry
Electrical Contracting Industry
Elect"ical«Manufacturing Industry
Fabricated Metal Products Mfg. and Metal Fin-
ishing and Metal Coating Industry
Fishery Industry

Furniture Manufacturing Industry
General Contractors Industry
Graphic Arts Industry
Gray Iron Foundry Industry
Hosiery Industry

Infant's and Children's Wear Industry
Iron and Steel Industry

Leather Industry

Lumber and Timber Products Industry
Mason Contractors Industry
Men's Clothing Industry
Motion Picture Industry
Motor Vehicle Retailing Trade
Needlework Industry of Puerto Rico
Painting and Paperhanging Industry
Photo Engraving Industry
Plumbing Contracting Industry
Retail Lumber Industry
Retail Trade Industry
Retail Tire and Battery Trade Industry
Rubber Manufacturing Industry
Rubber Tire Manufacturing Industry
Shipbuilding Industry
Silk Textile Industry
Structural Clay Products Industry
Throwing Industry
Trucking Industry
Waste Materials Industry
Wholesale and Retail Food Industry
Wholesale Fresh Fruit and Vegetable Indus-
try
Wool Textile Industry

THE STATISTICAL MATERIALS SERIES

This series is supplementary to the Evidence Studies Series. The reports include data
on establishments, firms, employment. Payrolls, wages, hours, production capacities, ship-
ments, sales, consumption, stocks, prices, material costs, failures, exports and imports.
They also include notes on the principal qualifications that should be observed in using the
data, the technical methods employed, and the applicability of the material to the study of
the industries concerned. The following numbers appear in the series:
9768—5 .

- vi -

Asphalt Shingle and Roofing Industry Fertilizer Industry

Business Furniture Funeral Supply Industry

Candy Manufacturing Industry Glass Container Industry

Carpet and Rug Industry Ice Manufacturing Industry

Cement Industry Knitted Outerwear Industry

Cleaning and Dyeing Trade Paint, Varnish, and Lacquer, Mfg. Industry

Coffee Industry Plumbing Fixtures Industry

Copper and Brass Mill Products Industry Rayon and Synthetic Yarn Producing Industry

Cotton Textile Industry Salt Producing Industry

Electrical Manufacturing Industry

THE COVERAGE

The original, and approved, plan of the Division of Review contemplated resources suf-
ficient (a) to prepare some 1200 histories of codes and NRA units or agencies, (b) to con-
solidate and index the NRA files containing some 40,000,000 pieces, (c) to engage in ex-
it tensive field work, (d) to secure much aid from established statistical agencies of govern-
ment, (e) to assemble a considerable number of experts in various fields, (f) to conduct
approximately 25% more studies than are listed above, and (g) to prepare a comprehensive
summarv report.

Because of reductions made in personnel and in use of outside experts, limitation of
access to field work and research agencies, and lack of jurisdiction over files, the pro-
jected plan was necessarily curtailed. The most serious curtailments were the omission of
the comprehensive summary report; the dropping of certain studies and the reduction in the
coverage of other studies; and the abandonment of the consolidation and indexing of the
files. Fortunately, there is reason to hope that the files may yet be cared for under other
auspices.

Notwithstanding these limitations, if the files are ultimately consolidated and in-
dexed the exploration of the NRA materials will have been sufficient to make them accessible
and highly useful. They constitute the largest and richest single body of information
T concerning the problems and operations of industry ever assembled in any nation.

L. C. Marshall,
Director, Division of Review.
9768—6 .

*»

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