ATF Ruling 85-5
The Bureau of Alcohol, Tobacco and Firearms has been requested to clarify its position with respect to the status of Puerto Rico for purposes of the application of the jurisdictional clause provisions of the Federal Alcohol Administration Act (FAA Act).
Under section five of the FAA Act (27 U.S.C. 205), trade practice provisions are premised upon the establishment of a nexus between the trade practice and its effect on interstate or foreign commerce. ATF's jurisdiction over this type of conduct is premised upon the establishment that one of the three jurisdictional clauses is applicable. The first of the three clauses applies to trade practices made in the course of interstate or foreign commerce; the second applies where an industry member engages in the trade practice to such and an extent as substantially to restrain or prevent transactions in interstate or foreign commerce in any such product; and the third applies where the direct effect of the trade practice is to prevent, deter, hinder or restrict other persons from selling or offering for sale any such products to such products to such trade buyer in interstate or foreign commerce.
With respect to Puerto Rico, section 17(a)(2), [27 U.S.C. 211(a)(2)], defines "interstate or foreign commerce" as commerce within any territory and section 17(a)(1), [27 U.S.C. 211(a)(1)] defines "territory" to include Puerto Rico.
The Bureau has long subscribed to the position that trade practices occurring wholly within Puerto Rico immediately fall within the first jurisdictional clause of each trade practice set forth in the FAA Act.
However, the Bureau has been requested to reconsider its longstanding position in light of the recent First Circuit Court of Appeals decision in Cordova & Simonpietri Insurance Agency, Inc. v. Chase Manhattan Bank N.A., 649 F. 2d 36 (1st Cir. 1981). The court in Cordova dealt with the jurisdictional clauses of the Sherman Anti-Trust Act which are similar to the jurisdictional clauses of the FAA Act in that both Acts presume commerce within Puerto Rico is interstate commerce. The court ultimately held that section 3 of the Sherman Act which forbids agreement "in restraint of trade or commerce in any territory of the United States" did not apply to a transaction which occurred wholly within the Commonwealth of Puerto Rico. The court's decision was based upon Congress' enactment of the Puerto Rico Federal Relations Act of 1950 (FRA) ch. 446, 64 Stat. 319, which changed Puerto Rico's status from a territory to a commonwealth, enabled the Puerto Rican government to enact its own constitution and laws relating to local matters and provided that all laws inconsistent with the Act be repealed. The court reasoned that the drafters of the Sherman Act would not have applied its anti-trust provisions to transaction occurring wholly within Puerto Rico had they been aware of the FRA's grant of state-like autonomy over purely local matters to the Commonwealth of Puerto Rico.
Held: In view of the decision in the Cordova case, the Bureau has determined that trade practices which occur wholly within the Commonwealth of Puerto Rico will not be presumed as immediately falling within the jurisdiction of the FAA Act. However, trade practices which occur wholly within the Commonwealth of Puerto Rico will remain subject to the jurisdiction of the FAA Act if:
(A) The industry member or trade buyer engages in such practice to such an extent as substantially to restrain or prevent transactions in interstate or foreign commerce in any such product (second jurisdictional clause); or
(B) The direct effect of such trade practice is to prevent, deter, hinder, or restrict other persons from selling or offering for sale any such products to such trade buyer in interstate or foreign commerce (third jurisdictional clause).
27 U.S.C. 211(A)