The row over direct shipping rears its head again

The row over direct shipping rears its head again

The introduction of a new bill into the US Congress that seeks to reaffirm the states’ powers to regulate alcohol has reignited the debate over inter-state direct wine shipping, and sparked a fierce battle between drinks wholesalers and suppliers. Ben Cooper reports.

Those who believed the 2005 Granholm v Heald Supreme Court ruling marked the resolution of the direct wine shipping issue in the US may have to think again, after the introduction into Congress last month of a new bill that seeks to reaffirm the states’ powers over alcohol regulation.

The introduction into Congress of the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act of 2010 aims to preserve the sanctity of the state legislatures in regulating alcohol which its proponents believe has been undermined by the Granholm/Heald ruling.

Designated HR 5034, the bill is backed by the Wine and Spirits Wholesalers of America (WSWA) and the National Beer Wholesalers Association (NBWA), and was introduced into the House of Representatives by Rep. Bill Delahunt (D-MA), Rep. Howard Coble (R-NC), Rep. Mike Quigley (D-IL) and Rep. Jason Chaffetz (R-UT).

The bill aims to clarify congressional intent that states have primary authority to regulate alcohol, prevent further erosion of state-based alcohol regulation as a result of the Granholm v Heald decision without allowing facial discrimination against out-of-state producers, and clarify that state alcohol laws are presumed to be valid and that plaintiffs should have the burden of proof.

The bill’s introduction has caused the eruption of a bitter dogfight in the US drinks industry with the wholesalers on one side and beer, wine and spirits producers on the other.

The California Wine Institute says the bill “would undermine federal authority over taxation, product formulation, advertising, labelling and product safety that has been essential to protect the public”.

It also alludes to direct shipping, stating: “This dispute springs from an intra-industry dispute between producers and wholesalers. NWBA and WSWA are asking Congress to cede federal authority to the states so that wholesalers can pass discriminatory and anti-competitive laws. For example, HR 5034 would allow states, at the urging of wholesalers, to eliminate direct-to-consumer shipping in 37 states and the District of Columbia. This is protectionist legislation intended to give monopoly advantage to powerful in-state interests and it should be opposed.”

The US spirits trade body DISCUS has also been vocal in its opposition. DISCUS says it recognises the states’ rights to regulate beverage alcohol and supports the three-tier system, but questions why legislation “so fraught with unintended consequences” is needed to change the current system.

Crucially, DISCUS claims that, if enacted, HR 5034 would strip away the protections of the Commerce Clause which require even-handed, non-discriminatory treatment of business practices.  DISCUS also contends that it would effectively exempt state laws relating to alcohol from all federal laws, including anti-trust and consumer protection legislation.

Two separate campaigns are being waged against the bill from the wine side, with the www.freethegrapes.org and www.stopHR5034.org websites urging consumers to protest against the bill.

Interestingly, however, the public interest is being cited as a key justification for HR 5034 by its authors. The sponsors of the bill have been at pains to point out that they see the erosion of state powers as compromising the battle against alcohol misuse and alcohol-related harm.

Opponents of the bill suggest the arguments regarding alcohol-related harm are something of a red herring and the bill is essentially an attempt by wholesalers to hold on to market share, which is being eroded by direct sales.

NBWA senior vice president and general counsel Paul Pisano refutes that contention. “This bill is broader than wholesalers, suppliers, retailers,” he tells just-drinks. “This bill’s about supporting alcohol regulation and in America that’s supposed to be based in the states.”

Pisano points out that some 29 states have been subject to lawsuits seeking to “have federal judges make the alcohol laws”. He adds that the US Constitution prescribes that alcohol be regulated by state authorities. “This country is about 50 different state laws. The last time there was a one-size-fits-all federal ruling that was the 18th Amendment. That was Prohibition. That was bad.”

However, it is interesting to note that public health lobbyists have not yet become involved in this debate. Pisano says he anticipates that public health groups will publicly back the measures as the bill progresses. “The public health community hasn’t been engaged yet and I imagine as this legislative process moves forward they will be," he says. "They haven’t opposed it.” He also says he expects Congress to ask the opinion of public health groups on the issue.

Conversely, some public health advocates are thinking that the arrival of President Obama in the White House represents the best chance for more action on alcohol policy at the federal level, as has already been seen in food policy.

But, the arguments about preserving the sanctity of state legislatures to regulate alcohol appear to carry weight with both state authorities and members of Congress. To date, it has 85 co-sponsors. It would eventually need 218 votes to be passed into law. Its proponents are hoping this could be achieved later this year, though with elections and the summer recess, that seems optimistic.

Others members of Congress, meanwhile, have been extremely vocal in their criticism. Speaking before the House Judiciary Subcommittee on Courts and Competition Policy in March, Rep. Mike Thompson (CA-1) said: “State regulation of alcohol is alive and well and has not been impaired since the Supreme Court`s Granholm decision. In this direct-to-consumer shipping case, the decision was simple: states can regulate, but not discriminate. In truth, Granholm and the decisions that came before it give great deference to the 21st Amendment [the repeal of Prohibition] and state regulation of alcohol, but it affirms that these rights do not supersede other provisions of the Constitution, such as the Commerce Clause.”

As a California Representative, Mike Thompson’s support for the wine industry is hardly surprising. But Thompson articulates a view about how direct shipping has allowed both the wine and craft beer industries to develop commercially, a view shared by many. “There has been a dramatic increase in the number of wine and beer producers, which has resulted in more jobs for American workers,” he said.

He also expresses the view that the mandated three-tier system, introduced after the repeal of Prohibition in 1933, has struggled to cope with this expansion. “Wine is produced in all 50 states, including more than 6,000 wineries, a 500% increase in the past 30 years," he says. "Yet the number of wine wholesalers has decreased by more than 50%, creating a distribution bottleneck. For example, in my home state, there are only two major wine wholesalers.”

In 2005, the debate over direct shipping garnered huge media and public interest. As it covers much of the same ground with regard to commercial and consumer rights, and much more besides, it is hard to imagine that the passage of HR 5034 will not do likewise.