The battle over alcohol shipping in the US goes on

The battle over alcohol shipping in the US goes on

Following the first day of the House Judiciary Committee's Hearing on Wednesday (29 September) on HR 5034, the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act, we're back with Wine & Spirits Daily's coverage of the second – and final - day, yesterday (30 September).

DAY ONE - THE FALLOUT: EVERYONE'S A WINNER

Statements from the National Beer Wholesalers Association (NBWA) and Wine Institute after the hearing concluded clearly showed that both sides felt they put up a strong case. The NBWA said it “is encouraged by the widespread support for the continuation of the American system of state-based alcohol regulation, which balances the public's interest in effective regulation with the consumer's desire for choice and variety”.

But, the Wine Institute said that Tracy Genesen, who testified on the trade body's behalf, “made a strong case for Congress to reject HR 5034”. Bobby Koch, CEO of the Wine Institute, said: “Once again, the wholesalers failed to make their case and it is becoming well understood on Capitol Hill that this legislation serves to protect the economic interests of the wholesalers.”

PREAMBLE - LOCAL PAPER SAYS NBWA HELPED DRAFT A TESTIMONY

A report from the Salt Lake Tribune has claimed that NBWA general counsel Paul Pisano drafted Utah Attorney General Mark Shurtleff's testimony for the hearing yesterday. An electronic copy of Shurtleff's testimony submitted to the Judiciary Committee says the author was “ppisano”.

Shurtleff told the reporter that "he (Pisano) gave me some information. I was communicating with him, and he drafted it for me because I was coming straight here [to Washington, DC]”. He explained that he took the red eye into DC and knew Pisano could print it out for him. But his testimony “mirrors what 40 attorneys general said in a previous statement” where they asked Congress for relief from “the growing threat” of deregulation. 

Furthermore Rep. Jason Chaffetz, R-Utah, who co-sponsored the bill, “was one of 74 House members who received a US$10,000 donation this election cycle from the NBWA, according to the non-partisan Center for Responsive Politics”, says the article.

DAY TWO - WHAT THE CONGRESSMEN SAID

Reps. Mike Thompson (D-Calif), Peter DeFazio (D-Oregon) and George Radanovich testified in opposition to the CARE Act. Meanwhile, Reps. Bruce Braley (D-Iowa), Ed Towns (D-N.Y.) and Gary Miller (R-CA) are all co-sponsors of the bill and spoke in favour.

REP MIKE THOMPSON - WHOLESALERS "THRIVING"

The rewritten version of HR 5034 “is just as damaging as the original version”, because it “still allows states to discriminate against producers” for economic advantage, said Thompson. “Small businesses are struggling in every one of our districts,” and wineries are especially struggling in his 1st District of California, he said. “Many wholesalers won't give them the time of day.”

“Are wholesalers being treated unfairly? No.” He said wholesalers “are thriving” in California although wineries are able to distribute directly to consumers and retailers in the state. “The top ten wholesalers control 60% of the market … . Clearly, they are doing well.”

He continued by saying that, while he believes that states have the right to administer their own regulations, “they just can't discriminate against out-of-state producers and products”.

REP PETE DEFAZIO - BILL WOULD DISRUPT CURRENT BALANCE

As the co-founder and co-chairman of the House Small Brewers Caucus, Pete Defazio spoke on behalf of small brewers. He noted that “the federal government has always played a vital role in alcohol regulation. This balanced approach has helped the industry grow, while at the same time protecting consumers and the general public.”

But, he called the CARE Act “a direct threat to that success” because it “would demolish the constitutional balance and the federal oversight over alcohol regulation." CARE "would be devastating to America's small brewers” as it would “virtually eliminate the role of the federal courts in stopping states from enacting discriminatory laws, violating antitrust laws, and even undermining acts of Congress”.

Furthermore, under HR 5034, “states would have free reign to come up with new ways to discriminate against small brewers”. For the most part, small brewers “are not rich men and women”.

He said it is not “the flood of lawsuits” that has prompted CARE advocates to act. “The litigation surrounding direct shipping of wine is not a threat to a state's ability to license and tax businesses engaged in the sale of alcohol beverages,” he said. Pending lawsuits challenging state alcohol laws are “in the low single digits”. Therefore, “HR 5034 is a solution to a non-existent problem”.

REP BRUCE BRALEY - GROUPS ARE MISUSING COURTS

Braley supports the CARE Act because, he said, "Congressional silence on the ability of the state right to regulate alcohol is being misused in the federal court system by private interest … seeking personal gain for themselves.”

There has been “exponential growth” in beer, wine and spirits in recent years that has been helped by regulations, he claimed. Iowa has a thriving craft industry for all these segments. “I look forward to working with small businesses to help them thrive and grow,” he concluded.

REP ED TOWNS - "SICK AND TIRED" OF LAWSUITS

Towns claimed that “states need assistance in defending laws which protect the public interest from those who are seeking to line their pockets by deregulating the alcohol industry”. He pointed out that New York State has been sued twice “in the past four years alone” and they are “sick and tired” of these lawsuits. “Attorney General Cuomo and 38 other Attorneys General wrote to me in the spring seeking Congressional action to assist them in stemming the tide of these lawsuits.”

Furthermore, he believes states should be able to determine how alcohol is controlled within their borders: “On a more personal level, I believe that our constituents know better than anyone the terms of how they want alcohol to be sold and supplied in their communities.”

REP GEORGE RADANOVICH - STATES SHOULD UNIFY

Rep Radanovich of California, who is the co-founder of the Congressional Wine Caucus and also owns a California winery, said: "In my eight terms in Congress, I do not recall another time when an industry group has come seeking complete immunity from nothing less than the US Constitution, when the continued application of one of the fundamental provisions of the Constitution, the Commerce Clause, has been associated with underage drinking, state-wide loss of regulatory control, and market chaos; where facial and non-facial discrimination is somehow needed by states to regulate effectively.”

He claimed that a “pure three-tier system” has not existed for some time, pointing out that many states allow in-state wineries to ship direct. He said that many wineries exist solely on the “strength of their direct-to-consumer wine clubs”.

“When we allow states to discriminate, we lose the cohesiveness and energy of a nation of laws,” Radanovich said. “We become 50 nations instead of one.”

REP GARY MILLER – THE UNDERAGE ARGUMENT

“All alcohol regulation is a balance between competition, price, and availability, on the one hand, and appropriate control to mitigate immoderate and under-age consumption, on the other,” said Rep Miller of the 42nd District of California. “States view alcohol differently and the authority of each state to regulate according to its local norms and standards must be safeguarded. Surely it is not in the public interest to advocate for weak regulations and an unrestricted marketplace.”

He claimed that “minors on the internet can purchase cheap alcohol with the click of a mouse and have it delivered to their door. Sting after sting by law enforcement and media consumer protection advocates has shown just how easy it is for minors to buy alcohol online with no ID check or age verification.”

“We need to clarify Congressional intent that the states are the primary authority for regulating alcohol sales and that they should exercise that authority to protect the public interest,” he noted.

That's it until January, when the next Congressional session convenes.

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