Free Market Advocates Stand Up for Free Trade in Wine

Posted by Tom Wark on Jul 28, 2010

The current state of H.R. 5034, a bill introduced into Congress on behalf of wholesalers that would give the middlemen the power to initiate and see passed state laws that protect their state-mandated control of the market in beer, wine and spirits, remains somewhat unaccounted for. That is to say, no hearings in the House Judiciary Committee, where the bill is parked, have been scheduled since a tentative July 14 hearing date was canceled.

However, that has not stopped the furious lobbying by opponents and proponents of the bill. Specifically, it has not stopped the work done by many folks not related to the alcohol beverage market who believe the bill has strikingly anti-consumer and anti-free market implications.

FREE TRADE/FREE MARKET ADVOCATES STAND UP FOR WINE CONSUMERS
Yesterday, a coalition of 42 public policy groups, led by the Competitive Enterprise Institute, issued a letter to members of Congress announcing their collective opposition to H.R. 5034. The collection of policy groups includes anti-big government organizations, tax-payer advocates, conservative activists, Tea Party-related organizations, consumer advocates, free market advocates and libertarian-oriented organizations. The list includes:

Competitive Enterprise Institute
National Organization for Marriage
Common Sense Institute of New Jersey
Cascade Policy Institute
Howard Jarvis Taxpayers Association
Minnesota Free Market Institute
American Land Rights Association
Freedom Action
League of Private Property Voters
Rio Grande Foundation
Wyoming Liberty Group
American Grassroots Coalition
Congress of Racial Equality
Pelican Institute for Public Policy
Small Business and Entrepreneurship Council
American Conservative Union
Americans for Prosperity
FreedomWorks
Caesar Rodney Institute
Individual Rights Foundation
Tea Party Express
Frontiers of Freedom
Institute for Liberty
Hispanic Leadership Fund
60 Plus Association
Center for Individual Freedom
Tea Party WDC
American Society for the Defense of Tradition, Family and Property
American for Tax Reform
Tennessee Center for Policy Research
National Taxpayers Union
American Family Business Institute
Pacific Research Institute
Center for Freedom and Prosperity
National Center for Public Policy Research.
Council for Citizens Against Government Waste
Institute for Justice
The C.L.A. Group
Political Economy Research Institute
The Weekly Wine Pick
Illinois Policy Institute
The Rutherford Institute

The letter sent to Congress over the signatures of folks heading the above groups notes the following:

"Yet H.R. 5034 could impede these positive trends. It would allow states to reverse course and
pass protectionist laws for just about any alleged reason at all. And it makes it nearly impossible
for anyone to challenge those laws in court. This bill would harm consumers while serving only one special interest: wholesalers who support protectionist laws to protect their role as middlemen."

Angela Logomasina from the Competitive Enterprise Institute has been a vocal opponent of H.R. 5034 and, in announcing the delivery of the Coalition Letter to Congress, went a bit further and addressed the politics behind H.R. 5034:

"Wholesalers fear that if states continue to allow direct-to-consumer
sales, they might eventually allow retailers to buy direct as well,
reducing wholesaler profits. 'While wholesalers play an important role in the distribution process,'
she notes, 'they should have to compete like everyone else for their
place in the market rather than gain it by regulatory fiat.”

We agree.

WHOLESALERS SUPPORT FREE TRADE—APPARENTLY
Recently Craig Wolf, President of the Wine & Spirit Wholesalers of America, one of the primary organizations pushing H.R. 5034, announced that his organization has seen the light and no longer supports discriminatory laws that prohibit the direct shipment of wine by wineries. In an interview with Wine & Spirits Daily Wolf said:

We think that the Granholm decision was correct when it comes to facial
discrimination. You should not be able to facially discriminate when it
comes to producers."

This is a significant revolution in wine wholesalers' view of the issue. In his Friend of the Court brief written for the Supreme Court in the Granholm v. Heald case, Wolf stated:

"The theory advanced by the plaintiffs—that if a state permits in-state vendors to sell alcohol directly to consumers if must allow out-of-state vendors to do so as well—contradicts more than 70 years of regulatory history under the twenty-first amendment…Despite plaintiffs' arguments to the contrary, the dormant Commerce Clause does not prevent States from instituting local control over alcohol sales….In limiting the right of direct selling to in-state entities over whom the States can exercise the greatest possible oversight, the States are employing just the kind of regulatory authority that the Twenty-first Amendment is meant to protect."

While we are happy that the Wine & Spirit Wholesalers Association claims to have seen the light, we note that their new position somehow implies that while they think producers should not be discriminated against, they still believe that states should be allowed to discriminate against out-of-state retailers—a position that, when applied in state law, significantly hinders consumers access to the vast majority of wines available in the United States.

H.R. 5034 AND STOPPING MARKET EFFICIENCIES
However, this issue brings us back to the primary reason why H.R. 5034 is being pushed by wholesalers and to Ms. Logomasini's statement concerning retailers buying direct from producers. Undoubtedly, wholesalers most fear the notion of beer, wine and spirit producers selling directly to retailers and restaurants across state lines without the state-mandated use of a middleman wholesaler. If the Granholm decision instructs that an out-of-state producer must be allowed to sell directly to consumer if in-state producers are allowed to, does this not also mean that an out-of-state producer must be allowed to sell to a retailer or restaurant if in-state producers are allowed to go around the wholesaler and deal directly with retailers in their state?

The answer is yes and this answer most certainly disturbs wholesalers. While I've read a number of wholesaler advocates claim that that producer-to-retailer shipping is too difficult and not efficient and that the ability of producers in one state to market and sell their goods to retailers in another state is inefficient, this is certainly not always the case. Furthermore, it appears that logistics technology combined with the transaction technology associated with on-line sales makes such a marketing channel more and more realistic.

Just like it happened in Washington State in the Costco case, it is quite possible that other states may see lawsuits that challenged discriminatory laws currently in place that allow all in-state producers to sell directly to retailers in that state, but prohibit out-of-state producers from selling to the same retailers and restaurants. And just as in the Costco case, under the Granholm ruling those laws would be found unconstitutional.

With the passage of H.R. 5034, such discriminatory laws concerning "self distribution" by producers would be unchallengeable.

There are any number of reasons to oppose H.R. 5034 and to work to assure it never passes out of the House Judiciary Committee if it ever gains a hearing. Maintaining the principle of Granholm v Heald is the most important reason, however. The Granholm decision provides the basis for allowing the alcohol beverage market to modernize and become more efficient. If H.R. 5034 passes, that hope for a more efficient and robust and modern alcohol beverage market that retains an underpinning of state regulation—an necessity, no doubt—will disappear.