Hearings Set for Wednesday on H.R. 5034: Wholesaler Protection Act

Posted by Tom Wark on Sep 27, 2010

The House Judiciary Committee will hold hearings on H.R. 5034, known to some as the "Wholesaler Protection Act, on Wednesday, September 29 at 11:00am Eastern Time.

The hearings will be streamed live via the House Judiciary website at this URL:

http://judiciary.house.gov/hearings/hear_100929.html

The bill, now in its second iteration thanks in large part to the extraordinary and nearly universal condemnation of its effects and intent, is opposed by producers of beer, wine and spirits,, opposed by beverage importers and opposed by wine retailers. In addition, a number of public policy groups have come out opposed to the bill. It appears that within the wine industry only alcohol wholesalers support the bill. It happens that they also wrote the bill and if it passes would fine themselves in a position to further stifle competition and alcohol distribution reforms that aren't entirely favorable to them.

Although the witness list has not been officially released, word is that there will be a number of slots set aside for extremists that oppose any and all reform of the alcohol regulatory system so that consumers can access the wines they want. Yet, also expect to hear from calmer, more nuanced voices that insist that our laws and our customs recommend to states that they not inhibit consumer access to wines.

Having worked on the issue of H.R. 5034 on behalf of the Specialty Wine Retailers Association, I can identify the most repugnant aspects of the bill as it has been re-written: If passed, H.R. 5034 would strip wine stores and wine merchants of their constitutional protection against discrimination by state legislation. The Commerce Clause gives the federal government the right to regulate inter-state commerce. This means that states my not pass laws that discriminate against out of state commerce. Under H.R. 5034 wine retailers will have that protection stripped by act of Congress. This would be only the second time in the history of the United States that an individual industry had its protection from state discrimination removed. The first time was under the McCarran-Ferguson Act in 1945 when the insurance industry lost its commerce clause protection from discrimination.

The impact of this move on your local retailers would be devastating. Among the things states would be able to do under H.R. 5034 are:

-Allow states to stop out-of-state retailers from shipping to you even though your in-state retailers may.

-Prohibit advertising by out-of-state retailers

-Impose HUGE fees and taxes on out-of-state retailers for the right to do business in the state

-Prevent non-resident retailers from opening more than one outlet in the state.

In fact, the move against wine stores in this bill is so sweeping we can't even imagine the kind of mischief that states would be able to conjure under its all encompassing provisions.

Wineries too find themselves in jeopardy if the bill passes. Under its provisions, states will be able to pass laws that only allow wineries making less than a certain amount of wine annually to ship in. This means if you buy the small, single vineyard wines from larger wineries and have them shipped to you, you could lose that privilege.

Wineries could be prohibited from shipping wine into a state if they have a distributor there. Many wineries only sell 30 or 40 cases of their small production to a state wholesalers, then sell the rest out of their tasting room or by mail order. The amount of the wine given to wholesalers is quickly allocated to retailers or just restaurants and there is no more. The only way to get some is to buy direct from the winery. That option could be cut out.

The big question is why is this necessary? Why is H.R. 5034 so important

The proponents of H.R. 5034 argue that HR 5034 is necessary in order to assure states can continue to regulate
alcohol effectively.They argue
that lawsuits have damaged the states’ ability to regulate alcohol effectively.

On the contrary, what the lawsuits in various states challenging various laws have demonstrated is that
some of the states’ alcohol regulations have ineffectively guarded against the
discrimination of out-of-state goods that the Constitution requires them to
protect.

These hearings are important. They are the first time in many years that issues of alcohol distribution have been laid out, examined and debated in a national venue. And though many say this bill will not pass, I am not so sure. While it is unlikely that the bill will pass this session, it is entirely possible it will return in 2011 and could move quickly.