Supreme Court to hear interstate shipping arguments

  • Monday 6 December 2004

In a hearing that could radically alter the way Americans buy and sell wine, arguments for and against interstate free trade will be put to the US Supreme Court tomorrow.

The Supreme Court, in Washington, will hear oral arguments in historic free-trade cases brought from New York and Michigan. The outcome, expected by June, may reshape America’s wine marketing.

At issue is a collision between the Constitution’s Commerce Clause, which prohibits states from discriminating against out-of-state competitors, and the Constitution’s 21st Amendment, enacted in 1933 after Prohibition ended, which gives states the right to regulate alcoholic beverage sales.

Many states instituted rules requiring out-of-state alcoholic beverage sources like vintners to sell their goods only to licensed wholesalers or distributors, who would resell them to licensed retailers and restaurants.

This so-called three-tier system is under attack by small wineries that want to service Internet customers in New York and Michigan. Neither state permits out-of-state wineries to ship alcohol directly to in-state customers.

This system is defended by middlemen and state regulators, who maintain that interstate shipping would increase drinking by underage Internet users, and promote alcohol abuse. State regulations, they also argue, facilitate tax collections by wholesalers.

The main foes of direct shipment and online sales are a trade organization called the Wine and Spirits Wholesalers of America plus social-conservative temperance groups and evangelicals. They say the 21st Amendment overrules the Commerce Clause.

But small winemakers, represented in court by a Virginian and a Californian whose out-of-state tasting-room visitors can’t order from home, reply that legalized economic protectionism is the real issue. They argue that the shrinking number of distributors nationwide fear diminution of their multibillion-dollar monopoly. Many of America’s 3,726 wineries in all 50 states don’t produce enough wine to interest distributors.

Twenty-four states – including New York, Michigan and New Jersey – ban direct shipments to adults. Five states, including Florida, have made it a felony. After California, New York is the second biggest wine-consuming state.

A 2003 Federal Trade Commission study in effect supports the wineries’ position, concluding that states could limit sales to minors through means less restrictive than a direct-shipping ban.

Thirteen states, including California, have adopted reciprocity measures, under which they allow defined quantities of wines to be shipped directly among themselves. Governor George E Pataki of New York, proposed such a revenue-producing law this year but the Legislature, heavily lobbied by wholesalers, foiled it.

Last Thursday, Robert P Koch, president of the Wine Institute, a trade association representing 821 California wineries, said: ‘A favorable decision to end discrimination promoted by wholesalers would be good for wine consumers, regulators and tax collectors in states that pass legalized direct shipping, and a win for America’s small family wineries.’

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