On the Hill: Anti-Consumer Wine Shipping Regulations

You may have missed this news item, but recently the House Judiciary Subcommittee on Courts and Competition Policy held hearings on alcohol regulation and the three-tier system. You can watch the hearing online and read written testimony as well. It is good that policymakers are focused on the mess created by anti-competitive alcohol regulations. But rather than considering ways to fix a bureaucratic and unfair regulatory mess, the subject was legislation that promises to make things worse.

The legislative proposal–apparently a draft developed by beer wholesalers–at hand would grant states more authority to impose interstate restrictions on alcohol trade. It challenges Supreme Court rulings designed to prevent interstate protectionism by requiring states to treat intrastate and interstate wineries the same. Hence, if a state allows its wineries to ship wine to other states, they must wines from other states to ship to their consumers. Wholesalers seem to fear that the continued expansion of such trade reduces their role as middlemen between wineries and retailers–cutting their profits. It is doubtful that the wholesaler industry would disappear completely. In some cases it may cut out the middleman, but this is good for consumers who benefit from greater choice and potentially lower prices.

At the hearings, Rep. George George Radanovich (R-Calif.), founder of the Congressional Wine Caucus and a winemaker himself, offered excellent testimony pointing out what is at stake. He noted:

There is draft legislation floating around the House that is associated with this hearing today. It is. It is believed to be promoted by the beer wholesalers, and they present this committee today with a very long, broad and quite frankly, outrageous wish list.

• They want Congress to grant the States an antitrust exemption. They want state laws to override federal and Constitutional mandates.
• They want Congress to overturn a long line of judicial decisions that have consistently recognized state rights to regulate alcoholic beverages as long as they don’t discriminate.
• They want states to be relieved from having to prove that their own statutes and regulations are constitutional.

We certainly do need to reform the system, but as Radanovich notes, reform should focus on opening the system further. Recently, the trend has been positive as the courts have pushed states away from regulations that are essentially vestiges of our failed our experiment with prohibition. With the repeal of prohibition, the Twenty-First Amendment also carved out a regulatory role for the states. Section 2 of the amendment reads: “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.” This provision has encouraged the three-tier system and is now sometimes hailed as a “state’s rights” provision.

Yet the Constitutional understanding of state’s right’s was never meant to protect middlemen or create state monopolies in any industry, such as the government liquor stores found in places like Pennsylvania. Nor was it ever meant to impede trade within or between states. In fact, one of the key reasons that the founding fathers established the Constitution was to address anti-competitive trade polices between the states. State’s rights more aptly applies to freedom from the heavy hand of federal government mandates coming from Congress. True, the doctrine allows states to pass foolish regulations if they like. But it should not be used as an excuse to advance foolish, anti-competitive trade restrictions.

The key point here is you can be pro-state right’s in the traditional sense and also oppose policies to allow interstate trade restrictions. Radanovich makes that point:

I ask you to be on the side of state rights, but state rights that are measured by the principles of our country’s Constitution and antitrust laws. It is right that they have access to Congress to make their request, and it is right to allow them a forum to express their fears about the holdings in the current series of judicial decisions. They ask a lot, but what they ask for is not justified. What they fear is nothing less than the US Constitution and antitrust laws. There must be extraordinary reasons why States should get a free pass from the Constitution or antitrust laws, and I predict that you will not hear such reasons today.

It is worth noting further that liberalization of the wine market has not all been driven by the courts. Many states are opening their markets simply because consumers are demanding greater access. These are good trends that policymakers should encourage. Legislation that would turn the clock backwards, is simply anti-consumer.