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Shipping Wine State-To-State: Isn’t It About Time??

shipping-wineA lot of people are not happy with this state of affairs, and they’ve been going to court to break down those barriers. People like the Coalition for Free Trade (CFT), the Wine Institute (San Francisco) and Free The Grapes!, an advocacy group based in Napa, CA, made up of 300,000 consumers plus various organizations, including CFT and the Wine Institute.

Lined up against them are the states that ban direct ship. ping (as the process is called), supported by the Washington, DC-based Wine and Spirits Wholesalers of America Inc. (WSWA). It backs the states in their rights to regulate the importation and shipment of wine in accordance with the 21st Amendment.

The battle is fierce because, claims the WSWA, the entire three-tiered system of alcoholic distribution in America is at stake: from supplier to wholesaler to retailer.

“It’s a system that has worked for 69 years, ever since the 21st Amendment was passed in 1933,” says Craig Wolf, general counsel of the WSWA. “It keeps the market orderly, it ensures the collection of appropriate taxes, and it helps keep alcoholic beverages out of the hands of minors. It’s also solidly based in Constitutional law, since no Supreme Court or appellate court decision has ever diminished the authority of the 21st Amendment. Allowing direct shipping would shatter the three-tiered system and severely compromise the control we now enjoy over alcoholic beverages.”

On the retail front, the Bethesda, MD-based American Beverage Licensees, an association of off-premise licensees and on-premise proprietors, lines itself up with WSWA in opposition to direct shipping.

But the retail picture is a bit mixed. Beverages & More, for example, with 28 stores in California, has a direct shipping operation on the Internet, while Whole Foods, a 143-store supermarket chain based in Austin, TX, does no direct shipping. FMI, the nation’s largest grocery trade association, with 2,300 member companies and 26,000 retail stores, has not yet taken a formal position on the issue.

Twenty-first Amendment or no, those in favor of direct ship. ping have no problem finding support within its hallowed phrases. “We have the Constitution on our side, as well,” say they. It lies in the Commerce Clause:

Section 8, Clause 3: [The Congress shall have the Power] to regulate Commerce with foreign Nations, and among the several States, and with Indian Tribes.

Inherent in that clause, say direct shipping advocates, is a “dormant clause” that prohibits states from putting up inappropriate impediments to interstate commerce–since Clause 3 clearly states that only Congress has the power to regulate commerce “among the several states.”

“However,” says WSWA counsel Wolf, “the dormant clause is a construct–a negative implication of the commerce clause.” In other words, it really doesn’t exist.

But exist or not, it apparently has had an impact, because through the years the barriers against direct shipping have come down. While 28 states ban direct shipping, 22 states now permit it.

It was not always thus. For 50 years after the 21st Amendment was passed, all states banned it. But in the 1980s winery trade groups mounted their campaign to change the laws.

NEW YORK STATE OF MIND

One of the more recent skirmishes took place in the US District Court in Manhattan. As one of the largest wine consuming states, New York is a pivotal battleground so federal judge Richard M. Berman’s ruling last November dealt a heavy blow to banning advocates when he declared that prohibiting out-of-state wineries from shipping wine directly to consumers in New York is unconstitutional. He also said that the New York State law is discriminatory and is intended to protect wholesalers.

Judge Berman then set December 5, 2002 to hear proposals for a solution and on that date he issued an order that allowed out-of-state wineries to ship directly to New York consumers. As expected, it was immediately appealed by the state, which is where the matter now stands.

With all this litigation going on in New York, Virginia, Texas, Indiana and other states, the road is clearly marked toward the Supreme Court for a final decision. It’s estimated that it will take two to five years before it reaches that height, and then, presumably, the issue will be resolved: Whether it’s the 21st Amendment or the dormant commerce clause that is the true law of the land in the matter of direct shipping. A great deal depends on it.

A CONSTITUTIONAL ISSUE

There are approximately 2,100 wineries in the US, an increase of 500 percent in the past 30 years, and most of them are small; 2,050 wineries produce only 5 percent of the nation’s wine. They are the ones who are being hurt by the ban and will benefit most if it’s dropped, claims Free The Grapes!, since many of their wines never reach the nation’s wholesalers. Wholesalers simply don’t have room for the 10,000 new wines produced each vintage.

“Consumers should be able to buy the wines they want however they want to; by fax or phone or online from retailers or wineries,” says Jeremy Benson, executive director of Free The Grapes! “Wholesalers, on the other hand, want to protect their monopoly and the result is unfair restrictions on consumer choice.

“But,” adds Benson, “we do call for legal and regulated direct-to-consumer shipments, requiring such things as over-21] ordering, adult signatures, limits on quantities shipped and payment of taxes.”

The WSWA, on the other hand, sees dire consequences for both the public and retailers if a court were to dilute a state’s 21st Amendment power to regulate or prohibit direct shipments.

As stated by C. Boyden Gray, WSWA outside counsel, in a Summary Position paper prepared for the FTC: “Part of the reason the three-tiered system works so well is that…there is an intermediary between the supplier and retail tiers designed to ensure that large suppliers with market power do not dominate individual retailers to the exclusion of other suppliers who might try to break into the market.”

As far as the public is concerned, the WSWA predicts that if a court abrogates a state’s authority under the 21st Amendment, the results will be a loss of tax revenue and increased use by minors of alcoholic beverages. (“Most teenagers between 18 and 21 possess credit cards allowing them to order online,” says the Summary Position paper.) Such abrogation would constitute an unprecedented breach of the Constitution, avers Wolf, that could seriously undermine state authority.

This last is perhaps the weightiest consequence in some quarters, since the amount of wine sales involved is not that great; it’s estimated that if direct shipping were to be totally unrestricted, no more than 5 percent of wine revenue would flow through that channel.

So it’s not just the wine. It’s the Constitution. And the Constitution, say both sides, is nothing to fool around with.

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