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Congress Holds Hearing on Bill Threatening Wine Direct Shipping

H.R. 5034's chances of passing in 2010 look slim, but supporters are expected to try again next year

Robert Taylor
Posted: September 30, 2010

It was not an encouraging sign for supporters of House Resolution 5034, the bill that would give states stronger powers to restrict and possibly block direct shipping of wine. During a hearing yesterday before the House Judiciary Committee, Rep. Ed Towns (D-N.Y.) testified in support of the bill. In his closing remarks, he said, "Cheaper, more plentiful alcohol would be the result if we fail to act on this bill."

Committee Chairman John Conyers (D.-Mich.) asked Towns which way he should vote to get cheaper alcohol, as many in the audience chuckled. "I oppose cheaper alcohol," said Towns. Laughing, Conyers said, "You just slid into an invisible minority!"

Yesterday's hearing was a key test for H.R. 5034, or the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act of 2010. The Judiciary Committee will decide whether the bill heads to the floor of Congress for a full vote. But time is running out in this session, and few members of the committee suggested they considered the bill an urgent priority. Direct shipping supporters, however, worry that the bill's biggest backers, alcohol wholesalers, will merely make a new concerted push for it next year.

The controversial bill, introduced in April and recently revised by Rep. William Delahunt (D.-Mass.), would give states the opportunity to reverse five years of winery-to-consumer direct shipping legislation dating back to the Supreme Court's landmark Granholm decision, which ruled that state alcohol distribution laws cannot discriminate between in- and out-of-state wineries. H.R. 5034 would put the Constitution's 21st Amendment, which gives states control over alcohol sales, above the Commerce Clause, which forbids restrictions on interstate trade.

During yesterday's hearing, supporters of the bill argued that Granholm had weakened states' ability to regulate alcohol sales and increased minors' access to alcohol. "I am not opposed to lower alcohol prices for consumers," said Rep. Gary Miller (R.-Calif.), then added, joking, "or for members of Congress." But Miller argued that recent wine sales litigation and legislation has facilitated underage drinking. "Minors on the Internet can order wine with the click of a mouse," he said.

"I authored this bill because I believe it is an issue that demands immediate attention, to prevent the unraveling of America's system of alcohol regulation," said Delahunt, a member of the Judiciary Committee. Utah Attorney General Mark Shurtleff also argued that Granholm has put states' regulatory powers under attack, commenting that there have been 35 lawsuits in 27 states since the Granholm decision.

Another of the bill's sponsors, Rep. Lamar Smith (R.-Texas), offered his support, but acknowledged that the bill may have some problems, expressing an interest in compromise language—something later echoed by other members of the committee. "As I've told many of the wineries in my home state, I recognize that the legislation perhaps went too far, and I am pleased that Mr. Delahunt is preparing a manager's amendment that addresses many of their complaints," Smith said. "What specific suggestions can those who oppose this bill make that will enable us to address their concerns without hampering this effort to preserve the three-tier system that has served us so well?" he asked.

But speakers opposed to H.R. 5034 did not consider compromise an option and argued that the three-tier system does not work as well as Smith suggested. "Passage of 5034 risks exposing a delicate balance to unintended consequences," said Richard Doyle, CEO of Harpoon Brewery, speaking on behalf of the Brewers Association. "State laws provide wholesalers with strong leverage: We are always the away team, playing in a state system that favors the home team—wholesalers. H.R. 5034 would undeniably make that situation worse. Not only would we be playing away, but the state-based referee would not have any concern about being tempered by federal oversight."

Anti-trust expert Prof. Einer Elhauge of Harvard Law School echoed Doyle's sentiments a few minutes later on behalf of the Beer Institute. "The act would greatly increase legal uncertainty and could be expected to spawn new legal conflict and litigation," he said.

Attorney Tracy Genesen, testifying on behalf of the Wine Institute, labeled H.R. 5034 a gift to wholesalers. (As reported in a previous Wine Spectator investigation, the National Beer Wholesalers of America and the Wine and Spirits Wholesalers of America have contributed heavily to members of Congress since the Granholm decision, and the bill's language closely matches a bill proposed by the NBWA.) "H.R. 5034 is a piece of special-interest legislation for the benefit of those wholesalers, at the expense of retailers, producers and consumers—literally everyone else," Genesen said. "Today's wine-distribution system is shaped like an hourglass, with thousands of producers at the top and millions of consumers at the bottom, but only a few wholesalers in between to distribute their products," she said. "Wholesalers have an interest in maintaining this exclusive grip on the bottleneck between producers, retailers and consumers." Conyers described her testimony as "very persuasive."

One witness at yesterday's hearing did not write his own testimony, it later emerged. The Salt Lake City Tribune reported that Utah Attorney General Shurtleff's testimony was partially written by Paul Pisano, general counsel for the NBWA. "He gave me some information," Shurtleff told the Tribune. "I was communicating with him, and he drafted it for me because I was coming straight [to Washington, D.C.]" Shurtleff explained that Pisano arranged for his trip to the nation's capital.

Time is running out for H.R. 5034's supporters to pass the bill this year. Shortly after the hearing, Congress voted to adjourn until the Nov. 2 elections have concluded, and H.R. 5034's only chance at a vote would come during what should be a very busy lame duck session.

"We were not seeing any engagement on the issue of underage access [from the Judiciary Committee members]— nobody was really buying that," Genesen told Wine Spectator after the hearing. "If this was some huge important deal you'd get more members [attending]. It was supposed to be a full committee."

The Wine Institute plans to conduct a poll of Judiciary Committee members and lobby those who are undecided. Even with the chances of passage looking slim in 2010, Genesen is certain this won't be the last they've heard of the CARE Act. A new version of the bill is expected to be introduced in the House in 2011, and perhaps on the other side of Capitol Hill. "There's a feeling that this might not go away," Genesen said, "And [wholesalers] might try their hand over there [in the Senate]."

Alex Andrawes
USA —  September 30, 2010 3:35pm ET
Here we go again. The debacle, spectacle or side-show circus of special interest legislation taking on a new facelift in the form of "revised language." What legislators are doing, if they pass this bill, is open up the ability for to manipulate the Dormant Commerce Clause giving powerful oligopoly industries the ability to have a carte blanche to dictate and cement their future. Using the law to manipulate the constitution is a dangerous thing and threatens every fabric of our society by invalidating directly the Constitution of the United States of America. Never has there been a case where a minor has purchased alcohol over the internet. Surely as the special interest groups try to validate their claims of "what if" hundreds of millions of dollars in state tax revenues will be lost, competition remains unfair, and the wineries/retailers who are critical components to the alcohol industry will suffer. What is worse is that you as the consumer will be forced to like only what you can get. No other country has these ridiculous regulations and if our laws continue to move backwards due to legislators returning favors for campaign dollars, our entire country will do the very same thing, move even farther back from maintaining super power status. This is not capitalism, this is corruption. This is not free trade and this is most definitely not in the best interest of the citizens of this country.
Daniel Posner
New York —  September 30, 2010 6:15pm ET
The Utah AG let the wholesalers write his speech. Classic!
Rio Hill Wine & Gourmet
Charlottesville VA —  September 30, 2010 11:31pm ET
The argument that minors can order with the click of a mouse is absurd and ignorant. It is sickening to hear it repeated over and over. This bill serves one tier of the 3 tier system in it's entirety. Make no doubt about it. All the wholesalers want to ensure is that they get their tax on every bottle of wine a consumer purchases so of course they do not want you to order direct from a winery. God forbid anyone else be able to make money in this business. Why is it I can get prescription medicine delivered to my mailbox without a signature and I can hardly order a bottle of wine online as it is now anyway. The system is hardly open but at least we have made some progress. If this bill passes it will hurt many wineries. Please consumers, contact your legislators and tell them to vote no on any bill that restricts direct shipping of alcohol!
Sterling A Minor
Houston, Texas, USA —  October 1, 2010 12:08am ET
The argument that minors can order wine with the click of a mouse is absurd and ignorant. The price of "cheap" wine becomes outrageous with the cost of shipping at $5-10 a bottle; if one ships wine to a home it becomes too hot or too cold waitng on the steps until school is out; parents can find it; the mailman can report it; UPS and FedEx will not deliver without (adult) signature, etc.
Steve Hughes
Nederland, TX —  October 1, 2010 2:04pm ET
Let it be known from this point forward that I will work my fingers to the bone to un-elect any legislator that supports this bill even if they are not from my home state of Texas. To label this legislation as "absurd" is being too kind to the legislation and the legislators who would support it. The mere fact that it's being debated at all is the embodiment of the problems that we have in this country.
Danapat Promphan
Cincinnati, OH —  October 3, 2010 1:11am ET
Agree with S. Minor. It is much easier to ask your "over 21" friends to buy alcohol than buying from the internet. Wholesaler have no proof that x% of underage drinking come from internet order. My guess would be less than 1%.

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