Online Wine Sales Uncork a Hill Battle

Posted October 31, 2003 at 4:58pm

Congress may have ended prohibition 70 years ago, but now small vintners believe the law that repealed it, the 21st Amendment, hinders their ability to hawk their wine across the country in the 21st century.

The vintners took their case to Congress last week, arguing at a House hearing that the commerce clause of the Constitution gives them the right to ship their goods throughout the states unfettered.

But they’re being opposed by the powerful Wine and Spirits Wholesalers of America, which believes that online sales of any alcoholic beverage — including wine — might encourage underage drinking and cost states tax revenue (in addition to taking a bite out of the wholesalers’ profits).

Locked in the middle is the Federal Trade Commission, which issued a report in July concluding that “states could significantly enhance consumer welfare by allowing the direct shipment of wine to consumers,” according to Todd Zywicki, the commission’s policy planning office director.

That apparently held a lot of weight with members of the House Energy and Commerce subcommittee on commerce, trade and consumer protection, which held a hearing Thursday on the issue of state intervention in online wine sales.

“If the FTC staff report analysis holds true for markets other than McLean [Va., the site for the FTC study], I find it persuasive that states should pursue less restrictive forms of regulation of direct interstate wine sales than outright bans,” said Rep. Cliff Stearns (R-Fla.), the subcommittee’s chairman.

The winemakers argue that states restrict online sales to promote local vineyards and please the wholesalers.

“This debate is not really about underage access,” said David Sloane, president of the vintner trade group WineAmerica. “This debate is not really about tax evasion; and this debate is most decidedly not about a public galvanized against direct shipment. This debate — as a very wise poet once said — is all about the ‘money, honey.’”

The winemakers have several allies on the panel, including former vintner Rep. George Radanovich (R-Calif.).

“It’s five percent for the kids and 95 percent ‘for the money, honey,’” Radanovich said.

“This is about money and it’s about market share and that’s OK, but hopefully it will clear up the issue of underage sales,” he said, pointing out that the FTC report declared such sales negligible in states that allow regulated shipping of wine.

The wholesalers, however, sharply disputed that finding and pointed to their own sting operation in which minors were able to purchase alcohol via the Internet with no difficulty as proof that states should be allowed to heavily regulate and ban such sales if they so choose.

They also maintain that the prohibition-repealing amendment leaves the regulation of alcohol sales up to the states.

“Through the 21st Amendment and later Congressional actions, this country made a decision it stands by today: that there should be a separation of the manufacturing, wholesaling and retailing tiers of the alcohol industry, and that states have the jurisdiction to encourage the goals of temperance, control and revenue collection,” said Juanita Duggan, president of the Wine and Spirits Wholesalers of America.

Rep. John Shimkus (R-Ill.) declared during the hearing: “Does interstate commerce trump the 21st Amendment? That is the basic question.”

And indeed it is. That query is currently being pursued in at least a dozen court cases.

“I know that this debate highlights the tension between the commerce clause and the 21st Amendment to the Constitution,” Stearns said. “I am confident, the Supreme Court, in time, will address this matter.”

Thursday’s hearing on the matter was part of an ongoing series the House Energy and Commerce Committee began three years ago looking into state regulations impeding electronic commerce.

In particular, Stearns said last week’s hearing was a follow-up to a session the subcommittee convened last year.

“At that hearing we heard testimony on state legal and regulatory impediments that were undermining consumer choice and e-commerce with respect to three products and services: auctions, contact lenses and wine,” Stearns said.

“Just four weeks ago, the [full] committee approved H.R. 3140 removing a number of state regulatory barriers … [to] online contact sales.”

But while the House was able to take action on the contact lens matter, it did not raise sticky constitutional issues, those embroiled in the wine dispute say.

Congress is charged with ensuring the free flow of trade among states under the Constitution’s commerce clause, Sloane pointed out.

When the issue of alcohol and the 21st Amendment is raised, he said, “it’s a lot more complicated than contact lenses.”

“If Congress tried to pass something, it would be a bloodbath,” he claimed, acknowledging that both sides have powerful allies in their respective camps.

Duggan agreed that unless Congress wanted “to convene a Constitutional convention” the matter was likely to be settled by the courts and individual states.