COMMENTARY

Keeping Score on 5034

By Karl Klooster

Across the country, the wine industry is up in arms. It is speaking as one in adamant opposition to a piece of legislation that carries within its language the potential to choke off a vital source of revenue.

If you've been paying attention, as everyone whose livelihood is in any way connected to wine has, you already know at least a bit about HR 5034. It's been euphemistically titled "The Comprehensive Alcohol Regulatory Effectiveness Act of 2010," or CARE for short.

To fully grasp the implications, you should be aware that the backers of this bill stand to benefit from its passage primarily at the expense of smaller wineries, numbering some 7,000 nationally.

Those backers are state-licensed wine, spirits and beer wholesalers whose intention is to severely curtail, if not totally eliminate, the ability of wineries to ship directly to out-of-state customers.

At most recent count, some form of direct shipment is allowed in all but 13 states.

More and more, smaller wineries are coming to rely on this sales avenue to turn a profit. Not to have it would drive many out of business.

Wholesale distribution - the traditional method whereby wines have been put into the marketplace - serves large wineries well. But wholesalers, typically large and volume-oriented themselves, have little interest in representing Mom and Pop or boutique wineries.

Despite this reality - not to mention the fact that they already control the vast majority of wine sales - wholesalers seem to have adopted a care-less attitude.

HR 5034 would circumvent a precedent-setting case previously adjudicated by the U.S. Supreme Court.

In that 2005 case, Granholm vs. Heald, the court reaffirmed the regulatory rights of the states with regard to wines, as set forth in the 21st Amendment. At the same time, it ruled those rights cannot be applied in a discriminatory fashion or supersede the U.S. Constitution's Commerce Clause.

Some legal minds might praise the wording of HR 5034 as brilliant, but others would condemn it as diabolical, as it would fundamentally alter the grounds on which discriminatory laws and regulations may be challenged.

Under HR 5034, critics say, the burden of proof needed to overturn discriminatory laws would be defined in such limited and restrictive terms as to eliminate the possibility of effective litigation. It threatens the entire foundation of interstate commerce in wines, they say.

California's Wine Institute, which represents that state's 3,000-plus wineries, is vehemently opposed to HR 5034, despite the fact that its membership includes several of the world's largest wineries, in addition to a myriad of small producers.

The institute's official statement leads off by saying, "Proposed legislation, initiated and promoted by the National Beer Wholesalers Association, seeks to grant states unprecedented powers to allow wholesalers to pass anti-competitive, discriminatory laws dealing with wine, beer and spirits. We strongly oppose this ill-conceived effort to give wholesalers license to create and perpetuate an environment of discrimination and inequality."

Family Winemakers of California was equally vehement.

"FWC has spent the past 10 years working on direct shipping litigation on behalf of its 650 small producers, to help wineries without distribution and a retail presence gain access to new consumers," the organization said. "Litigation has been necessary, because wholesalers have concentrated political power at the state level. Without the lever provided by the courts on facially neutral laws that discriminate, we will see a concerted push to roll back direct shipping gains."

The Oregon Winegrowers Association reiterated these concerns, saying:

"The real effect of this bill would be to stunt competition, reverse years of long-established judicial precedent and severely limit consumer choice. Most of Oregon's 400 wineries depend, in part, and in some cases entirely, on their ability to ship the wines they produce to customers in other states.

"Two-thirds of the states now permit shipments under stringent public safety laws and requirements for tax payment. Some of these states were forced to open their borders to such shipments because of lawsuits from consumers seeking access to wines not available in their home states."

Alder Yarrow, blogger on www.vinography.com, had an interesting take on the proceedings. Wondering if the whole thing might be politically motivated, in the midst of perhaps the most contentious mid-term election year ever, he said, "It's not clear that Congress has the power to decide a basic intra-Constitutional conflict. The Supreme Court does that.

"If it is the sense of the Court that the Commerce Clause has primacy - which is not likely, given the current court - this proposed law is little more than a friend-of-the-court brief from Capitol Hill."

He continued: "If, on the other hand, the court opts for states rights and the 21st Amendment, then the law is redundant.

"One way or the other, the immediate effect of the law's introduction will be an influx of campaign contributions on both sides of the issue, just in time for next fall's election. Hey, you don't think that's why it was introduced, do you?"

And so, may we all ponder the motivation that prompted this no-holds-barred attempt to maintain what amounts to a monopoly. Surely, those behind it knew the negative hue and cry would be immediate and forceful, inciting criticism from many corners.

In fact, the reaction thus far is closer to outright condemnation. Whether there's an underlying agenda on the part of politicians or not, the American wine industry appears united in its resistance.

Please join them in the fight. Talk to your elected representatives both in Salem and Washington, D.C. Keep Oregon wines flowing across the country to discriminating consumers who appreciate their high quality and distinctive character. 

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