- The Washington Times - Saturday, May 21, 2005

On Monday, the U.S. Supreme Court effectively ended the legacy of Prohibition. Its ruling on the direct shipment of wine will expand markets for small family wineries and give consumers nationwide more choice and lower prices.

New York and Michigan have only allowed producers to ship directly to consumers within their respective state borders. Wineries from states such as California, the nation’s top wine producer, were prohibited from shipping their products to consumers in those states. Monday’s 5-4 high court decision in Granholm v. Heald ended that discrimination.

“States have a broad power to regulate liquor,” wrote Justice Kennedy. “This power, however, does not allow states to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers. If a state chooses to allow direct shipment of wine, it must do so on evenhanded terms. Without demonstrating the need for discrimination, New York and Michigan have enacted regulations that disadvantage out-of-state wine producers. Under our Commerce Clause jurisprudence, these regulations cannot stand.”

The main argument against directly shipping wine was it promotes underage drinking, though indulgence by juveniles did not seem an issue with in-state sales in New York and Michigan. The issue was more about protectionism, pitting wineries and consumers against a cartel of state regulators and wholesalers.

The 21st Amendment, which ended Prohibition, established a three-tier system involving producer, wholesaler and retailer. Wines from outside of New York and Michigan were subject to this system, which had problems beyond its constitutionality.

In recent years, wholesalers have consolidated heavily while winemaking have exploded to more than 3,500 firms and wine consumption has increased. Huge wholesalers, with their quasi-monopoly advantage, have been unable or unwilling to keep up with the many new wine labels.

There are more than 25,000 wine labels in the United States but only some 500 are available in the larger market. Many consumers still cannot buy new vintages or must pay higher prices due to the middleman’s cut.

A Federal Trade Commission study from July 2003 noted e-commerce on wine offers consumers lower prices and more choices. State bans on direct shipping, the study found, prevent consumers from saving up to 21 percent.

The study found no evidence direct shipping promotes underage drinking. Juveniles bent on binge drinking don’t order wine over the Internet and wait three days for UPS delivery.

California, the major wine-producing state, passed legislation in 1985 to allow for direct interstate shipment of wine to consumers within the state. Currently there are 13 “reciprocity” states, up from four a decade ago, which allow direct shipping from states that offer the same privilege. A majority of states, 26, have adopted legislation creating some regulatory structure for directly shipping wine to consumers. Monday’s ruling is likely to expand that number.

“The ruling is a victory for consumers, as well as the great wineries of California,” said California Attorney General Bill Lockyer. “The laws struck down by the court were not adequately justified as needed to further any regulatory concerns. They were economic protectionism, pure and simple.

“The court rightly found such protectionism has no place in this country’s free market-based system and violates constitutional safeguards for interstate commerce,” Mr. Lockyer stated.

Free the Grapes, a coalition of more than 300,000 wine lovers and 2,200 wineries, notes that states still must pass laws favorable to direct shipping. However, trade associations such as the Wine Institute and Family Winemakers of California will find it easier to work with legislators.

Removing trade barriers will mean more open markets, more new wineries, lower prices and expanded choice. Wine lovers around the nation should raise a glass to the court decision.

K. Lloyd Billingsley is editorial director of the California-based Pacific Research Institute and author of PRI’s “Wine Wars: Defending E-Commerce and Direct Shipment in the National Wine Market.”

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