An exchange with Representative Kevin McCarthy on HR 5034 and direct shipping

On April 15th, H.R. 5034 was introduced into the US House of Representatives.  This bill, written by the Beer Wholesalers of America and titled the "Comprehensive Alcohol Regulatory Effectiveness Act of 2010" [Get it? The "CARE Act"] would write into law the primacy of the 21st Amendment, which repealed prohibition, over the Commerce Clause of the US Constitution, which gives the federal government exclusive power to regulate interstate commerce.  The net impact would be to allow states to write laws which allow their own in-state wineries (and breweries) to ship direct to consumers but prohibit out-of-state wineries (and breweries) from doing the same.  Read the full text here.

Of course, local wineries, and the in-state jobs that they represent, have been one rallying point for the advocates of direct shipping.  And direct shipping has been largely victorious in the nearly five years since Supreme Court ruled in Granholm v. Heald that states were not allowed to discriminate in favor of in-state interests in their alcohol regulations.  At that time, we could ship to 13 states.  Later this month, we will add Maine as our 31st legal shipping state.  The end result of the deregulation has been more choices for and lower prices to consumers, and more tax revenue to states, who have nearly all written shipping laws that require out-of-state wineries to remit state and local taxes on the wines they ship into the state.

Of course, one tier has been left out of the celebration: the wholesale tier, who in the era before direct sales collected a state-mandated markup on every bottle of beer, wine and liquor sold in every state.  These wholesalers are licensed by each state, and are often the single largest contributors to state political campaigns.  And although direct shipping of beer and wine is a tiny proportion of all sales and largely covers products that are not available through distribution, wholesalers have mobilized in force against direct shipping.  It's really amazing that so many direct shipping laws have been written in the last five years given the money and political muscle that have been lined up against each one.

With state ploys for legal discrimination being eliminated one by one in the courts (the most recent, a Massachusetts capacity cap under which all in-state wineries fell, was reaffirmed as unconstitutional by the First Circuit Court of Appeals in January) wholesalers have evidently turned to the federal government for help.  Hence H.R. 5034.

Although the bill has yet to be brought to the floor of the House for a vote, I did not want to be complacent about its prospects.  So, I wrote our local congressman, Representative Kevin McCarthy of California's 22nd District, to urge him to oppose the bill.  I assumed, given that his territory includes both Paso Robles and Bakersfield (wine producing regions) that he would be opposed to the bill.  His response suggested to me that he had not yet considered the bill's impacts on his district, and that he was taking the legislation's sponsors at their word when they said that this was an issue of states' rights.

I thought it would be interesting to post our exchange.  I have a few concluding thoughts (as well as how to contact your own representative) below the emails.  First, from last Thursday:

Dear Representative McCarthy,

We met a few years ago at an event organized by the Paso Robles Wine Country Alliance about immigration issues.  This is much more pressing to us, and to every small wine producer in the Paso Robles region.  I hope you will oppose HR 5034, a bill sponsored by beer wholesalers that would overturn winery-to-consumer shipping around the United States.

The legislation is couched as addressing public safety and states' rights, but is better described as an effort by wholesalers to protect their monopoly and choke off a potential source of competition.  If it passes, it will eliminate consumer access to thousands of small wineries and tens of thousands of wines, nearly all of them with such small productions as to be irrelevant to distributors.

HR 5034 has been condemned by winery associations including the Paso Robles Wine Country Alliance.  It would choke off the lifeblood of most small wineries in our area and around the country.

Please let me know how you intend to vote on this important issue.

Sincerely,
Jason Haas

I received a response this morning:

Dear Jason:

Thank you for contacting me in opposition to H.R. 5034. 

According to the bill's sponsors, H.R. 5034 is intended to reiterate the three-tier system of alcohol regulation in the U.S., and to ensure that states retain their traditional regulatory authority over alcohol distribution, which are areas that I support. However, I appreciate your concerns that the legislation could negatively impact wineries, especially small ones, in California. Given these concerns, I will closely monitor this legislation before making a final decision on this bill should it come to the House floor for a vote.

Thanks again for contacting me on issues of importance to you. If you would like additional information on services my office can provide you, my votes and positions on issues facing our nation, and to subscribe to receive periodic "e-newsletters," please visit my website at http://kevinmccarthy.house.gov/.

Sincerely,

Kevin McCarthy
Member of Congress

I responded to him just a few minutes ago:

Dear Representative McCarthy,

Thank you for your response to my earlier note regarding HR 5034.  In your response, you write:

"According to the bill's sponsors, H.R. 5034 is intended to reiterate the three-tier system of alcohol regulation in the U.S., and to ensure that states retain their traditional regulatory authority over alcohol distribution, which are areas that I support."

Please, in your deliberations, recognize that nothing currently prevents states from regulating alcohol in any way they choose.  Some states force all wine to go through the three-tier system and prohibit wine shipments entirely.  Others only allow it only for wineries of a certain size.  Others allow shipment into some areas and not others.  Others allow wineries and retailers to ship.  The only prohibition is that states not discriminate in favor of in-state wineries.  The major beneficiaries of the free trade that has resulted from the Supreme Court prohibition of discrimination have been the small wineries of California, over 200 of which are in your district.

While the sponsors of the bill would have you believe that this issue is one of states' rights, it is instead an issue of legislated monopolies (the liquor distributors) trying to eliminate their competition (your small wineries).  If you support free trade, you should oppose this bill. 

The passage of HR 5034 would likely result in dozens of local wineries having to close, the elimination of hundreds of good local jobs, and blunt the most powerful engine of the vibrant Paso Robles economy.

I hope that you will oppose this dangerous bill.

All the best,
-Jason

I find it hard to believe that a California representative, and a member of the Congressional Wine Caucus, would take a bill like this at face value.  If a representative who has a territory with such a vested interest in expanded access to direct shipping can be so willing to accept the justifications of the wholesalers' lobby, what can the prospects be in the rest of the country?

If we expect the members of Congress to see this bill for what it is -- an anticompetitive money grab by big businesses with legislated monopoly power -- we need to make our voices heard.  Please speak up!  As usual, the Web site Free the Grapes is a great resource.  Or, you can also go straight to a page where you can customize and have notes sent to your senators and representatives.  And please continue to spread the word.  There is a Facebook group dedicated to stopping HR 5034, and a quick blog search on HR 5034 turns up nearly 4000 articles, led, appropriately, by Tom Wark's full-throated repudiation of the wholesalers' claims.