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Commentary

Only Distributors Reap Harvest of Wine Shipping Ban


     
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Suppose Mr. Jones, a New Yorker, wants to buy a new computer manufactured in California. He orders it from the company’s Web site and a week later, the computer arrives—no hassle, no trip to the store and, most importantly, no price markup from the local computer store. All perfectly legal.

But what if he wanted a case of Sonoma Valley chardonnay? In that case, he’d be out of luck. New York law prohibits the direct shipping of wine from out-of-state. Jones must buy from a local wine retailer, and the retailer must buy from a licensed distributor. Only the distributor can import the wine. Even if Jones finds the vintage he wants, he has to pay enough to cover the markups of both the distributor and retailer.

That soon may change. The U.S. Supreme Court has agreed to hear two legal challenges to direct-shipping bans such as New York’s. Depending on the court’s decision in Swedenburg v. Kelly and Granholm v. Heald, states may be forced to treat wine just like the thousands of other products shipped to consumers across state lines every day. Shipments of most products are protected by the Constitution’s interstate commerce clause, designed to prevent states from erecting barriers to each other’s products. The clause created a national “free trade zone” that helped make the U.S. economy the most powerful and prosperous in the world.

But according to New York, Michigan and several other states, the constitutional free trade zone does not apply to alcohol. Why? The moldy legal remains of Prohibition. The 21st Amendment, which repealed Prohibition, threw one small bone to the prohibitionists: It banned the transport of alcohol into any state “in violation of the laws thereof.” The likely intent was to allow individual states to continue local prohibition if they wished.

None did: alcohol is legal in all 50 states. But some states have exploited the 21st Amendment’s exception to justify ripping a hole in the interstate commerce clause. They tip the playing field in favor of local suppliers, distributors and retailers. State laws against direct shipping of wine have much in common with federal tariffs on Russian steel or Caribbean sugar. Their purpose is to shield the profits of domestic producers from outside competition. But unlike federal tariffs, which privilege American producers by discriminating against foreign producers, the state wine importation laws privilege some Americans by discriminating against other Americans.

For consumers, it doesn’t matter where the locked-out competition came from—the bottom line is higher prices. Just as tariffs inflate the price of cars and candy bars, direct-shipping bans drive up the price of alcohol. Unnecessary middlemen get a legally guaranteed role in the market, then pass their costs and markups to wine drinkers. Even locally produced wines become more expensive, because local vintners shielded from “foreign”—that is, Californian—competition can raise their prices without losing as much business.

The states defend their protectionist policies based on the need to collect sales taxes. Taxation does raise difficult logistical questions, but it does not justify treating alcohol differently from other products. Most states tax sales of computers, but they have not instituted bans on direct shipment of computers. Moreover, the local vintners’ exemption from the direct-shipping ban betrays the ban’s underlying intent: to burden out-of-state businesses relative to local ones.

If the Supreme Court strikes down shipping bans, it will be a victory for consumers but likely a temporary one. State legislatures might respond by extending their shipping bans to cover all winemakers, regardless of geography. Although local vintners would no longer be protected, local distributors and retailers would still have guaranteed markets. Indeed, the distributors’ lobbying efforts will probably underwrite the campaign to expand the scope of the bans instead of ending them. Without a constitutional argument on their side, wine lovers will have no option but to petition their state legislators to say “no” to the special interests.


Douglas Glen Whitman is an Associate Professor of Economics at California State University Northridge and a Research Fellow at the Independent Institute in Oakland. He is the author of Strange Brew: Alcohol and Government Monopoly (The Independent Institute, 2004).






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