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Business and Economics Op-Ed
By: K. Lloyd Billingsley
12.3.2004

National Review Online, December 3, 2004

The Supreme Court should rule for e-commerce.

With the holiday season underway, many will be stocking up on their favorite libations. But if it's fine wine you fancy, choices may be more limited than you realize. In nearly half of the 50 states it is illegal to call your favorite out-of-state winery or order from its website. You can get wine from France, Australia, or Lebanon, but you can't order it from California.

That could change on Tuesday, December 7, when the U.S. Supreme Court hears cases that may help resolve the nation's wine wars.

Twenty members of Congress and five states have filed briefs in favor of direct shipping. So have two Nobel Prize-winning economists from the University of California. The proponents of reform believe that the Commerce Clause of the Constitution mandates free trade among the states and forbids discrimination against business from out of state.

As a 2003 study by the Federal Trade Commission (FTC) found, e-commerce can offer consumers lower prices, greater choices, and increased convenience. The current barriers are depriving consumers of those benefits in the wine market.

Those seeking to extend the ban on direct shipment and Internet sales are led by the Wine and Spirits Wholesalers of America and joined by various temperance groups. They argue that the 21st Amendment gives states complete control over the sale, importation, and distribution of alcoholic beverages and thus takes precedence over the Commerce Clause.

The shipment of wine directly to consumers is prohibited in 24 states: Alabama, Arkansas, Connecticut, Delaware, Florida, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Montana, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, and Vermont.

Opponents of Internet sales and direct shipping of wine are convinced these practices will promote underage drinking. However, the FTC study found that states that allow direct shipping report few or no problems with shipments to minors. It is also difficult to take the argument seriously when states such as New York allow direct shipping within the state but not from outside. This betrays the real issue: protectionism.

If winemakers can sell directly to consumers nationwide they don't need a middle-man in the form of powerful distributorships. These interests are trying to protect their turf at the expense of smaller winemakers, many of them in California.

There are more than 25,000 wine labels in the United States, but only about 500 are available in the larger market. Distributors, currently decreasing in number, fail to keep pace with new products. The ban on direct shipping prevents small wineries from the benefits of high-technology marketing, something they could certainly use. Online retail sales in general are also growing at ten times the rate of their "brick-and-mortar" counterparts.

While the appellate court record is mixed, leading to the current cases from Michigan and New York that are going before the Supreme Court, the momentum is on the side of Internet sales and direct shipping. The number of reciprocity states, which allow direct shipment of wine from states that accord the same privilege, has grown from four to 13 in the last decade.

No one is suing to force reciprocity states to return to protectionism. State legislation favorable to direct shipping continues to be introduced at a rate of three to one over legislation that would make such an act a felony. And in 2002, President Bush signed the Department of Justice Appropriations Authorization Act, which allowed consumers who had purchased wine to ship it directly to their homes in accordance with the law in their state, instead of carrying it on an airplane.

The high court should understand that the issue is indeed one of protectionism. Reciprocity arrangements are working in 13 states and can simply be extended to all. This will end the legacy of Prohibition, stop discriminatory treatment, and promote free trade and competition.

 


K. Lloyd Billingsley is editorial director of the California-based Pacific Research Institute and author of Wine Wars: Defending E-commerce and Direct Shipment in the National Wine Market.
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