A Privilege They Had Not Enjoyed At Any Earlier Time.

I have been wanting to write something about H.R. 5034, a pernicious piece of legislation drafted by and for the benefit of America's beer, wine, and spirits wholesalers. When I saw that a local Chicago-area congressman, Mike Quigley, is one of the sponsors I decided to write it in the form of a letter to him.

Dear Representative Quigley:

As a Chicago resident who has admired much about your political career, I was disappointed to learn of your co-sponsorship of H.R. 5034, which despite its official title is more correctly characterized as the Alcohol Wholesalers Monopoly Protection Act.

The desire of alcohol wholesalers to protect their legal monopoly on the distribution of beverage alcohol products is understandable, as their very profitable businesses face little competitive risk thanks to protections that already exist in the 21st amendment to the U.S. Constitution as well as approximately 4,000 alcohol-related state laws.

Yet in their passion to protect their lucrative entitlement even further, the alcohol wholesalers have drafted reckless legislation that provides no benefit to the American public while risking many negative consequences.

In your April, 2010, statement of support for H.R. 5034, you wrote that “the 21st amendment was intended to allow states to regulate alcoholic beverages free from federal involvement.” That is incorrect. While the 21st amendment was intended to give states broad leeway with regard to alcoholic beverage regulation, much more than they have with other consumer products, it is misleading to characterize that as complete freedom from federal involvement.

It is H.R. 5034 that is “intended to allow states to regulate alcoholic beverages free from federal involvement.” That was never the intent of the 21st amendment.

For more than 20 years I have researched the American whiskey industry, an industry that has been regulated by the federal government since passage of the first federal excise tax in 1791.

Though a revenue measure, that 1791 law provided for federal licensing and oversight of distilleries, the better to ensure collection of the tax.

In the 77 years since the 21st amendment was ratified, alcoholic beverages have been regulated by a mix of local, state and federal laws. Little evidence has been presented to show that this regime has suddenly become ineffective at “the promotion of temperance, the establishment or maintenance of orderly alcoholic beverage markets, the collection of alcoholic beverage taxes, the structure of the state alcoholic beverage distribution system, or the restriction of access to alcoholic beverages by those under the legal drinking age,” its purposes as characterized by H.R. 5034.

Among its many harmful effects, enactment of H.R. 5034 would threaten the Federal Standards of Identity for Distilled Spirits (27 CFR Part 5), which provide uniform definitions for distilled spirits products including bourbon whiskey, an American icon whose export value alone is approximately $1 billion a year. Bourbon whiskey is economically and historically important to the United States. H.R. 5034 would allow the 50 states to write their own standards for bourbon whiskey, destroying its integrity and threatening its present high status in both domestic and foreign markets.

The three-tier system of which America’s beverage alcohol wholesalers are so fond casts distributors as relatively small, in-state entities, and therefore easily reachable by state courts and state regulators, which might have more difficulty getting the attention of a giant multinational corporate producer. In recent years, however, many wholesalers have undermined this purpose by using various corporate organizational schemes to become large, multi-state operations themselves. Although they comply with the letter of the law, most now operate across state lines. Some are large and powerful national businesses. They also have found clever ways around the laws intended to prevent them from owning alcoholic beverage producers and vice versa.

Despite their advantaged position, wholesalers feel threatened by the desire of adult consumers to legally acquire beverage alcohol products that monopolist wholesalers refuse to make reasonably available to them in their states.

The goal of H.R. 5034 is to neuter the Supreme Court’s ruling in Granholm v. Heald (2005), which merely said that the 21st amendment does not give states the right to discriminate in favor of in-state producers in violation of the Commerce Clause. That decision has not “opened the floodgates” of underage drinking and tax avoidance that was predicted by the president of the Wine and Spirits Wholesalers of America at the time. But since the wholesalers still fear their monopoly is at risk, they have turned to Congress and proposed this reckless and unnecessary legislation.

As the Court held in Granholm: “The aim of the Twenty-first Amendment was to allow States to maintain an effective and uniform system for controlling liquor by regulating its transportation, importation, and use. The Amendment did not give States the authority to pass nonuniform laws in order to discriminate against out-of-state goods, a privilege they had not enjoyed at any earlier time.”

H.R. 5034 does not restore the intent of the 21st amendment. Rather it creates for wholesalers “a privilege they had not enjoyed at any earlier time.”

Therefore, I urge you to reconsider your endorsement and co-sponsorship of this unfortunate legislative proposal.

sincerely,
Charles K. Cowdery