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I track federal issues and industry affairs on behalf of the Distilled Spirits Council of the U.S. (DISCUS). I wanted to bring your attention to legislation recently introduced before Congress by wholesalers that could impede your ability to grow your businesses and expand distribution across state borders. We’re working closely with brewers and vintners to persuade Members of Congress from supporting the bill. We believe strongly that the legislation will weaken longstanding federal statutes that have protected fair competition and interstate commerce. As a result, states could enact discriminatory laws against out-of-state products. These laws could effectively hinder your ability to expand your distribution channels across state borders. We’ve also been particularly disturbed by some of the rhetoric the wholesalers have used that increases our vulnerability to excessive taxes in an era when both the states and the federal government are starved for revenue.

If you have any interest in expressing your opposition to your Member of Congress, I would be happy to work with you and draft a personal letter in opposition to the bill. I’ve attached three bullets below that outline what the bill does and why we find it troublesome.

I can also be reached at MFamiglietti@discus.org or 202/682-8819.

What Does H.R. 1161 Do: This bill would amend the Webb-Kenyon Act and the Wilson Act to create a legislative environment that allows states to pass discriminatory laws for alcohol beverages that openly defy the Commerce Clause.

• How Does H.R. 1161 Permit Discrimination: The Constitution gives the Congress exclusive power over interstate commerce. In order for states to pass discriminatory laws without violating the Constitution’s Commerce Clause, it first must obtain express permission from Congress to do so and that is what this bill solicits. In addition to amending the Webb-Kenyon Act to permit discriminatory treatment, the bill also would amend the 1890 Wilson Act to remove the dictates of this longstanding statute requiring states to treat out-of-state and in-state products equally.

• What Kind of Discrimination Does H.R. 1161 Allow: Discrimination (differential treatment between in-state and out-of-state economic interests that benefits the former and burdens the latter) can be facial/intentional such as when it is clear by the provisions of the questioned law that out-of-state economic interests are being singled out. For example, in Granholm, Michigan’s law expressly distinguished between the rights of in-state vs. out-of-state wineries. Discrimination also can be more subtle and indirect—non-facial—where states have enacted legislation providing preferential treatment for in-state interests via volume sales or capacity caps. Both forms of discrimination long have been held by the jurisprudence of the courts of this country to violate the Commerce Clause. With the small exception of facial/intentional discrimination against out-of-state vs. in-state producers, H.R. 1161 would give a “green light” to all other forms of discrimination. The Granholm decision shares a very small space in the larger universe of Commerce Clause cases that have protected our industry against arbitrary, unfair state laws and has provided for a competitive marketplace.

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All pending bills expire at the end of each Congress and have to be re-introduced. This is the new version of HR 5034, which was discussed at length in this thread begun in May of 2010. I call it the Wholesaler Monopoly Protection Act and wrote about it here.

The problem is that wholesalers throw around a lot of campaign contributions and many legislators see this as a harmless sop to some big contributors. Not being thinking people, they don't think about how this could harm the hospitality industry. It would harm producers too, off course but, state-by-state, wholesalers are much more influential than producers.

It's also bad for consumers so counter-pressure is effective. It's a bad law and probably can be defeated (again) but it will take some effort.

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