Battle Brews Over Online Sales of Alcohol

Special interests are at war over legislation moving through Congress after a deadly school shooting. The dispute centers on how to keep a potentially dangerous product away from youths without curtailing the rights of responsible adults.

But we are not talking gun control. The issue is alcohol control--and how much freedom consumers across America will have to buy, say, a bottle of premium California wine.

In a little-noted action, the Senate last month overwhelmingly approved a measure to grant states broad new powers to use the federal courts to enforce local laws restricting the interstate alcohol trade. Much of that trade now includes a growing number of sales via the Internet.

The provision, packaged as an amendment to the juvenile crime bill, has been overshadowed by gun control proposals added to the legislation in the wake of the massacre that took 15 lives at Columbine High School in Littleton, Colo.

But while the public may have overlooked the Senate action on alcohol, two interest groups were definitely tuned in: alcohol distributors, who tout the legislation as a tool to help prevent underage drinking, and winemakers, who deride it as a needless measure that would stifle consumer choice.

These groups have now turned their efforts to the House. There, the issue may be debated as early as today in the Rules Committee. Although the alcohol distributors scored an 80-17 victory in the Senate, the battle could be closer in the House.

At stake are lucrative markets for specialty wines, beers and spirits and whether those goods can be shipped directly to consumers or must go through wholesalers under regulation of government agencies that seek to wield tight control over alcohol distribution in dozens of states.

How lucrative are the markets?

Tom Shelton, president and chief executive of Joseph Phelps Vineyards in the Napa Valley, said about one-tenth of his business each year is done with customers who place direct orders from roughly a dozen states that allow direct shipping under what are called “reciprocity” agreements--in essence, wine free-trade zones. Other states also allow direct shipments under limited conditions.

If the entire national market were open to direct sales, Shelton said, he could triple that business “almost overnight.”

More wine-purveying Web sites (and some selling beer and spirits) are appearing all the time. Some of the Internet sales go directly from producers to consumers and some through wholesalers and retailers. In a survey of 176 California vintners, the San Francisco-based Wine Institute found that nine of 10 shipped to consumers out of state and more than half used Web sites. Wine catalogs, too, are proliferating.

Many winemakers, especially the hundreds who produce small quantities of high-end varietals, said they have taken to such methods because wholesalers fail to get their labels onto the shelves of grocery stores or neighborhood liquor shops. Advocates of Internet trade add that the trend is inevitable and that wine, beer and spirits should be treated no differently than books, clothes and compact discs.

But the distributors said they are fighting to preserve states’ rights under the 21st Amendment in an area of commerce that has remained controversial since the 13-year national prohibition of alcohol production and sales ended in 1933.

“Alcohol is not a normal commodity,” said David W. Dickerson, vice president of public affairs for the Wine and Spirits Wholesalers of America. “It has never been treated like one. No one views it as one.”

That point has been driven home again and again in recent months as a spate of television news reports told how enterprising teenagers, using only a credit card and a home computer, can evade the legal ban on alcohol sales to people under 21. In a recent report, cable TV channel MSNBC quoted a 17-year-old from Alabama as saying he was able to buy two six packs a month of microbrewery beer from an Internet vendor.

Such publicity has prodded action in Congress. In March, Republican Sen. Orrin G. Hatch of Utah--a state with tight alcohol controls--conducted a hearing on the issue. In May, Sen. Robert C. Byrd (D-W.Va.) proposed an amendment to a fast-moving bill on youth crime and gun control. It would allow states to seek federal court orders to block illegal interstate alcohol shipping. This is important because it would give states the power to extend the reach of their own regulations into interstate commerce, normally under federal purview.

In a closely watched case in 1997, a federal appeals court ruled that the state of Florida had no such power. “What a shame,” Byrd told the Senate before it approved his measure. “Children can now get beer, wine or liquor sent directly to their homes by ordering from catalogs or the Internet. Unfortunately, these direct-to-consumer sales work to undermine the extremely important controls currently in place in many of our states.”

Sen. Dianne Feinstein (D-Calif.), an ally of the wine industry, persuaded the Senate at the same time to pass a separate measure requiring only that parcels of alcohol be clearly identified and that shippers obtain adult signatures before completing a delivery. Winemakers are hoping that the House will take Feinstein’s measure but drop Byrd’s.

Critics of the Byrd amendment say news reports have blown the issue of underage access to alcohol out of proportion. They point to a March letter from a senior official in California’s Department of Alcoholic Beverage Control. In response to an inquiry from two pro-winery congressmen, Manuel R. Espinoza wrote that complaints about minors buying alcohol through home delivery have been “minimal,” even though the state has permitted direct wine purchases for many years.

Rep. Mike Thompson (D-St. Helena), who represents the Napa Valley, said he is trying to “unmask” the Byrd amendment “for what it really is.” In Thompson’s view, it is a measure to protect the business interests of powerful wholesalers who hold many state lawmakers in their thrall. A spokeswoman for a pro-winery group called Free the Grapes said the group is urging consumers to send wine corks en masse to legislators on Capitol Hill to protest the legislation.

In fact, both sides have a profit motive. As a Senate Republican aide said: “The wholesalers want their share. The wineries know they can sell more at a cheaper price if they avoid the middleman.” California winemakers in particular want to get maximum return on a product valued at $12 billion a year in the retail market nationwide.

The issue has generated a torrent of political contributions. The wine industry and liquor distribution industry each gave more than $3 million in 1997 and 1998 to federal candidates and political parties, according to the Center for Responsive Politics, a watchdog organization based in Washington.

Wine advocates are also organizing in Congress. This year, Thompson and Rep. George P. Radanovich (R-Mariposa), himself a winemaker, formed a bipartisan group called the Congressional Wine Caucus to try to advance the industry’s issues. It now counts 80 members.

States, too, have an interest in the dispute because the regulation of alcohol helps them collect billions of dollars a year in taxes. Six states in recent years--Florida, Georgia, Indiana, Kentucky, North Carolina and Tennessee--have even made direct interstate shipment of alcohol to consumers a felony, prompting the slogan: “Ship some wine, do some time.” In 1997, the state of Maryland--which also has tight alcohol controls--announced that it had fined the company that makes Kendall-Jackson wines $35,000 for illegal interstate shipping.

To those who argue that an adult resident of Maryland should have the same right as, for example, a Californian to order a direct shipment of chardonnay or cabernet sauvignon, James M. Goldberg, general counsel for the National Alcohol Beverage Control Assn.--which supports the Byrd amendment--replied that they should lobby the Maryland Legislature to change the law.

“Our position is, the law’s the law,” Goldberg said. “It may be arcane, archaic, byzantine or dead wrong, but it’s the law. You have to obey the law until you change it.”

But winemakers predicted that the Byrd amendment, if enacted, would hamper their efforts to do just that. States, they say, would have less incentive to loosen their alcohol regulations if the federal government encourages them to clamp down.

“We are right now engaged in 13 or 14 states, working out compromises in state legislatures,” said John De Luca, president of the Wine Institute. The Byrd amendment “would have a chilling effect on those deals.”