Statement of Murphy J. Painter

on Behalf of
Joint Committee of the States

to the

Federal Trade Commission
Workshop on Possible Anticompetitive Efforts to Restrict Competition on the Internet

October 8, 2002

My name is Murphy J Painter. I am the Commissioner of Alcohol & Tobacco Control in the Louisiana Department of Revenue. I come here today representing the Joint Committee of the States, which is composed of the two organizations that make up the two different ways alcohol is presently regulated in the United States.

The 18 "control" states, that both sell and regulate alcohol beverages, are represented by the National Alcohol Beverage Control Association and the National Conference of State Liquor Administrators represents the 32 "license" or "open" states. I also have the honor of being the President of the NCSLA organization this year.

To start this dialogue I want to call attention to the one factor about wine that makes it different from all other commodities that will be discussed in the next three days, that difference being it is an alcoholic beverage. In addition, none of the other commodities and services being discussed here have been the subject of a Constitutional Amendment that acts to restrict the free flow of interstate commerce in the commodity or service.

The 21st amendment is explicit as to the individual states' right to regulate alcohol. Section 1 of the amendment repeals the 18th Amendment, which established Prohibition. Section 2 reads "The transportation or importation into any state, territory or possession of the United States for delivery or use therein of intoxicating liquor, in violation of the laws thereof, is hereby prohibited." Section 3, which gave the federal government concurrent power to regulate, was deleted.

Accessibility to markets and consumers, the very thing that out-of-state wineries, wholesalers and retailers are fighting over in this issue, is at the heart of the 21st Amendment and all other acts and regulations that exist today.

Temperance, a word not often heard since the death of Carrie Nation, means moderation or abstinence. Where alcohol is permitted, the laws demand moderation. Where the people have voted to exclude alcohol, they want total abstinence.

We regulators, as enforcers of the second tier of a three tiered federalist governmental system, must maintain that the taxes are being paid, that access, both temperance access and under age access is enforced, and the duly needed fair trade laws of each state be enforced, to maintain a level playing field but also to maintain temperance.

We also argue that this is being done not only through the authority of the 21st Amendment but also through the core police powers that are given to the states by the Constitution to maintain the health, safety and welfare of our citizens.

The ones here today to argue for e-commerce of wine and direct shipping of such, (you can't have one without the other) would want the FTC to look at wine in a different light than beer and spirits. Even though it may be arguable that wine's value is different than beer or spirits, it still is an alcoholic beverage and unfortunately when abused, an intoxicating liquor. As such each state has the right under the authority of the 21st Amendment to regulate this product. This means to its exclusion if voted by local option.

I am not a lawyer and will not try to cite cases that make this stance stronger, nor am I an economist and attempt to explain all the fundamentals about supply and demand. Sources reflect that the number of wineries in the United States has grown from approximately 900 in the 1980's to over 2500 today. However, Wine Institute data shows consumption in the United States being less in 2000 than in peak years in the 1980's.

I am a regulator, representing every state regulator of alcohol in the United States today that has to take a stance on what others, that being state courts and legislatures, have deemed to be worthwhile and correct for the state that each of us represent.

We are charged with holding the line until the dynamic forces of economics and politics create organized and lawful change by legislative process.

Does the three tier system limit on line sales? That answer is absolutely. Is this justified? That answer is absolutely also. As long as wine is classified as an intoxicating commodity it will have to stand along with beer and spirits. If wine is exempt from individual state regulation then so are beer and spirits.

Are there less restrictive means for achieving the same goals? The political and economic forces have combined in some states to allow some sort of limited access to wines.

Louisiana is one state that passed direct shipping legislation, in 1998. Fiscal Year 2001-2002 ending last June showed only $ 17,000 taxes paid by this process versus approximately $130 million paid through the tier system. Only 20 wineries out of the 2500 plus and 4 out of state retailers out of hundred of thousands chose to utilize this process. This should be a good indicator of the demand.

Statistically the present system is one of the most efficient tax collection systems if not the most efficient in existence today. It certainly is the most efficient system as far as temperance. One only has to look at the 15-year grand experiment from 1919 to 1933 to prove that.