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Prepared Witness Testimony The House Committee on Energy and Commerce
E-Commerce: The Case of Online Wine Sales and Direct Shipment
Subcommittee on Commerce, Trade, and Consumer Protection
Prepared Statement of The Honorable Cliff Stearns Good morning and welcome to the subcommittee's hearing entitled: "E-commerce: The case of Online Wine Sales and Direct Shipment." This hearing is one of a number of hearings that the subcommittee has held on electronic commerce in this and the 107th Congress. As I have said in the past, I think it important that the subcommittee and the full committee, as Congressional custodians of the commerce clause, be vigilant of and encourage interstate commerce in general and nascent forms of interstate commerce, such as e-commerce in particular. In particular, this hearing is a follow up to a subcommittee hearing held September of last year focused on state impediments to e-commerce. At that hearing we heard testimony on state legal and regulatory impediments that were undermining consumer choice and e-commerce with respect to three products and services: (1) Auctions, (2) Contact Lenses and (3) Wine. Just four weeks ago, the Committee approved H.R. 3140 removing a number of state regulatory barriers identified in the subcommittee's September 2002 hearing that impeded online contact sales. This past July, the Federal Trade Commission issued a report entitled: Possible Anticompetitive Barriers to E-Commerce: Wine. This staff report grew out of the FTC's Internet Task Force convened in August 2001 to evaluate government regulations of particular products and services that could stifle online commerce and competition. The objective of the report is to inform a raging debate between those who argue that direct shipment of wine to consumers, specifically online sales, should not be banned because it provides consumers with lower prices and greater variety of wines and states that ban such sales, so that they can protect against sales to minors and collect of excise taxes. I commend the Commission for undertaking this report with the purpose of informing that debate. Today, we hope to examine the FTC report carefully and consider its broader public policy implications with respect to interstate and electronic commerce. The FTC's July staff report concludes ". that states could significantly enhance consumer welfare by allowing the direct shipment of wine to consumers." The report states that "[t]hrough direct shipping, online wine sales offer consumers lower prices and greater selection." In looking at both the availability and pricing of some 83 wines - all of which appeared in Wine and Spirits magazines "Top 50 Wines" list for 2002 - within a ten mile radius of McLean, VA., the Commission staff found that 15% of those 83 wines could not be found in McLean retail outlets, while being available online. Moreover, the Commission's staff report found that online prices for wines priced at above $20 were between 8 to 13% lower than prices at brick-and mortar retailers. The savings accruing to consumers' from online sales increased to 20 to 21% for wines priced over $40. Yet, they found that bricks-and-mortar stores, after factoring in shipment costs, offered better prices on less-expensive wines. At the time of the survey, Virginia had a ban on direct shipments of wine. In light of the consumer welfare gains demonstrated in the McLean survey, the report observes that public policy goals of excise tax collection and prevention of sales to minors can still be accomplished by states through less restrictive regulation, short of an outright ban of direct interstate wine sales. Many states, the report notes, permit interstate direct shipment report few or no problems with shipments to minors or with tax collection. I know that this debate highlights the tension between the Commerce Clause and the 21st Amendment to the Constitution. Under the dormant commerce clause doctrine, the Supreme Court has held states cannot impede or discriminate against interstate commerce. Meanwhile, the 21st Amendment has been interpreted as giving the states broad powers in its regulation of the sale and distribution of liquor within and across its borders. As there is a split in the Circuits on how to resolve that tension, I am confident, the Supreme Court, in time, will address this matter. Notwithstanding the ongoing legal battle, I think that the states' public policy objectives of precluding wine sales to underage drinkers and the collection of excise taxes, both of which are advanced under the color of the states' 21st Amendment authority, are very important public policy objectives indeed. Still, if the FTC staff reports analysis holds true for markets other than McLean, I find it persuasive that states should pursue less restrictive forms of regulation of direct interstate wine sales than outright bans. For example, the report concludes that states can prevent sales to minors using restrictions other than bans on direct shipments by requiring wineries to label their packages as containing alcohol and requiring the package carrier to verify the age of the customer by obtaining an adult signature at the time of delivery and/or requiring out-of-state companies to obtain shipping permits and setting up penalty and enforcement systems. I thank the witnesses for appearing before the subcommittee this morning and look forward to hearing their testimony.
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