factor inflates the price of fruits from the limited domestic market. Because of the situation produced by this law and the availability of less expensive grapes and fruits to out-of-state producers, Arkansas enacted a tax of 75¢ on wines brought into the State and 5¢ on Arkansas-produced wine. The obvious purpose, Mr. Chairman, of this tax was to protect Arkansas' budding wine industry and give it an opportunity to compete in the Arkansas market with wines produced at lower cost in other States. Arkansas has a valid interest in fostering this growing industry. The pending bill would prevent the States from taking such action under the pretext of removing discriminatory burdens on interstate commerce.

Mr. Chairman, according to information supplied by the Arkansas Department of Finance and Administration, covering FY 1972, 31.7 percent more wine was imported into Arkansas from other States and foreign countries than in the year before. During this same period sales of Arkansas wines declined by 6 percent. These figures indicate no adverse effect by the Arkansas laws upon interstate commerce.

Mr. Chairman, the pending bill raises serious constitutional questions. It would vitiate the plain words of the 21st Amendment to the Constitution and the Supreme Court cases which have interpreted that amendment. The passage of this measure would impair Arkansas' ability, and that of other States, to protect their native wine industries. Such protection will, in the final analysis, strengthen the capability of this industry to compete in the national market place and hereby stimulate competition and commerce. For these reasons, Mr. Chairman, I strongly oppose H.R. 2096.

STATEMENT OF HON. J. W. FULBRIGHT, A U.S. SENATOR FROM THE STATE OF

ARKANSAS

Mr. Chairman: I am pleased to have this opportunity to appear before the Subcommittee today. As the Chairman knows, my distinguished colleague, Senator McClellan and I requested these hearings in a joint letter to Senator Fong which was written shortly after H.R. 2096, the so-called Wine Bill, was referred to the Finance Committee. In that letter we stated that we shared "very strong objections to this measure which are based upon its economic and constitutional ramifications". Today I would like to put that statement into perspective by examining the difficulties in each of these areas.

Most people associate winemaking in this country with the wine industries of California and New York. In many cases, they are quite surprised to learn that Arkansas has vineyards and wineries, much less that it produces premium varieties of wine. Yet Arkansas and many states other than California and New York do have small wine industries which, although minuscule in comparison with the vineyards and facilities of the largest producers, make important contributions to the local economies of their respective states.

In Arkansas interest in vineyards and winemaking stems from the immigrants of Austria, Switzerland, Italy, and Germany who settled in the mountainous northwest region of the state in the early 1800's. These people found the area conducive to grape growing and made wines in order to satisfy their native tastes and customs and to celebrate various religious and festive holidays.

About 90% of the wine produced in the state still comes from this area. However, the activity has much more than cultural significance today. It now represents an important source for economic development in areas of Arkansas which have yet to realize their full economic potential. The small winemakers of northwest Arkansas are developing a growth industry which is becoming increasingly important to agricultural interests, to business and commercial firms, as an employer of labor, and as an increasing source of local and state tax revenue.

I will not take the Committee's time this morning to recite all the various statistics which illustrate these points. The President of the Arkansas Wine Producers, Al Wiederkehr, is here with representatives of the small wine industries of several other states, and will give you testimony on this later. I would, however, ask to have included as an appendix to my remarks a study completed in 1971 and revised on an interim basis for these hearings through 1973, as well as several tables which the Committee has furnished me. The study is entitled, "The Arkansas Wine Industry: History, Economic Impact, Future", and the tables show national statistics for wine production by states in 1972.

These materials are significant in terms of assessing the economic consequences in my state of the legislation under consideration today. They demonstrate that the potential for Arkansas' small industry rests upon a continuation of the state tax and other laws which H.R. 2096 seeks to eliminate.

The Committee information shows that the American wine market is presently monopolized by California and New York products with California alone accounting for approximately 82.6% of all wines produced in the United States in 1972. Arkansas production, on the other hand, represented less than one half of 1% of the total national volume in the same period accounting to this data. Contrasted with this, the Arkansas study assesses the economic impact of this nationallyinfinitesimal industry in the state in this manner:

"The development of a growth industry providing payroll opportunities, an expanding tax base, a market for agricultural products, and opportunities for industrial expansion appears to present a challenging potential for the state which should be actively encouraged."

According to the study, this potential is based in large part upon the continuation of economic incentives provided through the very kind of tax structure which H.R. 2096 would prohibit.

These tax laws, similar to those in effect in several other fruit-producing states, were enacted in Arkansas in the late 30's under authority delegated to the states by the second section of the 21st Amendment. According to the history provided in the Arkansas study, the State Legislature felt that such laws were necessary at the time in order to prevent an influx of cheaply produced west coast wines from ruining what was then truly an infant industry in Arkansas. As the production tables indicate, the situation has hardly changed today. Without the benefit of these laws, Arkansas wineries would still face the impossible economic task of using local grapes and other fruits costing three to four times as much per ton as the bulk materials used by the west coast wineries.

As far as Arkansas is concerned, such state laws continue to foster the development of the small wineries, thus providing incentives for further diversification of agriculture in not only the mountainous northwest, but the northcentral and northeast regions of the state as well. Thus, the laws encourage industrialization in the state in a manner which is compatible with the interests and resources of the predominantly rural areas.

Moreover, under this arrangement the success of native wines has been instrumental in introducing Arkansans to other varieties, thus opening up the additional markets for the products of other states. Although taxed more heavily under the present system, these out-of-state products accounted for 670,305 wine gallons sold in the state in 1972 as opposed to 614,703 wine gallons of locally produced wines. These figures represented a 31.7% increase for the imports over 1971 as compared with a decline of 6% for the Arkansas products in that same period.

Thus, the principal economic arguments advanced by the proponents of this measure that the present laws result in discrimination and the "balkanization” of interstate commerce in wine are in the case of my state's experience completely without foundation. From the standpoint of Arkansas' wine economy the data conclusively demonstrates just the reverse of their arguments-that the state laws which this legislation would prohibit have, in effect, been the leading factor keeping the market competitive.

But, even if the economic inequities of this bill could be overcome, there is a more fundamental objection to the measure in terms of the constitutional question it presents:

The language of Section 2 of the 21st Amendment reads:

"The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited."

The Supreme Court has consistently held that this language delegates to the states absolute control over the importation of and traffic in liquors (which

by definition includes wines) within their boundaries, and that this authority is not limited by the Commerce Clause.

Since H.R. 2096 is based upon a Congressional declaration of power under the Commerce Clause to eliminate state laws enacted pursuant to Section 2 of the 21st Amendment, a constitutional question emerges in terms of whether Congress can legitimately legislate in this fashion.

The Committee is already in possession of an extensive memorandum submitted by the American Law Division of the Library of Congress on the question, a copy of which was furnished to me in response to my own request for such information. After reviewing the history of the legislation which resulted in the 21st Amendment, as well as the Supreme Court decisions interpreting the right of states under that Amendment, the memorandum reaches the following conclusion:

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we are left with what must be the logical construction of section 2; that is, it must restrict Congress' powers under the Commerce Clause as well as restrict the force of the Commerce Clause itself. If that is the case, then enactment of H.R. 2096 is beyond Congress' power."

The Attorney General of the State of Arkansas has also furnished me an opinion on this issue, which reaches a similar conclusion, and I ask unanimous consent to have it included at this point in the record.

Mr. Chairman, I am completely in accord with the sum and substance of the Library of Congress' memorandum and the Attorney General's opinion on the constitutionality of this legislation. Although I consider myself a strong advocate of Congressional prerogatives, I do not believe it is within Congress' power under the Commerce Clause to try to legislate away powers conferred upon the states by the Constitution.

While some may contend that recent dicta of the Supreme Court concerning the relationship of the 21st Amendment and Commerce Clause invites Congressional legislation in this area, the clear precedents, reaffirmed as recently as last summer by the Court, are otherwise and repudiate this notion. The House record reflects that the Justice Department reaches a similar conclusion, and in its comments on a bill substantively identical to H.R. 2096 informed the House Interstate and Foreign Commerce Committee that-

". . . it would be necessary for the Supreme Court to reverse a well-established line of precedents for the legislation to be sustained."

Therefore, in the final analysis, I question our power to enact this legislation, and for this reason, as well as the economic ones discussed previously in my statement. I am opposed to H.R. 2096, and urge the Committee not to report this bill.

THE ARKANSAS WINE INDUSTRY: HISTORY, ECONOMIC IMPACT, FUTURE (By Leon Joseph Rosenberg, Ph.D., Associate Professor of Marketing, University of Arkansas and Robert W. Bell, Ph.D., Professor of Marketing, University of Arkansas)

SUMMARY

The winemakers of Arkansas have developed a growth industry important to agricultural interests, to business and commercial firms, as an employer of labor, and as an increasing source of tax revenue. The sales increase of Arkansas wines has been dramatic: total volume in 1970 was $2,437,100, up $1,858,400 from 1960 sales of $578,700, or a 320% sales increase for the ten-year period.

While 1970 sales of Arkansas wines within the state itself were $1,901,200 and accounted for the largest share of the total, sales of Arkansas wines to out-ofstate firms were $535,900, and are projected at $840,000 in 1973. There were no out-of-state sales in 1960. The 1970 out-of-state sales figure was almost as great as total industry sales in 1960. Sales trends were computed by the method of least squares which fits a mathematical curve to the data such that the total of the squared deviations from the curve is less than for any similar curve.

The various projections are based on a continuation of the present tax structure, which is similar to that of a number of other states including Florida, Georgia, Illinois, Michigan, and New Mexico. It is particularly significant that the wine growing industry of Arkansas provides a rapidly expanding market for grape growers. Arkansas farmers, as well as commercial and industrial interests within the state, are primary beneficiaries of the current tax schedule. Direct payroll of the Arkansas wine industry in 1970 was $194,000, over two and a half times as large as the payroll in 1960. The tax structure has provided some shelter to Arkansas producers and Arkansas farmers from a flood of low cost out-ofstate wine imports. The domestic demand has provided a sales base which has enabled Arkansas wineries to enlarge their facilities and to expand sales into nearby states.

The development of a growth industry providing payroll opportunities, an expanding tax base, an increasing market for agricultural products, and opportunities for industrial expansion appears to present a challenging potential for the state which should be actively encouraged.

ECONOMIC IMPACT: SALES

Arkansas winery sales were $2,437,100 in 1970. Sales to other states (export) only were $535,900 in 1970. Export sales have very important economic implications for the state of Arkansas because every dollar's worth of wine sold out of state brings new expenditures into the state in some multiple manner. The export of $500,000 in wine products in 1970 conservatively generated another $400,000 to $500,000 in expenditures in the state for a total economic impact of approximately $900,000 to $1,000,000. It is anticipated that by 1973 out-of-state exports will amount to about $840,000. This means the state can expect between $1,500,000 and $1,700,000 in total expenditures generated in Arkansas due to the export of domestic wines. Part of the export multiplier effect is, of course, offset by purchases of the industry from sources outside the state, but the net figure should still run between $1,000,000 and $1,350,000 by 1973.

Domestic sales continue to increase within the state. Table 2 shows the increasing importance of the domestic producer relative to the out-of-state wineries. In 1955 the domestic wineries produced only 22% of the total taxed gallonage in the state while in 1965 it had increased to 49% and was up to 58% in 1970. This reflects a relative decrease in the amount of money being spent on out-of-state wine products and means more money is spent on Arkansas home products.