66 In United States v. Frankfort Distilleries, 324 U.S. 293 (1945), a case involving a Sherman antitrust prosecution for price-fixing of liquor, the Court granted, ". . . the states' full authority to determine the conditions upon which liquor can come into its territory . . ." (324 U.S. at 299). In a concurring opinion, Justice Frankfurter noted that since the Commerce Clause was subordinate to the exercise of state power under the Twenty-first Amendment that the Sherman Act, which derived its authority from the Commerce Clause, ". . . must equally yield to state power drawn from the Twenty-first Amendment." (324 U.S. at 301) My conclusion is that the enactment of H.R. 2096 would be a direct infringement of the powers granted to the states by Section 2 of the Twenty-first Amendment and is beyond the power of Congress to act under the Commerce Clause. Very truly yours, JIM GUY TUCKER, Attorney General, State of Arkansas. Senator MONDALE. Our next witness is the distinguished Senator from California, Alan Cranston, who had suggested that these hearings be held along with Senator Tunney and we are very pleased to have you here. Is Congressman Sisk here? Senator CRANSTON. Yes; he is. Senator MONDALE. Perhaps he would like to come to the witness stand at the same time? You can both testify and then I can question you together. Congressman, we are very pleased to have you with us here this morning. STATEMENT OF HON. ALAN CRANSTON, A U.S. SENATOR FROM THE STATE OF CALIFORNIA, AND HON. B. F. SISK, A REPRESENTATIVE IN CONGRESS FROM THE 18TH CONGRESSIONAL DISTRICT OF THE STATE OF CALIFORNIA Senator CRANSTON. Mr. Chairman, I thank you very much for arranging this hearing. I think it is very appropriate that we start the new session of Congress on this matter and I hope we can deal with it expeditiously. Senator Tunney would have been here but he is unable to. He is a staunch supporter, of course, of this legislation.1 Senator MONDALE. He called me personally, as did Senator Cranston, urging these hearings and I would like the record to so reflect. Senator CRANSTON. H.R. 2096, would prohibit any State from imposing discriminatory taxes and other burdens on wines produced out-of-State. The purpose of this bill is to remove discriminatory barriers to the movement of wine in interstate commerce. The bill does not limit the power of a State to regulate the sale of alcoholic beverages. It only requires that a State act in an even-handed and nondiscriminatory manner when it taxes, controls or regulates the sale of wine. I represent California, a State which produces 84 percent of the domestic wine and 74 percent of all the wine, including foreign imports, consumed in the United States. This legislation is of great importance to California. It was supported by the entire California delegation in the House of Representatives where it passed by a 248 to 152 vote on September 11, last year. Congressman Sisk here played a major part in that very successful effort in the House. 1 Senator Tunney's statement appears at p. 83 ff. Nature has favored California with soil and climate which encourage the growth of the great wine grapes, such as the Cabernet Sauvignon, the Pinot Noir, the Pinot Chardonnay and other equally noble grapes. As a result, California wines enjoy a worldwide reputation as being among the finest, and in my opinion they are the finest produced anywhere in the world. But the blessings of nature are not unique to California. Other States enjoy conditions which growers believe may turn out to be equally favorable for the growth of wine grapes and for the production of great wines. New York State wines, for example, enjoy a fine reputation. The largest winery in the southern part of the United States is located in Arkansas, which produces a number of fine wines, including a dry champagne said to be a favorite at the annual testings of the American Society of Enologists. Other leading producers of wine include New Jersey, Georgia, Michigan, Ohio, and Washington. A substantal increase of plantings of vines in Oregon promises to lift that State to prominence within a few years. The U.S. wine industry now grosses over $1.7 billion annually and is growing. The Bank of America forecasts a national demand for wine in excess of 650,000 gallons by 1980-an amount which will require an annual growth rate of 8.6 percent, making the United States the fastest growing wine market in the world. But if the wine industry is to become a truly "all-American” industry, the past tendency of some States to consider their wine industries as completely indigenous, to be favored with trade barriers, must be corrected. I want to respond to the argument that the 21st amendment empowers the State to impose discriminatory taxes and other regulatory burdens on out-of-State wines. There is considerable evidence that the original purpose of the amendment was to permit dry States to protect themselves from the importation of liquor rather than to permit liquor-producing States to set up trade barriers against out-of-State products in favor of their own. The present state of the law is that in the absence of Congressional action under the commerce clause, States can tax alcoholic beverages in any manner they see fit. A number of States have taken advantage of this situation to enact laws specifically discriminating against wines produced outside the State or from materials produced outside the State. One State taxes out-of-State wine at $1.15 per gallon and taxes domestic wine at 37 cents per gallon. Another State imposes a $50 fee on a winery which uses only local grapes, but a $500 fee on wineries using grapes from other States. In yet another State, agents for outof-State wine shippers must obtain a license at an annual fee of $300, whereas an agent soliciting for an in-State producer need only obtain a license at an annual fee of $10. Few industries are subjected to the type of discrimination which some States practice against out-of-State wines. Some of these same States also have local wineries which are competing aggressively in out-of-State markets. In today's fast expanding wine market, I doubt whether protectionism actually benefits a local producer over the longrun. It certainly does not benefit the consumer. I believe that Congress has the power under the commerce clause to prohibit a State from discriminating against wines produced outside the State or from materials produced outside the State. Support for this view is found in Heublein, Inc. v. South Carolina Tax Commission, 409 U.S. 275 (1972), in which the Supreme Court notes that though the relationship between the 21st amendment and the force of the commerce clause in the absence of congressional action has occasionally been explored by this Court, we have never squarely determined how that amendment affects Congress' power under the commerce clause. The Department of Justice, Mr. Chairman, has indicated that the Court never has considered the effect of legislation by Congress, and I would like to quote a letter from the Department of Justice dated January 3, 1972, to the Honorable Harley O. Staggers, chairman of the Interstate and Foreign Commerce Committee of the House, written at that time in regard to a measure similar to this measure. The letter states, in one place: There is evidence that the original purpose of the amendment was to permit dry states to protect themselves from importation of liquor rather than to permit liquor producing states from erecting trade barriers against out-of-state products. Generally speaking there has always been a strong policy in favor of interpreting the Constitution to prohibit such barriers. Thus spoke the Department of Justice on this issue. Clearly Congress has exercised tax power over liquors so the 21st amendment does not in any way completely insulate liquor fròm Federal control. Senator MONDALE. Could I interrupt you? Does the Department of Justice oppose this bill? Senator CRANSTON. NO. Senator MONDALE. It has no position? Senator CRANSTON. NO. Senator MONDALE. All right, we will put that Justice Department letter in the record following your testimony. Senator CRANSTON. Thank you. [The letter referred to above follows:] DEPARTMENT OF JUSTICE, OFFICE OF THE DEPUTY ATTORNEY GENERAL, Hon. HARLEY O. STAGGERS, DEAR MR. CHAIRMAN: This is in response to your request for the views of the Department of Justice on H.R. 9029 to prohibit the imposition by the states of discriminatory burdens upon interstate commerce in wine, and for other pur poses. The Department takes no position on the merits of the bill and limits its comments to the legal issues involved. The Twenty-first Amendment to the Constitution repealed the Eighteenth (Prohibition) Amendment. It also forbids the transportation or importation of intoxicating liquors into any state for use in the state in violation of state law. In a series of interpretative decisions rendered shortly after ratification of the Amendment, the Supreme Court established the proposition that states are thus competent under the Twenty-first Amendment to adopt legislation discriminating against intoxicating liquors imported from other states in favor of those from within the state. The Court has said that such discrimination is not limited by the commerce clause. E.g., State Bd. v. Young's Market Co., 299 U.S. 59 (1936). The bill would have Congress make findings that the imposition by states of taxes which discriminate against out of state wine obstructs commerce. It would prohibit states which permit the sale of wine within the state from imposing discriminatory measures on wine from without the state. Persons engaged in the transportation or importation of wine would have standing to file suit in Federal district court to enjoin the enforcement of discriminatory state laws. The purpose of the bill, which we understand is supported by the Californiabased Wine Institute, is presumably to set up a new test case in the courts as to the scope of the Twenty-first Amendment. The sponsors of the bill may feel that there is a better chance of getting the Supreme Court to reverse itself if Congress legislates in this area. We doubt however that the findings by Congress based on the commerce clause would be of any particular help in such a test case since this does not seem to be an area where the Constitution confers on Congress the right to define the scope of the Amendment by legislation. We cannot say, of course, that it is impossible to suppose that the Supreme Court might change its position on this matter. There is evidence that the original purpose of the Amendment was to permit dry states to protect themselves from importation of liquor rather than to permit liquor producing states from erecting trade barriers against out-of-state products. Generally speaking, there has always been a strong policy in favor of interpreting the Constitution to prohibit such barriers. Nevertheless, we feel it appropriate to inform the Committee that if the Congress were to enact H.R. 9029, it would be necessary for the Supreme Court to reverse a well established line of precedents in order for this legislation to be sustained. The Office of Management and Budget has advised that there is no objection to the submission of this report from the standpoint of the Administration's program. RICHARD G. KLEINDIENST, Senator CRANSTON. As long as a protectionist state of mind exists it is unreasonable to expect that individual States will voluntarily lower the barriers they have erected against the produce of other States. In this regard, California has been no exception. For many years we have had a law which effectively barred the sale of Florida-grown avocados in California. Last fall, a three-judge Federal court ruled this law unconstitutional. The court described the law as "irrational, arbitrary and discriminatory.” I agree and I was glad to see that decision. It was necessary for a Federal Court-acting as a referee in interstate commerce-to remove California's unfair and discriminatory barrier against Florida avocados. It will be necessary for Congress, acting in its role as referee of commerce among the States, to remove similar barriers against out-of-State wines. The principle which is involved here, nondiscriminatory commerce among the States, is a fundamental aspect of the relationship of the States within the Union. Our entire economic system depends upon free movement of goods in interstate commerce. We should be on watch to protect the unobstructed flow of commerce. Commerce in wine and avocados is not unique in being subjected to discriminatory burdens by individual States. Such commercial discrimination, however, I think is wrong. I strongly urge this committee to uphold the concept that one State may not discriminate against the produce of another State whether the trade be in avocados or wine, or in grapes, apples, and other fruits from which wine can be made. H.R. 2096 will establish this principle by ending unfair discrimination against wines produced in other States. Thank you very much, Mr. Chairman. Senator MONDALE. Thank you very much, Senator Cranston. I gather the basis for optimism that this legislation might be constitutional is the Heublein case to which you make reference, which suggests that the Supreme Court, in 1972, did not feel that the issue of the power of the Congress to deal with this question, as distinct from the power of the States, has been directly faced by the Court. Is that correct? Senator CRANSTON. Yes. Senator MONDALE. Has any research been done on whether this matter was discussed at the time the constitutional amendment was proposed? Do we know whether its framers had in mind this aspect of the problem? Senator CRANSTON. No, we do not know of any. Senator MONDALE. Congressman Sisk? Mr. SISK. Mr. Chairman, I think the best record on that was established in Senate debate at the time the 21st amendment was passednow I do not have the reference to it at the moment. We did do a good deal of investigation over the years that we have been working on this matter in the House, and I think the Senate debate probably more clearly delineates actually for us what the intent was in connection with the right of the State to preclude the importation of liquor if they chose to remain dry. That was the full emphasis and never at any time, it seems, as we interpret that language, was there to be any actual discrimination permitted in connection with interstate commerce. Now, without going into detail, it was just called to my attention here, the legislative history of the 21st amendment shows clearly that there is no evidence that the Congress intended to permit States to Balkanize this country. A central principle of the Founding Fathers was that the various States should constitute a single, united trading union. The only purpose of section 2 of the 21st amendment was to perpetuate the protection given to States to remain dry by the Webb-Kenyon Act. Now it quotes from Senator Borah, here is a quote-Senator Borah, and this is 76 Congressional Record, 2170, after reviewing the "history of the right of dry States to remain dry and be protected," spoke against a motion from the floor by Senator Robinson of Arkansas to strike out section 2. He said, and I quote: "Mr. President, as I understand, this is the question of striking out section 2, which provides for the protection of the so-called dry States. ***" "I look upon this provision of the amendment as vital. It does not seem to me that we can afford to strip the amendment of all that which protects the dry States. Indeed, if I understand the two platforms, that is a part of the pledge of the platforms * * *,” apparently to party platforms at that time. "Mr. President, it has been said that the Webb-Kenyon Act is sufficient protection to the dry States. The Webb-Kenyon Act was sustained by the Supreme Court of the United States by a divided court. * * *" And further quoting, "Secondly, we are asking the dry States to rely upon the Congress of the United States to maintain indefinitely the Webb-Kenyon Act." 28-456 0-74 -3 |