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Jewish World Review April 30, 2002 /18 Iyar, 5762

Amity Shlaes

Amity Shlaes
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Consumer Reports

Wine lovers may at last be able to stray across state borders. The Internet is coming to the aide of free trade | Sitting at my computer in New York, I cannot order a case of Montrachet from France to be shipped directly to my home. Nor can I order a chardonnay from the Swedenburg Estate Vineyard in lovely Middleburg, Virginia. Both of these purchases would be illegal.

I am not alone in my wine deprivation. Oenophiles in 26 US states are barred from shopping "abroad" - from vendors outside the state border. This is particularly frustrating for wine-drinkers who prefer America's 2,000-odd small wineries. Most of these are so tiny that the big wholesalers across the country do not bother to represent them. So when it comes to the Swedenburgs of the world, wine-drinkers are often out of luck.

Now this sad reality is being challenged in several of the nation's federal district courts. The challengers' collective case is worth reviewing, if only because it demonstrates the way that globalisation - and specifically, globalisation via the internet - can erode even smaller trade barriers.

Consider the New York case, the plaintiff in which is Virginia's Swedenburg. During the 1930s, Albany lawmakers took advantage of residual pro-Prohibition sentiment to protect the Empire State's wine wholesalers with a law making direct purchases by consumers from out-of-state purveyors illegal.

The law was hard to enforce - can the State Liquor Authority police every package? - but still constituted a serious deterrent. Who, after all, wants to risk tangling with state authorities just to make his evening more enjoyable?

State authorities and wholesalers were aided by a general culture of ignorance in their protectionist efforts. Vintners from outside New York were not allowed to advertise direct sales to consumers in the New York press. The only way that a wine buyer could find out about a Swedenburg in the first place was to order its catalogue, or to make a pilgrimage to Virginia's wine country. Only the most devoted would do that.

But the internet changed all this. New Yorkers can now find Swedenburg through their browsers. They have also found Hidden Valley Winery (one of Swedenburg's neighbours) and Virginia's Lost Creek. And they do not want to make the drive south to collect the product.

So Swedenburg and friends recently found themselves before the honourable Richard Berman of the US district court for the southern district of New York. The plaintiffs' lawyers, the Institute for Justice, argue that New York's protectionist regulation violates the US constitution. Its case appears strong, thanks to James Madison and other founding fathers, who explicitly opposed inter-state protectionism. Writing to fellow father James Monroe, Madison argued that "if it is necessary to regulate trade at all, it surely is necessary to lodge the power, where trade can be regulated with effect" - with the federal government.

The result was the US constitution's commerce clause, which gives Washington alone the power "to regulate commerce". Or, as Juanita Swedenburg, the winery proprietor, put it to The Washington Post (in more down-to-earth fashion): "This is why we have a constitution. We're not like some little Podunk country that throws out their constitution every 10 years, are we?" Ms Swedenburg is a member of the Daughters of the American Revolution, so she speaks with a certain authority.

But the state of New York also cites the constitution in its defence. It cites the 21st Amendment, which repealed Prohibition. Prohibition advocates wanted to protect the rights of states that preferred to be "dry" to continue to regulate consumption of liquor and so wedged the following phrase into the Amendment: "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."

Consumers seem likely to prevail. Judge Berman, having issued a sympathetic-sounding order, is now contemplating a motion for summary judgment. In North Carolina and Virginia his peers have already moved in favour of the small wineries. The case is probably heading for the US Supreme Court, which also stands a good chance of smiling on the bibulous. The favourable atmosphere for wine has much to do with the constitutional merits of the Swedenburg case: the founding fathers, pure constitutionalists can argue, intended there to be free trade among states.

But the interesting part of this story is that it is happening now. That has to do in part with the general hedonism of our age and our new wine-drinking culture. But it has even more to do with the rise of the internet and global communications. When a product is visible, barriers to its acquisition - either protection or taxation - become harder to defend.

New York has experienced this challenge in other arenas, most notably in the area of taxation. The state officially subjects goods imported from other states (and abroad) to a "use" tax. But the rise of advertising and the internet has made the tax harder and harder to enforce.

New Yorkers, for example, like to head to New Jersey to shop because sales taxes are lower there. Internet ads constantly remind them of other states' tax advantages. In an effort that went down in the annals of tax desperation, the state sent authorities to an Ikea parking lot in Elizabeth, New Jersey, a few years ago to collect New York car licence plate numbers and so capture lost tax revenues. Needless to say, the campaign collapsed in a humiliating storm of bad press.

In other words, the advantages of free trade are not only big and obvious but also sweet, and subtle as a good chablis. At a time when globalisation is so much attacked, this is a reality to which we should all raise a glass.

JWR contributor Amity Shlaes is a columnist for Financial Times . Her latest book is The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It. Send your comments by clicking here.


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© 2001, Financial Times