Cross-posted at Forbes Magazine’s On the Docket

At the same time that the federal executive branch is suing to preempt Arizona’s self-help efforts to control illegal immigration, some in our federal legislative branch are working to “reaffirm” the role of states in regulating alcohol products and protect such regulations from legal challenge.  Wait a minute, you might say, doesn’t the 21st Amendment clearly grant alcohol control authority to the 50 states?  That it does, but states’ regulatory actions cannot impinge upon interstate commerce in a discriminatory fashion.  That’s where a proposal known as the “CARE Act” enters the picture.  Wholesalers avow that the proposal is necessary to insulate a state from legal challenges to its alcohol laws.  On the other hand, alcohol producers argue that it could empower states to regulate in areas such as labeling, advertising, and product formulation repetitive of, or contradictory to, federal standards designed to enhance competition and provide critical consumer protections.

The proposed Comprehensive Alcohol Regulatory Effectiveness Act purportedly arises from jurisprudence, including a U.S. Supreme Court ruling, Granholm v. Heald, which holds that states cannot prohibit out-of-state alcohol producers (in most cases, wine) from shipping to state citizens directly if the state permits in-state producers to sell directly.  Direct shipping avoids the normal “three-tier” distribution system for alcohol: producer to distributor to retailer. Because of the “dormant Commerce Clause,” the Supreme Court require states to present evidence to prove that a discriminatory law accomplishes a clear state purpose that cannot be achieved another way.

Wholesalers argue that the CARE Act is needed to “stop the erosion of state alcohol laws” by clarifying Congress’s intent (and thus countering the dormant Commerce Clause claim).  Some opponents of the legislation counter that no such erosion of alcohol regulation is occurring, with thousands of  alcohol-related laws currently enforced by the states, and that the wholesalers’ consumer protection justification is merely “a smoke screen for a power grab” by special interests.  Others argue that if passed, the CARE Act would in essence sanction anti-competitive behavior by making “state alcohol laws immune from federal antitrust laws and ‘any other act of Congress.'”

The proposal relates that laws cannot “facially discriminate, without justification” against interstate commerce. However, it then goes on to provide such laws with a “strong presumption of validity” and imposes the burden on those challenging such laws to prove by “clear and convincing” evidence that the law has “no effect” on state objectives such as promoting temperance or stopping underage drinking.

It has raised alarms in states like Kentucky, home to America’s bourbon producers.  Some in the Bluegrass State are concerned that he CARE Act’s legal standards would make it impossible to challenge another state’s adoption of production standards allowing its liquor makers to put a “bourbon label” on whisky despite their failure to meet  exacting federal standards for bourbon.  Also, what if some states embrace the growing international “plain packaging” movement, which is inspiring some nations to develop standards stripping consumer product makers of their trademark rights in favor of generic packaging?  Could such state laws be successfully challenged under CARE Act rules?  Further, one could see a proliferation of differing state laws undercutting federal statutes that protect consumer safety in a competitive marketplace.  This federal legislation could lead to the kind of  “patchwork of 50 states developing their own” laws on alcohol advertising, production, and packaging that  Attorney General Holder bemoaned this last weekend when speaking about immigration policy.

This proposal raises a host of “big ticket” legal policy issues, such as whether Congress should place its proverbial thumb on the scales of justice in court challenges involving state laws; the role of state versus federal regulation of a nationally marketed product; and possibly the viability of recent  Supreme Court precedents.  Our elected officials have an interesting challenge ahead of them as they determine whether this bill is in the public interest.