Beer and wine prices may get more palatable

Washington state consumers may soon pay less for wine and beer made in other states.

The state Legislature on Friday moved one step closer to allowing out-of-state wineries and brewers the right to sell its products directly to Washington retailers — a privilege in-state producers already enjoy.

Under the current system, an out-of-state producer must go through a licensed distributor, or middleman, to get its products on store shelves.

U.S. District Judge Marsha Pechman ruled in December in a lawsuit brought by Costco Warehouse that the state's system to import, distribute and sell wine and beer violated the Constitution's commerce clause.

The judge gave the Legislature until April 14 to level the playing field by either extending self-distribution to out-of-state producers or by withdrawing that privilege from in-state producers.

A Senate committee on Friday unanimously approved a bill that would give out-of-state wineries and brewers the right to sell directly to retailers. The bill, which is set to expire in 2008 unless the Legislature acts to preserve it, would also require the state Liquor Control Board to review its regulatory system and report back to the Legislature by Dec. 15.

Sen. Jeanne Kohl-Welles, D-Seattle, who chairs the Senate Labor, Commerce, Research and Development Committee, said no one group got everything it wanted.

"We decided the best thing would be to allow us to be in compliance with Judge Pechman's order and to try to be as fair as we could across-the-board," she said.

The 21st Amendment, passed in 1933, ended Prohibition and granted states broad power to decide how to import, distribute and sell alcoholic beverages within their borders.

Washington state set up a three-tier system designed to prevent overconsumption and the concentration of power, and to raise revenue by collecting taxes.

The system sought to do this by adding a middleman between the buyer and seller. Out-of-state wineries and brewers must sell to distributors, who then sell those products to retailers.

To ensure temperance, the producers and the distributors are each required to mark up products at least 10 percent.

Among other restrictions, state statute prevents distributors from extending credit to retailers and providing volume discounts to superbuyers. This means Costco pays roughly the same per-bottle price for 1,000 cases of wine as a shop that buys 50 cases.

In 2004, Issaquah-based Costco sued the state Liquor Control Board and charged its regulatory system violates the federal Sherman Antitrust Act.

Pechman bolstered Costco's case in late December, ruling that parts of the state's system are "irreconcilably in conflict with federal antitrust law."

Costco and the state are headed to trial in March to prove — violation aside — whether the state is shielded by the Constitution.

Pechman also ruled on a second issue — the one state Legislators must fix by her imposed deadline.

The proposed Senate bill must be brought to a full vote in the Senate, before it is passes onto the House.

Some form of the bill is expected to pass. If the Legislature fails to come up with a solution, the judge will take away self-distribution privileges from in-state producers.

Phillip Wayt, executive director of the Washington Beer & Wine Wholesalers Association, said he believes larger wine and beer producers will still use distributors because of the services they provide.

Costco Chief Executive Jim Sinegal said the bill pretty much accomplishes what it set out to do. "Assuming that happens, I think the consumer ends up being the winner."

Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com