Prof.: Winemakers’ push for stricter label rules fraught with unintended consequences

By Karen Kidd | Jul 25, 2016

WASHINGTON – A federal proposal that California winemakers and legislators hope will tighten labeling rules for wine in the state also will have unintended consequences, a law professor said during a recent interview.

WASHINGTON – A federal proposal that California winemakers and legislators hope will tighten labeling rules for wine in the state also will have unintended consequences, a law professor said during a recent interview.

"You will see more forgery and misleading labeling," Western Michigan University Cooley Law School Visiting Professor Jeffrey D. Swartz said during a Northern California Record email interview. "In addition, without that competition, you could see a spike in the cost of wines from regions of the country with a 'snobbery' factor. There really are economic reasons for what the vintners of California are after."

On June 22, the U.S. Treasury Department's Alcohol and Tobacco Tax and Trade Bureau issued a formal proposal that would tighten labeling rules and extend general interstate labeling requirements to wines sold within a single state. The public comment period is open until Aug. 22.

With support from a sizable number of the state's large congressional delegation, federal regulators propose restrictions of certain but crucial words on wine labels to prevent out-of-state wine producers from labeling their wine as originating from California region wine country. That, supporters say, would protect the names of the state's winemakers.

Current federal regulations require at least 85 percent of a bottle of wine with label that includes a viticultural area must have been made from grapes grown within that area and that it all have been produced within the state.

Case law and legislation over wine labeling goes back to almost the foundation of the state of California and the current effort at tightening labeling is not very different from what has come before, Swartz said.

"This is like the reason why there is a treaty that the U.S. refused to sign after World War I," Swartz said. "The French proposed a treaty, which every country, except the U.S., signed to prevent anyone from making sparkling wine and calling it champagne. The treaty says that only sparkling wine made from grapes grown in the Champagne district of France can be called champagne."

The U.S. had its reasons for not signing the treaty, Swartz said.

"The reason why the U.S. refused to sign is that the U.S., through a man named [Gustave] Niebaum, who had opened a vineyard in Napa by importing French vine stock," Swartz said. "He saved the French wine industry in the early 1900s by sending vine stock back to France after a major blight destroyed the vineyards in France. The U.S. said you cannot claim that champagne could only come from France, when the vine stock came from the U.S. That is why we have American-bottled champagne."

Though the U.S. did not sign, winemakers tend to respect that treaty, Swartz said. "Even Moet Chandon, a French company with a vineyard and bottling plant in Napa, is not called champagne," Swartz said. "It is bottled as sparkling wine. And this is why Italian sparkling wine is called Asti Spomante."

With that history in mind, the new proposals are not very surprising.

"This legislation is an attempt by California wine growers in the Napa and Sonoma Valley to do the same thing for their wines," Swartz said.

Of course, there has been more case law and legislation since the Champagne treaty. In 2004, the California Supreme Court handed down a much-cited ruling in Bronco Wine Co. v. Jolly upholding labeling laws. The state's high court rejected a challenge by Bronco Wine Co., which claimed there was a clear and manifest intent on the part of Congress to preempt wine labeling regulation by the states.

"As with the 1906 federal Pure Food and Drugs Act, and by contrast to other legislation passed only days prior to adoption of the FAA Act in August 1935, nothing in the body of the FAA Act reveals congressional intent to supersede concurrent (or more stringent) regulation of wine labeling by the states under their traditional police powers," then-Chief Justice Ronald M. George wrote in the court's ruling. "As already explained, at the time Congress adopted the FAA Act in August 1935, the states, led by California, were continuing to exercise their traditional police powers in this area."

Last fall, almost everyone in California's congressional delegation signed a letter to federal regulators urging what later became the proposal. Signers included Rep. Lois Capps, (D-Santa Barbara), Rep. Doris Matsui (D-Sacramento) and Rep. Devin Nunes (R-Visalia).

Just less than a month remains in the public comment period but Swartz said, should the proposal be adopted, there may be no way to avoid the unintended consequences.

"There really is no way to prevent market based costs," he said. "By being able to increase their price, the vintners could also withhold more product and that in turn will increase the prices even more. This could also result in increased costs of enforcement."

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