Trade Groups: PA Monopoly Mark-Ups on Wine & Spirits Violates International Law

By Steve Bittenbender

A consortium of international trade associations representing their countries’ wine and spirits producers is pushing Pennsylvania Gov. Tom Wolf to consider changes to the pricing model the state’s liquor regulatory board has put in place.

The trade groups, in a letter to the governor, claim the Pennsylvania Liquor Control Board’s practice of flexible pricing runs counter to international trade law, which they say requires the board to apply the same markup it applies on the lowest marked-up American spirit.

The state is one of 13 in the U.S. where the government manages retail package sales.

“To be entirely clear, we do not question the right of Pennsylvania to establish a monopoly importer, distributor and/or retailer of wine or spirits for the state,” the letter stated. “However, as a statutory monopoly, we would suggest the PLCB does have certain obligations pursuant to its preferential market position. In addition, the PLCB fits squarely under the definition of a state trading enterprise (STE) under international trade rules.”

The letter was signed by the leaders of Spirits Canada, Spirits New Zealand Inc., SpiritsEUROPE, Australian Grape & Wine Inc., Scotch Whisky Association, Great Britain’s Wine & Spirits Trade Association, global public policy body FIVS and CEEV, the European Union’s trade association for wines. It also comes at a time when some lawmakers in Harrisburg are pushing for a change back to the old policy.

Three years ago, the Pennsylvania General Assembly passed a law allowing the PLCB to switch from using a standard formula to set prices for bottles of whiskeys, wines and liquors to a variable pricing model that takes into account market factors. That’s allowed the board to set a price for premium spirits, such as Pappy Van Winkle bourbons, that’s comparable to the price set by retailers elsewhere.

In 2016, under the old pricing format, the PLCB transferred $100 million into the state’s general fund in addition to the state and local taxes generated by the sales. In 2017, under the new format, the board transferred $216.7 million.

Critics of the practice claim variable pricing represents an illegal tax that’s levied by an unelected board.

The groups noted that the U.S. federal government has successfully defeated “discriminatory internal tax policies” on at least four occasions.

“We understand the PLCB may believe it is easier to raise additional revenues for the citizens of Pennsylvania in secret, behind closed doors, but we believe such an approach is inconsistent with the operation of an open and fair market,” the groups wrote. “In addition, such a pricing model is clearly inconsistent under international trade law.”

In response to the letter, Elizabeth Brassell, a board spokeswoman, told The Center Square that the PLCB has maintained fair pricing since lawmakers made the pricing-model switch. In addition, the board maintains a transparent pricing model through the annual reports it is required to submit as well as the public testimony its leaders have offered over the past three years.

“We remain committed to productive and collaborative negotiations with suppliers regarding product cost and retail pricing,” she said.

Brassell also noted that the groups’ letter indicated incorrectly that an $80 million increase from 2015 to 2018 was due solely to markups. Instead, that $80 million also includes revenue from license auctions and increased fees.