Every state has something to be proud of. California, Florida, and Texas are often ranked among the states with the most local spirit and pride.
And, of course, there’s nothing wrong with supporting local businesses and buying products made in your state. However, manufacturers can find themselves in a legal mess if they place too much emphasis on intrastate commerce.
Have you ever heard of the Dormant Commerce Clause? Keep reading to learn when it’s okay to show state pride — and when you need to draw the line.
What Is the Dormant Commerce Clause?
You might be surprised to learn that this “clause” isn’t written anywhere. Rather, it’s inferred by the Supreme Court based on commerce laws set out in the US constitution.
In a nutshell, it restricts a state’s ability to favor its own in-state products over out-of-state competitors.
It’s true that there’s a “Commerce Clause” that allows Congress to regulate interstate vs intrastate commerce. The Dormant Commerce Clause ensures that states don’t favor their own products at the expense of doing business across state lines.
This clause seeks to keep interstate federal commerce open by not imposing prohibitions or other restrictions on out-of-state items.
How Does It Affect Federal Commerce?
How does state protectionism function in real life? Here are a few examples of where the Dormant Commerce Clause has come into play.
Gibbons vs Ogden
Let’s start with the case that brought state protectionism into the limelight. To do so, we need to travel back to 1824 and a battle for control over the waterway linking New York and New Jersey.
At that time, New York held a monopoly on steamboat service between the area’s major ports. A man named Thomas Gibbons operated a steamboat business based in New Jersey, so he was excluded from the New York monopoly.
The case eventually reached the Supreme Court, where it was unanimously decided that New York was in violation of other federal laws. This set the precedent for Congress to regulate state matters when they affect interstate commerce.
Bringing the discussion to our day, locally-brewed craft beers often face a shipping conundrum. Why is that?
Most states prohibit shipping beer out-of-state or importing alcohol from other states — unless it’s through a licensed importer or wholesaler. This legal requirement makes it almost impossible to avoid favoritism and state protectionism.
For example, Colorado breweries can’t ship beer directly to consumers located outside of Colorado. At the same time, breweries outside of Colorado cannot ship beer to consumers inside Colorado.
Recent lawsuits such as Lebamoff Enterprises, Inc vs Whitmer have challenged these conflicting laws. The future of interstate commerce for craft beers and other products remains to be seen!
The US Constitution & State Protectionism
The Dormant Commerce Clause is not well-known, but it can have a tremendous impact on state and federal trade.
If you’re in the shipping or manufacturing business, make sure you don’t discriminate against out-of-state products. It’s fine to sell or ship locally made items, but include some out-of-state products in your offerings as well. You don’t want to be accused of state protectionism!
Now that you know more about the Negative Commerce Clause, what’s next? Keep browsing our site for more interesting reads!