Before the Senate Judiciary Committee

Hearing on

S. 1157, the Dairy Consumers and Producers Protection Act of 2001

I want to thank the Chairman for calling this hearing to discuss the policy issued raised by S. 1157, the Dairy Consumers and Producers Protection Act of 2001. The bill would extend and expand the Northeast Interstate Dairy Compact. It also would authorize three new regional dairy compacts. Although I am sympathetic to some of the arguments in favor of regional dairy compacts, I am not convinced that they are the optimal solution for consumer welfare.

Many have criticized regional dairy compacts because they harm consumers, dairy processors, and dairy farmers located outside the region. The facts appear to support these criticisms. But I want to focus my remarks today instead on a more fundamental question:
Are regional dairy compacts a form of economic protectionism which is antithetical to the national common market the Framers of the U.S. Constitution sought to create?

To answer this question, it is useful to take a step back in history. During the time that our nation operated under the Articles of Confederation, "states often formed coalitions, with the sole purpose of promoting one area of the Nation at the expense of another." [A. McLaughlin, A Constitutional History of the United States 137-47 (1936).] One of the main reasons that the States decided to hold the Constitutional Convention was to bring a halt to the "commercial warfare between the states." [H.P. Hood v. DuMond, 336 U.S. 525, 533 (1949).] The Framers sought "to change this state of affairs, and to encourage a free and open economy in which states could not halt the national flows of goods and trade through economic barriers." [Federalist Paper No. 42 at 267-69 (Clinton Rossiter ed. 1961).].

The Framers established a national common market through the Commerce Clause of the U.S. Constitution. In the words of the Supreme Court in the H.P. Hood case, the Framers envisioned that:

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our system, fostered by the Commerce Clause, is that every farmer and every
craftsman shall be encouraged to produce by the certainty that he will have free
access to every market in the Nation . . . Likewise, every consumer may look to free competition from every producing area in the Nation to protect him from exploitation.

To make this vision a reality, the Commerce Clause, as the Court more recently noted in the New Energy Co. case, prohibits "economic protectionism - - that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors." [New Energy Co. v. Limbach, 486 U.S. 269, 273-74 (1988).] For more than two centuries, our nation has prospered because producers and consumers have received the benefits of the free flow of goods and services in a national common market, with limited market regulation and vigorous competition.

The fundamental question is whether we should give our imprimatur under the Compact Clause to regional dairy compacts and similar forms of economic protectionism.

In my opinion, before we do that, a very high threshold must be met in light of the effects of such compacts on consumers. The Framers did not intend that the Congress would use its power under the Compact Clause to approve agreements between states which undermine our national common market. History proves the point. Congress has approved nearly 300 interstate compacts in the more than two centuries since our nation was founded. Interstate compacts have been limited to agreements which serve to facilitate important national interests, such as improving transportation, allocating water rights, establishing boundary lines, and protecting against forest fires. Only one interstate compact - - the Northeast Interstate Dairy Compact - - has involved Congress blessing an agreement among a group of states to engage in economic protectionism.

We should learn from and follow the wisdom of the past - - the Compact Clause should not be used to bless agreements which undermine competition in our national common market, especially given that such agreements may be at cross purposes with other laws, like the antitrust laws, which are designed to promote competition in our national common market. Approving the Northeast Dairy Compact has already spawned a request that we approve at least three more regional dairy compacts, with these compacts together covering about 80% of American consumers. To preserve the national common market which the Framers of the Constitution created and which has been a source of our great prosperity, very compelling reasons would have to be demonstrated before I would be willing to support anti-competitive compacts. But I will keep an open mind and listen to all arguments before I make my mind up on this matter.

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