- Saturday, 16 June 2012 08:14
UPDATE (June 20, 2012): A new regulation has now appeared (apparently there were "delays" at the Queen's Printer) which relates to this post. The new regulation creates legal authority for the "in-person" importations previously announced that were thought to be "policy" only. However, I am expecting that this regulation will be either rescinded or changed prior to Bill C-311 obtaining royal assent, which is expected next week.
Update (June 19, 2012): Bill C-311 passed the Senate on Monday evening by unanimous vote. I am also hearing encouraging rumors that BC may change the position outlined below. Will update again when there is news.
Bill C-311 (the wine shipping law reform bill which will create a limited "national personal use exemption" for shipping wine from province to province) will almost certainly pass a final vote in the Senate this coming week and become law shortly afterwards. The excitement of wineries and Canadian wine consumers at having Canada's regulatory "shackles" over wine loosened a little has been tempered by provincial liquor board statements that indicate that they will not respect the spirit of Bill C-311. Instead, some liquor boards and provinces have indicated that they will try to limit or prevent Canadians from gaining access to the wines that are sold in other provinces. On this issue, the rest of the world will be laughing at us. Can you imagine the French putting up with bureaucrats who try to prevent Parisians from ordering wine from Bordeaux or Burgundy? Indeed, Europeans can bring wine or have it shipped between countries without much hassle.
The attitude of the provincial liquor boards could not be more different (and backward thinking). Rather, than respecting the spirit of Bill C-311, the unanimous vote of the House of Commons, and the wishes of Canadian wine consumers, they have chosen strident protectionism and are now arguing, firstly, that Bill C-311 does not even permit the direct shipment of wine from a winery to a consumer and, secondly, if it does permit shipment that they will apply their policies and laws to prevent or limit consumer choice (see the liquor board statements in Beppi Crosariol's Globe and Mail article and statements of BC liquor bureaucrats, in this press release). Let's take a closer look at those issues.
Does Bill C-311 Permit the Shipment of Wine Direct to Consumers?
The Importation of Intoxicating Liquors Act (IILA) is the 1928 law which prevents the inter-provincial shipment of alcohol unless it is going to provincial liquor agencies. Bill C-311 amends this law to create an exemption so that the IILA does not apply if all of the following are true:
- the alcohol must be wine,
- an individual must "bring the wine or cause it to be brought" from one province to another,
- the wine must be for personal consumption only (not resale or commercial use), and
- the importation of the wine must be "in quantities and as permitted by the laws" of the destination province.
It's obvious that requirements (1) and (3) are satisfied when wine is shipped to a consumer for personal use. The wording on requirement (2) also makes it obvious that both the "in-person" transport of wine and the shipment of wine are included because the Bill says "bring the wine or cause it to be brought" which is, in fact, the same wording that the rest of the IILA uses to refer to the overall prohibition on shipments of alcohol. The last requirement (4) simply says that the importation of wine can be made in "quantities and as permitted by the laws" of the destination province. As a result of the above, it is abundantly clear that Bill C-311 does permit the direct shipment of wine to consumers. The only issue is whether and how provincial laws may affect the exemption. We'll discuss that next.
What Does Provincial Law Say About Direct Wine Shipments?
On this issue, the liquor board bureaucrats appear to be circling their wagons and providing questionable advice to their political masters. British Columbia's recent press release on this issue states that all of the provinces "that allow personal importation from other provinces restrict that importation to liquor that accompanies the person bringing it into the province" and that none "allows tax-free shipping of alcohol across their borders". The responsible Minister, Rich Coleman, has repeated these statements in recent media interviews. He might want to get a second opinion on the advice that he is receiving because these statements are misleading. They imply that the law of some provinces permits "in-person" importation of wine and that the law in all of them prohibits direct shipments. This is not correct. Some Canadian provinces (not all of them), including Ontario and British Columbia, have issued "policy statements" (B.C.'s was a mere press release) stating that they will permit "in-person" importation of alcohol from other provinces in limited quantities but will not permit direct wine shipments. However, policy statements are not statements of law, they are simply indications of how a government interprets existing law. They have absolutely no legal effect on their own and cannot interpret a law which does not exist or which is invalid. As a result, it does not matter what the "policy" of a provincial liquor board is if the law does not back it up. So the real question, contrary to the position of the liquor boards, is what does the actual law of the provinces say on this matter?
Lawyers (including myself) are currently working on an analysis of provincial liquor statutes and regulations (which is where the real law is found) in an effort to determine which provinces will be open for shipment once Bill C-311 is in force. In the weeks ahead, there will be more advice and information on this issue available. However, the sweeping statements of the liquor boards are almost certainly incorrect. Some of the provinces have no laws dealing with the importation of wine from other provinces and, contrary to B.C's statements, the law of others, like Alberta and Manitoba, specifically allows it. Read and judge for yourself:
- Section 89 of the Alberta Gaming and Liquor Regulation says: "an adult may import from another province liquor for the adult’s personal use or consumption". Note the use of the word "import" which obviously includes both "in-person" transport and shipment. I do not see how it is possible for the Alberta liquor board (AGLC) to interpret this language to exclude direct shipments of wine.
- Section 58 of the Manitoba Liquor Control Act says: "Any person may have, keep, and consume ... liquor that he has ... brought or caused to be brought into the province from a place outside the province and .... that he has legally purchased or acquired in any part of Canada other than Manitoba". Once again, I do not see how it is possible for the Manitoba liquor board (MLCC) to interpret this language to exclude direct shipments of wine.
From a legal perspective, it is hard to understand how a quasi-regulatory body like a liquor board can issue "policy" statements that appear to contradict the plain meaning of the laws that they are supposed to be enforcing and upholding (for more on this point, see Rule of Law Missed By Liquor Boards).
Why Are the Liquor Boards Trying to Stop Bill C-311?
So why are the liquor boards trying to prevent a reasonable amendment which will provide a small amount of additional consumer choice? The answer is, in one word, money. This entire issue was started by the liquor boards when they threatened BC wineries with criminal prosecution for direct shipping wine to customers in other parts of the same country (see letters posted here and note the irony that the complaints were from Alberta and Manitoba, whose provincial laws permitting direct shipments are quoted above!). The liquor boards were and still are fearful that direct shipments will cut into the money that their monopolies charge in the form of "liquor board markup". Liquor board markups are essentially large fees (they are not legal taxes) that are applied to wine at the wholesale level as it goes through the monopoly system and which provide provincial governments with a lucrative source of revenue (in B.C., the base liquor board markup on wine is a whopping 123%). A direct shipment bypasses the liquor board and, thus, they don't collect their "markup". However, in my view, the concern over lost revenue is largely unfounded. The U.S. has had inter-state direct to consumer shipments for many years now. Recent estimates indicate that they comprise only 0.5% of the overall retail wine market. Regardless, I don't think it should be permissible in a free society for a liquor board monopoly to make criminals out of inter-provincial wine shoppers in order to jack up their revenue.
A secondary concern is competition, particularly as it relates to e-commerce. Over the weekend, Minister Coleman made additional puzzling statements upon which he may want to get second opinions (see CKNW Audio Vault - June 16th starting at about 3:35pm). He said that B.C. will not set a precedent for other provinces by opening its borders to direct shipment. Instead, he said that he would now get the provincial liquor bureaucrats to work with each other to obtain agreements on this issue (since not even 2 of the provinces have come to an agreement on this in the past 80 years, it is hard to see how this will work). He tried to justify his position by raising the 'alarm' that Bill C-311 applies to all wine, both domestic and imported. His stated fear was that if B.C. opened its borders to direct shipment, consumers might buy "dumped" Australian wine at low prices from other provinces over the internet. Many consumers are likely to respond "so what, aren't you supposed to be the free enterprise guy?". More to the point though, the Minister should obtain better advice about the retail wine market in Canada. In fact, liquor taxes/markups are high enough across the country to mean that there would be a very limited number of inter-provincial "bargains", nearly all of which would be at the higher end of the market (where 'illegal' cross-border shopping is already occurring anyway). "Dumped" super-cheap wine, like 2 buck chuck, does not exist anywhere in Canada, contrary to what the Minister has obviously been told (in all fairness, he said that he was a Scotch drinker, not a wine drinker in the interview). In any event and most importantly, consumers do not buy low priced wine in the direct to consumer channel because it typically costs an additional $2 to $5 a bottle to have the wine shipped.
The real issue is that the liquor boards don't want consumers to have a choice of where to buy wine within Canada ... even if it is only a choice between monopolies. Instead, they want to maintain complete control and to force you to buy wine only from your own provincial board. This is remarkably backward thinking. Why is it legal to buy a gun in another province but not a bottle of wine? Is the internet going to go away? Is e-commerce just a passing fad? If the liquor boards were smarter, they would simply embrace the spirit of Bill C-311, adjust their prices if necessary to compensate for the miniscule revenue hit, and set up their own e-commerce sites to provide all Canadians with a better wine selection right across the country. Unfortunately, and to date, the B.C. government appears to be getting bad advice and siding with the liquor boards instead of making policy that will benefit B.C. wine consumers and B.C. wineries for the long term.
Wineries Should Get Their Own Advice
The bottom line in all of the above is that Bill C-311 should bring a small dose of much needed modernization to the Canadian wine distribution system. Wineries should take the statements of liquor boards (and their provincial masters) with a grain of salt ... and get their own advice. It is the law that has prevented wineries from shipping up until now and it is the law that will allow wineries to ship to some, most or all provinces once Bill C-311 passes. It would be fantastic if the liquor boards and provinces change their tune and embrace the spirit of Bill C-311. Perhaps B.C. will still lead the way on this ... but I am not holding my breath.