As reported earlier this morning, the BC Government has  announced that they will permit inter-provincial wine shipments in unlimited amounts for personal consumption from other provinces free of provincial liquor board markup (which is a form of hidden tax) if the wine is 100% Canadian wine and if the wine is shipped from the producing winery in the other province. The press release does not refer to the legal authority for this change which is important since the BC Government introduced a Liquor Possession Regulation last month which only permits BC residents to possess a cumulative total of 1 case of wine imported from another province at any given time and only if the wine was imported "in-person" rather than by shipment from a winery. Last month's regulation would have to be changed in order to give effect to the new policy. [Update July 13, 2012: the Liquor Possession Regulation has been amended to permit the possession of unlimited quantities of wine from other provinces (either shipped or imported "in-person") if the wine was purchased from a winery in another province and is made entirely from agricultural products grown or produced in the province where the winery is located.] 

For wineries, the new policy is a step in the right direction. The BC government currently exempts all 100% BC wine from liquor board markup if the wine is delivered direct from the winery to consumers or to licensees within British Columbia. This exemption is significant because the base liquor board markup on wine is essentially a 123% hidden tax at the wholesale level. In respect of consumers, the new policy would essentially extend the markup exemption to all 100% Canadian wine regardless of the province of production. This makes sense on a national level ... why should one province discriminate against wine produced in a different province? BC wineries can now hope that other Canadian provinces will adopt a similar approach to the application of markup and thus permit BC wineries to ship to other Canadian provinces free of liquor board markup. Indeed, from a legal perspective, there is a very good argument that this approach is required by law in many provinces because s.121 of the Constitution Act guarantees a "free trade" zone within Canada for Canadian produced products. Without getting into the details, this law generally requires that, while a province can impose taxes on to products coming from another province (e.g. sales taxes), it cannot impose fees or charges on to goods from another province which it does not impose on the same goods within the province. In other words, if a province exempts its own wines from liquor board markup, it cannot charge that markup on wines from another province.

On a less positive note, BC's new approach is likely to raise international trade law problems as it is inconsistent with Bill C-311's neutral approach to all wine within Canada. Bill C-311 was carefully crafted to ensure trade agreement compliance by treating all wine the same regardless of wine type or origin. Indeed, I testified before the House of Commons Finance Committee that it was my opinion that all wine (domestic or imported) had to be treated the same in order to comply with Canada's obligations under NAFTA and GATT. In this regard, BC's new approach could prompt a trade agreement challenge since it provides preferential treatment to Canadian wine. BC wine consumers may also be partly disappointed since the new policy does not permit them to order wine direct from a retailer in another province. In this respect, BC has not followed the lead of Alberta and Manitoba which have opened their provincial borders to all inter-provincial wine shipments regardless of wine type and origin. The new approach also raises questions of enforceability ... will wine consumers/wineries/retailers/shipping companies really care what is in the bottle when they process an order?

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