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Federal Excise Tax Exemption & Certain Provincial Preferences for Canadian Wine To Be Eliminated

A press release from Global Affairs Canada issued today (Summary of Understanding Between Australia and Canada on Wine) indicates that the federal excise tax exemption for Canadian wine will be eliminated within 2 years. This action comes in partial settlement of a trade dispute launched by Australia against Canada at the WTO which alleged that various Canadian policies and practices were discriminatory against Australian wine and violated GATT rules. 

The practical result of this will be that all Canadian wine (including BC wine) will eventually become subject to federal excise tax (currently levied at a rate of 66.5 cents per litre or just under 50 cents per 750 ml bottle). Prior to this settlement, 100% Canadian wines have been exempt from this tax. The elimination of the tax exemption can reasonably be expected to increase the price of Canadian wines in the marketplace for the end-consumer once it is implemented (i.e. within 2 years).

The progress of this WTO dispute DS537 can be tracked here: Canada – Measures Governing the Sale of Wine. As can be seen here, the WTO Panel is scheduled to issue its Final Report on the dispute in the middle of August. However, this settlement will resolve part of the complaint. It should be noted that the settlement states that it does not \”alter Australia\’s claims with respect to other measures covered by DS537\” (i.e. the other matters covered by the dispute). 

In addition, and as a related part of the settlement, it appears that Nova Scotia and Ontario have also agreed to change certain preferential provincial practices over the next few years such that Australian and Canadian wines will eventually receive similar tax and distribution treatment. Nova Scotia has agreed to eliminate its preferential liquor markup policies for local wines. Ontario has agreed to eliminate preferential rules in both its grocery channel and taxation treatment of Australian wine. Media coverage from Australia also discusses the settlement: Winemakers Cheer Wins Over Canada\’s Trade Barriers.


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Revised BC Health Order Affects Some Winery Operations

A revised BC Public Health Order was posted late yesterday which applies to all licensed premises that serve liquor (and which is effective yesterday, July 23 2020). While the bulk of the order is similar to the previous one, it does make some significant changes which may affect certain winery operations:

  • Updated August 1, 2020. This part has been revised effective July 31st. Manufacturer licensees are now exempt from the requirement that all customers must be seated. Updated July 28, 2020. Paragraphs 3 and 10 of the Health Order state that all patrons must have a seat and that following any service to a patron at a manufacturer tasting bar, the patron must return \”directly\” to an assigned seat. As such, the text of the Order does not permit patrons to stand at a tasting bar to consume their samples/drinks. Rather, a plain reading of the sections says that they can\’t do so (see paragraph 3). While I have been told that there may have been an \”intention\” to allow patrons to stand at a manufacturer tasting bar so long as physical distancing is maintained, the Health Order does not allow this. Unless the Health Order is modified, it is my view that manufacturers should require all patrons to have a seat (a stool would be ok too) as Health Officers or Liquor Inspectors may expect all patrons to be seated based on the text of the Order. The rules apply regardless of tasting room setup (i.e. whether inside or outside). 
  • Group size is still limited to 6 persons. If larger groups arrive, they must be seated separately with mandated physical distancing. Tables cannot be consolidated. 
  • There must be sufficient staff to monitor and enforce the physical distancing and seating rules. 
  • No singing or dancing.
  • There are detailed rules regarding the holding of events including the previous maximum of 50 people. Events can only be held between noon and 11 pm. Maximum of two events per day.
  • If live music is part of an event, there must be a physical barrier to separate performers from the audience and a distance of at least 3 m.

Full order is here: Order of the Public Health Officer: Food Service Establishments, Liquor Services & Events

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Historic New World in BC as Normal Wholesale Pricing Launches for Hospitality Industry

Today is the first day that restaurants, bars and hotels in British Columbia will be able to purchase alcohol at normal wholesale prices. This is an historic change that has been sought by the hospitality industry for decades. It will finally place hospitality customers in the province on a level playing field with retail customers in terms of alcohol pricing (the 2015 changes to the wholesale pricing system left out hospitality customers). The new system will provide critical financial assistance to the restaurant/bar/hotel sector at a time when such assistance is urgently needed due to the devastating economic effects of the pandemic. 

More discussion on the economic implications of the change for manufacturers is here: Implications of BC’s New Hospitality Pricing System for Wineries. This change was part of the recommendations of the Business Technical Advisory Panel, and was implemented due to the hard work of Minister David Eby, the LDB, LCRB and the staff in the Minister\’s office. Thanks are due to all of them.

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19%: Canada\’s Failing Grade on DTC

Ontario\’s recent delay of DTC reform (Ontario Shuts Down DTC Reform) has illuminated how poorly Canada is doing in respect of removing the interprovincial trade barriers that prevent the shipment of wine to consumers across provincial borders. While the federal government removed its restrictions 8 years ago (in 2012), there are only 3 provinces that are currently open for direct to consumer (DTC) shipments of wine from another province. Those provinces are BC, Manitoba and Nova Scotia (kudos to all of them). Unfortunately, they collectively represent a paltry 19% of the Canadian population (see Wine Growers Canada summary of the situation). As a result, 81% of Canadians live in provinces that still do not allow them to order a bottle of wine (or other alcohol) from another region in the same country.

By global standards, this is astounding and ridiculous. It remains illegal for a consumer in one province to order a bottle of wine from a Canadian winery in a different province. This is analogous to telling a Parisian that it is illegal for them to order wine from Bordeaux … or telling a Roman that it is illegal for them to order wine from Tuscany. In fact, in Europe, it is legal for a customer to order wine from anywhere within the Schengen zone so a Parisian can order wine from a winery in Spain, Italy or Germany without issue (if they want to). While these countries do not have the Post-Prohibition regulatory structures and monopoly liquor boards that Canadians face, the pace of reform on this issue in Canada is embarrassingly slow. The U.S. faced similar problems when its Supreme Court struck down such protectionist policies in 1986 (in the seminal case of Granholm v. Heald). Reform efforts in the U.S. progressed rapidly following the case and have now opened up all but 4 U.S. states … so 96% of U.S. wine consumers now live in states where DTC is permitted (the hold-outs are Utah, Delaware, Alabama and Mississippi).

As a result, Canada now holds the unique and bizarre distinction of being one of the only places in the world where its wine consumers are actively discriminated against by many of the provincial governments that are supposedly representing them. This situation is long past its \”best before\” date. The governments of the other 7 provinces need to move into the modern world and fix this problem once and for all. One would think that in the midst of a pandemic, the politicians would do something to help Canadian business. Here\’s the sad comparative report card:

Country   Score (% of population open for DTC)   Grade
France 100 A
Italy 100 A
United States 96 A
Canada 19 F

I note that in the Canadian provinces that are open, there have been no significant negative effects from DTC. None of those provinces has experienced any significant drop in provincial liquor revenue. There is simply no valid policy reason why this situation should continue. Fingers crossed that the government of Ontario will come to its senses on this issue and act sooner than July 2021 (the date that they postponed the reforms until).