Author: MarkH

The BC Government have announced that they are modernizing BC\’s wine laws to permit corkage. This is great news for wine lovers in the province as it will now be legal to take a bottle of wine to a restaurant to enjoy with a meal. Previously, it was not legal for a restaurant to permit the consumption of wine that had not been purchased directly from the restaurant. Restaurants will be free to set their own corkage policies including whether or not to permit corkage at all and to set whatever corkage fees they wish. Corkage is permitted in most other jurisdictions including our neighbors, Alberta and Washington state. Corkage is good news for wineries and retailers. It is also particularly beneficial for wine lovers who have been saving a \”special bottle\” for a particular occasion – now they will be able to take that bottle out for dinner rather than staying home. Restaurants can also tailor their corkage policies to fit their own needs – i.e. setting corkage fees that reflect average profits on a bottle of wine and adjusting those fees up or downwards to increase traffic on slower nights. See additional coverage at BC Wine Lover: Bring Your Own Wine Comes to BC Restaurants.

Update: Here are some useful links for restaurants wondering about the changes. Here is the Order-in-Council that amends s.42 of the Liquor Control and Licensing Regulation to permit corkage. Here is the LCLB Policy Directive introducing the BYOW program. These are the amended Terms and Conditions for Food-Primary Licensees which permit corkage.

The BC Government\’s liquor privatization project (the Distribution of Liquor Project or \”DLP\”) has been in the news a great deal this past week, getting increasingly negative coverage. Many commentators have correctly identified that the existing government monopoly system is inefficient and flawed but have criticized the DLP process for a lack of transparency and failure to consult with both the public and industry. In addition, some have questioned the scope of the reforms being put forwards and the wisdom of replacing a public monopoly with a private one (particularly given that the new operator will be bound by existing BCGEU labour contracts and costs). There have been many stories but see in particular: multiple stories by Bob Mackin in BIV and the Tyee, multiple columns by Vaughn Palmer in the Vancouver Sun as well as a critical Sun editorial piece, Liquor monopoly silences competition, plus another editorial and other coverage of the issue by Bill Good on CKNW.

It is hard to argue with the criticism of the process. However, there is no doubt that the entire system is in dire need of reform. Unfortunately, it now appears that another opportunity to modernize and reform our outdated liquor distribution system is about to be lost due to poor policy making and implementation at the bureaucratic and political levels. In my view, the government needs to change its strategy to one that should have been in place all along: put the interests of consumers and voters first. BC has long suffered under an archaic prohibition-era system that restricts selection to government listed products and which fixes wine prices at exorbitant levels both by imposing absurd levels of taxation and by preventing competition. BC wine consumers and voters really only care about two things: selection and pricing. Proper reform of the system could provide major benefits on both those fronts but to achieve those goals, two objectives have to be accomplished: 1) the government should restrict its involvement in the liquor business to regulation along with the collection of fair taxation, and 2) the government should replace the current monopoly system with a competitive free market system at the wholesale and retail levels so that consumers and voters will see a meaningful increase in product selection and reduced retail prices. It would not be that difficult to achieve these goals: BC could simply adopt the best elements of the systems now in place in our neighbouring jurisdictions, Alberta and Washington state, both of which have privatized either entirely or almost entirely. In this respect, see my previous article, Two Wine Neighbours – Two Approaches to Liquor Regulation, and this recent op-ed in the Vancouver Sun: Province\’s Soviet-Style Liquor Monopoly Past Its Sell-By Date.

Unfortunately, at the present time, it is not clear whether the DLP will provide any benefits on selection or pricing, the only two areas that matter to consumers and voters. In this regard, government should probably change the DLP, change its message, or perhaps change both.

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?

The BC Government has just announced that they will permit inter-provincial wine importations from other provinces free of provincial liquor board markup (which is a form of hidden tax) but only if the wine is 100% Canadian wine and only if the wine is shipped from the producing winery in the other province. While this is a step in the right direction and an improvement on the BC government\’s previously announced position (which restricted BC residents to \”in-person\” possession of a cumulative total of 1 case of imported wine at any given time), it is inconsistent with Bill C-311\’s neutral approach to all wine within Canada (i.e. domestic vs. imported and winery vs. retailers) which was carefully crafted to ensure trade agreement compliance and to benefit all wine consumers. BC\’s new approach could cause a trade agreement challenge since it provides preferential treatment to Canadian wine. 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. More analysis to come.

The BC Government has amended the Liquor Control and Licensing Regulation to remove the moratorium on the issuance of private retail liquor store licenses which is currently contained in s.14 of the Regulation (see this Order in Council). However, the effective date of the cancellation is ten years from now … on July 1, 2022. Perhaps there will be additional announcements to make sense of this development.

Bill C-311, the federal wine shipping reform amendment, becomes law today at approximately 2 pm eastern time (11 am pacific). Canada will now have a limited national personal use exemption for the inter-provincial shipment of wine. The amended text of the relevant part of the Importation of Intoxicating Liquors Act now reads as follows:

3. (1) Notwithstanding any other Act or law, no person shall import, send, take or transport, or cause to be imported, sent, taken or transported, into any province from or out of any place within or outside Canada any intoxicating liquor, except such as has been purchased by or on behalf of, and that is consigned to Her Majesty or the executive government of, the province into which it is being imported, sent, taken or transported, or any board, commission, officer or other governmental agency that, by the law of the province, is vested with the right of selling intoxicating liquor.

(2) The provisions of subsection (1) do not apply to

…

(h) the importation of wine from a province by an individual, if the individual brings the wine or causes it to be brought into another province, in quantities and as permitted by the laws of the latter province, for his or her personal consumption, and not for resale or other commercial use.

As is apparent from the text, the amendment permits provincial law to affect the availability of the amendment. More information will become available on this issue in the coming weeks as analysis is completed on the effects of the relevant provincial laws. However, the current law in some provinces (such as Alberta and Manitoba) is clear that importation will be allowed in any reasonable quantity for personal use. Unfortunately, wineries and wine consumers in British Columbia are still waiting for the B.C. government to do the right thing and open this province to wine shipping. See this page for updates on this issue: Shipping Laws on Wine Within Canada.

Huge thanks go out to Dan Albas MP, Ron Cannan MP, Shirley-Ann George (of FreeMyGrapes.ca) and the Canadian Vintners Association for this historic progress.

Bill C-311, the wine shipping law reform amendment, will become law tomorrow, June 28th at approximately 2 pm eastern time when it will receive royal assent from the Governor General. In the interim, the BC wine industry and BC wine consumers are still waiting to see if the BC Government will do the right thing and announce that this province is open for wine shipping: see story \”Okanagan Wineries Anxiously Await Changes to Regulations\”.

A new Harris/Decima poll shows massive support for Bill C-311. The poll says that 8 out of 10 Canadians want inter-provincial wine barriers removed and want to be able to use e-commerce to purchase wine from other provinces. Hopefully, the provinces are listening to their voters and will embrace the spirit of Bill C-311 once it becomes law next week.

Here is the latest on issues related to Bill C-311 (the inter-provincial wine shipping law amendment):

• Bill C-311 was passed by the Senate on Monday evening, June 18th. Once again, the vote was unanimous … indicating the tremendous level of support that there is for this Bill at the federal level.
• It is expected that Bill C-311 will obtain royal assent and become law at some point next week.
• A new BC regulation has appeared (apparently there were \”delays\” at the Queen\’s Printer) which relates to this matter. 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.

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:

1. the alcohol must be wine,
2. an individual must \”bring the wine or cause it to be brought\” from one province to another,
3. the wine must be for personal consumption only (not resale or commercial use), and
4. 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.