Category: Latest News

In a move that was being fairly widely applauded by industry groups in California, the California Dept. of Alcoholic Beverage Control (ABC) has issued an advisory today that sets out plain language rules for wineries and retailers who wish to use third party marketing companies to help them sell their wine, particularly on the internet. This issue had become contentious and had caused a great deal of confusion after the ABC issued an earlier advisory that cast doubt on the legality of such marketing without providing firm guidelines. The new advisory confirms that this type of marketing is legal so long as it is properly structured with the major requirement being that the licensee must maintain control over the selection, pricing and sales transactions. The story is here: New Advisory Explains How Internet Businesses Can Properly Promote Alcoholic Beverage Sales. There is also a short legal commentary from Napa law firm, Dickenson Peatman & Fogarty here: California ABC Reverses Position on Third-Party Providers Following Industry Input. The actual advisory is here: Industry Advisory – Third Party Providers. This issue is directly relevant to wineries in British Columbia where the legal issues are very similar.

Wine Law reform efforts appear to be making progress in many places … except BC:

WA State Privatization: Another liquor privatization initiative is on the ballot in Washington state for the November 8th election. Once again, Costco is leading the \”Yes\” side\’s effort to reform the state distribution system while liquor wholesalers are financing the \”No\” side in favour of the status quo. There has been plenty of analysis (see both \”pro\” and \”con opinions from the Seattle Times) and here are a couple of other articles if you are interested: Citizen\’s Guide to Initiative 1183 and Liquor and Long Term Initiatives Leading in New Poll. Leading WA wine writer, Paul Gregutt, weighs in here (My Vote on Initiative 1183) with his support for the YES side.

Hong Kong Creates Wine Boom: In 2008, the Hong Kong government repealed its high (80%) import taxes on wine. The repeal of the taxes created a huge boom in the wine business and in three short years, HK has now established itself as \”Asia\’s prime wine trading hub\” according to Decanter magazine. HK\’s wine imports will likely exceed $1 billion this year.

Wine Shipping Reform Continues at Federal Level: Dan Albas\’ private member\’s bill (C-311) continues to work its way through the House of Commons at the federal level. If passed, the Bill will produce the first reform in almost 90 years of Canada\’s arcane prohibitions on the interprovincial shipment of wine. The conclusion of second reading debate on this Bill is set for December 8th, after which the Bill will go to the Finance Committee.

Unfortunately, here in BC, nothing has happened on the wine law reform front despite pleas from many groups (here are just two new examples: restaurants and movie theatres). Last year\’s trade practices reforms (announced over 15 months ago) have still not been implemented and we are still stuck with one of the most outdated wine regulatory systems in the western world. If the initial comments on the Vancouver Sun\’s movie theatre article (Arcane Liquor Laws Kill Rio Theatre\’s Business) are anything to go by, then most British Columbians are just as frustrated with the failure to modernize as I am!

Bill C-311, a private members\’ bill introduced by Dan Albas MP (Okanagan-Coquihalla), will receive 2nd reading in the House of Commons today. If passed, this Bill will reform the 1928 federal law which prohibits the inter-provincial shipment of wine by creating a national personal use exemption for wine shipped direct to consumers between provinces and in limited amounts for personal consumption. The Bill has received a considerable amount of very positive coverage in the media and is attracting support from all political parties.

I recently watched Ken Burns’ excellent PBS documentary on Prohibition in the U.S., which included more than a few references to Canada and BC (which is where much of the American illegal booze flowed from). There are some obvious lessons from history, some of which are highly relevant for efforts to modernize BC’s current wine regulatory system which to a large extent is still reflective of post-prohibition thinking.

Lesson 1: Don’t Penalize Everyone if a Small Group Has a Problem. This was really the heart of the problem with prohibition. In order to solve the drinking problems of a minority of society, they punished everyone by banning alcohol entirely. This was obviously a terrible policy because the majority refused to abide by a law which they rightly viewed as unfair. Unfortunately, some of BC’s current liquor policies still have this attitude. One example: in order to supposedly discourage alcoholism and overconsumption, we tax everyone at excessive levels, including those who are drinking responsibly and moderately. As a result, big spenders ignore the law and buy their wine in Alberta.

Lesson 2: All Alcohol Consumption is NOT the Same. Much to the dismay of wineries and wine drinkers, the prohibition laws treated all alcohol exactly the same: as inherently evil. The laws completely ignored that wine is an agricultural product that has been part of civilized meals for thousands of years. They made no distinction between a jug of bargain basement vodka and a nice bottle of wine drunk with dinner. Most of BC’s regulatory system still inherits this thinking making almost no distinction between types of alcohol or manner of use. For example, a fine bottle of wine served with a meal in an upscale restaurant is basically subject to exactly the same tax and regulatory rules as a tequila shooter served in a college bar.

Lesson 3: If the Law is Not Being Respected Then Fix the Law Rather Than Stepping Up Enforcement. The ultimate failure of the prohibition advocates was that they steadfastly refused to compromise. Even in the face of massive disregard for the prohibition laws, they called for greater enforcement rather than compromising and creating more sensible policy that had a greater chance of being respected. We still have this problem. For example, some of Canada’s liquor boards are still opposed to the modernization of Canada’s foolish and unenforceable interprovincial wine shipping restrictions – they actually threatened BC wineries with criminal sanctions rather than working to create a more sensible law.

Here is a link to Bill C-311, the Bill that, if passed, will amend the Importation of Intoxicating Liquors Act so as to create a national personal use exemption which would permit the shipment of wine between provinces direct to consumers. The amendment to IILA would add an additional exemption in s.3(2) of the Act so that the prohibition on inter-provincial shipment would not apply in the following circumstances:

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.

Here’s a short analysis of the effect of Bill C-311, if it is passed. What does Bill C-311 do?

• Creates an exemption from the interprovincial ban on shipping alcohol across provincial borders in limited circumstances, as described below.
• The exemption would apply to wine only, both domestic and imported (this is necessary in order to comply with Canada’s trade agreement obligations and desirable for consumers) and only in amounts for personal consumption.
• The exemption would apply to BOTH wine that is personally transported across a provincial border with an individual AND wine that is shipped at the request of an individual across a provincial border.
• The destination province is given the ability to further define reasonable amounts for personal consumption and potentially set other requirements so long as they do so through law.

It’s my strong belief that this is a reasonable compromise measure that should be supported by all aspects of the wine industry (see Dan Albas\’ sensible explanation here). Some have called for the complete abolition of the IILA and, personally, I would not be sad to see it gone but such a step would create dramatic changes that most provinces would oppose. The approach taken by this Bill is much less disruptive but it is significant enough that it will provide immediate benefit for Canadian wineries and consumers in a small segment of the retail wine market, specifically, those consumers who are looking for hard to find products that are unavailable locally.

The benefits of this Bill, if it is passed, are:

• Consumers will be able to order wine from wineries in other provinces and have it direct shipped so long as the amounts are for personal consumption.
• Consumers will be able to order hard to find wines from retailers (including liquor boards) in other provinces so long as the amounts are for personal consumption.
• Consumers will be able to return from vacations in other provinces with wine without breaking the law.

The above changes are sensible because they re-establish Canada as a free trade zone for wine (which is supposed to be guaranteed by the Constitution anyway) and they provide consumers with a greater selection of wines to purchase within the country. This Bill will not appreciably affect the revenue that the provinces generate from liquor sales. The vast majority (well over 90%) of retail wine is consumed within a few hours of purchase. This Bill will not affect those sales at all because those consumers will not wait for the delivery of their wine or pay for shipping (usually at least $2-3 a bottle). In the U.S., which has had a similar system for many years, the experience has been that interstate (or interprovincial) shipment will only comprise about 1% of the total retail wine market. This Bill deserves our support and I encourage readers to go to FreeMyGrapes.ca where they can ask their MP to vote for it and ask their MLA/MPP to also provide support.

Dan Albas, MP for Okanagan-Coquihalla, will introduce a private member\’s bill today which will, if passed, have the effect of creating a national personal use exemption so that wine can be shipped between provinces. More coverage and analysis will follow as soon as the Bill is introduced.

Great news for those following the wine shipping law saga. Dan Albas, the MP for Okanagan-Coquihalla, will introduce a private members\’ bill which is intended to amend the Importation of Intoxicating Liquors Act (IILA) next week. The IILA is the 1928 post-prohibition federal law that prevents wineries from shipping directly to their customers in other provinces. The private members\’ bill is entitled \”An Act to amend the Importation of Intoxicating Liquors Act (interprovincial importation of wine for personal use)\”. More details on the exact wording and effect of the Bill (if it gets passed) will be posted as soon as they are available.

Two items of wine business news from Australia this week have possible implications in BC:

The End of Wine Tax Rebates? Two of Australia\’s major wine producing companies have called for sweeping reform of Australia\’s current wine tax system which is similar to BC\’s system. The Australian approach includes a 29% \”wine equalization tax\” on all wine consumed in Australia. However, Australian producers have been eligible for a \”rebate\” of the tax in most situations. The unequal treatment of imported and domestic wine prompted trade complaints from both New Zealand (which complaint was settled by making its producers eligible for the rebate) and from the EU. Now, Treasury Wine Estates (Penfolds, Wolf Blass, etc) and Pernod Ricard (Jacob\’s Creek) have both called for an immediate overhaul of the system. Treasury\’s CEO stated:

Tax has a fundamental influence on both the structure and sustainability of the Australian wine industry. In the context of our industry’s current challenges, ambitious reforms are urgently required if we are to achieve our vision of an Australian wine industry that is economically, socially and environmentally sustainable. In particular, the WET rebate must be abolished or fundamentally reformed. It is untenable to have a tax mechanism that inhibits restructuring and works against the long term best interests of our industry, whilst also costing Australian taxpayers more than $200 million a year. Significant wine tax reform won’t be easy to implement and we understand the considerable impact it will have on some sections of the industry, and therefore advocate the need for appropriate support and transition arrangements. It will, however, be critical if we are to fundamentally address our industry’s challenges and protect the sustainability of Australia’s wine sector over the long term.

See here for more commentary and analysis on this story: Treasury Calls for WET Tax Abolition or Shake-up and WET Rebate Doomed to Dry Right Out. As noted above, BC\’s current wine tax system is similar to Australia\’s in that we impose hefty liquor board markups (123%) at the wholesale level and then in most circumstances, provide exemptions or rebates back to local producers. Most wine producing countries provide some form of subsidy to their producers. However, these subsidies are normally provided in the form of agricultural or technical assistance. Few countries provide wholesale or retail price subsidies which have both the immediate effect of driving prices up for consumers and the long term effect of distorting the economics of the industry (as was noted in Andy Hira\’s recent report on the BC wine industry).

Wine Health Claims. A recent report by the \”Alcohol Policy Coalition\” in Australia generated media coverage because it claimed that the health benefits of drinking red wine are a \”myth\”. Judging from academic reaction to the claims in the report, it now appears that this report was based on temperance-type ideology and flawed science. Wine Spectator reports that there is little scientific foundation for the claims in the report and, even more significantly, the Boston University School of Medicine calls the report \”biased and unscientific\”, states that it is \”shocking\” that government agencies would align themselves with it and notes that \”the paper disregards the vast majority of well controlled studies which show significant and concrete public health benefits of moderate alcohol consumption\”: see \”A misguided statement on alcohol and health from a coalition in Australia\”.

The FreeMyGrapes campaign, which is pressing for reform of Canada\’s archaic interprovincial wine shipping restrictions, recently requested that the various provincial liquor boards clarify their interpretations of whether it is legal for individuals to have wine shipped to them from wineries in other provinces (i.e. direct to consumer wine shipments). You can read the responses here. I have now updated my recent Shipping Law Update August 2011 to include an analysis of those responses. From a legal perspective, the responses are problematic because some of them appear to ignore the plain meaning of the liquor laws that the boards are supposed to operate under. Please read the Update for the full details but here is a summary:

Alberta. Alberta law states that the \”importation\” of wine for personal consumption is legal but the AGLC says that you can only import wine if it \”accompanies the individual\”. The law makes no such distinction and the plain meaning of \”importation\” includes direct to consumer shipments.

Ontario. Ontario law does not deal with the importation of wine from other provinces but the LCBO has created a new \”policy\” permitting importation of specified amounts \”on their person\”. Since the LCBO has no powers outside Ontario or over interprovincial trade, it is difficult to see how the LCBO can use its \”internal policy\” to modify a federal law that prohibits the behaviour in question.

PEI. PEI law permits individuals to \”import\” and keep up to 2 litres of wine from other provinces but the PEILCC says you can only do that if you bring the wine \”on your person\”. Once again, the law makes no such distinction and the plain meaning of \”import\” includes direct to consumer shipments.

While change is welcome, even in small steps, the troubling aspect of the above is that the liquor boards appear to be interpreting their own laws in a manner which is inconsistent with the plain meaning of the law. In my view, the liquor boards are obliged to apply and interpret the laws as they are written. If they don\’t like the laws, they can ask their respective governments to change them. You and I are not free to interpret liquor laws (or any laws) in ways which we would prefer but which are contrary to their plain meaning. Liquor boards are also required to follow the rule of law.

It\’s time for BC to put the HST issue behind us. But one of the major lessons learned from this is that government needs to be honest and fair with respect to any implementation of taxes. In a culture that is demanding transparency and accountability from both governments and businesses, it is simply not acceptable when government engages in taxation schemes which are either unfair or which lack transparency. These lessons should be a wake-up call to the BC government that it needs to transform its tax policies with respect to wine. Let\’s take a look at the current tax system on wine and see how it measures up on both fairness and transparency.