WineLaw.ca

The U.S. Government, through newly confirmed U.S. Trade Representative Robert Lighthizer, has started the process of re-negotiating NAFTA by delivering a notification letter to Congress. Talks could begin as early as August. The re-negotiation of NAFTA could have consequences for the BC wine industry because NAFTA has, up until now, included language that allowed BC (and other provinces) to provide preferential treatment for domestic wine to a certain extent. Specifically, an allowance was made for a limited number of \”preferential\” retail licenses selling only BC wine. This exemption became contentious in the past couple of years when the BC government converted freestanding VQA store licenses to supermarket licenses and also auctioned off additional \”BC wine only\” supermarket licenses. Those actions prompted a WTO challenge by a number of trade partners including the U.S., the E.U., Australia, New Zealand and Argentina. While wine issues are unlikely to be at the top of a list of NAFTA grievances, it would seem likely that those issues and complaints will now become part of these negotiations.

The BC wine industry will likely face numerous trade-related issues in the year ahead, both nationally and internationally. This post outlines some of those issues and argues that the industry may wish to become strategically involved earlier rather than later.

National – Inter-Provincial Shipping

While the federal government removed the absolute prohibition on the interprovincial shipment of alcohol directly to consumers in 2012, they made the exemption dependent upon provincial laws. Since that time, only one province, Manitoba, has completely opened its doors to the interprovincial trade in alcohol. Consumers in MB are free to purchase wine from the rest of Canada because the laws of that province specifically allow such purchases with no restrictions other than that the amounts must be for personal use. Two other provinces (BC and NS) have restricted exemptions that allow consumers to purchase 100% Canadian wine from another province if the wine is purchased direct from the winery. These provinces do not allow the purchase and subsequent shipment of non-Canadian wine from another province nor do they allow purchases/shipment of any type of wine from a retailer. SK has a confusing system that only permits the purchase of 100% BC wine from a BC winery, and only if a high amount of markup is paid.

The above results have provided limited benefits to consumers and to wineries who were initially enthusiastic about the changes to the federal law. Everywhere except for Manitoba, consumers are still prevented from purchasing/shipping from retailers in other provinces. They are not allowed to hunt for difficult-to-find imported wines in other provinces. They cannot comparison shop. The system for alcohol retailing remains based on protectionism, with each provincial liquor board continuing to block interprovincial trade on the basis that it would create a loss in liquor revenue for that province.

The provinces signed the Canadian Free Trade Agreement (PDF here) in April which purports to remove many barriers. However, the agreement does virtually nothing in respect of the interprovincial trade in alcohol. All existing practices are continued … with only a promise that the provinces will review the issues and report back in a year. The provinces have promised to do this many times before … with little progress.

The one bright light on the horizon is that the Supreme Court of Canada has now agreed to hear the appeal of the Comeau case. This is the New Brunswick case involving charges brought against an individual who drove to Quebec, purchased alcohol, brought it back to NB and was charged for doing so by the RCMP. A lower level New Brunswick court found that the relevant New Brunswick laws were unconstitutional on the basis that s.121 of the Constitution guarantees a \”free trade\” zone within Canada in respect of Canadian products. The NB Court of Appeal declined to hear an appeal of the decision but the nation\’s highest court has now agreed to do so. This effectively means that there will eventually be a national precedent from the SCC on this issue.

The SCC hearing of this issue provides the greatest opportunity in decades for changes to the protectionist systems outlined above. This case has the potential to create landmark changes which could provide great benefits to consumers and the industry. This could be Canada\’s \”Granholm\” (the case that opened U.S. borders) It is possible that our provincial borders may end up \”wide open\”. It is also possible that the SCC may uphold the existing restrictions…. or that the court may end up somewhere in between. Nevertheless, it is important that the industry should be aware that the stakes \”are high\” in this case … and that the industry should proactively start to consider the implications of this case and the possible effects on the wine business.  

International – WTO Challenge

On the international front, there is also the possibility of ground-breaking change. As noted here earlier, a WTO challenge has been started in respect of the BC \”wine-in-grocery\” model which currently only permits the sale of 100% BC wine on regular grocery store shelves. The challenge is being supported by the United States, the EU, Australia, Argentina and New Zealand. A good description of the challenge and the issues is contained in this article by Karen Graham: Checking In on the WTO Trade Challenge. At the present time, it is not clear how this dispute will end but there certainly appears to be a danger that the issues will become part of a larger trade dispute and/or a re-negotiation of agreements such as NAFTA.

It is my view, as I have stated before, that the BC grocery model is not trade-compliant. I do not think that it makes sense for BC to be creating a closed grocery retail channel for its own wine while simultaneously trying to argue that other provinces should open their retail channels to our wine. In addition, it seems to me that there is a danger for the wine industry that this dispute will widen and end up including other policies such as direct delivery and preferential markups. Again, I believe that the industry should be aware that the stakes \”are high\” and that proactive early engagement and involvement would be wise.  

Put Wine Consumers First

On both of the above issues, it is my view that there is a strong argument that the industry should be taking positions that put wine consumers first. Generally, I believe that most Canadian wine consumers have tired of restrictive liquor policies that make it inconvenient for them to buy wine (and other alcohol) and which prevent them from exercising the freedom of choice that they have with respect to other consumer products. The Washington state-based \”wine economist\”, Mike Veseth, puts it succinctly in his book \”Wine Wars\” (which I recommend) where he states (at p. 158):

One thing that I think I\’ve learned is that the opposite of competition — wine protectionism — makes wine very bad, and so trying to stop market forces is unexpectedly dangerous. I have seen this over and over again. We learned about New Zealand\’s experience … Abandoning protectionism and embracing the global market has been the key to their astounding growth. … A protected market encourages least common denominator wines.

As I noted above, Manitoba opened its borders to the alcohol trade when the federal law changed in 2012. Contrary to the predictions of the naysayers, there have been virtually no ill effects in Manitoba: provincial liquor revenue has kept pace with national norms and there has been no major disruption to their retail system. It\’s my view that the other provinces should consider adopting similar strategies with respect to these trade disputes. Let\’s put wine consumers\’ interests ahead of provincial protectionism … and \”free the grapes\” for all Canadian wine lovers. 

 

The Supreme Court of Canada has announced that it will hear an appeal of the Comeau case. This is the New Brunswick trial level decision that found provincial restrictions on the inter-provincial transport of alcohol to be unconstitutional. The case was first appealed to the NB Court of Appeal which declined to hear the appeal. However, the case will now head directly to the country\’s highest court where a ruling would create a national precedent on the issues. The case has the potential to change the landscape for the interprovincial shipment of alcohol in Canada and could also affect other interprovincial trade issues such as agricultural marketing boards. Globe coverage of the decision is here: Supreme Court to Hear Polarizing Border-Beer Case.

Australia has now joined the WTO challenge regarding BC\’s grocery store wine sales model. The number of regions in the challenge now numbers five: the United States, the European Union, New Zealand, Argentina and Australia. Canada has accepted the requests of these counties to join the challenge. Details are on the WTO site.

Argentina has now joined the United States, the European Union and New Zealand in their challenge to the BC government\’s grocery store wine sales model. The challenge relates to the implementation of grocery store wine sales that allow 100% BC wine to be sold on regular grocery shelves but which requires that any imported wine be sold in a separate \”store within a store\”. To date, no grocery stores have opened the latter sales model while the former model is rolling out slowly across the province. This topic will be discussed further at Tuesday\’s Wine Law Conference in Vancouver. Additional analysis of the challenge was featured in this Vancouver Sun article by Karen Graham.

The European Union and New Zealand have now both formally requested to join the WTO dispute, initiated recently by the U.S., regarding the BC wine in grocery model (which permits the sale of only BC wine on regular grocery store shelves). See here for details. This trade topic has now been added to the agenda of the Wine Law Conference, to be held next Tuesday in Vancouver.

Businesses involved in the wine industry in British Columbia should take note that BC\’s new Liquor Control & Licensing Act and associated Regulation became effective on January 23, 2017. Links to the new statute and regulation are contained on this page of the LCLB\’s new web site: Legislation and Regulation. To support the new Act & Regs, the LCLB has also released new Terms & Conditions Guides for licensees. The new guide for wineries is here: Manufacturer\’s TAC Guide. There are also new guides for other categories of licensee here: TAC Guides. 

These new laws will be the subject of sessions at the upcoming BC Wine & Liquor Law Conference, to be held in Vancouver on February 14th. Wine industry attendees can obtain a reduced registration fee by changing the rate on the registration page to \”wine industry rate\”. 

The United States Trade Representative has announced this morning that the Obama administration has launched a trade enforcement action at the WTO against BC\’s wine in grocery store model. The details of the challenge are contained in this press release: United States Challenges Canadian Trade Measures That Discriminate Against U.S. Wine. The basis of the action is that BC\’s \”regular shelves\” grocery model discriminates against imported wines by allowing the sale of BC wines on regular grocery shelves but only permitting the sale of imported wines in a separate \”store within a store\” model. We will provide an update on this issue at the upcoming Wine & Liquor Law Conference in Vancouver on February 14th.

Details of the 2017 BC Wine & Liquor Law Conference are now available from the organizer\’s web site: Law Seminars Wine Law Conference. The agenda should be fascinating with sessions on BC\’s brand new Liquor Control & Licensing Act (taking effect later this month), as well as a review of the new legislation\’s effect on industry and local government, discussion of wine labeling requirements, an update on interprovincial shipping and the effects of national trends in liquor law reform.

There is a discounted registration fee for those who work in the BC wine or liquor industry. This reduced $300 USD rate is now available by going to the conference registration page, selecting the \”Rate\” drop down box and changing it from \”Regular\” to \”Wine Industry Member\”. The registration fee will then change to $300.

A quick round-up of end of year wine law issues in BC and Canada:

BC LCLB General Manager Departs. Douglas Scott, the current General Manager of BC\’s Liquor Licensing and Control Branch, is leaving the Branch in early January to move to a new position within the Government dealing with Aboriginal Relations. Doug led the Branch through a time of many changes including the implementation of nearly all of the recommendations arising from the Liquor Policy Review. His replacement will be Michelle Carr, who is currently with the BC Environmental Assessment Office.

BCWA Plebiscite Changes. Some of the changes approved by the recent BC Wine Authority plebiscite have now been enacted: see \”BC changes regulations for wine labelling\” and here is a link to the Order in Council that enacts the changes – incidentally, the government is changing the name of the statute that governs BC wine from the rather obtuse \”Agri-Food Choice and Quality Act\” to the more sensible \”Food and Agricultural Products Classification Act\” (nice to see wine classified as an agricultural product!).

Federal Marijuana Report – Interprovincial Shipments. The federal government\’s report on marijuana legalization has now been released including recommendations that cannabis be available from retail storefronts and that the existing mail order system be continued (it is currently legal for medical marijuana to be shipped through the mail and between provinces). In respect of retail sales, the report advocates a separation of cannabis sales from the sale of alcohol and tobacco … which, if implemented, would prevent sales through existing government or private liquor stores. In addition, if the recommendation to continue with mail order sales is adopted, then the federal government may wish to also address the continued problems with interprovincial wine sales. It would make little sense to allow a new regime for cannabis sales which permits interprovincial shipment but to not resolve the longstanding issues with interprovincial alcohol sales at the same time. It would be relatively easy to do both by establishing permissible amounts for interprovincial shipment of both cannabis and alcohol through a federal level exemption.  

Wine Law Conference 2017. The date for the 2017 BC Wine & Liquor Law Conference is February 14th (Valentine\’s Day!). The agenda is excellent including a review of BC\’s new Liquor Control & Licensing Act as well as its accompanying regulations, review of the new legislation\’s effect on industry and local government, discussion of wine labeling requirements and related issues, provision of an update on cases dealing with interprovincial shipping, and the effects on the industry of national trends in liquor law reform. Full details and registration are here: 2017 BC Wine & Liquor Law Conference.