Canada is negotiating an FTA with the EU

Should wine drinkers care? Absolutely we should care!

First, a bit of background:  A few agreements already govern Canadian – European trade in wine, including broad international trade protocols relating to taxation, duties and agreements on intellectual property, and more specifically  the 2004 Wine and Spirits Agreement that offered better protection for “geographic indicators” – terms that designate origin such as “Champagne”, “Chablis”, “Burgundy” and “Chianti”.  Under this Agreement, many European wines that are known by their regional names cannot be applied as generic terms by producers in Canada (and other countries). This Agreement averted a trade war, and may have looked like the Europeans won that round.  However, the Canadian government of the day stated that the benefits to Canada’s wine & spirits sector were “substantial”, mainly because other provisions in the agreement allowed the continuation of provincial liquor board practices that favour Canadian producers.

Unsurprisingly, at the beginning of the four years (and counting) of the current round of Comprehensive Economic and Trade Agreement negotiations, European exporters singled out “provincial marketing of wines and spirits” to be a key non-tariff barrier to trade between the EU and Canada, stating: “Government control in some provinces of the alcoholic beverage sector, which – through promotion of local wine and drinks – adversely affects the EU wine and spirits industry” (Assessing the Costs and Benefits of a Closer EU-Canada Economic Partnership, 2008).

Fast forward to today: Canadian wine lovers may care about freer trade between Europe and Canada in two principal areas:  access to a wider array of European wines on our store shelves and in restaurants, and having a higher threshold for duty-free importing (presently a mere 1.5 litres/2 bottles) after an extended stay anywhere beyond our borders.

Sadly, the latter is likely to remain a distant hope – at least as to the volume exemption. Keen observers of excise/duty payable on wines when returning to Canada will recall that our hopes were dashed when the higher dollar value import thresholds were announced last year for Canadians returning from the US – with no provision for increased volumes of wine or other beverage alcohol. Right now, Canada charges excise tax of $0.62/L for table wines over 7% alcohol/volume ( http://www.cra-arc.gc.ca/E/pub/em/edm1-5-1/edm1-5-1-e.html#_Toc251941533).  Customs duty of about $0.04 per litre is also applied – but not on wines imported from the US, as it is a category covered by the North American Free Trade Agreement.

Do these rates sound minimal in comparison to the dollar value we actually pay for excess imports at the border?  They are – an array of provincial taxes and duties (plus federal HST/GST) make up the substantial difference.  Vancouver wine lawyer Mark Hicken offers a detailed breakdown here of what you should expect to pay per bottle to import anything over and above two duty-free bottles.  Those of us who have learned the hard way know that the sliding scale penalises inexpensive wines, and that the incredible bargain US$15 Oregon Pinot Noir found just across the border becomes C$30 when it is legitimised in BC – a price approximating what it would sell for at retail in the BC LDB.

The faint hope in the context of duties for a Canada – European Union agreement on wine is that Canada’s customs duty will be lifted, helping out the Canadian wine lover to the tune of about three cents per bottle. In reverse, for Canadian wine exporters to the EU, European duties can be expected to be reduced or lifted altogether.

Concerning the former topic of interest – wider access to European wines on our store shelves and in our restaurants, the hope is not much stronger.  If it were solely up to the Canadian federal government, broader access to the Canadian consumer market by European exporters would likely be negotiable (with reciprocal access to the European market for Canadian wines and other beverages).  That Europe has identified the provincial liquor boards as a continuing barrier to freer trade in wine signals its importance as a negotiating point.  However, it is extremely difficult to see the provinces cede jurisdiction (and source of revenue) to the interests of a more accessible, fairer marketplace for the Canadian wine consumer.

What of the interests of Canadian wineries?  For those who operate within the protected confines of a supply-managed liquor board system, they may fear the increased competition (which to an extent they are already facing from suppliers elsewhere in the world with vast, cheap lakes of wine to sell).  The words of a friend come to mind, who recently said: it’s time for some tough love. Here it is, in two doses:

First, Canada has skated across the line for years in its international trade obligations due to the protectionist practices of provincial governments and their liquor boards (e.g. preferential pricing/rebates, delivery methods and taxation of domestic producers).  As anyone who has followed the softwood lumber disputes over the years with the United States would agree, it is lucky for the Canadian wine industry that – for now – it has escaped the full attention of the office of the US Trade Representative.

Second, the systems across the country that have helped foster the growth of the domestic industry may now be holding it back.  As we have discussed in previous posts, BC wineries are facing a supply/price/market crisis, where the domestic provincial market is nearly tapped out.  Why do they not export?  And by that we mean sell internationally, not just the tongue-in-cheek term used for sales to Alberta and Ontario (not that interprovincial barriers have fully come down with Bill C-311, but it is a step forward). An argument can be made that Canadian wineries have been slow and timid to mount an export presence because they have been protected at home. They have simply not been sufficiently exposed to the competitive realities of other markets that encourage quality at a reasonable price, realistic but assertive business strategies and decisionmaking, innovative products and promotional campaigns, and – is it really too much to ask? – a coherent, unified industry that can speak with one voice and advocate for a strong Canadian and regional brand on the world stage.

All in all, Canadian wine lovers should be cheering on a Canada-Europe agreement that includes provisions on the improved trade in wine – whether they enjoy wines from around the world, or are champions of a robust Canadian industry.  It’s time to grow up and let the world’s wines in, and put our best foot forward on the international stage at the same time.Should wine drinkers care?