Looming trade challenge to new BC liquor laws

Looming trade challenge to new BC liquor laws

There is fairly wide awareness among the wine trade – and knowledgeable consumers – in British Columbia that the BC government’s implementation of its Liquor Policy Review changes are controversial in the eyes of several of our major wine-producing trading partners. What do we really know about the issues, and how can we assess the risk of a trade challenge from one or more of these countries?

What we do know…

We know that several countries (governments or their wine industry bodies) have written to the BC government over the past 18 months to express concern about how it is proceeding with changes to wholesaling and retailing of wine in BC. The United States, Chile, Australia, New Zealand and the European Union have all registered their concern. The United States’ Permanent Representative to the World Trade Organisation also tabled concerns at a scheduled June 2015 Trade Policy Review for Canada.

The issues are complex, even arcane, but in general, concerns about BC’s changes cover both wholesale and retail, and can be distilled into these four areas (a non-exclusive list):

  • Differential mark-ups between BC-only wines and international wines (including direct delivery for BC wine) amount to “preferential treatment” of domestic wine.

  • Allowing BC-only wine on grocery shelves amounts to preferential treatment of domestic (i.e. BC) wine, and barring international wines from grocery shelves inhibits their ability to compete and access the marketplace.

  • Imposing a one-kilometre restriction for retail license-holders (private (LRS) and government (GLS)) to relocate within a grocery store while exempting BC-only wine retailers from the 1km exclusion zone, effectively restricts the competitive opportunity to reach consumers and treats international wines less favourably than BC-only wines.

  • The auction mechanism (introduced under Bill 22) to permit the highest bidder(s) to win the right to acquire a new (or “dormant” depending on interpretation) licence to sell BC-only wine in grocery stores excludes the sales of international wines and therefore discriminates against their access to the retail marketplace.

These concerns are applicable under Canada’s international trade obligations as a signatory to both the World Trade Organisation (WTO) applying the General Agreement on Tariffs and Trade (GATT), and the North American Free Trade Agreement (NAFTA). Both agreements set out principles for the fair treatment of goods traded between nations, and define what are considered to be unfair treatment or trade practices. Each agreement also offers a dispute-resolution mechanism (tribunal) by which to adjudicate disputes between signatories.

What we don’t know…

Put bluntly: nobody knows what could happen if any (or all) of the countries listed above launch trade challenges under the WTO or NAFTA against BC’s changes to wholesaling and retailing of wine in the province.

  • Could BC wineries lose their “direct delivery” privileges?

  • Could all grocery stores now carrying BC wine be required to carry international wines (either on open shelves or in a segregated “store-in-store” area)?

  • Would the “Bill 22 licenses” be issued at all? Or with the rights that appear to be attached to them now?

  • Would ruling(s) affect how/where beer and spirits are sold in BC?

While it is possible to speculate on many possible outcomes, one observation seems obvious: if a trade challenge proceeds to a tribunal to make a decision, the subject jurisdiction (in this case British Columbia) loses all control over the outcome. (Court is a “crapshoot” as litigators know.) The questions posed above are certainly keeping some wine industry people awake at night, and the consequences - for domestic and international wines, and for the various classes of retailers in BC - could be substantial.

How to assess the risk of a trade challenge?

It would be foolish to speculate on what could happen if country(ies) launch a trade challenge against Canada/British Columbia for BC’s new wine wholesaling/retailing practices. However there are a couple of key principles to keep in mind to help assess the risk of a trade challenge against BC. These principles underpin all international trade agreements, including GATT/WTO, NAFTA, the not-yet-in-force Comprehensive Economic and Trade Agreement (CETA) between Canada and Europe, and the not-yet in-force Trans-Pacific Partnership (TPP) to which Canada is about to become a signatory. These aren’t just principles: they are legally binding treaty commitments that Canada (and every other signatory country) has made, and together comprise a set of rules that everyone must abide by. There are clearly identified remedies and mechanisms to redress any harm(s) when a country’s practices are found to be a violation of the rules.

1. “No less favourable treatment.” Member countries cannot discriminate among goods (or services) from their trading partners (under the “baseline” WTO rules) through higher pricing or other tariff or non-tariff mechanisms. However, “preferential access” is permitted through supplemental agreements (such as NAFTA) that allow better treatment for goods/services than agreed under WTO.

2. “Equality of opportunity.” A sub-principle is that imported goods (or services) should have equal access to the marketplace of a signatory country as those domestically produced.

Judged against these principles, the concerns raised by the countries listed have sufficient merit that several (Canadian) legal experts have ventured the opinion that BC/Canada is “offside” of its international trade obligations in several areas of the BC government’s implementation of wine and liquor law and policy changes.

The wine and liquor modernization efforts by the BC government have been well-intentioned, and mostly well-received by the BC wine industry and consumers. It is assumed that government has assessed the risk of a trade challenge and is confident in its ability to defend its position against a trade challenge.  It is fervently hoped that it also clearly understands the potential implications of a successful challenge for a healthy BC wine industry and vibrant retail marketplace for domestic and international wines.