The external setting for BC wine in 2017

On Nov 11, 2016, we kicked off the inaugural Wine Summit, part of celebrating Whistler’s 20th Anniversary Cornucopia Wine Festival. I presented a few thoughts on the external environment facing the BC wine industry. I’ve condensed them and offer them below.

1. A Trade Challenge? What we know is that a diplomatic letter to the BC government in April 2016 was signed by 7 countries (including the European Union), whose wine industries represent 95% of Canada’s wine imports. The concerns set out by the signatories apply not just to BC but other provinces as well, in particular Ontario. Discussions were said to continue to take place.

Around mid-November, it was reported that the United States Trade Representative has officially lodged a complaint with Canada. The California-based Wine Institute submitted a brief to USTR alleging trade barriers in various Canadian provinces, and estimating a $500 million lost opportunity for future American wine exports to Canada.

While it is unwise to speculate on what might happen next, the principles underlying USTR’s complaint almost certainly include “no less favourable treatment” under WTO, alternatively stated as “non-discrimination” in terms of equality of access to markets (Article III of GATT 1994). “Limited derogation” was permitted in NAFTA (Chapter 8), grandfathering BC and Ontario stores selling exclusively domestic wine. Now that CETA is signed (but not yet ratified), the implied grandfathering of existing retail outlets in BC and ON for domestic wines is also accepted (confirming the preceding Canada –EU Wine Agreement).

What does this mean for the BC industry? In practice, USTR may simply not have bandwidth to advance a wine challenge along side the looming softwood lumber dispute. It is unlikely that the other signatory countries to the April letter are satisfied with current status in BC or Ontario either, but will anything be done? The cost/benefit calculation of the expense of the action versus the scale of the potential economic gain has to favour the status quo or a negotiated settlement, with some kind of an “off ramp” as Ontario has publicly committed to – after 3 years shifting the Ontario-only stores to carrying international wines.

2. Interprovincial Trade Barriers. In a uniquely Canadian move, a “Canadian Free Trade Agreement” was announced by the Premiers in July 2016 after Council of the Federation meeting. The principle for is a “negative list” approach – where everything (sectors, standards) are IN unless they are specifically ruled OUT. There are no public reports of progress since. The devil will certainly be in the details.

Wine was discussed as a specific topic at the meeting, and announced that Canadian wine would be easier to order online by consumers in other provinces. However, it became apparent that the wines available for online order would only be those already listed and carried by the respective provincial liquor boards. In other words, this was not the breakthrough for Canadian wine lovers that it sounded, prompting BC Premier Christy Clark to note “We have not freed the grapes completely but they are freer.”

A Canadian Free Trade Agreement could take a long time to negotiate, and in the meantime the Supreme Court of Canada could find itself in a position to adjudicate interprovincial barriers. A case in New Brunswick could make its way to the Supreme Court of Canada on Constitutional grounds (S. 121), now that the New Brunswick Court of Appeals declined (Oct 21, 2016) to hear the case. An SCC decision on S.121 could revolutionise interprovincial movement of beverage alcohol…

What does this mean for the BC industry? The outcome is pretty clear: the prospect of open, legal direct delivery across Canada, from every winery in Canada to any consumer in Canada, wherever they are in the country. The route is not clear, however it would be achieved in a penstroke with a decision from the Supreme Court, would be negotiated gradually among the provincial and federal governments.

3. International Developments The just-barely-signed CETA relies heavily on the pre-existing Canada-EU Wine Agreement, so not much change for the wine industry in Canada. Items such as labelling, geographic indications (GIs) and technical standards around winemaking procedures are already established in that 2004 Agreement. Specific CETA items of interest to BC and Canadian wineries: the Agreement will reduce then eliminate reciprocal federal tariffs on wines. For EU wines coming into Canada this means $0.02 - $0.05 per bottle. Importantly for Canadian wineries, tariffs will also be eliminated on winery and vineyard equipment coming from Europe.

Also of note, a below-the-radar 6th Annual technical working session was held in Ottawa in October by APEC’s Wine Regulatory Forum, on Winemaking Practices and International Trade.

What does this mean for the BC industry? Technical working groups like APEC can be esoteric stuff, but things like it and multilateral tariff-reduction agreements that also address common standards and help reduce regulatory barriers do smooth the way for exports – and do make a difference when working out strategy and costing for getting BC and Canadian wines into new markets.

Takeaways: • BC and Canadian wineries should position for the opening of internal markets.

• They should also brace for the potential impacts of a trade challenge.

• There are prospects for exports (REAL exports – to other countries!).

A final word: the evolving external setting represents opportunities for BC and Canadian wines to mature internally and make their mark on the world stage. For example - returning to Geographic Indications in CETA – these can be useful to BC/Canada too as our wine regions mature, they are not just in place to protect long-established European regions/brands. If we think about how this benefits BC and Canada, it strengthens wine and culinary tourism: the development of a wine region’s identity helps define it and make it attractive to wine fans from other places. Economically speaking, it’s important to remember that tourism is an export in its own right – it brings in new dollars, not just re-circulated domestic dollars.

A win-win-wine (!) for the industry, related businesses and the regional, provincial and national economy.