Authors: Greg Landry, Drew Tyler, Linden Dales
On May 12, Australia and Canada informed the World Trade Organization’s (“WTO”) Dispute Settlement Body that they had reached a mutually agreed solution regarding the outstanding panel dispute initiated by Australia. In its panel request, Australia claimed that certain federal excise duties, as well as measures with respect to the sale of wine in British Columbia, Ontario, Quebec, and Nova Scotia discriminate against imported wine in violation Canada’s WTO obligations.
Pursuant to the mutually agreed solution, Canada and the provinces agreed to remove the impugned measures identified as discriminatory by Australia, in exchange for the withdrawal of Australia’s legal claim.
While this agreement will improve access to Canada’s wine markets for foreign producers, inter-provincial restrictions on the sale and movement of wine and other alcohol beverages will continue to significantly restrict Canadian producers’ access to provincial markets across Canada.
Canada – Measures Governing the Sale of Wine (DS537)
In January 2018, Australia requested consultations with Canada at the WTO concerning certain federal excise duties and provincial government measures in British Columbia, Ontario, Quebec, and Nova Scotia governing the sale of wine. Australia asserted that these measures provided more favourable treatment to domestically produced wines and, in turn, discriminated against imported wines.
Several other wine exporting countries were permitted to join these consultations, including New Zealand, Argentina, the European Union, Chile, and the United States.
Following unsuccessful consultations, Australia requested the establishment of a panel in August 2018.
Australia’s allegations concerned various federal and provincial measures affecting the distribution and sale of wine, including product mark-ups, market access requirements, and duties and taxes on wine. More specifically, Australia identified the following measures:
Australia alleged that these measures were inconsistent with several provisions of the General Agreement on Tariffs and Trade, 1994 (“GATT, 1994”).
First, Australia alleged that measures relating to duties and mark-ups violated Articles III:1 and III:2 of the GATT, 1994, as they placed internal taxes or charges on imports in excess of those applied to products of domestic origin.
Second, Australia alleged that measures relating to market access requirements violated Article III:4 of the GATT, 1994, as certain provincial laws, regulations, or requirements affecting the sale of wine treated imports less favourably than like products of domestic origin.
Third, Australia alleged that Canada had not complied with its obligations under Article XXIV:12 of the GATT, 1994, as the federal government had “not taken reasonable steps as may be available to it to ensure” that provinces complied with Canada’s obligations under the GATT, 1994.
Mutually Agreed Solution
Between April 2019 and May 2021, Australia and Canada reached several settlement agreements concerning both the federal and provincial measures noted above. Ultimately, on May 12, the two parties notified the WTO’s Dispute Settlement Body that Australia had agreed to withdraw its legal claim in exchange for Canada’s commitment to:
Canada’s Inter-Provincial Restrictions on Wine
Notably, many inter-provincial trade barriers for wine, beer and liquor remain in place.
Canada’s hodgepodge of provincial alcohol monopolies restrict direct sales of products like wine to consumers across provincial borders. These provincial measures are barriers to trade for Canadian producers attempting to sell into other provincial markets.
While the provinces and federal government negotiated a new intra-Canada trade agreement in 2017 (the Canadian Free Trade Agreement), most provinces explicitly excluded their regulation of alcohol marketing and distribution from the Agreement. Moreover, following the Supreme Court of Canada’s affirmation of the provincial governments’ ability to restrict the inter-provincial trade of alcoholic beverages in R. v. Comeau, 2018 SCC 15, the Federal-Provincial-Territorial Action Plan was established to enhance the interprovincial trade of alcoholic beverages within the current regulatory framework. Nevertheless, only four Canadian provinces presently permit consumers to order wine directly from another province: Nova Scotia, Manitoba, Saskatchewan, and British Columbia.
For its part, the federal government removed restrictions on the purchase and movement of alcoholic beverages interprovincially through amendments to the Importation of Intoxicating Liquors Act in 2019. Despite these amendments, most provincial regulations restricting inter-provincial shipments of alcoholic beverages remain in place, limiting the ability of Canadian consumers to purchase or receive alcoholic beverages directly from Canadian producers in other provinces.
In December 2020, private member’s Bill C-260 was introduced into Parliament to amend the Canada Post Corporation Act to require that Canada Post transport beer, wine, or spirits from one province to another. Nevertheless, without complimentary provincial regulation, federal statutes alone will do little to unwind the complex regulatory regimes that largely block the inter-provincial trade of alcoholic beverages in Canada.
The Canada-Australia wine dispute is an interesting case of the federal and provincial governments working together to reduce barriers in the face of a challenge by a trading partner. However, despite Canada’s commitment to reduce protections, Canadian wineries will not be left to wither on the vine. The Canadian Government is already acting to soften the blow to Canadian wine producers, earmarking $101 million in the 2021-2022 federal budget to support the wine industry starting in 2022-23. This funding, which will provide two-years of support to Canada’s wine industry, followed lobbying by wine producers for an “excise exemption replacement program.” Provincial governments are reportedly also working on other ways to support their wine industries.
The resolution of the Canada-Australia wine dispute will result in a more open and competitive market for imported wines in Canada. However, there are no signs yet that this will be followed by additional steps to expand interprovincial trade in alcoholic beverages.