More Problems with Wine Regulation in Canada

Mitchell LaCombe

Vol. 41 Associate Editor

In recent years, Canada has received multiple complaints from WTO members regarding provincial regulations on wine. Following the United States,[1]  Australia submitted a request for consultations with Canada in January 2018, which alleged that various British Columbia (B.C.), Ontario, Quebec, and Nova Scotia regulations violate the General Agreement on Tariffs and Trade (GATT).[2] In March 2019, the Director-General composed a panel to consider the dispute, which has yet to be resolved.[3] The complaints raised by Australia are only the most recent in a long history of controversy over provincial protectionism in the Canadian wine market,[4] While Canada is neither a major exporter nor major importer of wine,[5] the U.S. and several other countries “have very strong commercial interests in the Canadian wine market . . .  and, consequently, its deregulation.”[6] Canada, for example, is the second-largest market for U.S. wine—second, that is, behind only the E.U.[7] Interests in uninhibited access to Canadian consumers have clashed with the interests of those provinces that are significant wine producers—in particular, Ontario and British Columbia, the wine industries of which have “expanded steadily and rapidly in the past decades.”[8] Although Australia alleges the violation of other GATT provisions, most of its complaints regarding provincial wine regulations concern Art. III:4.[9] Article III:4 provides that imported products “shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations, and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.” Australia argues, for instance, that regulations that affect the sale/display of imported wines in grocery stores and others that provide domestic wine producers with direct access to licensed establishments accord imported wines less-favorable treatment than Canadian-produced wines and thus violate Art. III:4.[10] Consider the Ontario regulation that requires that 50% of the wine on display at a grocery store be either (i) “quality assurance wine,” (ii) “produced at a small winery,” or (3) from a country that produces, overall, “less than 150 million litres of wine annually from grapes grown in that country.”[11] Unlike a British Columbia regulation named by both Australia and the United States in their recent complains, which required that imported wines sold in grocery stores be sold in “a store within the store” yet permitted domestically produced wines to be sold on grocery store shelves,[12] this Ontario regulation is facially origin-neutral. However, under the Appellate Body’s current approach, this makes little difference. Both regulations violate Art. III:4 by failing to provide “effective equality of opportunities for imported products to compete with like domestic products.”[13] Almost all Canadian wine is produced by “small wineries”—that is, wineries that sold less than 200,000 liters of wine in the most recent period for which data is available.[14] Indeed, Canada produces just under 150,000,000 liters of wine, whereas Australia—along with the other twenty countries that produce more wine than Canada—exceeds the specified limit.[15] Finally, “quality assurance wine” is, by definition, wine “made from 100% fresh Ontario grown grapes.”[16] Now, in order to demonstrate an Art. III:4 violation, one must establish three elements.[17] An Art. III:4 violation occurs if there are (a) “like products” (some foreign, some domestic) and (b) a law affecting the internal sale, purchase, transportation, distribution, or use of the products that provides (c) less-favorable treatment to the imported products.[18] With respect to the Ontario regulation, the crucial issue is (c). (No doubt, imported wines and domestic wines are “like products,” that is, have a substantial competitive relationship.)[19] According to the Appellate Body, a less-favorable treatment analysis “involves an assessment of the implications of the contested measure for the equality of competitive conditions between imported and like domestic products.”[20] Where “the measure has a detrimental impact on the conditions of competition for like imported products,” the measure accords the products less-favorable treatment and thus is illegal under Art. III:4.[21] Under the Appellate Body’s current approach, there is no need to ask whether Ontario enacted the regulation for protectionist purposes (although it seems, res ipsa loquitur, overwhelmingly likely that it did). The Ontario regulation has a detrimental impact on the conditions of competition for some imported wines. Access to some imported wines is undeniably restricted by the regulation, which requires that 50% of wines on display at grocery stores satisfy the above-described criteria that benefits local producers. It follows that the regulation is invalid under Art. III:4 unless it can be justified under one of the various exceptions outlined in Art. XX.[22] And given that none of these exceptions appears suitable for this purpose, the panel is likely to find that the regulation is illegal.

[1]  See Request for Consultations by the United States, Canada—Measures Governing the Sale of Wine in Grocery Stores, WTO Doc. WT/DS520/1 (Jan. 23, 2017); Request for Consultations by Australia, Canada—Measures Governing the Sale of Wine, WTO Doc. WT/DS537/1 (Jan. 16, 2018). [2]  See Request for Consultations by Australia, Canada—Measures Governing the Sale of Wine, WTO Doc. WT/DS537/1 (Jan. 16, 2018). [3] See WTO Dispute Settlement Body, Note by the Secretariat: Constitution of the Panel Established at the Requested of Australia, WTO Doc. WT/DS537/9 (Mar. 8, 2019). [4]  Indeed, this was the subject of two pre-WTO GATT disputes. See Report of the Panel, Canada—Import, Distribution, and Sale of Alcoholic Drinks by Canadian Provincial Marketing Agencies, L/6304 (Mar. 22, 1988); Report of the Panel, Canada—Import, Distribution and Sale of Certain Alcoholic Drinks by Provincial Marketing Agencies, DS17/R (Feb. 18, 1992). [5] See Wine Institute, World Wine Production by Country (2017), https://www.wineinstitute.org/files/World_Production_by_Country_2017.pdf (finding that Canada is twenty-second in wine production); Wine Institute, World Wine Consumption by Country (2017), https://www.wineinstitute.org/files/World_Consumption_by_Country_2017.pdf (finding that Canada is eleventh in wine consumption). [6] Richard Mendelson et al., Wine Trade with Canada: A Case Study in Trade Deregulation, 7 Int’l Tax & Bus. Law. 91, 92 (1989). [7]  See Press Release, Wine Institute, California Wine Sales in U.S. Market Hit $40 Billion in 2018 (Jun. 24, 2019). [8] See David Doloreux & Evelyne Lord-Tarte, Context and Differentiation: Development of the Wine Industry in Three Canadian Regions, 49 The Soc. Sci. J. 519, 524 (2012). [9] See Request for the Establishment of a Panel by Australia, Canada—Measures Governing the Sale of Wine, WTO Doc. WT/DS537/8 (Aug. 16, 2018). [10] See id. [11] O. Reg. 232/16: Sale of Liquor in Government Stores, III(25)(2) (2019). [12] See British Columbia Liquor Control and Licensing Branch, Policy Directive No. 15-01 (Feb. 26, 2015). [13] AB Report, European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/AB/R ¶ 5.101 (adopted Jun. 18, 2014). [14] O. Reg. 232/16: Sale of Liquor in Government Stores, VI(43)(2) (2019). [15] See Wine Institute, supra note 5. [16] See Quality Standards, Ontario Wine Appellation Authority (last visited Oct. 20, 2019), http://www.vqaontario.ca/Wines/QualityStandards. [17] AB Report, European Communities—Measures Prohibiting the Importation and Marketing of Seals Products, ¶ 5.99, WTO Doc. No. WT/DS400/AB/R (adopted Jun. 18, 2014). [18] Id. [19] See AB Report, European Communities—Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/AB/R ¶ 97 (adopted Apr. 5, 2001) (stating that “a determination of ‘likeness’ under Article III:4 is, fundamentally, a determination about the nature and extent of a competitive relationship between products”). [20] AB Report, European Communities—Measures Prohibiting the Importation and Marketing of Seal Products, WT/DS400/AB/R ¶ 5.101 (adopted Jun. 18, 2014). [21] Id. [22] See General Agreement on Tariffs and Trade 1994, art. XX, Apr. 15, 1947, 61 Stat. pt. 5, T.I.A.S. No. 1700 (making exceptions for, inter alia, measures “necessary to protect public morals;” “necessary to protect human, animal or plant life or health;” or “relating to the products of prison labour”). The views expressed in this post represent the views of the post’s author only.