STATE TRADING

Replies to Questions Posed By the European Union^[1]
regarding the new and full notification of canada^[2]

The following communication, dated 20 October 2016, is being circulated at the request of the Delegation of Canada.

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Canada (all jurisdictions, general)

Canada claims in its general statement that its mark-ups are calculated in a uniform, non-discriminatory nature. However, in different Canadian provinces mark-ups are calculated as either ad valorem, flat rate, combination of ad valorem and flat rate or volumetric taxes.

Questions 1-2

In the light of the above, how does Canada ensure the uniform nature of calculating the mark-ups? How does Canada ensure the de facto non-discrimination towards high value and high priced imported products, such as wines, in case of application of the valorem based mark-ups?

Reply to Question 1

Canada notes that the general description on the Provincial and Territorial Liquor Control Authorities indicates that provincial mark-ups vary by product type and by jurisdiction (page 22 of the notification). As the liquor boards are each managed separately the operations are not identical.

Reply to Question 2

Canada's approach is fully consistent with its WTO obligations. The GATT does not prescribe the use of any specific method or system for the calculation of mark-ups. Canada notes that where provinces calculate mark-ups on an ad valorem basis the same method of calculation is applied to both domestic and imported products, regardless of value/price, and is non-discriminatory.

Page 25, British Columbia

According to the notification the new wholesale price system applies also to government liquor stores and mark-ups are applied universally to all products regardless of country of origin.

Question 3

Could Canada clarify in detail how the principle of uniform and non-discriminatory mark-ups is respected by the government liquor stores in British Columbia when determining the retail price?

Reply

The objective of the wholesale pricing model is to create a level playing field for all retailers, including both private retailers and B.C. Liquor Stores (BCLS) operated by the Liquor Distribution Branch. Under the wholesale pricing model, all liquor retailers, except duty free stores, purchasing their product from the Liquor Distribution Branch pay a common wholesale price for that product, which is calculated based on a common wholesale mark-up. B.C. Liquor Stores (BCLS) and private liquor retailers may then determine the retail price of the product, subject to minimum pricing rules. B.C. Liquor Stores apply mark-ups in a non-discriminatory manner while having the flexibility to compete with other retailers. For example, if a private competitor offers a promotion on a particular product, BCLS may choose to lower their margin on the same product or a similar product type, to help ensure they remain competitive.

Page 25, Manitoba

According to the notification, beverage alcohol's retail price is determined by applying combination of a category ad valorem mark-up and a flat rate per litre to the landed cost.

Question 4

Could Canada clarify in detail how it ensures the de facto non-discrimination towards high value and high priced imported products, such as wines, in case of application of the valorem based mark-ups in Manitoba?

Reply

As indicated in the notification, mark-ups in Manitoba are non-discriminatory as they are applied universally to all products regardless of origin. For more information on Manitoba's mark-up pricing structure, please refer to the Manitoba Liquor & Lotteries Pricing and Listing Information http://www.mbllpartners.ca/sites/mbll_b2b/files/pdf_pamphlets/Pricing-Listing-Information-Manual_2016-01-04_v4.pdf

Page 27, Nova Scotia

According to the notification, mark-ups in Nova Scotia are established by package size within product categories and are the same regardless of product origin within a given category. However, importers of EU products have encountered situations in which the mark-up applied to the liquor produced in Nova Scotia are lower that the mark-up applied to imported products.

Question 5

Could Canada explain and justify in which cases this may happen and explain how it ensures non-discrimination against foreign products?

Reply

Nova Scotia's Emerging Wine Regions Policy applies a favourable mark-up (43% compared to the standard 140%) to products from all wineries, both domestic and international, belonging to emerging regions that produce 50,000 HL of wine or less. The policy was designed to recognize the higher cost of production and supply for smaller wineries, to give consumers access to competitively priced wines from small producers, and to allow wines from emerging regions to reach a larger consumer base. Suppliers must self-identify as meeting the policy's criteria. The Nova Scotia Liquor Corporation (NSLC) does not discriminate in favour of local wine through this policy.

On 1 April 2015, Nova Scotia implemented a new policy of mark-up reduction for commercial wine makers operating in the province. Any wine from a commercial winery that has been bottled in Nova Scotia – irrespective of the origin of the wine – will receive a mark-up reduction of 20 percentage points from 140% to 120%. The policy benefits commercial wine, both imported and domestic, that is bottled in Nova Scotia. The Government of Nova Scotia committed to review this policy in 2016-17.

Page 29, Quebec

According to the notification, wines without a varietal indication or appellation of origin designation that are bottled in Quebec may be sold in grocery stores, along with beers and light ciders. Wines with a varietal indication or appellation of origin designation and spirits may only be sold in SAQ outlets.

Questions 6-7

Could Canada clarify whether this will change after the adoption of bill 88, an Act respecting development of the small-scale alcoholic beverage industry?

Could Canada confirm that also locally produced wine sold in supermarkets will be subject to the same mark-up as imported products in accordance with the notification?

Reply to Question 6

When bill 88 enters into force, all wine sold in Quebec will be allowed to be sold with their varietal indication and country of origin labeled on the bottle, including wine sold in grocery stores.

Reply to Question 7

Details on the mark-ups applicable to craft products sold in grocery stores are not yet available.

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Furthermore, the EU has also one follow-up question with reference to the replies received from Canada to our previous questions (G/STR/Q1/CAN/10 and G/STR/Q1/CAN/10/Add.1) on the liberalisation process of alcohols sales and retail channels. In particular:

Follow-up question to EU initial question 8

In October 2015 the EU asked Canada to explain the extent to which the planned new routes to market (sales and retail channels) could be consistent with international trade rules, insofar as they would appear to amount to discrimination between imported and domestic products.

As a preliminary reply, Canada informed that the provinces of Ontario and British Columbia are both in the process of adopting changes to their liquor distribution policies with a view to increasing efficiency and effectiveness and that the Government of Canada worked closely with the provinces to ensure consistency of any changes with Canada's international trade obligations.

Could Canada submit additional information on how the new sales and retail channels in Ontario and British Columbia provides non-discriminatory access to imported products?

Reply

Ontario: Ontario Regulation 232/16, permitting the sale of wine in authorized grocery stores, entered into force on 23 June 2016. Under the regulation, authorized grocery stores will immediately be allowed to sell both domestic and foreign wine with specific requirements that will help all small producers compete.

British Columbia: As a means of introducing the sale of alcohol into grocery stores in B.C., the pre-existing framework for the sale of alcohol in B.C. was transferred directly to the grocery store model. The pre-existing framework for the sale of alcohol in B.C. included the exclusive sale of B.C. wine at a limited number of locations (grandfathered through several trade agreements to which Canada is a party) as well as private liquor stores and government-run liquor stores that could sell both imported and domestic spirits (i.e. hard liquor) in addition to imported and domestic wine. These full-service liquor stores have the option to move to the store-within-a-store grocery model, and the B.C. government anticipates that there will be a significant uptake of this option over time. The regulations permitting the sale of alcohol in grocery stores provide for the transfer of existing licenses to new locations. No new licenses are being created. 

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