By Nikita Gush and Dennis Ryan
On Nov. 30, the U.S., Canada, and Mexico signed a new North American free trade agreement called the United States Mexico and Canada Agreement (USMCA). This agreement claims to have modernized its 25-year-old predecessor, NAFTA, which, among other things, will affect Canada’s wine industry.
In B.C., the wine industry makes up an important portion of Canada’s agricultural sector. There are approximately 271 licensed grape wineries, which contribute about $2.8 billion to the B.C. economy each year.
Since the signing of the USMCA, concern is being raised by political commentators on whether the free trade negotiations led to a fair outcome for the Canadian agricultural sector, including B.C. wineries.
Is the USMCA already in effect?
Implementation of the USMCA is an ongoing process. Over the next several months, each of Canada, the U.S. and Mexico must bring the tri-lateral treaty home and create domestic legislation to implement its terms with an objective that the agreement will take effect on or about Jan. 1, 2020.
How is the USMCA going to affect BC wineries?
Once the USMCA is implemented, the same provisions of NAFTA will continue to govern the wine industry in B.C.
While many critics of the USMCA point to a negotiated settlement of a dispute initiated by the U.S. at the World Trade Organization (WTO) relating to unfair trade practices of the licensing of 29 of B.C.’s grocery stores to sell exclusively B.C. wines, this is not a new provision of the USMCA. Rather, the U.S. lodged two complaints against Canada through the WTO regarding B.C.’s exclusive sale of wine in its grocery stores. The complaint was based on the accusation that Canada was contradicting the General Agreement on Tariffs and Trade (GATT) rules on non-discrimination. The GATT is a legal agreement that has been ratified by a number of countries around the world to promote international trade and reduce trade barriers. The U.S.’s complaints were supported by 13 third parties, which notably included Mexico.
Canada concluded that it would likely lose this challenge by our U.S. neighbours. It further appreciated that this dispute was an impediment in advancing its negotiations on the USMCA. To move negotiations forward for the new USMCA, Canada agreed to end this dispute. Canada rightfully responded by entering into a series of ‘side letters’ with the U.S. in which Canada agreed to allow U.S. wine sales in its B.C. grocery stores in exchange for the U.S. to drop its proceedings in the WTO. For Canada, this means reducing trade barriers and compliance with international law. However, for B.C. wineries, this will invariably result in increased competition for grocery store shelf space in previously B.C.-exclusive wine sections. We can expect to see U.S. wine in the 29 licensed grocery store shelves after Nov. 1. In effect, these former B.C.-exclusive wine outlets will be on the same footing as the stand-alone public and private liquor stores that sell B.C. wines in addition to imported wines.
What does this mean for BC wineries in the future?
Given the large number of B.C. liquor stores that are unaffected by these changes and the vast majority of B.C. grocery stores that do not sell wine at all, the addition of U.S. wine in the 29 licensed grocery stores may not make a huge difference to most B.C. wine sales. In a Vancouver Sun article by Kevin Griffin on Oct. 1, 2018, B.C. Trade Minister Bruce Ralston notably recognized that people who love B.C. wine are going to keep choosing it.
“People are aware of the variety and quality of B.C. wine,” Ralston told the Sun. “B.C. wine has come of age, (and) it’s a product that people want to buy and will choose.”
Invariably, as one channel of access to B.C. wine is becoming more limited, B.C. wineries will want to seek out opportunities to provide expanded access to their wines.
Free trade opportunities
With the USMCA’s implementation slated for Jan. 1, 2020, B.C. wineries will be motivated to expand their presence not only in the U.S. market but also in Mexico. Mexico only imported 3,108 litres of Canadian wine in 2017, which is very low in comparison to the U.S., which imported 422,542 litres that same year. As well, it is important not to forget Canada’s largest wine importer— China—imported 1.3 million litres of Canadian wine in 2017.
A reflection on the advantages of free trade may also cause wineries to reconsider how they purchase their processing, labelling, packaging and shipping supplies. With slightly lower duties and taxes for Canadians on cross-border purchases under the USMCA, it may be more cost-effective to import some of the materials and supplies that wineries depend upon to produce their wine.
The lawyers at Doak Shirreff’s Natural Resources Group can work with B.C. wineries at all stages of their formation, expansion, development, marketing, sales and cross-border challenges to help them grow their business.
Nikita Gush is an articled student and Dennis Ryan is a partner and head of the natural resources group at Doak Shirreff Lawyers LLP in Kelowna
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