VICTORIA — An aggressive trade challenge launched Wednesday by the United States could force cheap and plentiful American wine onto B.C. grocery store shelves, potentially elbowing out local vineyards.
The U.S. Trade Representative’s office announced it was taking Canada and the B.C. government to the World Trade Organization, for what it alleges is a discriminatory system in which only B.C. wine is allowed for sale alongside food in grocery stories.
B.C. Jobs Minister Shirley Bond said the province will defend itself and is confident it has complied with all international trade agreements.
The stage is now set for a showdown over which wineries get an advantage in the coveted emerging market of B.C. grocery store shelves.
Consumers seem to the like convenience but appear mixed on the B.C.-only model.
“It seems kind of strange to me why there’s only B.C. wine,” said Surrey resident Melanie Hernandez, holding a $19.75 (after tax) bottle of Wayne Gretzky Okanagan Great Red outside the Fleetwood Save-On-Foods at 90th Avenue and 152nd Street.
“If they’re going to sell wine in a grocery store, there should be a choice.”
Hernandez said she likes both B.C. and California wines, and would like to promote the B.C. product. “But a selection would be nice.”
Jean Magurn, also from Surrey, wondered with all the protectionist trade talk coming from incoming U.S. President Donald Trump, perhaps B.C. should protect its wineries, too.
The California wine industry has been complaining for months that B.C. is discriminating against international wine companies, in violation of its trade deals.
NDP critic David Eby said the government spent more time worried about positive photo ops for its liquor reform than the legalities.
“If the Americans win this trade challenge then worldwide cheap wine imports will displace B.C. wine on grocery store shelves,” he said.
Vancouver lawyer Al Hudec, a partner at the firm Farris, said the trade challenge “is going to create pressure on B.C. to allow California wines in grocery stores on exactly the same set of rules as the domestic product.
“The fear is when that happens the Canadian industry will lose out to that higher-volume, lower-price product,” he said.
B.C. changed its liquor rules last year to give grocery stores two new options: Sell any hard alcohol, beer and wine using a “store-within-a-store” model, with a separate checkout; or buy one of up to 60 VQA-certified wine licences — from either an existing VQA B.C. wine store or government auction — and sell only B.C. wine on store shelves alongside food.
No stores have gone the store-within-a-store route, in part because of a rule that forbids them from being located within one kilometre of an existing liquor store. The VQA-wine licences don’t have that restriction.
There are 14 grocery stores currently selling B.C. wine on shelves with VQA licences — 11 from Save-On-Foods and three by Loblaws, each of whom are spending millions acquiring licences.
The U.S. industry is fighting for an “important principle” of fairness, said Tom LaFaille, vice-president of the California Wine Institute, which is driving the American complaint.
“The grocery store retail sales channel is a huge game changer,” he said. “And so when a province or state decides to open up grocery stores only to their own wine industry, it’s a major problem.”
B.C. has argued its VQA wine licences are grandfathered under trade laws, because they’ve been used for decades as B.C. wine stores, and are now simply being transferred into grocery outlets.
“We’re talking about B.C. wine having 17 per cent market share, that means everything else is import wine, said Miles Prodan, president of the B.C. Wine Institute.
“So it’s not like they are being locked out. California sales are on the increase, so they have difficulty showing any harm from it.”
The two sides have 60 days to negotiate a deal before the WTO starts a dispute panel. If Canada loses, it could face U.S. sanctions.
“I don’t think our negotiating position is particularly strong,” said John Ries, a professor at the University of B.C.’s Sauder School of Business.
“The simple view is governments aren’t allowed under the WTO to institute policies that discriminate against foreign products, once they enter the country. And this certainly gives B.C wine a big advantage over foreign wine. So (the U.S.) has got a right to be unhappy that this is in place.”
Vancouver lawyer Robert Sroka wrote a 2016 analysis of B.C.’s trade risk on wine and concluded past trade rulings were likely not in the province’s favour. B.C. could be putting other Canadian wineries at risk, but is also likely calculating there is more benefit to help its own industry than there is the potential for penalties, he wrote.
“In short, the B.C. wine measures may be found as violations of national treatment if a trade complaint is launched,” he wrote in the Asper Review of Business and International Trade.
“Yet despite these prospects of success in a trade dispute forum, the B.C. government has drawn sound political and economic conclusions in implementing these measures. Even in the worst realistic scenario with the measures being eventually deemed non-compliant and struck, a period of time will be gained during which B.C. wines will gain some potentially sizable benefits (in terms of market share) at little cost.
“Thus the B.C. government has little immediate incentive to shelve the measures and every reason to implement and maintain the measures until a disincentive arises with far more weight than any currently within the realm of possibility.”
Full story at VancouverSun.com.