CANADA

Counting the cost of protectionism

MARY JANIGAN November 23 1987
CANADA

Counting the cost of protectionism

MARY JANIGAN November 23 1987

Counting the cost of protectionism

The price of protectionism is written on each bottle of wine sold by the Liquor Control Board of Ontario (LCBO). The board pays suppliers $1.56 for an average litre of imported wine; it pays $2.22 for Ontario wine. Then the LCBO, whose policies are similar to those of other provincial liquor boards, adds on its price markups. For imported wine, the tariff ranges up to 66 per cent. The markup for domestic brands: just one per cent. Foreign and Canadian beers are subject to a similar disparity. The result ensures that Canadian beers and wines are cheaper—and that the domestic industry is thriving. So when the General Agreement on Tariffs and Trade (GATT) maintained in Geneva last week that those provincial policies violate international trade agreements, Canada’s beer and wine industries were thrown into turmoil. Brian Nash, chairman of the Ontario Grape Growers’ Marketing Board, noted that last month’s CanadaU.S. free trade agreement would also phase out higher markups on U.S. wine. Said Nash: “It’s a double whammy.”

The decision by the GATT panel was a preliminary ruling on a complaint filed by the European Community (EC) in 1985. The federal government now has less than two weeks—until Nov. 25—to decide whether to strike a private deal with the EC and then persuade the provinces to bring their regulations into line with that agreement. If Ottawa decides to avoid negotiations with the EC or if the negotiations do not succeed, the preliminary decision on wine and beer will go to the GATT council, composed of representatives from the 95 member countries. A decision by the council to accept the preliminary ruling would give the EC the green light to retaliate.

If, on the other hand, Canada accepts the GATT council’s decision, the consequences could be severe. The Canadian wine industry would likely face stiff competition from cheap French and Italian imports. As well, because a GATT council ruling would apply to all member countries, including the

United States, Canada’s brewing industry could face severe competition from U.S. beer. The GATT decision could undermine a key clause in the CanadaU.S. free trade agreement, which specifically exempts “beer or malt-containing beverages” from provisions to

dismantle trade barriers. The GATT ruling, said Gordon Wilson, president of the Ontario Federation of Labour, erased “the one victory that the government can claim” in its trade talks with Washington.

The GATT decision strikes at a complex network of provincial regulations. The provinces won the power to control liquor before the turn of the century— and provincial liquor boards now restrict the number of foreign brands sold in Canada and slap enormous price markups on them. Interprovincial trade barriers force breweries to produce beer in the province in which it is sold, and provincial regulations require that Canadian wineries use a specified quantity of Canadian-grown grapes.

The preliminary ruling threatened that regulatory thicket because it demanded that Canada treat foreign beer, wine and liquor in the same way that it treats the domestic versions. Alarmed, provincial trade officials urged Ottawa to conduct private negotiations with the EC. Insiders speculated that Ottawa could offer to accept more European

wine and liquor products and to phase out price markups. In return, Canada could then demand that the EC drop its objections to protectionist beer regulations.

Meanwhile, beer and wine executives voiced concern. Officials of the power-

ful $7-billion brewing industry cited one study which predicted that U.S. beer could grab up to 40 per cent of the Canadian market—and eliminate 8,000 industry jobs—if it were given free access to Canada. And spokesmen for the $250-million wine industry pointed out that in 1984, the last year for which figures are available, the EC gave its wine producers a subsidy of $2.7 billion. Said Edward Arnold, chairman of the Canadian Wine Institute: “If we have to compete with the French government, heaven help us.”

But there will be one important beneficiary if the GATT ruling is applied: the Canadian consumer. As Robert Kerton, chairman of the economic issues committee of the Consumers’ Association of Canada, said: “There are likely to be cheaper foreign wines. There is certain to be more choice in beer, although not necessarily cheaper beer.” Those were prospects that many consumers would find reason to toast.

MARY JANIGAN with

SHERRI AIKENHEAD

in Toronto