07.19.2017  
 

NAFTA Renegotiations Boost Pressure on Wine Relations

Canada is No. 1 country for U.S. wine exports, but discriminatory practices remain

 
by Peter Mitham
 
wine sales nafta canada united states
 
This California wine being sold at a store in Canada is clearly marked as originating from the United States.

Washington, D.C.—Within the 18-page document U.S. trade representative Robert Lighthizer released earlier this week outlining expectations from the upcoming renegotiation of the North American Free Trade Agreement, there wasn’t a single reference to wine.

Yet the product is among the key items expected to be on the agenda when U.S. negotiators meet with their counterparts from Canada and Mexico in mid-August. Renegotiation of the trade deal will take months, and Lighthizer is clear that Canada and Mexico must open their doors to more U.S. goods.

Agricultural products rank second among the areas at stake, with objectives including the retention of “reciprocal duty-free market access for agricultural goods” and the expansion of “competitive market opportunities for U.S. agricultural goods in NAFTA countries, substantially equivalent to the competitive opportunities afforded foreign exports into the U.S. market, by reducing or eliminating remaining tariffs.”

With several complaints from the United States against liquor retailing practices already in play in Canada, including a complaint to the World Trade Organization over grocery store sales of domestic wines in British Columbia, NAFTA renegotiations present a significant opportunity for the U.S. wine industry.

Canada, which was likened to a mouse sleeping with an elephant during the initial NAFTA negotiations in the 1980s, won several concessions at the time including the ability to support its domestic wine producers.

U.S. wine (at the time synonymous with California production) would be able to flow north in greater volumes, while Canada would fund the replanting of domestic vineyards with varieties that would enable them to compete with those grown in the United States.

The provisions gave shape to Canada’s modern wine industry, with wineries flourishing like hothouse flowers in a government greenhouse.

British Columbia growers, for example, pulled out 2,450 acres after the agreement took effect Jan. 1, 1989, leaving just 1,000 acres. Since 1990, vineyard plantings have increased to more than 10,250 acres that supply grapes to approximately 275 wineries (that’s about 40 acres for every vintner). Special licenses held by the British Columbia Wine Institute allowed shops selling only B.C. wines to increase consumer access, and in the past 18 months some of those licenses have been auctioned to give B.C. wines exclusive access to grocery store shelves (international wines can be sold within stores, but through a separate area independent of the main checkouts).

Similar provisions came into play to support the Ontario wine industry through the transition period, including content provisions that continue to resonate in debates over blends of foreign and domestic wines (see “Debate Over Wine Labelling Continues in Canada”). 

The original free trade agreement also barred California wines from dépanneur (corner store) shelves in Quebec, an issue that has also come to the fore in recent months. Quebec continues to require that wines sold at retailers other than the government-run Société des alcools du Québec outlets be bottled in the province.

The provisions continued after the original free trade agreement expanded in 1994 following negotiations with Mexico.

Writing to Lighthizer on June 12, one of 12,000 submissions made during consultations regarding U.S. objectives for the NAFTA renegotiations, Wine America and the (California) Wine Institute called for an end to such practices. 

“Canadian wines want to compete on the world stage, which is a good thing, but in terms of a trade policy, they’ve got to compete alongside all the great wines of the world,” Tom LaFaille, vice president and international trade counsel for Wine Institute, told Wines & Vines. “They have to be able to compete at home without the discriminatory provisions that are giving them an enormous competitive advantage at home that in our view violate trade laws.”

While both countries have made strides to liberalize the movement of wine within their own borders, LaFaille says it’s important to pay attention to the flow of wine between the two countries, which arguably have a more liberal trading relationship than many of their constituent states and provinces experience with each other.

Canada doesn’t typically publicize its negotiating demands and the Canadian Vintners Association (CVA) has yet to make any formal comment on the U.S. position, but Asha Hingorani, its director of government and public affairs, said the association is “working closely with government officials.”

“CVA and its members have identified key interests and concerns of the Canadian wine industry and is hopeful that the modernization of NAFTA will assist the growth of Canadian wine exports to the United States and Mexico,” Hingorani said. “Over the summer and in the fall, CVA will be doing parliamentarian outreach to educate (members of Parliament) and senators on the value of the industry and different trade imbalances between Canada and United States with wine trade.”

One point that both Hingorani and LaFaille agree on is the considerable growth of U.S. wine exports to Canada since 1988, demonstrating the importance of free trade to U.S. wineries on the one hand and Canada’s consumers on the other. A total of $431 million worth of U.S. wine flowed into Canada last year.

“U.S. wines have become No. 1 in the table wine category in Canada with a record 6.5 million cases sold,” Hingorani said, echoing the June submission by Wine America and Wine Institute, which notes, “Canada is now the No. 1 export country for U.S. wines, and the U.S. is the most popular import table wine category in Canada.”

Similarly, U.S. wine exports to Mexico increased to $24 million last year from just $11 million in 1994, when NAFTA took effect.

Keeping that momentum going is important to U.S. wineries, and consumers are likely to take a dim view of any bureaucrat or trade negotiator who sought publicly to limit the selection of product available to them.

Whatever the risks of renegotiating NAFTA hold, LaFaille says it’s also a chance to build on the foundations of the original agreements and align trading relationships with current market realities.

“If we don’t take advantage of this opportunity now in the NAFTA renegotiation, then we’re going to continue to face these dysfunctional systems of selling alcohol,” he said.

 

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