American Wine Sales May Suffer as Canada and U.S. Battle Trade Issues

The biggest export market for U.S. wine may impose tariffs this summer; British Columbia is keeping U.S. wine off grocery-store shelves
May 27, 2015

A trade dispute between the United States and its northern neighbor has turned serious in recent weeks, and American winemakers are beginning to fear that their sales in Canada—the top export market for U.S. wine—will be badly damaged. The battle comes at a time when Californian winemakers are already crying foul over new laws in British Columbia they allege discriminate unfairly against U.S. wines in favor of local wineries.

For 13 years, the Canadian and Mexican governments have cried foul over American “country of origin labeling” (COOL) rules for certain cuts of meat sold in the U.S. They argue the laws discriminate against their meat products and violate the North American Free Trade Agreement (NAFTA). On May 18, the World Trade Organization (WTO) agreed, allowing the countries to propose tariffs on American products within 60 days. At a press conference in Ottawa, International Trade Minister Ed Fast said Canada plans to target U.S. beef, pork, wine, fruit, corn and other products with tariffs that could total $2 billion a year.

Members of the wine industry have called on Congress to repeal the COOL regulations. That's not a surprise, since Canada is the sixth largest wine consumer by volume in the world, according to a recent study commissioned by VINEXPO.

According to figures released last week by the Canadian Vintners Association, U.S. table wine imports (90 percent of which come from California) reached $1 billion in retail sales in 2014, passing Italy and France for the top spot in Canada. It is now the largest single-country export market for Californian wines, with a record 6.1 million cases being sold.

“Retaliation by Canada and Mexico would do hundreds of millions of dollars in damage to U.S. wine exports and is simply unacceptable,” said Bobby Koch, president and CEO of the Wine Institute, a wine trade group, in a statement. “In Canada, it has taken decades to build the market for U.S. wine, and it could be irreparably harmed in an instant if Congress does not act.”

How much damage could the tariffs do? The proposed levies could double a bottle's price as it enters the country. American wines already face markups by Canada's provincial governments. (Canadian wine sales are largely regulated by provinces, much as U.S. sales depend on state laws.)

To stop the tariff, U.S. congressmen Mike Conaway of Texas and Jim Costa of California are sponsoring H.R. 2393, a bipartisan bill that would repeal COOL requirements for beef, chicken and pork. Some lawmakers have voiced opposition however, arguing that the COOL rules protect small ranchers and farmers and inform consumers of where their food comes from.

Banned from grocery stores

Before the WTO decision, the Wine Institute was already objecting to another Canadian barrier to American wine. Last December, British Columbia Premier Christy Clarke announced an initiative to allow grocery stores to sell wine, something previously reserved for state-owned wine and liquor stores and a few small independent stores. But there was a caveat—the grocery stores could only stock 100 percent British Columbian wines.

The province's wine industry, particularly quality makers of wines certified by the Vintners Quality Alliance (VQA), has been growing in recent years. But Tom LaFaille, a Wine Institute vice president and international trade counsel, argues that the laws are exclusionary. That would be a violation of NAFTA, ironically.

California winemakers are not alone in their concerns over this new law. Trade groups representing wineries from Australia, Chile and the European Union sent letters raising concerns. But on April 1, the Save-On Foods in Surrey, British Columbia, was unveiled as the first grocery store to sell wine in the province, and the only wines on the shelves were British Columbian ones. 

Members of Terroir BC, a trade group of small, quality-minded wineries in the province, understand where California vintners are coming from. But they also believe that local laws have hindered their wine industry's growth for years and that something needed to be done.

“If I were the California Wine Institute, I’d fire off a letter any time there was a change in law anyplace in the world that could possibly harm my product," said Tony Holler of Poplar Grove Winery, a member of Terroir BC. "But we’ve had very archaic liquor laws in British Columbia—laws that haven’t had any substantial changes in decades—so these changes are necessary. It takes time to get things right.”

John Skinner of Painted Rock Estate does think the laws need more work. “The intentions are good but the implementation just isn’t right," he said. "We are all very invested in this industry, and we want to see it done correctly, fairly. We feel this will be cured in an amicable way.” Skinner points out that the store currently selling only BC wines is trade compliant, because it has a grandfathered license allowed under NAFTA. The issue, he argues, is stores without those licenses following suit.

Rob Ingram of Terrabella Wineries believes the law is temporary. “California has a very special relationship with BC, and while for now, the lawyers can’t agree on a definitive rule of law that they can hang their hat on, California represents a large portion of the wines sold in BC, and BC wines themselves represent a fraction," he said. "We see this as something like growing pains."

For now, it seems that British Columbia wineries will enjoy a decidedly home-field advantage. And California vintners are fighting a two-front battle to maintain their sales up north.

 
Legal and Legislative Issues Canada News

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