G/STR/Q1/CAN/10/Add.1

5 July 2016

(16-3598) Page: 1/5

Working Party on State Trading Enterprises Original: English

STATE TRADING

REPLIES TO QUESTIONS1 POSED BY THE EUROPEAN UNION REGARDING CERTAIN PROVISIONS APPLICABLE TO THE PROVINCIAL AND TERRITORIAL LIQUOR CONTROL AUTHORITIES OF CANADA2

Addendum

The following communication, dated 10 June 2016, is being circulated at the request of the Delegation of .

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Question 1 (a)

The notification contains a concise presentation of the rules for importing liquors according to which the federal Importation of Intoxicating Liquors Act (IILA) provides the provinces and territories, within their respective jurisdiction, with control over the sale of intoxicating liquor, and over the importation, sending, taking or transportation of such liquor into the provinces and territories. The provinces and territories have delegated this activity to the provincial/territorial liquor control authorities. The statute expressly provides that nothing in the IILA forbids the importation, sending, taking or transportation of intoxicating liquor […, or] for manufacturing or commercial purposes not related to the use of liquor as a beverage. However, it seems that some Canadian Provinces do not authorize this kind of business.

The EU would like to receive clarifications on these provisions. Could Canada confirm that these provisions give the possibility to foreign suppliers of spirits and wines to export directly to Canada their products under their own responsibility? Should this be the case, could Canada clarify how these provisions shall apply? If not, could Canada clarify how these provisions comply with Art. XVII.1 of the GATT?

Reply:

All provinces and territories permit the importation, sending, taking or transportation of intoxicating liquor for manufacturing or commercial purposes not related to the use of liquor as a beverage. However, as intoxicating liquor is a controlled substance, some provinces maintain certain conditions or requirements for the purchase or sale of intoxicating liquor for purposes not related to use as a beverage. Please find a summary of the relevant provincial and territorial policies in the chart below.

1 G/STR/Q1/CAN/9. 2 These questions and replies relate to the notification in G/STR/N/15/CAN. G/STR/Q1/CAN/10/Add.1

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Restrictions/Conditions/Requirements and other relevant information

Alberta The Alberta Gaming and Liquor Commission (AGLC) does not restrict the importation of liquor/alcohol for non-beverage commercial or industrial uses.

As the AGLC does not intervene in these areas, there are no related authorizing regulations. For general reference, the AGLC website can be found here: http://www.aglc.ca/

British Colombia As per the Liquor Control and Licensing Act (LCLA) and the Liquor Distribution Act (LDA), British Colombia regulates "liquor", defined as beer, cider, wine or spirits, or any other product intended for human consumption, that contains more than 1% alcohol by volume. This includes beverages as well as use for food products, but excludes alcohol used for manufacturing/commercial purposes. The following additional requirements apply for cooking wine made from rice alcohol:  Commercial users (such as restaurant and food manufacturers) may buy cooking wine made from rice alcohol that contains 10% or greater alcohol directly from importers or distributors in bulk containers of 10 litres or more. Importers and distributors must "pre-sell" each shipment and report this information to the Liquor Control and Licensing Branch of British Colombia (S.62 LCLA).

British Colombia also regulates "ethyl alcohol" – defined as a solution [that is not denatured and] contains more than 95% ethyl alcohol by volume. S.8 of the LCLA provides exemptions for most professional uses (doctors, pharmacists, etc.) and universities for scientific purposes, and S.9 of the LCLA sets out a permitting process for other uses, including mechanical or manufacturing businesses or scientific pursuits.

References: LCLA: http://www.bclaws.ca/civix/document/id/complete/statreg/96267_01 LDA: http://www.bclaws.ca/civix/document/id/complete/statreg/96268_01

Manitoba Subject to the Manitoba Liquor and Gaming Control Act*, the province of Manitoba allows for the importation of intoxicating liquor for non-beverage commercial or industrial uses. The following conditions and requirements apply with respect to sale and use: a) Non-potable intoxicating substances: a. Cannot be sold as a beverage b. Cannot be sold to someone who is intoxicated c. The sale of cooking wines/liquors is restricted based on alcohol content. b) Stomach bitters and rubbing alcohol**: a. Stomach bitters cannot be sold in containers greater than 113.7ml b. May be sold to licensed pharmacists or to a person for industrial, manufacturing, scientific, pharmaceutical or agricultural purposes. *https://web2.gov.mb.ca/bills/40-2/b043e.php#b75 (reference to non-potable intoxicating substances and defined "liquors" can be found in Section B, paragraphs 72-76.) **https://web2.gov.mb.ca/laws/regs/current/_pdf-regs.php?reg=65/2014

New Brunswick New Brunswick allows the importation of liquor/alcohol for non-beverage commercial or industrial uses, subject to the following conditions: a) Importing manufacturers need to have an appropriate liquor licence for the activity. b) Authorization for importation is subject to the right of the New Brunswick Liquor Board to conduct audits. Reference: http://laws.gnb.ca/en/showpdf/cs/L-10.pdf

Newfoundland The Newfoundland Labrador Liquor Corporation provides for the importation of and Labrador liquor/alcohol for non-beverage commercial or industrial uses. The following requirements apply: a) The person/organization must submit a written request for a permit for pure alcohol to the NLC's Regulatory Services Department b) Regulatory Services' permits are valid for one year. c) The applicant procures the alcohol from a local NLC store (which is sourced directly from the warehouse).

G/STR/Q1/CAN/10/Add.1

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Restrictions/Conditions/Requirements and other relevant information

Reference: http://www.assembly.nl.ca/legislation/sr/statutes/l18.htm#65_ Liquor Control Act (S.65 – Use and Disposition of Liquor Contained under Permit)

Northwest The Northwest Territories permits the importation of liquor/alcohol for non-beverage Territories commercial or industrial uses. The following conditions apply: a) The person/organization must obtain a permit from Liquor Licensing. Permits are issued at no charge.

Reference: http://www.fin.gov.nt.ca/services/liquor/liquor-licensing-board

Nova Scotia As per the Liquor Control Act of Nova Scotia, the Nova Scotia Liquor Corporation allows the importation of liquor/alcohol for non-beverage commercial or industrial uses. The following conditions apply: a) The person/organization must obtain a permit for the end use of the product

References: http://www.mynslc.com/Content_CommunicationsPages/Content_Footer/Content_Service s/Permits.aspx Liquor Control Act of Nova Scotia - http://www.mynslc.com/Content_CommunicationsPages/Content_Footer/Content_Corpor ate/LCA.aspx

Nunavut Nunavut does not restrict the importation of liquor/alcohol for non-beverage commercial or industrial uses. No restriction or condition applies.

Ontario does not restrict the importation of intoxicating liquor for non-beverage commercial or industrial uses. Section 33.1(1)(c) of Ontario's Act (LLA) makes it illegal to possess liquor that has not been legally imported into Ontario. Where the product has been properly imported under the federal Importation of Intoxicating Liquors Act, possession would not be an issue under the LLA. The following is the link to the statute: https://www.ontario.ca/laws/statute/90l19#BK39.

Prince Edward Prince Edward Island regulates the importation of liquor for commercial purposes. The Island Liquor Control Act S.7 (http://www.gov.pe.ca/law/statutes/pdf/l-14.pdf) sets out the functions, duties and powers of the PEI Liquor Commission.

Quebec Quebec allows for the importation of liquor/alcohol for non-beverage commercial or industrial uses. The following conditions apply: a) This alcohol must be sold through the SAQ. b) Manufacturers must report annually to the Liquor Board the quantity of alcohol they have in their possession as well as the location of this alcohol, the quantity that was used for the manufacture of the final product, the names and addresses of the manufactures and the quantity of alcohol they require for the following year.

Reference: http://www2.publicationsduquebec.gouv.qc.ca/dynamicSearch/telecharge.php?type=2&fil e=/I_8_1/I8_1.htm

Saskatchewan Saskatchewan does not restrict the importation of liquor/alcohol for non-beverage commercial or industrial uses. No restrictions or controls apply. The relevant regulation is provided below:

The Alcohol and Gaming Regulation Act, 1997. (See p.59-59) http://www.qp.gov.sk.ca/documents/english/Statutes/Statutes/a18-011.pdf

Yukon The allows for the importation of liquor/alcohol for non- beverage commercial or industrial uses. A permit is required. The relevant regulation is provided below:

Yukon Liquor Act, Section 54(5) http://www.ylc.yk.ca/pdf/liquor_act_oc.pdf

G/STR/Q1/CAN/10/Add.1

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Question 1 (b)

Still according to the notification, under the IILA, an exception exists for persons licensed by the under the Excise Act to carry on the business or trade of a distiller or brewer where the intoxicating liquor is imported solely for the purpose of being used for blending with or flavouring the products of the business or trade of that person.

The EU would like to receive clarifications on this provision. Could Canada confirm that foreign suppliers of spirits and wines can be authorized to carry out their business or trade under this exception?

Reply:

Under the IILA, the exception in question allows domestic licensed distillers and brewers to import bulk intoxicating liquor to blend or flavour their products. The exception operates in conjunction with the Excise Act, 2001 and the Excise Act, which define licensees' requirements and particular activities of licensees, including the importation of bulk spirits and manufacturing beer. The domestic licensee can take advantage of this exception when importing intoxicating liquors from any foreign supplier. A foreign supplier would not be authorized under the IILA, the Excise Act, 2001 or the Excise Act to directly import bulk spirits and manufacturing beer under this exception unless they hold a domestic license to carry on the business or trade of a distiller or brewer in Canada.

Question 3

The notification contains a concise presentation of the determination of the mark-ups for each STE and underlines, as a general characteristic and in several points, that they are calculated in a uniform, non-discriminatory manner, irrespective of the country of origin.

Recently, it seems that some Canadian Provinces are starting implementing variable mark-ups whereby the product mark-up applied may vary by product, thus contradicting the notion of flat-rate and/or of uniform mark-ups mentioned in the notification.

In particular: i) Nova Scotia's Liquor Board has introduced variable mark-ups on some product sub-categories; ii) on 1 April 2015 's Liquor Board changed its mark-up structure, with a split of the liquor board's mark-ups into wholesale mark-ups and retail mark-ups. While wholesale mark-up rates are published, there is no transparency on the final rate applied on the retail mark-up, which may give place to arbitrary and variable rates.

The EU would like to receive clarifications on these measures. Could Canada confirm that these measures have been adopted? Should this be the case, could Canada clarify how these provisions comply with Art. XVII.1 of the GATT?

Reply:

Consistent with Art. XVII.1 of the GATT, both policies are applied equally to domestic and imported products and are implemented in accordance with commercial considerations.

B.C. introduced its new wholesale pricing model in April 2015. In B.C., alcohol may be sold in government operated liquor stores as well as private liquor stores. Under the wholesale pricing model, all liquor retailers, except duty free stores, purchasing their product from the Liquor Distribution Branch pay a common wholesale price for that product, which is calculated based on a common wholesale mark-up. Liquor retailers are then free to determine the retail price of the product, subject to minimum pricing rules. The objective of this pricing model is to create a level playing field for all retailers, including both private retailers and B.C. Liquor Stores operated by the Liquor Distribution Branch.

G/STR/Q1/CAN/10/Add.1

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The Nova Scotia Liquor Corporation (NSLC) uses a competitive bidding process for selecting which types of economy beer and spirits will be sold in its retail outlets. All vendors are invited to submit bids and winning candidates are selected based on a number of criteria including quality of product, price and consistency of supply. The economy beer and spirits categories are open for bidding by all vendors of comparable products. The policy is an operational business practice applied to economy beer and spirits only. The policy does not differentiate vendors by country of origin. The approach helps ensure vendors remain competitive within this market segment and is part of NSLC's strategy for the management of limited shelf space.

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