In B.C. and other provinces, the primary barrier to wine imports are distribution centers — government-mandated corporations that monopolize the market in their respective provinces. | VANO SHLAMOV/AFP/Getty Images Canada U.S. hopes USMCA wine win will break open Canadian market

The United States thought it came out victorious at the end of a two-year effort to get American wine on the same shelves as domestic vintages in British Columbia.

The opening, via the new North American trade deal, clears only the first in a long series of logistical and regulatory hurdles that make selling foreign wine in several Canadian provinces difficult.


But the small win it achieved could disappear quicker than a bottle of pinot noir at a backyard barbecue if President Donald Trump fails to win approval of the agreement.

Even with the timeline for ratification unclear and plenty of other wine regulations across Canada on the books in place to give domestic wine a leg up, the wine deal attached to USMCA marks a significant step for both the U.S. wine industry and Canadian consumers who want variety on store shelves. Some 78 percent of Canadians live in provinces where regulations governing the sale of alcohol make buying imported wine more expensive or otherwise difficult compared with domestic vintages, according to Charles Jefferson, vice president of federal and international policy at the Wine Institute.

Canada is the top export market for California wine producers, according to the Wine Institute. U.S. wine retail sales in Canada reached almost C$1.1 billion in 2017, and removing markups and other distribution restrictions could grow those sales. Jefferson notes that Canada is one of the oldest and most important export markets for U.S. winemakers.

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British Columbia requires that imported wines be placed in a separate part of grocery stores — a “store within a store” — from wines made in the province. While B.C. wines get prime real estate on grocery store shelves, shoppers must go out of their way to find wines from the U.S. and the rest of the world.

The province agreed to eliminate that rule by Nov. 1 in a side letter to USCMA, on the condition that the U.S. drop a complaint about the province’s rules filed with the World Trade Organization. The side letter also keeps the U.S. from making any new complaints to the WTO about B.C. wines until Nov. 1.

Jefferson said he believes the specificity of the side letter was a strategic effort to nail down a win in the midst of USMCA negotiations. But it is clear there are bigger victories to be had.

“We made important progress on this issue in the USMCA, but we will continue pushing to remove all blatantly discriminatory policies in the Canadian market,” Jefferson said.

In B.C. and other provinces, the primary barrier to wine imports are distribution centers — government-mandated corporations that monopolize the market in their respective provinces. The centers aim to raise money for provincial governments. They decide what wines will be sold and where. Everything they do, from deciding on fees, developing application processes for wine producers to allotting shelving space, is tied to that goal of revenue for local government, said Frederic Laurin, a professor of economics at the University of Quebec and author of the book “Où sont les vins?”

While the U.S. targeted shelf space in B.C. grocery stores, Australia developed its own complaint, which goes after other regulations in B.C. and import barriers in Ontario, Quebec and Nova Scotia. If Australia wins the dispute, the U.S. would stand to benefit, because any regulatory changes would apply to it, too. (The U.S. is a third party to this complaint.)

A panel to rule on the complaint was approved and panelists appointed earlier this March. While a ruling typically takes six to nine months once panelists are set, the WTO expects it could take longer to resolve in this case because of the large number of dispute cases filed recently, WTO spokesperson Daniel Pruzin said.

“The B.C. action and the hopeful resolution of the WTO case is so important because it sends a clear message that these kinds of discriminatory policies in the grocery stores can’t be tolerated,” Jefferson said. “And it does so at a time when other provinces are looking.”

Quebec imports more wine than any other province: In 2017, wine imports into Quebec made up 38 percent of the value of total wine imports to Canada. Ontario accounted for 31 percent of total imports and British Columbia, 17 percent. Canada's wine imports totaled 300.9 million liters in 2017, according to the Canadian Vintners Association, making it one of the top eight wine importing countries in the world.

Quebec’s wine industry is run exclusively by La Société des alcools du Québec, or SAQ. SAQ requires all potential importers to go through a rigorous application process judged on a point system. Wine value is determined on a scale of 1 to 100 by recognition (whether it has won a prize, medals or been in the press), sustainable development, taste, quality/price ratio, visuals and general appreciation.

Ontario and Quebec are "the largest wine buyers in the world simply because they control from top to bottom the alcohol process in the provinces,” Jefferson said.

Once selected, an imported bottle of wine in Quebec faces a 145 percent markup, and even then distribution and promotion aren’t guaranteed. Some wines could be accepted but remain in SAQ warehouses. And if a new wine is selected, another one has to go, Laurin said.

The goal is to get the wines sold, so the province authorities gravitate toward bigger companies that can prove their product will sell. “They don’t like experimentation,” Laurin said.

“Everything rests on the shoulders of the SAQ. They choose what they want to sell or not,” Laurin said. “SAQ will mostly sell wine from big multinationals instead of from small producers. … This is the same logic for big retail stores like Costco. Coke and Pepsi are the ones to sell so they get much more space on the shelves.”

Prior to 2016, both domestic and imported products had to go through this process. But in an effort to give local Quebec wine a chance, the provincial government passed Bill 88, which allows local producers to go directly to the consumer rather than through SAQ. Local wines never had much of a reputation in Quebec and in the past didn’t pose a threat to imports. Now that they are more accessible and affordable, they are selling out at supermarkets, he said.

Ontario has a similarly rigorous application process and tight control over imports but because Ontario citizens tend to prefer beer and spirits over wine, the markup is slightly lower, he said.

The Liquor Control Board of Ontario places significantly higher tax rates on foreign wine. Starting in April, Ontario-made wine at a retail store will be taxed at 6.1 percent, while non-Ontario wine will be taxed at 20.1 percent.

In addition, LCBO offers “unrestricted licenses,” which theoretically allow anyone to sell at grocery stores. But then they limit who actually sells with shelf space restrictions. For example, 50 percent of wine on grocery stores shelves must be from wineries that produce less than 150 million liters of wine. According to Jefferson, there are no major wine producing regions in the U.S. that are under that cap, while several Canadian regions are. Ten percent of shelf space is reserved for small producers and another 10 percent for medium producers.

Neither LCBO nor SAQ responded to several requests for comment.

But for now, USMCA, and the side letter that could crack open the Canadian wine market, remain in partisan limbo. Democrats who control the House seem unlikely to approve the new deal as-is. And both Canada and Mexico are unwilling to ratify until the U.S. removes or adjusts tariffs on aluminum and steel. Mexico may also balk at ratifying the agreement given Trump's threat to close the southern border over immigration concerns.