What’s the Big Deal about Supermarket Wine Sales in British Columbia?

vqa-surrey-save-on-foodsWhat’s the big deal about British Columbia supermarket wine sales? It is a very big deal in some circles because the stakes are higher than they might seem. Here’s my analysis of the situation.

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Supermarkets are an important wine sales vector in the United Kingdom and most but not all U.S. states, so many consumers take it for granted that they can walk into their  local Safeway, Kroger-affiliate, Whole Foods or Trader Joe’s store and be greeted by a world of wine choices.

Oh, Canada!

Things are a bit different in Canada. Provincial alcoholic beverage control regimes  apply somewhat in the spirit of Sweden’s Systembolaget monopoly, which was at one time the world’s largest wine retailer — a title that I think passed to the Ontario Liquor Control Board store system before being taken up by Tesco, the British supermarket giant.

British Columbia is moving towards expanded supermarket wine sales after some preliminary trials. The process is a bit awkward because there are many stakeholders with vested interests in the old control system of wine sales. Moving to supermarket sales may increase total wine sales, but the “trade creation” will be accompanied by a certain amount of  “trade diversion” from other retailers, who are understandably unhappy. There is lots of push back as you would expect.

The political economy of B.C. supermarket wine sales is both domestic (more supermarket sales at the expense of existing wine sales license holders) and also international. Incredibly, the B.C. regulations exclude non-B.C. wines from regular supermarket shelves (imported wine may theoretically be sold in a separate and costly and somewhat inconvenient “store within a store”). This has produced an international dust up as the United States has brought charges at the World Trade Organization over the discriminatory practice, an action that the European Union and New Zealand have also supported. The list of wine exporting countries lined up against the B.C. supermarket regime continues to grow. Argentina recently joined the US in this action and Australia quickly followed suit..

The Weak and the Strong

What is the problem? Can’t British Columbia to what it wants regarding wine retail regulations? Maybe not, because Canada (along with most of the world’s nations) is a member of the World Trade Organization (WTO) and is bound by its rules.

The World Trade Organization is actually a fairly weak international institution. It has spent the last couple of decades trying and failing to reach a global agreement on trade liberalization. But the WTO (through its predecessor, the General Agreement on Tariffs and Trade or GATT) was founded on two very strong principles: Most-favored-nation (MFN) treatment and non-discrimination.

Most-favored nation treatment prohibits a country from discriminating at the border against the goods of one WTO-member trading partner relative to others in terms of tariffs and so forth. Every country gets the deal that the most-favored country gets. You cannot single out one country for better treatment or — the real fear — impose sanctions against another except in well-defined circumstances. This was one reason why China worked so hard to get into the WTO — to limit the threat of a trade war against its products.

The MFN rule has been diluted somewhat in recent years as bi-lateral and multi-lateral preferential trade agreements like NAFTA have become more important. (The rise of preferential agreements is often seen as a reaction to the inability of the WTO to produce agreements on broader, global trade regimes) These agreements allow a certain amount of systematic positive discrimination in favor of fellow trade block members. The MFN rule still controls negative “trade war” discrimination.

The second rule, the non-discrimination principle, holds that once a product enters a country, paying whatever legal tariffs are levied at the border, it cannot suffer internal discrimination because of its import status. It must be treated from a regulatory standpoint just as domestic products are treated. That’s a powerful principle.

I am an economist, not a lawyer, but it seems to be that allowing domestic B.C. wines to be sold in supermarkets while prevented equal access to legally-imported California, France, New Zealand or Australia wines would seem to be a violation of the non-discrimination principle and actionable under WTO rules.

Principle and Interest

I was aware of some discussion of possible US action through the WTO as the BC supermarket protocols were being developed, but the US threat was taken lightly by some north of the border. The BC market is relatively small (we are not talking Ontario here) and there are substantial costs to initiating a WTO action, which can take years to resolve and burn up a lot of attorney fees in the process. Not worth the trouble! So some people in BC were surprised when the US finally acted.

But I was not surprised. While BC market losses might be relatively small for international wines, they establish a precedent that could be important if the local-product-only supermarket sales idea spreads — to Ontario, for example. And there might be other discriminatory practices that apply in Canada and its provinces that need to be studied — the supermarket rule might have been the tipping point to take action.

Finally, there is a more global concern. We seem to be living through a period when protectionist rhetoric is in the air and actions that challenge or violate the rules of fair trade are seriously proposed.

In this environment, it is in the interest of global industries like wine to resist the protectionist tide wherever possible on the grounds of both principle and interest (self-interest, that is).

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6 responses

  1. While I agree that protectionism and tariffs are now part of global economic vocabulary and while these types of policies may hurt the consumer (in terms of retail pricing), I disagree that these are bad thing esp for local wine industries such as BC and the Okanagon area.

    In this case, it may force consumers in BC to consider and try local alternatives that are fungible at price points to imported products. And they may find them to be equal to (or better than) imported products from traditional wine producing countries,

    This may in turn lead to an interest and appreciation for wine produced locally and create cash flows for expansion for the local wine industry.

    It will be interesting to see how this all plays out on the Global Stage. Tariffs have traditionally been considered evil by Classical economists, but perhaps in there is a place for them in the New Global Economy, esp in the developed world where wage stagnation seems to be the underlying cause of flat income levels.

  2. Interesting post. I laughed at the fact most folks today wouldn’t know what to do if they still had to visit a ‘State Store’ to buy wine! Wine sales in groceries, drugstores, etc. is actually a fairly recent phenomenon it seems to me. It was quite an event when I got to go along with my dad on a Saturday to the State Store and then attending college in Pennsylvania you most important piece of paper wasn’t getting your sheepskin but your PLCB card!

  3. You can do better analysis than this. How much BC wine is on the shelves in u.s. stores? It is next to impossible to sell Canadian wine in the US? Why can’t we have direct to consumer across borders if there is truly free trade. The big incumbents control the dialogue on this. Follow the money….

    Carolyn Hurst
    The

  4. Last time I checked, Americans can’t vote in British Columbia elections. Neither can Ontario winemakers. However B.C. winemakers can. under pressure to liberalize alcoholic beverage sales, the B.C. government allowed British Columbia wines to be sold in select supermarkets. This just might be to gather votes. If other wine making areas of the world object, as they have, the usual political response if expecting to lose the case before the WTO would be to wait until after next year’s provincial election. Then when costs loom, to tell the voters, “We tried. We did our best.” Then changing the rules wither by getting out of supermarkets or broadening what can be sold–depending on what the polls say–could be done at low cost.
    A disclaimer: the provincial government hasn’t called me lately to ask my advice.

    • Interesting but totally inaccurate. The provincial government was asked by consumers to open up grocery to buying liquor.
      This is what they did. There are wine stores and there are liquor stores. It is about licenses. Wine stores can go on the shelf, liquor stores need some guard rails in a grocery store.
      The rest of the hold up is about municipal regulations, zoning and other barriers to entry.
      Sounds easy but it’s a bit more complicated than what is written here.

  5. This issue is driven by the US exporters, which i may add DO NOT like the laws and powers of the Provincial Govs in Canada, comparing States versus Provinces policies, laws and regulations is a waste of time.
    If the citizens of BC or elsewhere in Canadian Provinces, decide to elect a government that will remove old laws, it will be the only way to change the way alcoholic beverage businesses are regulated.
    Many elections have gone by, it has never been an issue nor brought on by any party to create major changes in alcoholic beverage sales: WHY? Money!!! losing those powers would greatly reduce the incomes of Liquor Board which hand over sizable profit to their masters : The Provincial Revenue Ministers.
    The whining from importer will not work, beside what is their problem, they are more competitive than our canadian producers, and they keep increasing their market shares in overall Canada.
    Lets ask them how much import of Canadian wines is actually taking place in their states or countries: CLOSE TO NONE!!
    WTO not a chance Canadian are the largest consumer of imported wines per capita in the world, Case Dismissed!!!

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