G/STR/Q1/CAN/10  
 
12 October 2015  
(15-5317)  Page: 1/4  
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 
 
The following communication, dated 9 October 2015, is being circulated at the request of the 
Delegation of Canada. 
 
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Question 1  
The notification contains a concise presen tation 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 jurisd iction, with control over the 
sale of intoxicating liquor, and over the import ation, sending, taking or transportation of 
such liquor into the provinces and territo ries. The provinces and territories have 
delegated this activity to the provincial/terri torial liquor control authorities. The statute 
expressly provides that nothing in the IILA fo rbids 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 th eir products under their own re sponsibility? Should this be 
the case, could Canada clarify how these prov isions shall apply? If not, could Canada 
clarify how these provisions comply with Art. XVII.1 of the GATT?  
Still according to the notification, under th e IILA, an exception exists for persons 
licensed by the Government of Canada under the Excise Act to carry on the business or 
trade of a distiller or brewer where the into xicating 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: 
 
Canada is in the process of consulting on provincial policies related to the importation of liquor for 
manufacturing or commercial purposes not related to the use of liquor as a beverage, and for the 
use of blending by distillers or brewers licensed under Canada's Excise Act. A more detailed response will be provided once these consultations have been completed. 
 
                                               
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 
 
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  If the EU is aware of specific instances where foreign suppliers of liquor for those purposes have 
faced difficulties, we would be interested in receiving further detailed information, as we are not aware of any issues in this regard.  
Question 2 
 Reference is done to the information contained in the Secretariat report prepared for the 
recent Canada Trade Policy Review (Point 3.1.5.2 Excise taxes and duties, page 60 
and 61; tables 3.8 and 3.9 report of the secretariat). The EU notes that there are 
numerous tax exemptions to local products which do not apply to imported products. In particular, a federal excise tax exemption is applicable since 2006 whereby the federal 
excise tax of CAN$ 0.62/L applies to import ed wine only; various provincial mark-ups 
exemptions or differentiations in favour of local wine; in British Columbia, while 
imported wines are being applied a mark-up of  89% by the liquor board, local wines are 
exempted from this rate when sold in private outlets. 
 Also, while imported wines are subject to a 89% mark-up, British Columbian wines that 
are directly delivered to bars, restaurants an d private retailers are exempted from mark-
ups. Since February 2013, sim ilar preferential treatment on direct sales of British 
Columbian wine was extended to local spir its, exempted from the 124% provincial 
mark-up on spirits. The Nova Scotia Liqu or Board applies a 43% product mark-up on 
local wine against 140% on general rate, and in November 2014, a similar program was 
adopted for local spirits whereby local produc ts benefit from a 50% mark-up against the 
160% general rate. 
 
The EU would like to receive clarifications on  these measures. Does Canada confirm that 
the tax treatment may affect differently lo cal and imported products? Could Canada 
explain the rationale for provid ing exemptions to local products on federal excise tax 
and provincial mark-ups? Furthermore, coul d Canada explain how this would be in 
compliance with WTO rules on non-discrimination?  
Reply: 
 
In terms of the federal excise tax on wine, an exemption was introduced in 2006 for wine 
produced from 100% Canadian-grown agricultural  product. Further information regarding the 
application of this relief measure can be found on the following Canada Revenue Agency webpage: 
http://www.cra-arc.gc.ca/E/ pub/em/edn15/edn15-e.html .  
 
This measure does not impose an additional tax burden on imports vis-à-vis domestic products. The amount of targeted excise duty relief under this specific measure is relatively small and was 
largely modelled after similar programs in other countries. Furthermore, this measure does not 
have any significant impact on the demand for wine imports in Canada. Indeed, imports of wine 
into Canada have increased more than 30% since 2006.  
With respect to mark-ups of provincial liquor boards, differences in the mark-ups between those 
paid by products sold in private outlets or direct delivered, and those charged by the liquor boards, in part reflect costs incurred by the liquor boards (e.g. warehousing, stocking, etc.).  
 
Question 3  The notification contains a concise presenta tion of the determination of the mark-ups 
for each STE and underlines, as a general charac teristic and in several points, that they 
are calculated in a uniform, non-discriminato ry manner, irrespective of the country of 
origin. 
 
Recently, it seems that some Canadian Prov inces 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 Boar d has introduced variable mark-ups on some 
product sub-categories; ii) on 1 April 2015 Br itish Columbia's Liquor Board changed its 
mark-up structure, with a split of the liquo r board's mark-ups into wholesale mark-ups G/STR/Q1/CAN/10 
 
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  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: 
 
Canada is consulting with the provinces on these questions and will provide a response once those 
consultations have been completed.  
Question 4 
 The EU has noticed that Canada has at times planned or pursued a selected liberalization 
of alcohol sales and retail channels. In the pa st years, Provinces ad opted initiatives to 
conduct selective liberalization based on the origin of products, and to the sole benefit 
of local products. These practices not on ly offer additional sales channels and 
opportunities to local products, they also offer a tax advantage since liquor boards' 
mark-ups are not applied to these products.  
 Those have included sale of lo cal wine products in farmers'  markets in British Columbia 
since June 2014 with no mark-up, and in Ontario since May 2014 at reduced mark-up, 
the latter for a two-year pilot program and a de cision by British Columbia to allow from 
April 2015 local wine retail on the shelves in private groceries where liquor boards' mark-ups are not applied.  
 
The EU would like to receive clarifications on these measures. Could Canada explain the 
extent to which these new routes to mark et (sales and retail channels) could be 
consistent with international trade rules, in sofar as they would appear to amount to 
discrimination between imported and domestic products?  
 
Reply: 
 
The provinces of Ontario and British Columbia are both in the process of adopting changes to their liquor distribution policies with a view to increasing efficiency and effectiveness. The Government 
of Canada has worked closely with the provinces to ensure consistency of any changes with 
Canada's international trade obligations.   
Stores in British Columbia and Ontario that are limited to selling 100% local wine have operated 
for many years and have been grandfathered through various trade agreements to which Canada is a Party. 
 
Farmers markets are privately operated and often have their own rules limiting items being sold therein to products that are produced within a defined geographical area, which is a legitimate business decision. We would note that customers of farmers markets are usually interested in 
purchasing local products, and that these markets account for a very small portion of total volume 
and value of sales by domestic wineries.  
Question 5 
 Cost of Service Differentials applied by Cana dian Liquor Boards are acceptable only as 
long as they strictly reflect the objective amount of additional costs necessary for the 
marketing and retail of imported products. In dependent audits were conducted on these 
costs in 2010 at the request of the EU.  
Could Canada provide precise details on how th e Cost of Service Differentials are applied 
by provincial liquor boards? Could Canada pres ent a full report of existing practises in 
Canada, at both federal and provincial leve l, where a differentiate d and less favourable 
treatment is dispensed to im ported wines and spirits? 
 G/STR/Q1/CAN/10 
 
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  Reply: 
 
We note that Canada has previously provided th e EU with the results of the 2010 cost of service 
differential, providing the details on how the differentials are applied. If the EU has outstanding 
specific questions about the cost of service differential, we would appreciate receiving these 
specific questions in writing. With respect to re tail mark-ups, Canada notes that cost of service 
differential charges, which may lead to a higher mark-up on imported products, have been found 
to be GATT compliant by a GATT panel, as long as  they are no greater than the additional costs 
necessarily associated with marketing imported products. In Canada, cost of service differentials are not applied at the federal level of government.  
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