G/STR/Q1/CAN/9  
 
22 September 2015  
(15-4878)  Page: 1/3  
Working Party on State Trading Enterprises  Original: English  
 
 STATE TRADING 
QUESTIONS POSED BY THE EUROPEAN UNION REGARDING CERTAIN PROVISIONS APPLICABLE TO 
THE PROVINCIAL AND TERRITORIAL LIQUOR CONTROL AUTHORITIES OF CANADA 
 
The following communication, dated 21 September 2015, is being circulated at the request of the Delegation of the European Union. 
 
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Following the recent Canada Trade Policy Review as well as on the basis of available information 
on the activities of the STEs trading in liquor, the EU would like to ask Canada to clarify certain aspects of its notification submitted on 8 July 2014 (G/STR/N/15/CAN). In particular: 
 
Question 1  
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 transp ortation 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 th ese 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? Shou ld 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? 
 Still according to the notification, under the 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 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 th is provision. Could Canada confirm that foreign 
suppliers of spirits and wines can be authorized to carry out their business or trade under this 
exception? 
 
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 imported wine only; various provincial mark-ups exemptions or differentiations in favour of local wine; in British G/STR/Q1/CAN/9 
 
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  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 and priv ate retailers are exempted from mark-ups. Since 
February 2013, similar preferential treatment on  direct sales of British Columbian wine was 
extended to local spirits, exempted from the 124%  provincial mark-up on spirits. The Nova Scotia 
Liquor Board applies a 43% product mark-up on local wine against 140% on general rate, and in 
November 2014, a similar program was adopted fo r local spirits whereby local products benefit 
from a 50% mark-up against the 160% general rate.  
The EU would like to receive clarifications on th ese measures. Does Canada confirm that the tax 
treatment may affect differently local and imported products? Could Canada explain the rationale for providing exemptions to local products on  federal excise tax and provincial mark-ups? 
Furthermore, could Canada explain how this would be in compliance with WTO rules on non-
discrimination?  
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 British Columbia'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? 
 
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 past years, Provinces adopted initiatives to conduct 
selective liberalization based on the origin of products, and to the sole benefit of local products. 
These practices not only 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 local 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 decision by British Co lumbia 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 th ese measures. Could Canada explain the extent to 
which these new routes to market (sales and retail channels) could be consistent with international 
trade rules, insofar as they would appear to amount to discrimination between imported and domestic products?  
 
Question 5  
Cost of Service Differentials applie d by Canadian Liquor Boards are acceptable only as long as they 
strictly reflect the objective amount of addition al costs necessary for the marketing and retail of 
imported products. Independent audits were conducted on these costs in 2010 at the request of the EU. 
 G/STR/Q1/CAN/9 
 
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  Could Canada provide precise details on how the Cost of Service Differentials are applied by 
provincial liquor boards? Could Canada present a full report of existing practises in Canada, at both federal and provincial level, where a differentiated and less favourable treatment is dispensed to imported wines and spirits? 
 
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