Let it flow: U.S. winemakers say no NAFTA without Canada

Posted : 09/24/2018

Financial Post
By Naomi Powell
September 20, 2018

Add American winemakers to the list of businesses opposing U.S. President Donald Trump’s threat to scrap the North American Free Trade Agreement in favour of a bilateral deal with Mexico.

American vintners — whose sales north of the border soared 281 per cent under NAFTA and its predecessor, the Canada-US Free Trade Agreement, — now count Canada as the largest single market for wine outside the U.S.

“If NAFTA no longer exists we could see a half a billion dollars thrown out the window,” said Michael Kaiser, vice president of WineAmerica, an industry group based in Washington, D.C. “So obviously we want to make sure the Canadian market remains open to U.S. wine.”

Charles Jefferson, vice president of federal and international public policy for the Wine Institute, an association of California vintners, was more blunt: “We would not support a withdrawal from NAFTA,” he wrote in an email. “We believe it is vital that any modernized NAFTA include Canada and Mexico.”

U.S. wine exports to Canada topped US$443.9 million in 2017, up from US$18.6 million when Canada first dropped tariffs on imports under the CUSFTA in 1989. By contrast, U.S. wine exports to Mexico were worth US$22.5 million in 2017.

Nevertheless, Canadian market restrictions have remained an irritant to the U.S. industry. American winemakers’ access to Canadian grocery store shelves was identified alongside dairy and grain grading as a major outstanding agricultural issue in the NAFTA talks when the U.S.’s chief agricultural negotiator Gregg Doud testified before the Senate Agriculture Committee last week.

The wine issue also appears on both the press release announcing U.S. Trade Representative Robert Lighthizer’s NAFTA negotiating objectives and the U.S. government’s annual report on trade barriers, published in March.

Among the issues cited in the report are market controls exerted by provincial liquor boards, including cost-of-service mark-ups, restrictions on listings, and label requirements. The USTR is especially irked by rules in B.C. that preclude grocery stores from selling foreign wine, effectively giving Canadian vintners an exclusive retail channel. Though the U.S. has a case before the WTO on the matter (launched just before Trump took office in 2016) Lighthizer subsequently said the NAFTA talks would provide a swifter resolution.

“This is just rank protectionism at the provincial level in Canada,” Lighthizer told the U.S. House Ways and Mean Committee in March, adding it was an issue “that you won’t know if you’re making progress on until the end.”

While B.C. is the focus of the current negotiating objectives, the U.S. industry is also focused on widening its access to store shelves in Ontario and Quebec, said Kaiser.

“There are other things but that’s the main issue for us,” he said. “We’d like to see those limits curbed or ideally eliminated.”

The U.S. push for more market access has revived old frustrations for some Canadian vintners who say barriers in the U.S. have prevented them from enjoying the same growth as their American counterparts.

Since the repeal of prohibition, alcohol distribution south of the border has occurred through a three-tier system in which producers must sell to wholesale distributors, who then sell to retailers. Only retailers can sell to consumers. The system is costly for small vineyards and especially Canadian producers like Paul Speck who must pay an import fee of up to 35 per cent to get his product into the market.

“There’s lots of unfair trading practices that happen in the United States that they don’t like to talk about,” said Speck, the president of Niagara’s Henry of Pelham winery, who was in Ohio selling wine this week. “I’m in Cleveland selling and I have a 35 per cent disadvantage compared to my competitors. In these trade deals everybody likes to nitpick but at the end of the day the California wine industry has done phenomenally well in Canada since NAFTA.”

While U.S. vintners doubled their share of the Canadian market to 13.3 per cent after trade was first liberalized in 1989, Canadian winemakers’ presence in the United States has remained negligible.

And while the U.S. distribution system may be difficult and costly for smaller countries to navigate, Kaiser doesn’t expect it to change any time soon.

“I don’t see that as a viable negotiating objective,” he said. “Short of reopening the Constitution I think it’s here to stay.”

The Canadian Vintners Association declined to comment on the ongoing NAFTA talks beyond stating that it is “hopeful that the modernization of NAFTA will assist the growth of Canadian wine exports to the United States and Mexico.”

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