Home News Alberta to sue Ontario over interprovincial trade barrier, but will fail to meet its own deadline for responding to trade panel ruling

Alberta to sue Ontario over interprovincial trade barrier, but will fail to meet its own deadline for responding to trade panel ruling

By | on Nov 27 2018

From News, Press Releases

Yesterday, Alberta Finance Minister Joe Ceci made two important announcements. First, that Alberta will take legal action against the Government of Ontario for erecting trade barriers that it alleges keep Alberta’s liquor products out of Ontario. Second, that Alberta will fail to meet its deadline to comply with a recent trade panel ruling that found the provinces discrimination on out-of-province craft beer to be in violation of the Agreement on Internal Trade (AIT).

On the first issue, the Canadian Constitution Foundation (“CCF”) has been publicly encouraging the government to take action against other provinces’ trade barriers ever since the government started tinkering with the policies affecting Alberta’s burgeoning craft beer industry in October 2015.

In a recent column, Canadian Constitution Foundation Staff Lawyer Derek From wrote:

The single best way [Alberta] could help would be to … attack those trade barriers that other provinces use to keep Alberta beers out. … All Albertans, including local brewers, would have been better served had [Alberta] focused … on tearing down the trade barriers faced by Albertans in other provinces instead of wasting time and resources defending an illegal policy. The CCF is pleased that Alberta is now targeting the trade barriers faced by Alberta’s liquor producers exporting their products elsewhere in Canada, consistent with the original constitutional vision of Canada as one country with one market.

On the second issue, on May 11, 2018, an Appeal Panel, convened pursuant to the dispute resolution process of the AIT, ruled that the Government of Alberta’s Small Brewers Development Program (ASBD Program) does not comply with the province’s free trade obligations under the AIT because it discriminates against out-of-province products and is a barrier to free trade within Canada.

The Appeal Panel gave Alberta six months – until November 29, 2018 – to bring its policy into compliance with the AIT. Today, Alberta announced that it will not comply with the time frame stipulated in the ruling as their new policy, a new graduated mark-up scheme, will not come into effect until December 16, 2018.

The province’s continued delinquency not only unnecessarily and illegally continues to hurt businesses like Artisan Ales, who brought the complaint, it calls into question whether the province respects the rule of law, including trade agreements to which it is a party. The failure to meet the Appeal Panel’s deadline could also make the province liable for millions of dollars in fines for non-compliance with the AIT. Lastly, a policy change of this magnitude—a return to a graduated mark-up—just prior to the busy Christmas season could have an enormous detrimental effect on liquor retailers.

Derek From, staff lawyer with the Canadian Constitution Foundation, said:

The Appeal Panel’s ruling was perfectly clear. The province was given six months to bring in a policy that complies with the AIT. This should have been done months ago, as ordered. Instead, the province has dragged its feet, and now that it will miss the deadline, Alberta may be liable for millions of dollars of fines.

The AIT Appeal Panel’s decision is available here.

Background

On October 27, 2015, the Government of Alberta announced that it would tax beer from small brewers outside the New West Partnership (British Columbia, Alberta, and Saskatchewan) at a significantly higher rate than similar brewers located within those provinces.

Even in light of the Supreme Court’s recent Comeau decision, this protectionist tax grab clearly violated section 121 of the Constitution Act, 1867, as long-established case law from the Supreme Court of Canada says that provinces cannot erect tariff barriers. It also violated Alberta’s obligations under the AIT, a pan-Canadian free trade agreement in force at the time.

Artisan Ales, which supplies Alberta with high-quality beers from other Canadian provinces, was badly hurt by this unconstitutional and illegal tax. For the 12-month period following the new policy, Artisan Ales’s sales decreased by 33 per cent compared to the previous 12-month period. In dollar terms, for the fiscal year ending on November 30, 2016, Artisan Ales’s sales fell by 32 per cent compared to the previous year, while its net profits fell by 86 per cent.

In December 2015, the Canadian Constitution Foundation wrote to the Government of Alberta, pointing out the policy’s obvious unconstitutionality.

On July 28, 2016, the Government of Alberta announced a superficial tweak to its beer tax policy. Effective August 5, 2016, beers from craft brewers from all provinces would notionally be taxed at the same high rate. However, Alberta-based brewers would now receive a rebate under the ASBD Program “based on sales volumes of Alberta-made beer sold in the province.” So, instead of the old policy of taxing out-of-province craft beers at a higher rate than Alberta craft beer, the new policy would henceforth tax all craft-beers at the same high rate, but then refund only Alberta craft brewers the difference.

The revised 2016 policy remained unconstitutional as it simply did indirectly what the province was not allowed to do directly. The practical result was the same differential tax treatment between Alberta breweries and out-of-province breweries. As the 2016 policy continued to discriminate against out-of-province beers, Artisan Ales’s sales continued to decline. The Appeal Panel of the AIT agreed.

In a huge victory for Artisan Ales, an AIT Appeal Panel unanimously agreed that the ABSD Program violates the AIT’s non-discrimination and no obstacle provisions and ordered the province to bring its policies into compliance with the AIT.

From the decision:

The ASBD Program does not provide equality of competitive opportunities as between beer produced in Alberta and beer produced in other provinces. It distorts the playing field, and as such, results in “less favourable treatment” of beer produced in other provinces.

The Appeal Panel’s decision could have repercussions across Canada as it impugns any government program designed to provide a competitive advantage through encouraging the production and sale of one province’s goods at the expense of another’s. It therefore provides individual Canadians with a powerful precedent to attack existing interprovincial trade barriers through Canada’s various interprovincial trade agreements.

The Agreement on Internal Trade and the Canadian Free Trade Agreement

The AIT provided Artisan Ales with an additional avenue to enforce the spirit of the constitutional guarantee of section 121 of the Constitution Act, 1867; and as the May 11, 2018 decision shows, the Appeal Panel agreed with Artisan Ales’s submissions that the Alberta’s Small Brewers Development Program also violates the AIT.

The AIT is a free-trade agreement between all Canadian provinces and the federal government, which was signed in 1994. Under the AIT, the Government of Alberta is committed to “reciprocal non-discrimination”—meaning that Alberta must treat beer produced in any other province no less favourably than how it treats beer produced within Alberta—and to avoid adopting or maintaining any obstacles to internal trade.

Although the AIT has now been superseded by the Canadian Free Trade Agreement (CFTA) the governing principles remain broadly the same and Artisan Ales’s complaint was grandfathered in from the earlier agreement, and the Appeal Panel’s decision should inform the interpretation of parallel provisions in the new CFTA.

To see the original press release, click here.

Image by Dondy Razon under CC 2.0.

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