Alberta’s discriminatory beer tax violates the Agreement on Internal Trade
On May 11, 2018, an Appeal Panel, convened pursuant to the dispute resolution process of the Agreement on Internal Trade (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.
This is a huge victory for Artisan Ales, a Calgary owned-and-operated small business, whose business was devastated by the discriminatory policy designed to restrict access to the quality craft beers it imports from other provinces. It is also good news for Alberta beer drinkers, who faced reduced selection of out-of-province beers like the award-winning Quebec beers imported by Artisan Ales.
The Appeal Panel’s unanimous decision agreed with Artisan Ales that the beer policies of the Alberta government, in particular, the ABSD Program, violate the AIT’s non-discrimination and no obstacle provisions.
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 also recognized that beyond the damages suffered, Artisan Ales has been forced to expend considerable time and money over two years to bring the complaint. As a result, it awarded costs against the province, noting that “In the present appeal, [Artisan Ales] successfully challenged Alberta in a long and arduous procedure.”
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.
“This is a landmark victory for Alberta consumers – the first private business to win a challenge against a discriminatory provincial regulation. It levels the playing field for craft beer producers across Canada and confirms that, under the Agreement on Internal Trade (and by extension the Canadian Free Trade Agreement, which employs the same concepts), provinces cannot discriminate against similar products from other provinces.”
Derek James From
Canadian Constitution Foundation
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.
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 was superseded earlier this year 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.
The Canadian Constitution Foundation (“Freedom’s Defence Team”) is a registered charity, independent and non-partisan, whose mission is to defend the constitutional freedoms of Canadians through education, communication and litigation.