With the help from the Canadian Constitution Foundation (CCF), Artisan Ales, a small Calgary owned-and-operated import agency, has initiated a complaint against the Government of Alberta under the Agreement on Internal Trade (the AIT). The complaint alleges that Alberta, through a tax policy that favours Alberta beers over the beers of other provinces, is failing to honour its free trade obligations under the AIT.
On August 15, 2016, a preliminary, independent review authorized the complaint to proceed to a hearing, finding that “there is a reasonable case of injury or denial of benefit to Artisan Ales.” If successful, Alberta’s policy will be found to violate the province’s commitments under the AIT.
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.
This protectionist tax violated section 121 of the Constitution Act, 1867, the Constitution’s so-called “free trade” clause and long established case law from the Supreme Court of Canada that no province can erect tariff barriers to interprovincial trade.
Artisan Ales, which supplies Alberta with high-quality beers from other Canadian provinces, was greatly affected by this unconstitutional tax. Artisan Ales learned at 4:30 pm on October 27, 2015 that the tax on its products would be go up by 525 percent the following business day. As a result, Artisan Ales experienced a 60 percent drop in sales over the months that followed.
On July 28, 2016, the Government of Alberta announced further changes to its tax policy for beer. Effective August 5, 2016, brewers from all provinces would notionally pay the same tax rate. However, Alberta-based brewers can now receive a rebate “based on sales volumes of Alberta-made beer sold in the province.” The rebate, under the name of the “Alberta Small Brewers Development Program”, essentially refunds Alberta brewers the difference between the old and new tax rates.
This revised policy remains unconstitutional as it results in differential tax treatment between Alberta breweries and out-of-province breweries. The province is imposing an indirect tariff barrier to interprovincial trade.
Section 121 of our constitution was intended by the Fathers of Confederation to create a free trade zone within Canada. George Brown said, “[the] Union of all Provinces would break down all trade barriers between us, and throw open at once… a combined market of four million people.” And Alexander Galt believed that one of “the chief benefits expected to flow from confederation [is] the free interchange of the products of the labor of each province.”
THE AGREEMENT ON INTERNAL TRADE
Not only does Alberta’s tax for small brewers violate the Canadian constitution, it also violates the AIT. The AIT is a free-trade agreement between all Canadian provinces and the federal government 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. The AIT provides the CCF with an additional avenue to uphold the spirit of the constitutional guarantee of section 121 of the Constitution Act, 1867.
Alberta’s tax for small brewers violates the AIT because it is expressly designed and intended to favour Alberta beer over the beer of other provinces.
Ben Grant, the lawyer representing Artisan Ales in the AIT complaint, said of today’s announcement:
“Alberta has an obligation under the Agreement on Internal Trade to treat the beers of other provinces no less favourably than its own. And even though the government has made recent changes to its policy for small brewers, these changes simply repackage the same discriminatory policy under a new name.”
