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TRADE RULES AND ALCOHOL:

AN UNHEALTHY MIX

Prepared by:

Michelle Swenarchuk

Counsel and Director of International Programmes

CANADIAN ENVIRONMENTAL LAW ASSOCIATIONL’ASSOCIATION CANADIENNE DU DROIT DE L’ENVIRONMENT

Prepared for the Pan American Conference

on Alcohol Policies

Brasilia 28-30 November, 2005

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THE WEB OF INTERNATIONAL TRADE

AGREEMENTS• GATT - GENERAL AGREEMENT ON

TARIFFS AND TRADE (1947)– trade in goods, standard-setting

• WTO - WORLD TRADE ORGANIZATION (1994)– goods, standard-setting, services, “trade-

related” intellectual property– 140+ countries

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THE WEB OF INTERNATIONAL TRADE AGREEMENTS, continued

• NAFTA - NORTH AMERICAN FREE TRADE AGREEMENT (1994)– goods, standard-setting, services, “trade-related”

intellectual property, investment– Canada, United States, Mexico

• CAFTA - CENTRAL AMERICAN FREE TRADE AGREEMENT (2005)– goods, standard-setting, services, “trade-related”

intellectual property, investment– Costa Rica, Dominican Republic, El Salvador,

Guatemala, Honduras, Nicaragua

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THE WEB OF INTERNATIONAL TRADE,

continued• BILATERAL AGREEMENTS

– Many in the Americas, including

• US-Chile

• US-Uruguay

• Canada-Chile

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2. FUNDAMENTAL INTERNATIONAL TRADE

RULES• NON-DISCRIMINATION PRINCIPLES:

National Treatment: foreign products and producers get “effective

equality” with domestic ones

Most Favoured Nation: all trading partner-countries get any trade advantage first provided to

one country

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Fundamental International Trade Rules

•State Enterprises and Monopolies

– must buy and sell without discrimination

between domestic and foreign

– must base purchases and sales solely on

commercial considerations

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QUANTITATIVE RESTRICTIONS

• Rules prohibit restrictions on quantities of imports or exports by any means;

– duties;– taxes;– quotas,– licences; or– other measures.

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•In Canada, this applies to provincial alcohol monopolies on imports of foreign liquors to the

province.

•Canada listed them in NAFTA negotiations to preserve them.

NAFTA extends this prohibition to services.

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3. GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)

• A WTO Agreement

•Covers all measures affecting services, meaning;

– laws, regulations, procedures, decisions, administrative actions, “or any other” type of government action.

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GATS (continued)• GATS exemption for services provided under

government authority is weak.

• Most favoured nation and transparency must be applied to all services.

• National treatment and market access provisions apply to those services listed by each government in 1994.

• Currently the focus of negotiations in the Doha Round of trade negotiations.

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4. INVESTMENT AGREEMENTS

• Several thousand bilateral investment agreements exist.

• Also in NAFTA and CAFTA

• Broad definition of investment and investor.

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•Powerful protection for foreign corporate investors, including alcohol producers.

•Broad definition of “expropriation” allowing direct investor-state lawsuits.

•Cases and threats have affected environmental and tobacco-control strategies.

INVESTMENT AGREEMENTS, continued

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5. HEALTH POLICY EXCEPTION

• Government may adopt measures “necessary” to protect public morals and health.

• In 12 of 14 trade disputes over domestic regulations, the challenged regulation was found not “necessary” by trade panelists.

• Not a reliable defence when measure is challenged.

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6. IMPLICATIONS FOR ALCOHOL REGULATION

POLICIES

• European integration treaties reduced alcohol control options in Scandinavia.

•Requirement to operate on a commercial basis restricts monopolies’ attempts to limit

alcohol supply

STATE MONOPOLIES

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Japan: shochu - gin, rum, brandy, whiskey

Chile: pisco - other foreign spirits with higher alcohol content

Korea: soju - imported spirits

A problem for “grandfathering” domestic practices and regulating foreign ones.

NATIONAL TREATMENT AND TAXATION

•Trade disputes have required three countries (Chile, Korea, Japan) to tax foreign products like domestic ones.

•Not only for “like” products, but for “directly competitive or substitutable” products.

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QUANTITATIVE RESTRICTIONS:

Policies countries were required to abandon

Germany:

•minimum alcohol rule (to prevent increase of low alcohol beverages

•Ban on beers not meeting purity requirements

Holland:•minimum price for gin

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Canada (Beer 1):

•Domestic beer sales in locations not available to imported beers;

•Domestic brewers (only) could deliver;

•Differential price mark-ups not due to additional selling costs to sell imports;

•Minimum prices for beer if they prevented imported beers from being sold more cheaply than domestic ones.

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United States (Beer II):

•Lower taxes on some US producers;

•Imports to be sold via in-state wholesalers;

•Higher licensing fees on imports than on domestic beer and wine;

•In-state wine sales permitted, but not imported wine;

•No selling imports at lower prices than “like” products from other US States;

•Listing practices giving imports less favourable treatment than local products.

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GATS SECTORAL COMMITMENTS

• Alcohol related services:– distribution (commission agents services,

wholesale trade, retailing, franchising and other services;

– advertising;– retail and wholesale sales.

• GATS market access rules prohibit limits on:– Numbers of service suppliers;– Numbers of service operations;– Participation of foreign capital.

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GATS SECTORAL COMMITMENTS

• Affects alcohol-control strategies of limits on:– retail outlets;– volumes of sales; or– total sales, even if the limits are applied to both domestic

and foreign sellers.

• Distribution services commitments by countries in the Americas:– Argentina, Brazil, Mexico, Panama, Peru, US, Canada

– Some limits on alcohol coverage by Canada and the United States.

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• Advertising services commitments by countries in the Americas:

– Argentina, Brazil, Dominican Republic, El Salvador, Honduras, Jamaica, Mexico, Panama, Peru, US, Venezuela.

– Five European countries exempted advertising on alcohol from GATS coverage:• Poland, Slovenia, Liechtenstein,

Switzerland, Bulgaria.

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Current GATS Negotiations

• Priority objectives for the World Spirits Alliance:

– Significant liberalization and, where possible, elimination of tariffs including the removal of ‘peak’ tariffs;

– Liberalization of non-tariff trade barriers;

– Liberalization of restrictions on services, including distribution and advertising;

– Enhanced measures to facilitate trade in distilled spirits;

– Improved certainty of legal protection for spirits with geographical indications.

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• GATS, domestic regulations and pressures for a “necessity test:”

– GATS negotiators suggest “restrictions/prohibitions on marketing and advertising” could be subjected to the “necessity test.”

• Other alcohol-control regulations which could be affected:

– licensing of alcohol facilities;

– limits on the numbers of alcohol outlets in a particular area;

– regulations on hours of operations; and

– training or qualifications of alcohol managers and staff.

•The EU is pressing countries to remove alcohol controls and restrictions.

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SUGGESTED RESPONSES FOR HEALTH OFFICIALS

•Become involved in trade policy formation.

•Research international trade constraints and your country’s position in current negotiations.

•Intervene in current GATS negotiations to prevent liberalization that undermines alcohol controls.

•Promote increased political oversight of trade negotiators to introduce balance in trade policy goals.

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SUGGESTED RESPONSES FOR HEALTH OFFICIALS

•Ally with the global organizations of people and governments working for trade policy reforms.

•Consider the negotiation of an international convention on alcohol control to bolster domestic protections in the event of trade-based challenges.