TRADE RULES AND ALCOHOL:

1. TRADE RULES AND ALCOHOL: Prepared for the Pan American Conference on Alcohol Policies Brasilia 28-30 November, 2005 AN UNHEALTHY MIX Prepared by: Michelle Swenarchuk Counsel and Director of International Programmes CANADIAN ENVIRONMENTAL LAW ASSOCIATION L’ASSOCIATION CANADIENNE DU DROIT DE L’ENVIRONMENT

2. 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

3. 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

4. THE WEB OF INTERNATIONAL TRADE, continued • BILATERAL AGREEMENTS • Many in the Americas, including • US-Chile • US-Uruguay • Canada-Chile

5. 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

6. 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

7. QUANTITATIVE RESTRICTIONS • Rules prohibit restrictions on quantities of imports or exports by any means; • duties; • taxes; • quotas, • licences; or • other measures.

8. NAFTA extends this prohibition to services. • 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.

9. 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.

10. 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.

11. 4. INVESTMENT AGREEMENTS • Several thousand bilateral investment agreements exist. • Also in NAFTA and CAFTA • Broad definition of investment and investor.

12. INVESTMENT AGREEMENTS, continued • 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.

13. 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.

14. 6. IMPLICATIONS FOR ALCOHOL REGULATION POLICIES STATE MONOPOLIES • European integration treaties reduced alcohol control options in Scandinavia. • Requirement to operate on a commercial basis restricts monopolies’ attempts to limit alcohol supply

15. 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. 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.

16. 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

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.

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

24. 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.

25. 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.