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Legal issues in international trade (Final Take Home
Exam)

Synopsis on Canada-Import, Distribution and Sale of
Certain Alcoholic Drinks by Provincial Marketing Agencies

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Description
of the forum and the applicable dispute resolution process.

 Description of the forum: In this case United states had a
dispute with Canada over the imported beer under article XXIII:1 and for the
settlement of this dispute firstly in July 1990, United States had arranged
consulting group to discuss the matter with Canada but did not work to resolve
the issue and the for the settlement of this dispute United States had
requested to set up GATT panel under XXIII:2 article for analysing the issues
and resolved it. This GATT panel consisted of Chairman: Mr. Ephraim F. Haran
and members Mr. Alveus contestable and Mr. Jorge A. Vigano. These panel was
same for EEC and Canada dispute case related to some liquor board practices in
Canada. (Canada – import, distribution and
sale of certain alcoholic drinks by provincial marketing agencies, n.d.)

 Applicable Dispute Resolution Process: The established Panel had started
with preliminary procedural issues under which the panel had heard arguments of
plaintiff (United States) and defendant(Canada) based on different articles
which came under the general agreement between two countries. Then panel came
up factual analysis of the case. After the factual analysis by the panel, they
came up the conclusion that who was victim and who was guilty in this case with
some strong facts. Then at the end, made decision for this dispute settlement.

Description
of the facts of the case – who did what

As
I mentioned above this case is all about the dispute between United states
(Plaintiff) and Canada(Defendant). Before going to the case details, lets have
a look on some factual aspects of the Canadian liquor boards in all 10
provinces. In the Canada liquor boards are established by provincial laws and
their monopoly exist within the provinces borders to supply of alcoholic beverages.
Every province in Canada needs license to manufacture, distribute and sell of
beer from the directed provincial authority and there is an exception in case
of Prince Edward Island where manufacturing no provision for beer. In Canada
most of the provinces have access of privately owned and operated retail
outlets as well as brewery stores. While some situation is varied from province
to province, like in Alberta, unlisted products (domestic and imported) are
sold in licensed stores. Under vintage program in Ontario, listing is required
for all beer to sell in the province. On the other hand, Quebec; liquor board
does not handle provincial beer and they need permit from provincial authority
to brew, warehouse and distribute the beer. The retail price in Canadian
province consists of federal custom duties and taxes, provincial markups, to
the base price. It also varied from province to province. As in British
Columbia volume and percentage mark up are applied while on the other hand,
Volume levy is applied in Ontario. Four provinces (New Brunswick, Newfoundland,
Ontario and British Columbia) apply floor price and most provincial liquor
board charge cost of service which can be higher for import and domestic and it
depends on the condition.

Due
to the dispute both countries had provided sufficient data related to imports
and domestic sales of the beer, markup policies, cost of service policies and
other things which could affect the sales of Beer in Canada. After getting the
data, at the initial stage, GATT panel looked into EEC complaint which was done
against Canadian provincial liquor board biased practicing related to listing,
price marks up and availability of point of sale. After overlooking this
complaint Panel concluded that higher markups price for imported beer than
domestic beer can be justified under article II:4 and listing and delisting
practices concerns and availability of point of sale which was biased against
imported alcoholic beverages by state trading companies and opposite to article
XI:1. Then after Panel suggested to the parties for requesting Canada for
taking reasonable measures under Article II and XI of general agreement.in
December 1988, further an agreement made and which demonstrated that listing
and delisting of alcoholic beverages would be done on non-discriminatory
,transparent and normal commercial basis. Furthermore, under this agreement,
Canada needed to make pricing decision under GATT obligations. After the ECC
allegations over Canada, United States also argued with Canada that it failed
obligations of general agreement’s Article II: 4 and XI: 1 because of
discriminatory exercises in listing and delisting, markups and point of sale.
United States further had argued that Canada did not take reasonable measures
against these and in result USA gained impairment instead of any benefit.

In
reply Canada (defendant) also argued that United States had no rights to complain
Canada under 1988 panel report since it was not a complaining party.

Since
there was a close mutual relationship between practices and panel was unable to
make null and fair decision using these facts. Then panel asked both party
United States and Canada to give their claims on different grounds and so that
after reviewing all of these panel could give a fair conclusion with specific reasons.
Now there are description of relevant issues and dispute are as follow and
decision which was made by panel is at the end.  (Canada – import, distribution and sale of
certain alcoholic drinks by provincial marketing agencies, n.d.)

 

 

 

Description of relevant Issues

As United states argued about the
10 provincial liquor boards of Canada which led to monopoly on the importation,
distribution and sale of beer. Out of these some major issues which united
states faced were listing and delisting practices related to imported beer,
restriction on access to point of sale and called these as discriminatory practices
and some other issues were restriction of private delivery of imported beer,
special charges imposed on imported beer, failure of Canada to obligate article
XXIV:12 of general agreement, tax imposed on beer container in some provinces
and minimum price requirement imposed on beer were unfair with article XI:1.  (Canada –
import, distribution and sale of certain alcoholic drinks by provincial
marketing agencies, n.d.)

 

What
is dispute about? A discussion of relevant rule of the law

As United states had argued issues
which were mentioned above and now will be explained in detailed as followed:

1.      Listing
and delisting Practices:
United states argued that Canada was not following the general agreement’s XI
article and hence listing and delisting practices of imported beer in the
Canadian liquor stores of all provinces were unfair and imported beer underwent
a lot of formalities and conditions than the domestic beer. United states felt this
was a discriminatory practice by all province liquor boards in Canada. Another argument
was done by united states against Ontario liquor board was about to limit the
size of imported beer to six-pack size while listing the different sizes to
domestic beer and this practice was also not consistent under article III:4 of
General agreement. (Canada – import, distribution and
sale of certain alcoholic drinks by provincial marketing agencies, n.d.)

2.     
Restriction on access to the point
of sale: United
states also argued that there was a lot of restrictions on the access of sale
of imported beer except Prince Edward Island and Saskatchewan. Reason behind
this was that domestic brewers had authority to set up private retail stores or
had accessibility of retail store where imported beer could not be sold. For
example, in Quebec, domestic beer could be sold in 11,238 licensed grocery
stores and on the other hand imported beer had access to the point of sale in
337 liquor board stores. These restrictions were not consistent with Canada’s
obligation under article XI:1.  (Canada – import, distribution and
sale of certain alcoholic drinks by provincial marketing agencies, n.d.)

3.     
Restrictions on private delivery: As liquor board of Canadian
provinces had applied two systems for the beer delivery which were retail
stores and other point of sale. United states argued that liquor board in
Canada had biased system which means except Prince Edward Island and
Saskatchewan private delivery not authorized to imported beer, but could
domestic beer and united states have felt not consistent with the general
agreement’s article III:4.  (Canada – import, distribution and
sale of certain alcoholic drinks by provincial marketing agencies, n.d.)

4.     
Differential Mark-ups: United states was disagreeing with
the higher markups for imported beer as compared to domestic beer. On the other
hand, Canada was arguing that under article III:2 transportation cost,
marketing expenses and internal taxes imposed on imported products.  (Canada –
import, distribution and sale of certain alcoholic drinks by provincial marketing
agencies, n.d.)

5.     
Minimum Price: As Canada set prices for imported
and domestic beer to be minimum in New Brunswick, Newfoundland and for imported
and domestic draught beer in British Columbia. United states had issued with
this minimum price practices because it felt that they barred the importation
of beer and called it unfair with general agreement’s article XI:1. On the
other hand, Canada believed that minimum prices practices were applicable
equally to imported and domestic beer and was consistent with article III:4 of
general agreement.  (Canada – import, distribution and
sale of certain alcoholic drinks by provincial marketing agencies, n.d.)

6.     
Taxes on beer containers: As Canada imposed charges on all
imported and domestic beverage alcohol containers in Manitoba and Ontario and
it was not part of deposit system and in Nova Scotia charge was imposed on non-refillable
containers (domestic and imported). Here united states claimed that these
charges on container were unfair with article III as these charges were imposed
on imported beer which could not be delivered by brewers to the points of sale.
 (Canada – import, distribution and
sale of certain alcoholic drinks by provincial marketing agencies, n.d.)

7.     
Notification Procedures for new
practices: United
states argued that British Columbia’s liquor board had shared information to
domestic brewers related to pricing policy on prior basis as compared to united
states officials and Ontario liquor board did an announcement on pricing policy
just 5 days prior it entered existence. Both these announcements made by Canadian
provinces were unfair with article X of general agreement.  (Canada –
import, distribution and sale of certain alcoholic drinks by provincial
marketing agencies, n.d.)

8.     
Obligations under Article XXIV:12: As article XXIV:12 was applicable
to all the provinces under which provincial liquor boards need to take reasonable
measures for the imported beer. But united states blamed Canada that it failed
to its obligations under this article of the general agreement.  (Canada –
import, distribution and sale of certain alcoholic drinks by provincial marketing
agencies, n.d.)

 

Decision of the panel with analysis
and reason behind the decision

After
the finding of the case and analysis the dispute among two Countries related to
importation of beer in the Canadian provinces. Panel concluded the case in
different parameters of the case and gave the decision in favour of USA in most
of parameters as compared to Canada which are below:

·        
United
States was not able to prove its claim regarding listing and delisting
practices by Canada in its provinces apart from Ontario which was unfair with
article XI:1 of the general agreement. Because United states had requested to
panel on 17th July 1991 not to respite its proceeding and then panel
did not schedule any meeting with other parties to allow united states other
proof related to this case and hence panel concluded this.  On the other hand, panel analysed that as such
six-pack size was applicable as a listing requirement, but it was available in
certain liquor board stores but not the domestic beer. Hence special provision
for imported beer to be sold in the six-pack size was unfair with article III:4
of the general agreement panel concluded above decision.  (Canada –
import, distribution and sale of certain alcoholic drinks by provincial
marketing agencies, n.d.)

·        
As
Article III:4 was also applied to state trading companies when the monopoly of
importation and monopoly of distribution combined in domestic markets and panel
concluded that restrictions on the access of point of sale for imported beer
were inconsistent with article III:4 or XI:1 of the general article except
Saskatchewan and Prince Edward Island. More over, as the restrictions were made
on the private delivery of imported beer in Alberta, British Columbia, Manitoba,
New Brunswick, Newfoundland, Nova Scotia, Ontario, and Quebec and panel
analysed that the monopoly market import and sales of beer needs to carry out
proper  functions and it did not have aim
to prohibit the imported beer private 
delivery without any conditions which showed discriminatory act by the
given provinces and concluded that  these
were not fair under article III:4 of the general agreement.  (Canada –
import, distribution and sale of certain alcoholic drinks by provincial
marketing agencies, n.d.)

·        
In
this case related to differential markups issues which were raised by united
states and panel had analysis these issues as well and they found that in 7 out
of 10 provinces of Canada, differential markups were being calculated on cost
of service basis and which did not meet the mentioned principles in general
agreement and liquor board had mentioned some additional costs which were not
associated with marketing charges of the imported beer. In the New Brunswick
and Newfoundland, they introduce differential mark ups but in New Brunswick
again this differential added cost which was not related to the marketing to
the import of beer while in Newfoundland added markups’ details were not
provided.

Therefore, panel came to this
decision that except Prince Edward Island (where no differential markup was
added due to no beer was brewed) all the differential markup on cost of service
charged by liquor board were not consistent under the Article II:4 of the
general agreement.  (Canada – import, distribution and
sale of certain alcoholic drinks by provincial marketing agencies, n.d.)

·        
Panel
also noticed that under Article III:2 internal tax which was applied to
imported goods and duties which is already calculated on these imported
products and hence panel decided that Canada could fair under the article III:2
of general agreement and collected the provincial and federal sales taxes on
the behalf of the duty paid amount of the imported beer.  (Canada –
import, distribution and sale of certain alcoholic drinks by provincial
marketing agencies, n.d.)

·        
The
Panel analysed about the minimum pricing concern and found that maintenance by
import and sales monopoly of a minimum prices for import beer at a stage at
which a direct competing and higher the domestic product price was supplied,
and this exercise was not fair under the General Agreement Article III:4 to the
limit that they were constant in price at which domestic beer was distributed.  (Canada –
import, distribution and sale of certain alcoholic drinks by provincial
marketing agencies, n.d.)

·        
Panel
further concluded that taxes on beer containers which were imposed by Manitoba,
Nova Scotia and Ontario were consistent with article III:2 of the General
agreement because panel analysed that it was not the charge on the container as
united stated claimed about this.  (Canada – import, distribution and
sale of certain alcoholic drinks by provincial marketing agencies, n.d.)

·        
As
the panel noticed about the notification procedures for new practices they
found that under the article X in general agreement, there was not necessity to
make information which affected trade to domestic and foreign goods supplier at
the same time and there was not required the parties to release trade’s norms
and condition in advance of their entry into existence. Therefore, panel
conclude that identified measures were not unfair with general agreement’s
Article X.  (Canada – import, distribution and
sale of certain alcoholic drinks by provincial marketing agencies, n.d.)

·        
After
hearing from both sides panel then moved to analyse the obligations under
Article XXIV:12 that if only Canada had showed some seriousness and convincing
effort to maintain law by the provincial board under the general agreement. In
the first review that panel found that Canada’s claim was exposed related to
reasonable action to removes restrictions on the access to the point of sale
for beer and concluded that Canada had disqualified to execute its obligations
of general agreement’s Article XXIV:12.  (Canada – import, distribution and
sale of certain alcoholic drinks by provincial marketing agencies, n.d.)

References

Canada – import,
distribution and sale of certain alcoholic drinks by provincial marketing
agencies. (n.d.). Retrieved from SICE:
http://www.sice.oas.org/dispute/gatt/91ALCOO4.asp
Canada – import,
distribution and sale of certain alcoholic drinks by provincial marketing
agencies. (n.d.). Retrieved from SICE:
http://www.sice.oas.org/dispute/gatt/91alcoho.asp
 

 

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