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

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

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

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

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

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

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

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.

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.

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.

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

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.

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.

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

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.

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

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.

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.

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.

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.

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.

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.

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

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.

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.