Uncorking Canada’s import measures on wine

It’s been a busy week in U.S.-Canada trade.

Softwood lumber is back yet again. Dairy is going forward as the first case under the U.S.-Mexico-Canada Agreement (USMCA). These disputes are getting media attention. But there’s a third case that isn’t grabbing headlines, even though the World Trade Organization (WTO) says it ended amicably this week.

The case, known by its WTO short title Canada-Wine, went for arbitration. This means there is no verdict to read and thus no account of what happened. Luckily, the European Union (EU) wrote a lengthy third-party submission, giving us a peek behind the curtain. As it turns out, Canada-Wine was far more interesting than anyone could have predicted.       

The U.S. actually filed Canada-Wine twice back in 2017, both times raising a single legal claim. The complaint said British Columbia made it easier for provincial wines to get more shelf space than other wines, including those from elsewhere in Canada, giving these wines the edge with consumers. The U.S. insisted this wasn’t legal. With strong WTO case law on its side, the U.S. got a sweetheart deal from Canada, formalized in a side letter to USMCA. In just over one page, Canada vowed that British Columbia would forever right its wrongful ways.

This sweetheart deal didn’t do anything for Australia, so Canberra filed its own case, one that went beyond distribution in British Columbia to include taxes in Ontario, Quebec and Nova Scotia. Still, even Australia’s version of Canada-Wine seemed entirely straightforward.

As it turns out, Canada-Wine has some neat moving parts. We only know this because the EU penned a 70-page third-party submission, offering a play-by-play. This lengthy write-up includes references to no fewer than 37 previous WTO cases. Why so much commentary for a dispute over national treatment? Two reasons.

First, the EU had a defensive liability. It likes things about Ontario’s regime, for instance, and spends a lot of time thinking out loud about how to help small wineries, including by giving them preferential shelf space. This gets wrapped up with a lengthy discussion of quality checks, and even geographical indications, hinting that the EU thinks it can do what Ontario did, but do it in a WTO-legal way. 

This is worrisome. Perfecting these measures, which are likely correlated with domestic versus foreign wines, will multiply the number of protectionist tools available to governments.

Second, the EU takes Canada to task for trying out a creative argument that could hurt the U.S. and the global economy more generally. Canada reasoned that even if the measures in dispute weren’t legal under the WTO, they are legal under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Since Australia is also a member of CPTPP, Canada insisted it wasn’t doing anything wrong and couldn’t be sued. The EU spent 13 paragraphs shredding this logic. 

This is a gift to the U.S., which lags far behind other countries in signing preferential trade agreements. The WTO can’t anchor these deals if it is undermined by them. This point has to be made by the appellate body, and soon. 

U.S.-Canada trade disputes are often deeper than most. Their political underpinnings are well known on both sides of the border. That’s why softwood lumber and dairy come across as being rehearsed. But Canada-Wine went off script. And it will be back, perhaps as EU-Wine.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University, a nonresident senior fellow at the Atlantic Council and host of the podcast TradeCraft.