TRADE RULES AND ALCOHOL AN UNHEALTHY MIX Prepared

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 1

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, “traderelated” intellectual property – 140+ countries 2

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, 3 Honduras, Nicaragua

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

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 partnercountries get any trade advantage first provided to one country 5

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 6

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

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. 8

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. 9

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. 10

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

INVESTMENT AGREEMENTS, continued • Powerful protection 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. 12

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. 13

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 14

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. 15

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 16

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. 17

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. 18

GATS SECTORAL COMMITMENTS • Alcohol related services: – distribution (commission agents services, wholesale trade, retailing, franchising and other services; – advertising; – retail and wholesales. • GATS market access rules prohibit limits on: – Numbers of service suppliers; – Numbers of service operations; – Participation of foreign capital. 19

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. 20

• 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. 21

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. 22

• 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. 23

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. 24

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. 25