Here's the latest WTO complaint, brought by the U.S. against various British Columbian measures governing the sale of wine in grocery stores:
The BC wine measures provide advantages to BC wine through the granting of exclusive access to a retail channel of selling wine on grocery store shelves. The BC measures appear to discriminate on their face against imported wine by allowing only BC wine to be sold on regular grocery store shelves while imported wine may be sold in grocery stores only through a so-called “store within a store.” These measures are reflected in legal instruments that include, but are not limited to, the following, operating separately or collectively:
- Policy Directive No. 15-01, issued by the BC Liquor Control and Licensing Branch, re: Liquor Policy Review Recommendations #19 and 20: Phased-in Implementation of Liquor in Grocery Stores, dated February 26, 2015;
- BC Liquor Control and Licensing Act ([RSBC 1996] Chapter 267);
- B.C. Reg. 42/2015, deposited March 17, 2015, under the Liquor Control and Licensing Act [section 84] and the Liquor Control and Licensing Amendment Act, 2014 [section 48]. Order in Council 121/2015, approved and ordered March 16, 2015. The British Columbia Gazette, Part II, Volume 58, No. 6 (March 24, 2015);
- BC Liquor Control and Licensing Regulation, B.C. Reg. 244/2002, deposited August 12, 2002, O.C. 792/2002, effective December 2, 2002; and
- “Wine Store Terms and Conditions, A Guide for Liquor Licenses in British Columbia,” BC Liquor Control and Licensing Branch publication, updated September 2015;
as well as any amendments or successor, replacement, or implementing measures.
These measures appear to be inconsistent with Canada’s obligations pursuant to Article III:4 of the GATT 1994 because they are laws, regulations, or requirements affecting the internal sale, offering for sale, purchase, or distribution of wine and fail to accord products imported into Canada treatment no less favorable than that accorded to like products of Canadian origin.
I have two comments/questions on this.
First, what is the internal procedure for filing a complaint like this a couple days before a new administration is coming into power? Do the Obama trade folks coordinate with the Trump trade folks? Did the Trump folks say something along the lines of, yes, please file that because it's a case we want to pursue? Or did the Obama folks just file for their own reasons, in the hopes that the Trump people would pursue it? The issue of the transition of trade policy from one administration to the next is a pretty obscure one, but some political scientist out there might want to consider studying this.
Second, this complaint involves sub-national measures, so maybe we'll get some explanation of what GATT Article XXIV:12 means. This provision says:
Each contracting party shall take such reasonable measures as may be available to it to ensure observance of the provisions of this Agreement by the regional and local governments and authorities within its territories.
Not much has been said about this provision in the WTO era. There are some GATT cases, but that was a very different time for legal interpretation. Two of the GATT cases involved, coincidentally, Canadian provincial alcohol distribution measures. Here's an excerpt from a 1988 panel report in a complaint brought by the EC:
4.31 The Panel then turned to the second question raised in its terms of reference, namely "whether Canada has carried out its obligations under the General Agreement".
4.32 The Panel noted that the main question related to the interpretation of Article XXIV:12 which states: "Each contracting party shall take such reasonable measures as may be available to it to ensure observance of the provisions of this Agreement by the regional and local governments and authorities within its territory".
4.33 The Panel noted that there was no dispute that the provincial liquor boards were "regional authorities" within the meaning of Article XXIV:12.
4.34 The Panel noted that Canada had taken the position that the only authority that could judge whether all reasonable measures had been taken under Article XXIV:12 was in this case the Canadian government. While noting that in the final analysis it was the contracting party concerned that would be the judge as to whether or not specific measures could be taken, the Panel concluded that Canada would have to demonstrate to the CONTRACTING PARTIES that it had taken all reasonable measures available and that it would then be for the CONTRACTING PARTIES to decide whether Canada had met its obligations under Article XXIV:12.
4.35 The Panel noted that the Government of Canada considered that it had already taken such reasonable measures as were available to it to ensure observance of the provisions of the General Agreement by the provincial liquor boards. The Panel, however, also noted that the efforts of the Canadian federal authorities had been directed towards ensuring the observance of these provisions as they themselves interpreted them and not as interpreted in these findings. The Panel therefore concluded that the measures taken by the Government of Canada were clearly not all the reasonable measures as might be available to it to ensure observance of the provisions of the General Agreement by the provincial liquor boards, as provided in Article XXIV:12 and that therefore the Government of Canada had not yet complied with the provisions of that paragraph. The Panel was of the view, however, that in the circumstances the Government of Canada should be given a reasonable period of time to take such measures to bring the practices of the provincial liquor boards into line with the relevant provisions of the General Agreement.
There was also a later panel report in a complaint brought by the U.S. on similar issues:
5.35 The Panel noted that the parties to the dispute agreed that the provincial liquor boards were "regional authorities" within the meaning of Article XXIV:12 of the General Agreement and that this Article was therefore applicable to all the provincial practices at issue. The Panel noted that the United States had claimed that Canada had failed to meet its obligations under Article XXIV:12 of the General Agreement, namely to take "such reasonable measures as may be available to it to ensure observance of the provisions of the Agreement" by the provincial liquor boards. The United States considered that an example of a reasonable measure available to Canada was the implementing legislation for the Canada/United States Free Trade Agreement, under which the Canadian federal authorities had the power to promulgate regulations relating to the internal sale and distribution of wines and spirits to be applied selectively to individual provinces. Canada considered that it had taken, and was continuing to take, such reasonable measures as might be available to it to ensure observance of the provisions of the General Agreement by the liquor boards of its provinces. However, what was available and reasonable had to be judged ultimately in the domestic legal and political context and therefore by the government of Canada and not by the CONTRACTING PARTIES.
5.36 The Panel examined these arguments in detail and found the following. In connection with the last point raised by Canada, the Panel recalled that the 1988 Panel had indeed noted "that in the final analysis it was the contracting party concerned that would be the judge as to whether or not specific measures could be taken". However, at the same time that Panel had concluded "that Canada would have to demonstrate to the CONTRACTING PARTIES that it had taken all reasonable measures available and that it would then be for the CONTRACTING PARTIES to decide whether Canada had met its obligations under Article XXIV:12". The Panel further noted that Article XXIV:12 was not an exception to other rules of the General Agreement; it merely qualified the obligation to implement the provisions of the General Agreement in relation to measures taken by regional and local governments and authorities. Consequently, the provisions of the General Agreement were applicable to measures by regional and local governments and authorities notwithstanding Article XXIV:12. This followed clearly from the obligation set out in this provision "to ensure observance of the provisions of this Agreement" by such governments and authorities because a provision could only be "observed" by a government or authority if it was applicable to it.
5.37 Taking into account these considerations, the Panel proceeded to examine whether Canada had demonstrated that it had taken all reasonable measures available with respect to the different practices which the Panel had found to be contrary to the General Agreement. The Panel considered that, for this purpose, Canada would have to show that it had made a serious, persistent and convincing effort to secure compliance by the provincial liquor boards with the provisions of the General Agreement. The Panel first reviewed Canada's claim that it had taken reasonable measures to eliminate restrictions on access to points of sale for beer, which the Panel had found to be inconsistent with the General Agreement. It recalled that the 1988 Panel had already concluded that "the availability of points of sale which discriminate against imported alcoholic beverages were restrictions made effective through state-trading operations contrary to Article XI:1". As a result of that finding the CONTRACTING PARTIES had requested Canada to take "such reasonable measures as may be available to ensure observance of the provisions of Article XI of the provincial liquor boards". After reviewing all the information and documentation before it, including the statement made by Canada (see paragraph 4.80 above), the Panel came to the conclusion that, in spite of that request made by the CONTRACTING PARTIES in 1988, Canada had not demonstrated that it had made serious, persistent and convincing efforts to secure elimination of restrictions on points of sale for beer. These discriminatory practices had not been dealt with in the agreement reached with the EEC subsequent to the adoption of the 1988 Panel report, nor had they been specifically addressed in the interprovincial agreement designed to achieve an integrated market for Canadian beer. The Panel therefore concluded that Canada had failed to comply with its obligations under Article XXIV:12 of the General Agreement with respect to availability of points of sale.
5.38 The Panel then turned to the question of private delivery and to its finding in paragraph 5.16 above to the effect that most of the practices of the Canadian provincial liquor boards relating to private delivery contravened the provisions of Article III:4 of the General Agreement. It recalled that, contrary to other practices of the provincial liquor boards, such as restrictions on points of sale and differential mark-ups, the restrictions on private delivery had not been a subject of dispute before the 1988 Panel. The Panel noted that the efforts of the Canadian federal authorities had been directed towards ensuring the observance of the provisions of the General Agreement relating to private delivery as they themselves interpreted them and not as interpreted in the Panel's findings. It therefore concluded that the measures taken by the Government of Canada in this respect were clearly not all the reasonable measures as might be available to it to ensure observance by the provincial liquor boards of the provisions of the General Agreement relating to private delivery, as provided in Article XXIV:12 and that therefore the Government of Canada had not yet complied, in this respect, with the provisions of that paragraph. The Panel was therefore of the view that, in these circumstances, the procedure suggested by the 1988 Panel should be followed also in this case, namely that the Government of Canada should be given a reasonable period of time to take measures to bring the practices of the provincial liquor boards relating to private delivery into line with the relevant provisions of the General Agreement. The Panel considered that, pending the elimination of such discrimination, the liquor boards should in no case levy charges for the delivery of imported beer higher than the costs actually incurred by them.
5.39 The Panel then turned to the differential mark-up practices of the provincial liquor boards and to its finding in paragraph 5.21 above, that these practices were inconsistent with Article II:4 of the General Agreement. It noted that, as a result of the agreement between the European Communities and Canada and of the interprovincial agreement, the liquor boards had accepted to eliminate discriminatory pricing practices on beer (both domestic and imported), not later than 31 December 1994. It recalled, in this context, the last sentence of the Note Ad Article III:1, which indicated that the term "reasonable measures" could be interpreted to permit the elimination of inconsistent measures "gradually over a transition period, if abrupt action would create serious administrative and financial difficulties". Since the CONTRACTING PARTIES had already requested Canada in 1988 to take reasonable measures to ensure that differential mark-ups were not applied contrary to the provisions of Article II:4, the Panel asked itself whether the provincial liquor boards encountered administrative and financial difficulties which could justify a transition period of more than six years to ensure the application of differential mark-ups in full compliance with the 1988 Panel report. This was clearly not the case: as far as administrative practices were concerned, the Panel had already noted that most provincial liquor boards had introduced a system of cost-of-service charges (in addition to a uniform mark-up); any financial difficulties could be resolved by increasing the mark-up uniformly for both imported and domestic beer. By agreeing, in 1991, to become party to an agreement which sanctioned postponement until the end of 1994 of a practice which the CONTRACTING PARTIES had found in 1988 to be inconsistent with the General Agreement, the Government of Canada could hardly claim that it had taken a reasonable measure in compliance with the CONTRACTING PARTIES' request. The Panel therefore concluded that Canada had not made serious, persistent and convincing efforts to secure elimination of discriminatory mark-up practices and that it had not taken all the reasonable measures as might be available to it to ensure observance by the provincial liquor boards of the provisions of Article II:4 of the General Agreement. The Panel therefore found that with respect to provincial liquor board mark-up practices Canada had failed to comply with its obligations under Article XXIV:12.
5.40 Finally, with respect to minimum prices imposed by a number of provincial liquor boards, which this Panel had found to be inconsistent with Article III:4 of the General Agreement, but which had not been before the 1988 Panel, the Panel found it appropriate to follow the procedure adopted by the 1988 Panel as outlined in paragraph 5.38 above and to propose that the Government of Canada should be given a reasonable period of time to take measures which would lead to an elimination of this practice.
I would guess that Canada will make some argument under this provision in the wine case, if it goes ahead. When does a government pass up an opportunity to make an argument in its defense?
But I'm not at all sure how the arguments and reasoning will go. Most likely, there would first be a detailed analysis of what the government of Canada actually did in this regard, that is, what measures did Canada take to "ensure observance" of the GATT by the B.C. government. But how would a WTO panel and the Appellate Body apply the "reasonable measures" standard to these measures? There's a bit of guidance above ("serious, persistent and convincing efforts" seems to be a key phrase), but you can imagine that it will be expanded upon quite a bit through the argumentation and reasoning we see in modern cases.
