Thank you, Mr. Chair, and members of the committee.
Spirits Canada is the only national trade association representing the interests of Canadian spirits manufacturers and marketers, and we appreciate the opportunity to appear before you today to share our views.
Let me start my comments with a very strong endorsement on behalf of our member companies for an FTA between Canada and Colombia. Canadian spirits manufacturers are found right across Canada--from Lethbridge, Calgary, and High River in Alberta to Gimli in Manitoba; Amherstburg, Brampton, Collingwood, Grimsby, and Windsor in Ontario; and LaSalle, Montreal, and Valleyfield in Quebec. Our world-renowned producers buy local grains, such as rye and corn, and transform them into highly prized spirits that are enjoyed by adults around the world.
We are, however, currently navigating very difficult circumstances. The near implosion of the American consumer market, for example, has had and is having a devastating impact on our local operations. The realized value of our exports to the U.S. in 2008 was nearly $55 million less than in the preceding year. With Canadian spirits producers exporting nearly seven of every ten bottles they make each year, exports are critical to the fiscal health of the Canadian spirits Industry.
So it is critical that we do what we can to further diversify our export base. While it is true that Colombia is not a large importer of Canadian spirits today, we believe it has future potential. In terms of overall spirits consumption, Colombia represents about the same volume potential as Mexico does to Canada—it exports over $1.5 million every year.
A number of years ago, several of our member companies identified Colombia as a potential new export opportunity, but one whose associated investment was not warranted without first achieving some changes in their beverage alcohol regulatory framework. Working closely with Canadian trade officials, we identified three key areas of market access improvement that would be needed for Canadian spirits, principally Canadian whisky—our signature product—and vodka to be competitive in Colombia. Those were recognition and protection of Canadian whisky and Canadian rye whisky as distinctive products, early elimination of Colombia's punitive 20% import customs tariff on spirits, and reform of Colombia's internal beverage alcohol taxation regime.
Allow me to very briefly explain the value and benefit and in fact the necessity of these elements. Formal recognition and protection for Canadian whisky provides security of investment, with such protection guaranteed by the Colombian federal government. That would be effective immediately upon ratification. That kind of protection affords Canadian whisky brand owners the confidence to invest in developing the Colombian market secure in the knowledge that they are not going to be abused by knockoff and counterfeit products that are going to trade on the established reputation of Canadian whisky.
At 20%, Colombia’s current import customs tariffs effectively render most Canadian spirits uncompetitive in the local market. By comparison, Canada eliminated its import tariffs on whiskies many years ago and imposes only modest import tariffs on vodka, gin, and rum, ranging from 5¢ to a little over 12¢ per litre of absolute alcohol. What this means is that a typical bottle of Canadian whisky entering Colombia would be subject to an import tariff of over $1.00 a bottle, while spirits entering Canada would only be subject to an import tariff of between 10¢ and 25¢.
It is also our contention that Colombia’s internal tax structure for beverage alcohol is constructed in such a manner as to afford protection to its local producers in breach of its international trade obligations under the WTO.
By way of example, Colombia imposes a substantially higher tax rate on spirits with an alcohol content greater than 35% by volume. By law, all Canadian whiskies and most other internationally traded spirits must be bottled at a minimum alcohol strength of 40%, while by practice most local Colombian spirits are bottled at just under the 35% threshold.
We are pleased that Canadian negotiators were very successful in achieving each of these three objectives in the agreement with Colombia. Article 212 of the agreement formally recognizes and protects Canadian whisky and Canadian rye whisky as distinctive products of Canada.
The agreement also requires Colombia to eliminate its customs tariffs for Canadian whisky and Canadian-made vodkas, the industry’s two primary interests, within 12 years of coming into force, with an accelerated provision should the U.S.-Colombia FTA be ratified within two years. Clearly a quicker elimination would have been preferred, but given the time that it takes to build brands in a marketplace, a 12-year phase-out is acceptable.
Finally, Annex 202 of the agreement also requires that Colombia’s measures related to the taxation of all beverages must be fully compliant with the country’s national treatment obligations within two years. We are pleased that Canadian trade negotiators were receptive to the industry’s interests and priorities and fully delivered on them. As a result, Canadian spirits manufacturers support the FTA text as negotiated as a net benefit for Canadian producers.
Thank you very much.
