Thank you, Mr. Chairman.
I'm Jan Westcott, and I'm the president and CEO of Spirits Canada. We're the only national trade association that represents the Canadian distilled spirits manufacturers.
I'm joined today by my colleague, C.J. Helie. We're pleased to appear before you today in support of a comprehensive economic and partnership agreement between Canada and India.
It's no surprise that consumer demand in our largest export markets—the United States, the EU, and Japan—is relatively weak due to broader economic challenges in these markets. Therefore, expanding and broadening export markets for Canadian spirits is critical to sustaining manufacturing jobs here in Canada at our facilities across the country.
Focused in the key regions of Alberta, Manitoba, Ontario, and Quebec, spirits production is also critical to hundreds of Canadian corn, barley, rye, and wheat farmers, as well as to thousands of small and medium-sized businesses that provide essential support services in such areas as packaging, logistics, professional services, and biotechnology.
Spirits exports represent annually over 65% of all Canadian beverage alcohol exports, and, we suggest, offer the best opportunity for future growth in strong spirits markets like India.
By federal law, all Canadian whiskies must be fermented, mashed, distilled, and aged in Canada, meaning that the opening of any new export market translates into economic activity here at home in Canada. We are perhaps one of the better examples of a very strong value-add product, where we take Canadian raw materials to a very highly prized finished product.
A comprehensive economic and partnership agreement with India would provide a huge opportunity to open what today is essentially a market that's closed to Canadian spirits. However, the key is that an agreement be comprehensive. We understand that India may seek to exclude trade in beverage alcohol reform from the scope of the final agreement. We therefore urge Canada to insist that real market access for spirits be a prerequisite for any agreement.
We say this because India's spirit market is estimated at some 250 million cases a year. To put that into perspective, the entire U.S. market for spirits is less than 200 million, and Canada's is less than 20 million. Therefore, 250 million cases is a tremendous opportunity.
Moreover, the spirits market in India is dominated by whiskies, something that we have some very unique experience in and a strong reputation. Canadian whiskies are, of course, the signature product of the Canadian spirits industry. Due to their versatility and mixability, Canadian whiskies are particularly appealing to consumers in many emerging markets, where people are keen on transitioning from local goods to western-style brands.
That said, despite a thriving and prosperous local spirits manufacturing industry, India continues to apply a range of quite protectionist measures that essentially make doing business in India cost prohibitive for Canadian businesses. The priority, therefore, in a trade agreement with India, from our perspective at least, is the elimination of the 150% import duty on spirits. Canada, for its part, eliminated most of its import tariffs on spirits some years ago, and those remaining—we still have a few—are well below 1%. We're talking about 150% versus 1%.
India's 150% import tariff rate is also well above the rates imposed by other less developed markets, such as China's at 10%, or Brazil's at 20%. Adding insult to injury, India also applies a special additional duty at a rate of 4%, which they apply on the base, including the 150% duty, raising the total import duties imposed on most Canadian spirits to 160%.
To put it bluntly, Canadian spirits manufacturers don't have the financial wherewithal to absorb a 160% import duty in order to penetrate the Indian market.
We are not naive as to the challenges that Canadian officials face in gaining real market access for Canadian spirits in an agreement. In addition to the elimination of the import and special additional duty, an agreement also needs to address the numerous Byzantine trade barriers at the state level. Not unlike our own situation here in Canada, primary constitutional authority for the sale and distribution of beverage alcohol in India rests with subnational governments.
Indeed, many of India's 28 states have adopted policies and measures, either directly or through their state trading enterprises, that significantly disadvantage imported products to the benefit of local producers.
The special additional duty I mentioned earlier, as an example, is intended to be refundable where states impose their own state-level taxes, but by design, the administrative procedures for reclaiming the duty in some states are so bureaucratic and so time-consuming that seeking due refunds is simply not cost-effective.
Some states require a liquor licence simply to transport product through the state, even if the product never enters that state's local markets. Some state-owned liquor monopolies' listing policies are so opaque that importers are never informed of why a listing has been denied.
Elimination of state-level non-tariff trade barriers is essential in order to achieve real market access for Canadian spirits. Canada's recent experience in negotiating CETA with the European Union, where provincial liquor board policies that discriminated in favour of domestic wines were front and centre, might provide a framework for addressing India's own discriminatory state measures.
Our recommendation in this regard is that full national treatment obligations be imposed on state-level alcohol policies and that any exemptions to this standard should be explicitly agreed to by the parties. It has to be spelled out.
Finally, Canadian spirits brand owners seek that within the text of the final agreement, India formally recognize and protect the terms “Canadian Whisky” and “Canadian Rye Whisky” as geographical indications of Canada. In major markets all over the world this is the nomenclature, and this is the recognition that Canadian whisky has and needs in order to protect its intellectual property. Such protection is essential in safeguarding industry foreign investment against our signature products.
In conclusion, we believe India offers a tremendous opportunity in trade for Canada, but we urge Canada to insist that real market access for spirits be part and parcel of any agreement.
Thank you for your attention.
