International Trade Committee on Dec. 10th, 2013

[Voices]

Oh, oh!

[Ed Holder, Conservative, London West, ON]

I was thinking about that and as I was thinking about my favourite habit, but unlike some—no disrespect, Mr. Williams—it is not “drugs”.

[Voices]

Oh, oh!

[Ed Holder, Conservative, London West, ON]

I'm going to focus some of my comments on Mr. Westcott's testimony if I could, just so I can understand. I think I understand your industry modestly but that's more of an internal perspective.

You talked about the growth of the industry, notwithstanding excise taxes and tariffs and the like. I'm particularly interested in the export components. Can you just give us a sense of where the focus of your exports is, as a percentage, to which countries? Just give me the top half dozen or five.

[C.J. Helie]

The U.S. is obviously our biggest export market at just over 80%. The EU as a group is number two. Then there's Japan, Australia, and Russia. Those would be our top five or six export destinations.

[Ed Holder, Conservative, London West, ON]

You're not bringing vodka into Russia yet, are you?

[C.J. Helie]

No, but they are moving to brown sprits in a big way.

[Ed Holder, Conservative, London West, ON]

So you said the CETA countries are number two, and obviously with the proximity to the border, it makes practical sense that the United States would be your country of choice. What might you imagine, if you could help me understand, how this CETA deal will improve exports to the EU as a volume or percentage standpoint? You can pick whatever timeframe. I'm trying to get a sense of why this matters so much to you.

[Jan Westcott]

It matters for two reasons. One, as we've indicated, is that we have identified some parts of the European Union where there is going to be greater opportunity for us.

Let's be honest: some cultures are more into beer and some cultures are more oriented to wine. Many of the former Soviet bloc countries are now free-standing countries and are primarily spirits-oriented societies. That's their culture, so our ability to sell them our products is a lot easier than us going to countries that are predominantly oriented in different directions. We see some significant opportunity. At one point, Slovenia, a relatively small country, was one of the fastest-growing markets for Canadian whiskey anywhere, a small base, but it was growing. We see real opportunity.

Just as I said that these kinds of agreements bring discipline to our own internal mechanisms in Canada, we see an opportunity for similar disciplines to be strengthened in Europe. Europe isn't homogenous, right? Every place isn't the U.K., and every place isn't Germany. They have differences, and we see some opportunities to improve the security of investments that people make in these different places.

Those would be, I would say, the two things that we see as opportunities, and yes, we expect that we will see more volume of Canadian spirits going there. It's going to be predominantly Canadian whisky.

[Ed Holder, Conservative, London West, ON]

You surprised me when you mentioned in your commentary, Mr. Westcott, that the conversion of certain liquor board fees from an ad valorem to a flat rate would help your higher-premium brands. What I'm trying to understand is how CETA makes that happen.

[Jan Westcott]

As I understand it, trade negotiations are about trade-offs. You get something, the other guys get something.

One of the issues going forward for Europe for a long time has been the manner in which liquor boards recover what they call import “cost of service” differentials; there are some services that liquor boards provide to import products they don't provide. It's the basis on which they calculate those fees. They have been calculated as a percentage of price, which has tended to drive them up.

Liquor boards have undertaken audits that have established the cost of those things, and now we're going to move to a fee that more accurately reflects those costs. On more expensive products, if you have a price-based charge, you're going to pay more. As we convert to a flat fee, that should make those products more attractive or mitigate in some high-priced products price increases that consumers might have seen.

[Ed Holder, Conservative, London West, ON]

I was surprised you hear you say in your testimony that you would imagine that, as a result of CETA, there would be more bulk alcohol, I'll say, sourced in Europe but bottled in Canada. Is that happening much at all? Why would you imagine that would be increased through CETA?

[C.J. Helie]

Under the federal Importation of Intoxicating Liquors Act, we cannot import bulk spirits for other than blending and flavouring purposes. Under CETA, there'll be an exception made: that if you're importing bulk spirits from Europe, you can bottle it as is without adulterating it.

For instance, Scotch whiskey doesn't want to be used as a flavouring component. It wants to be bottled as Scotch whiskey. If a company here finds that there's a competitive advantage to importing bulk Scotch and bottling and selling it here, they can do that under CETA, because of CETA.

[Jan Westcott]

Which means that we're going to buy the bottles here, which means the plants are going to run more efficiently...on and on.

[Ed Holder, Conservative, London West, ON]

Just to be clear, you've said that except for blending purposes, that has not been allowed to happen to this point.

[C.J. Helie]

That's right. That's under the federal Importation of Intoxicating Liquors Act.

[Ed Holder, Conservative, London West, ON]

You also talked in terms of CETA putting greater transparency and more discipline into the marketplace. I wasn't sure exactly what that meant. Could you clarify that for me, please?

[Jan Westcott]

We have liquor boards in Canada. Those are classed as “state trading enterprises”. For those operations, there has been a history—not just in Canada, but in many places in the world—that because they're not normal commercial operations with competitors, the perception has been that they haven't always treated products from outside fairly.

One of the fundamental principles of trade is national treatment. You treat imported goods no less favourably than your own. Every time we sign a trade agreement, assuming that it's a favourable agreement, it's an opportunity to make sure that those state trading enterprises are operating in reasonable, fair, and transparent ways—transparency is critical—so that our trading partners know they're getting fair treatment in Canada. Just as when we export our whisky to countries, we want to know that Canadian whisky is getting the same opportunity in that marketplace, and that our investments are being given the same respect as local domestic products, whether they be whiskeys or other spirit products.

[Ed Holder, Conservative, London West, ON]

Sorry, we can't talk about drugs, but thank you both.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We're through our first round. We'll have two more questioners. We're going to cut our time a little bit tighter so that we can get the next panel, which has three panellists full-time.

Mr. Masse, the floor is yours for three minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you, witnesses, for being here.

Mr. Westcott, you mentioned that there are going to be trade-offs, or winners and losers with this agreement. Who in your industry will face increased competition and have to adjust to this agreement? Does this also apply to the vintagers with wines and the wine industry?

[Jan Westcott]

I don't think I necessarily said there are going to be losers. We see this as an enhanced opportunity for us in the spirits business. We have a fundamental belief in competition. We think competition improves things. It makes things better. It focuses people on the customer. There's pretty strong penetration of European products into Canada already. I don't see that being tremendously enhanced by this opportunity. Most of the things we sought were put into effect in the 2004 wine and spirits agreement.

The fact is, every time we sign another agreement, it's like a staircase. It's another step up that makes progress. It allows you to have more aspirations on the next one.

[Brian Masse, NDP, Windsor West, ON]

In terms of job growth, what do you expect? In Windsor, which I represent, Hiram Walker used to employ 3,000 people. That's where my grandfather actually worked. Now they're down to 300 people. What can they expect in terms of growth, through this agreement?

[Jan Westcott]

We're already seeing an increase in exports. Seventy per cent of what we make in this country leaves Canada; we don't have a big enough market to support it. We have a relatively mature domestic market. People aren't drinking a lot more alcohol nor do we necessarily want them to be drinking a lot more alcohol. We have a mature market here. The opportunities for us to grow the business have to come from elsewhere.

We believe in trade. What I can tell you is that if we don't do these kind of deals, we're going to close distilleries. We've closed 50 distilleries over the last 30 to 40 years. Canada has very high tax rates on spirits, probably the highest in the world.

[Brian Masse, NDP, Windsor West, ON]

Isn't that the number one issue for the industry right now?