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How 354 bottles of beer could crack open Canada’s internal trade barriers

Karen Graham is Principal, KMG Strategy, a Vancouver-based public policy consultancy

Perhaps as an early nod to Canada's 150th birthday, Canada's Premiers released the Canadian Free Trade Agreement (CFTA) in April, setting new arrangements for inter-provincial treatment and recognition of goods, services and credentials. Unfortunately, the provinces have again failed to incorporate liquor: It is expressly excluded from the CFTA, as it was from the preceding Agreement on Internal Trade.

But the provinces may soon be forced to address the free flow of liquor. In December, the Supreme Court of Canada (SCC) will hear an appeal of the New Brunswick Provincial Court's decision in R. v. Comeau: 354 bottles of beer may just disrupt interprovincial trade in liquor – and other regulated sectors.

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In October, 2012, Gerard Comeau of Tracadie, N.B., purchased 354 bottles of beer and three bottles of spirits in Quebec and drove them back into New Brunswick. In acquitting Mr. Comeau, the New Brunswick Provincial Court held that section 134(b) of the Liquor Control Act represents a trade barrier and therefore violates section 121 of the Constitution Act (1867). In arriving at his decision, Justice LeBlanc asserted that the "very nature of the Canadian federation is at stake." The New Brunswick Court of Appeal declined to hear the Crown's appeal and New Brunswick subsequently appealed to the SCC.

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Section 121 of the Constitution states that "All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces." The question now before the SCC is whether section 121 of the Constitution means that goods produced within one Canadian province must be admitted into each of the other provinces free of duties or charges (limited to tariff barriers, the precedent for 95 years) or admitted free, (including non-tariff barriers). In an original interpretation, the New Brunswick Provincial Court found that section 121 ought to be interpreted as admitted free, no caveats. Justice LeBlanc relied on new evidence concerning the context and intentions of the framers of Canada's 1867 Constitution, especially concerning the distinction between tariff and non-tariff barriers.

The public-policy implications are no less far-reaching than the legal ones. An SCC decision that accepts a robust interpretation of section 121 as a free-trade provision could throw many provincial arrangements (marketing boards, product standards, economic development promotional policies, inter-provincial energy transmission, procurement) into disarray.

If Comeau leads to the "deconstruction" of public liquor monopolies, an unintended consequence of a wide-open liquor market that includes sales to commercial customers could be to permit private sector concentration of segments of the liquor supply chain. Would public monopolies simply be replaced by private ones, continuing to distort the marketplace? Would the public be any better off?

Many Canadian wine producers – and presumably craft beer and spirits producers – wait with great anticipation to learn if their products may be shipped from one province directly to consumers in all other provinces. Allowing inter-provincial direct shipments of Canadian wine for personal consumption would be a boon for many small-to-medium wineries in Canada's flourishing wine regions, that today are nearly shut out of other provinces' liquor markets.

By comparison, this direct-to-consumer model in the United States has taken off since a similar U.S. Supreme Court decision, increasing 75 per cent by value and 70 per cent by volume since 2011. Access to wines from across the country benefits not only small wineries, but also the long-suffering Canadian wine consumer.

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An SCC decision supporting Comeau could upend the rules governing how internal commerce and trade are conducted. The implications of this in Canada are profound.

Fittingly, the timing echoes events of 150 years ago. In 1867, the framers of the Constitution included robust free-trade clauses in the Constitution because the abrogation by the United States of the Reciprocity Treaty loomed large over the new country's economic viability. This historical context was compelling to the Provincial Court of New Brunswick in the Comeau decision and has a familiar feel to the protectionist sentiment in the United States today.

The era of relatively free trade afforded by NAFTA and the Canada-U.S. free-trade agreement could well be in decline. Canada's internal free trade could be strengthened by an SCC decision upholding Comeau.

As for the man at the centre of the entire case, after his acquittal in 2016, Mr. Comeau said, "After three years, I'm thirsty!" In the near future, he may hopefully be able to buy whatever Canadian beer he wishes, admitted free from wherever in this country it is made.

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