Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 15 - Evidence - June 21, 2005
OTTAWA, Tuesday, June 21, 2005
The Standing Senate Committee on Agriculture and Forestry, to which was referred Bill S-38, respecting the implementation of international trade commitments by Canada regarding spirit drinks of foreign countries, met this day at 6:05 p.m. to give consideration to the bill.
Senator Joyce Fairbairn (Chairman) in the chair.
[English]
The Chairman: Honourable senators, I am pleased to open this session of the Standing Senate Committee on Agriculture and Forestry. Tonight we are dealing with Bill S-38, an act respecting the implementation of international trade commitments by Canada regarding spirit drinks of foreign countries.
We are delighted to have with us the Honourable Wayne Easter, Parliamentary Secretary to the Minister of Agriculture and Agri-Food. With Mr. Easter is Mr. Gary Koestler, Deputy Director of the Eastern Hemisphere Division, International Trade Policy; and David Liston, who is with legal services within the department.
Thank you for coming, Mr. Easter. I understand you will have to attend a vote in about an hour, so we will start immediately with your comments, after which we will have a discussion.
The Honourable Wayne Easter, P.C., M.P., Parliamentary Secretary to the Minister of Agriculture and Agri-Food with special emphasis on Rural Development: Thank you, Madam Chairman. It is a pleasure to be here. I would like to thank the Senate committee in advance for your work on this bill. Bill S-38 represents the final chapter of Canada's compliance with the Canada-EU Agreement on Trade in Wines and Spirits, which was signed in September 2003, having been in the works for two years prior to that.
Bill S-38 will provide protection in the Canadian marketplace for certain European spirit drink names, for example, ouzo from Greece and grappa from Italy. It also protects certain North American spirit drink names, for example, tequila from Mexico and Tennessee whisky from the United States, in compliance with article 313 of the North American Free Trade Agreement.
New legislation was necessary to house these commitments because there is no existing legislation that could do that job. Justice Canada advised us that the Trademarks Act would not be sufficient, as it only covers geographical indications and does not provide for state protection.
As I said earlier, this legislation completes full implementation of our 2000 agreement with Europe. Canada must comply by June 1, 2006. Failure to do so would give the European Commission the right to suspend operation of the agreement, as well as the right to avail itself of the dispute settlement provisions contained within it. Our compliance in this small area will signal our commitment to the entire agreement. We take our international commitments seriously and we intend to abide by this multilateral agreement.
This legislation is the product of broad-based consultations, not only with the wine and spirits trade, but also with the provinces and a number of federal departments including International Trade, Health, Justice, the Canadian Food Inspection Agency, and Industry Canada.
The Canadian wine and spirits sector is an extremely important driver of Canada's economy. Some 170 wineries in Canada generate over $400 million in annual sales and there are excellent economic spin-offs from the industry. Not only does the wine industry provide jobs for Canadians and markets for our grape growers, but it is also a strong catalyst for rural development, particularly Canada's agri-tourism sector that has seen so much success through all of our wine regions. Anyone who has driven through any of our wine regions can see and feel that benefit. Some people probably taste it as well.
There is no question that Canadian wine producers have made tremendous strides in quality over the past decade. These days, it is not unusual for Canadian wines to take home the top prizes at the world's most prestigious competitions. This is a tremendous credit to the innovation and vision of the industry, and they need to be recognized for that. They have truly put Canadian wines on the map.
The spirits industry is also economically important to Canada. Our annual exports exceed half a billion dollars and account for almost three quarters of all of Canada's alcoholic beverage exports. Canadian whisky is the largest selling whisky in the United States.
Madam Chairman, the industry has made great strides and the purpose of the bill before us is to maintain and accelerate this momentum by securing the wins that were negotiated in the 2003 agreement with the European Union. This agreement is a win for the Canadian wine and spirits sector, a win for Canadian consumers and a win for the European industry.
That is why this legislation before us has the full support of the Canadian wine and spirits sector, including the Canadian Vintners Association and the Association of Canadian Distillers. All are in agreement that Bill S-38 secures the potential market gains made possible by the 2003 agreement, with little practical impact on our domestic industry.
Members of this committee will certainly know how crucial exports are to the success of the Canadian agriculture and agri-food sector. The same follows for the wines and spirits sector. The government is committed to supporting the agriculture sector for continued success on export markets. Bill S-38, we believe, helps deliver on that commitment by securing gains made in the 2003 agreement and by promoting growth in exports of wine and spirits.
Due to the protectionist trade environment that has predominated in recent years, Canada's wine exports to the European Union have been well below what we believe the potential really is. Last year, Canadian wine sales to Europe totalled about $1.5 million, about 10 per cent of the total Canadian wine exports.
The Canadian Vintners Association projects that this agreement could help that number to grow to $5 million per year within the next ten years. That is the kind of importance we need to place on the timely passage of this bill, the deadline being June 1, 2006.
Looking into the 2003 agreement in a bit more detail, it provides for the full protection of Canadian geographical indications, namely wine and whisky, in the European Union. The agreement offers improved access to the European Union for Canadian wines and spirits and ice wine, which up until now has been basically mired in red tape and regulations.
The agreement further recognizes Canadian wine-making practices and labelling rules for Vintners Quality Alliance, or VQA, wines in the European market, and it gives our wine exporters greater certainty of market access through a simplified certification system for Canadian VQA quality wine exports.
There are also gains for our domestic industry here in Canada. The agreement protects the practices of provincial liquor boards favouring Canadian wine. British Columbia and Ontario can continue to operate private wine store outlets that sell only wine produced in Canada, and Quebec can still require that all wine sold in grocery stores be bottled in that province.
In closing, honourable senators, I would point out that there are three government amendments. After the tabling of the legislation, there was further consultation with industry. For greater clarity in several areas, it was suggested that we should bring forward three government amendments. I will table them with you, and I understand you are receiving them electronically as well.
With that as an outline, Madam Chairman, we would be pleased to answer any questions you might have.
The Chairman: Thank you very much, Mr. Easter.
Senator Mercer: Mr. Easter, welcome. It is always good to see an old friend here at our committee.
Mr. Easter: Young friend.
Senator Mercer: A friend of long-standing. You commented about geographic indicators for Canadian whisky. I think you have to be a little more specific. Whisky, a.k.a. rye whisky as opposed to other types of whisky, and wine are protected in our agreements.
I am concerned, as a Nova Scotia senator, with our only single malt distiller. That is in Nova Scotia. I am always concerned, and have been at this committee for some time, about trade agreements that we sign with whatever nation in the world, that the playing field never seems to be very level to us. I understand it is a trademark issue with respect to the use of the word ``Glen'' in ``Glen Breton,'' which is the name of the single malt whisky manufactured in Nova Scotia, but I am concerned that the government has not seen fit to pay much attention to this, or even to give passing reference to it. If we are protecting the names of products in geographic locations or products across the world, both in Europe and here, then I think the distiller in Nova Scotia has been very generic in calling it Glen Breton Single Malt Whisky as opposed to labelling it as what it is, a very fine Scotch.
I wonder if you would comment on that.
Mr. Easter: You have basically answered the question yourself, senator. It is a trademark issue. However, I will turn it over to the people with me.
Mr. Gary B. Koestler, Deputy Director, Eastern Hemisphere Division, International Trade Policy Directorate, Department of Agriculture and Agri-Food Canada: It is a trademark issue. It is an area of private rights within Canada. This bill does not cover the issue of ``Glen'' or the use of ``Glen'' in the name of a whisky brand. It really is something that is in the civil court in the process of applying for trademark within Canada. There are mechanisms which this company can use to defend itself to be able to move on with the registration of this mark, but it is done outside the scope of government legislation per se, other than the enabling legislation of the Trademarks Act that allows for trademarks to be established in Canada.
Senator Mercer: I would suggest, sir, that if this were another country doing this, they would make it part of it. Here we have a very small distiller in a small province like Nova Scotia. It is doing well, but still struggling. It is up against a multimillion dollar organization that is challenging the use of a name that is quite common in the place names of my province. You will find the name ``Glen'' in many places in my province. I would suggest that in many other countries, they would have made that part of the bill. They would have taken care of the small industries. I am disappointed that it is not here.
I want to change topics and switch to wine for a moment.
The Chairman: Senator Mercer, I do not know whether you were here when I mentioned that Mr. Easter has a vote at 7 p.m. He cannot miss that. The more concise we can be, the better, so that everyone will have a chance at him.
Senator Mercer: I agree. I just came from caucus, and they were counting heads. Yours was one that was missing.
I want to follow up with a question on wine and making Canadian wine a little more appealing to Canadian consumers. I know that that is not in this legislation, but I hope the department is talking about future changes so that we can make Canadian wine much more appealing with respect to price. When I go to buy wine, I am pulled between a $15 bottle of Canadian wine and a $15 bottle of French wine. It would be easier if the $15 Canadian wine were $12.50. That would make the decision for the consumer much easier.
Senator Oliver: I have two short questions. We received an email from an organization called West Indies Rum and Spirits Producers' Association, who are concerned about the definition of ``rum'' presented in the schedule to this bill. They would like to see it changed to read ``made from sugar cane products fermented and distilled in a Commonwealth Caribbean country.'' I am wondering if you could tell us whether you have been made aware of this proposed amendment and if it is one of the three amendments you have told us we will be receiving electronically?
Mr. Easter: Yes, we are aware of it. I will ask Mr. Koestler to explain it further. There has been fairly extensive discussion on that.
Mr. Koestler: We have received the proposal, and we have looked at this, but this bill is intended to implement existing international trade obligations that Canada has. That is based on the result of negotiations or commitments with other countries directly.
It may be that the standard for rum has changed in the Caribbean country, but the process to change a trade commitment would be country-to-country negotiations and not negotiations with an industry sector making a representation directly to the federal government.
It may be that our trade obligation with the Caribbean rum producers needs updating. If that were updated, then the scope of the bill would allow for amendments to be made to the annex or schedule which sets out the definition for Caribbean rum.
Senator Oliver: So this bill does not have to be amended now to give that accommodation?
Mr. Koestler: No. If there are other or new changes to international trade obligations related to the protection of these spirit names in the schedule, they can be changed or additions can be made.
Mr. Easter: It is felt it would have to be dealt with under the trade agreement. We are informed that the standing joint committee, I believe it is, has indicated that, if it were changed by way of this bill, it would be declared ultra vires. The approach to be taken is to deal with it in the trade agreement because it could not be implemented in this bill. It would be declared ultra vires.
Senator Oliver: Since you have raised the term ``ultra vires'', I would like to ask a question about the power of Parliament to actually regulate issues of trade and commerce for a single industry such as spirits. In the case of Labatt Breweries and The Attorney General of Canada in the Supreme Court of Canada, the Court said Parliament did not have the authority to regulate a single trade or industry. Since the Supreme Court is pretty clear on that, under what authority are you trying to regulate a single trade or industry in this bill?
Mr. David Liston, Legal Counsel, Legal Services, Department of Agriculture and Agri-Food Canada: We have closely examined the issue of constitutional authority for this particular bill. We have been advised by my colleagues within Justice that the basis upon which Parliament has the authority to pass this legislation is in fact our trade and commerce power. The Labatt case — and I do not have it in front of me — may be a slightly different issue, in that it is the regulation of a particular industry in Canada.
Senator Oliver: Trade or industry.
Mr. Liston: My point to you would be that I do not think one would necessarily suggest that we are looking to regulate an industry through the provisions of Bill S-38. We are providing protection related to the use of certain names for certain products imported into Canada. Again, not having the Labatt case in front of me, that particular piece of legislation might have been much more far-reaching than what we are doing here.
Mr. Easter: I might add as well that the bill is bringing into conformity what was agreed to in the Canada-EU Agreement on Trade in Wines and Spirits, as well as the North American Free Trade Agreement. So we have trade agreements plus the legislation.
Senator Oliver: As minister, it is your view that this bill does not go against a substantial ruling of the Supreme Court of Canada in the distilleries case then?
Mr. Easter: Yes, that is legal counsel's view.
Senator Ringuette: I am very pleased to see this agreement, because for decades Canadian wine makers were trying to access the European market. France, in particular, was very protective of its home market. This was a major win situation for the Canadian wine industry to open up this market. It is a trade agreement on wine and spirits. In any kind of agreement there are some winning items and some losing items. Since we won on the wine items, are we losing on the spirit items?
Mr. Easter: No, we certainly believe not. We do believe this is a win for all the players involved. It is certainly giving protection to spirit names such as grappa, ouzo, et cetera. It is bringing greater protection and confirming the agreements that have been reached with both the Europeans and the North Americans.
Mr. Koestler: We consulted very closely with the Canadian spirits industry in the negotiation of this agreement. There were no economic costs associated with the obligations which Canada has undertaken and are reflected in this bill.
Senator Ringuette: You are saying overall it is a win-win situation?
Mr. Easter: That is certainly what we believe, and, in the discussions that have been held with the industry stakeholders, that is what they believe as well. They will be appearing before your committee and certainly you can ask them directly.
Senator Ringuette: In regard to the wine market and exports to Europe, you indicated that a potential of only 10 per cent had been exported last year. In regard to the spirit industry, are we exporting to Europe and is this agreement opening up new possibilities?
Mr. Easter: On the spirit market, we are protecting a number of names: Grappa, ouzo, and others that I cannot pronounce. It incorporates Canada's existing international trade obligations to protect the spirit drinks names, and that is something we had committed to do.
Senator Ringuette: Does that mean that the European Union will be protecting the Canadian name brands as well?
Mr. Koestler: Yes, the Europeans will be protecting Canadian whisky and Canadian rye whisky. Canadian rye whisky exports to the European Union in 2003 were $18 million and in 2004 were $16 million. A significant portion is actually exported in bulk. This agreement ensures that when Canadian whisky is exported in bulk and rebottled in the European Union, it must be rebottled to Canadian standards. They cannot dilute it to 25 per cent alcohol or 10 per cent alcohol and still call it Canadian whisky. It has to be made according to Canadian standards. For example, it has to be 40 per cent alcohol. It cannot be diluted more than that.
These are important aspects related to the development of the Canadian whisky market in the European Union so that anything that is sold as Canadian whisky in Europe must be made to Canadian whisky standards.
Senator Ringuette: Will it be named ``Canadian Whisky'' when it is bottled?
Mr. Koestler: Yes.
Senator Tkachuk: You mentioned that Canadian rye being produced in Europe and being called Canadian rye must meet certain standards. Will that go in return for champagne? Is there an exchange provision on that stuff?
Mr. Easter: Mr. Koestler could explain how the rye is moved.
Mr. Koestler: When spirits are exported in bulk, they tend to be exported at a high alcohol level, somewhere in the area of 80 per cent. That is how whisky is aged. When it is put into the bottle, water is added to bring it to the 40 per cent alcohol level, and that is all that is done to it. That is allowed in Canadian law and that also must be reflected in European law, if Canadian whisky is exported to Europe for bottling. It cannot be produced in Europe. It must be Canadian whisky aged in Canada.
Senator Tkachuk: Apart from Canadian rye whisky, what other Canadian spirits are protected under this act? Ouzo and other spirits are protected, but what Canadian spirits are protected?
Mr. Koestler: Canadian whisky and Canadian rye whisky are protected.
Senator Tkachuk: Of all the hard liquors, is that it?
Mr. Koestler: Yes.
Senator Tkachuk: Why would that be to our advantage? If we did not take part in the agreement, could we make ouzo here and call it ouzo? Could we make grappa and call it grappa?
Mr. Easter: What you will find, and this may be a question to ask the industry itself, is that in consultation with industry and the various trade agreements that have been negotiated, there seemed to be fairly substantial benefits to the wine industry. We protect Canadian rye. There has been difficulty with the spirit names for a number of years, and that protects them in their own right as well.
The overall result, from the feedback we are getting from industry, is that the agreements put Canada in a better position than we were in previously.
Senator Tkachuk: A company could make a product the same as ouzo, but they could not call it ouzo?
Mr. Easter: That is right. There is one exception now being made in the bill that will be protected.
Mr. Koestler: Yes. There is a product called ice grappa, which is made in Canada, and there is a provision built into this bill to allow that to continue to be made and sold as ``Ice Grappa''.
Senator Tkachuk: Normally businesses copyright product names wherever they sell in the marketplace. For example, Volvo is selling a product; they come here and copyright it here; they copyright it all over.
What is the liquor industry doing? Why are we doing it for them? Do they copyright their own names in each country they are selling in? Why are we involved?
Mr. Liston: The liquor industry is open to apply for trademarks under the Trademarks Act here in Canada. I cannot speak for industry practice, but it is my understanding that that is exactly what they have done for certain brand names.
Senator Tkachuk: ``Coca-Cola'' is a brand name. Why is ``Grappa'' not a brand name? What does grappa have to do with us?
Mr. Koestler: If you look at the Canadian spirits industry or the Canadian whisky industry, there are two levels of nomenclature. One level is for the name that is distinctive to the country. It sets out the standard for all producers of Canadian whisky and ensures that there is a certain level of quality, consistency, and recognition for the product that is coming from Canada. Above that, there are specific brand names that are registered as trademarks. There are quite a few well-known Canadian whisky brand names.
It is comparable to grade standards for other products, whether we are looking at beef or fruits and vegetables. It is a matter of having those grade standards recognized in another country and protected as being unique to Canada, and that maintains a market and recognition of the quality of Canadian products.
Mr. Easter: To add another factor, it is not just the names that are an issue. As I stated in my opening remarks, we do maintain existing provincial liquor board policies that favour Canadian wine and spirit producers, and it does provide improved access to the European Union market for Canadian wine and spirits.
Senator Tkachuk: Is it about our protecting our wine industry?
Mr. Easter: It is about improving access of our wine and spirit industries into the European market. The agreement also allows our provincial liquor boards essentially to continue favouring Canadian wine and spirits in terms of liquor laws.
Senator Tkachuk: It would be nice if the Canadian liquor boards would sell B.C. and Niagara wines, for example, rather than listing them and protecting their own markets.
Mr. Easter: You will get no disagreement on that issue from me. We have been talking about internal free trade for years, and we have not gotten there yet.
Senator Tkachuk: That is a terrible issue. I am still not sold on why we are doing this, but maybe the industry can convince me.
Senator Mitchell: Just to get a matter on the record for future reference and for any of the people in several areas of the country who might be watching, the names ``Newfoundland Screech'' and ``Yukon Jack'' were raised in the Senate, as was the name ``Slivovich''. I wonder if you could address how those liquors are protected or how they were dealt with. They are not dealt with in this act. What protections do they have?
Mr. Easter: Newfoundlanders have a good constitution.
Mr. Koestler: This legislation is for the purpose of protecting foreign spirit drink names that are identified within it, and Canada has agreed to protect them in the context of our international trade agreements. It does not provide protection for Newfoundland Screech or Yukon Jack per se. Both of those names are registered trademarks used in association with rum- and whisky-based liquors. Newfoundland Screech was registered as a trademark in 1982 by the Newfoundland and Labrador Liquor Corporation, and Yukon Jack was registered as a trademark in 1977 by Diageo North America. Both of those names are protected under the Trademarks Act.
This act does not provide protection for the term ``Slivovich''. It has not been the subject of any of our international trade agreements.
Senator Mercer: I think we should have samples of these so I understand what we are talking about.
[Translation]
Senator Robichaud: The parliamentary secretary answered my question when he said that provincial liquor sales and marketing agencies will not be affected in any way by this bill.
[English]
Mr. Easter: The agreement protects the practices of provincial liquor boards, which favours Canadian wines. British Columbia and Ontario can continue to operate private wine store outlets that sell only wine produced in Canada. Quebec can still require that all wine sold in grocery stores be bottled in that province. It does not have any effect to that end.
Senator Robichaud: You mentioned ice ouzo.
Mr. Easter: It was ice grappa.
Senator Robichaud: Yes, excuse me. I remember having grappa once. The meeting would not last long if we were to sample that stuff. You said that we produce ice grappa in Canada.
Mr. Koestler: Yes, and we sell it too.
Senator Robichaud: Do we have to use grappa produced in Italy?
Mr. Koestler: No. This is a trademark for a product made in Canada.
Senator Robichaud: That is accepted?
Mr. Koestler: Yes.
Senator Peterson: I have one quick question. In reading through the numbers, I noticed that we export about $500 million in rye whisky. What is the offset number coming in? How much would be coming in?
Mr. Easter: I will ask Mr. Koestler what numbers he has for the U.S.
Senator Peterson: The entire export is about $500 million. What are the import numbers?
Mr. Easter: Mr. Koestler has the numbers.
Mr. Koestler: With my apologies, I do not have the import data on spirits.
Senator Oliver: Was the export figure $500 million?
Mr. Easter: We can get the export-import figures for you, Senator Peterson, and send the information to the clerk of the committee.
Senator Oliver: I would go to Mr. Liston on a question I put before. Perhaps he could get back to me with the information on the Supreme Court case on the constitutionality of this bill. He does not have the information with him and he is not as familiar with it as he should be. The case involving Labatt Brewery versus the Auditor General of Canada decided definitively that Parliament's power to regulate trade and commerce does not authorize the regulation of a single trade or industry. If that is the case, and that is the law in Canada, under what authority are you doing this? Could you get back to me with that information so that I could have it for third reading comments in the Senate.
Mr. Liston: I am happy to do that, senator.
Senator Mercer: In Senator Oliver's previous question, he talked about the email we all received about rum. The wording was something to this effect: ``...made from sugar cane products fermented and distilled in a Commonwealth Caribbean country.'' As you know, over the past 35 to 40 years Canada has prided itself on the fact that we have had open trade and close relationships with Cuba. Cuba produces rum from its own sugar cane. I am not opposed to changing the definition to allow for the use of sugar cane from other places, but I am concerned about using the definition presented to us, including the words: ``...in a Commonwealth Caribbean country.'' I am a big supporter of the Commonwealth, but I am also a big supporter of Cuba. I would not want us to trip over ourselves.
Senator Mercer: That is a real issue, because we do a great deal of trade with Cuba.
Mr. Easter: I do not think we could add anything further than what we have said. It was felt that, if we had put that in the bill, it would be declared ultra vires and should be part of a trade agreement.
Mr. Koestler: I would suggest that, when there is a trade negotiation and a suggestion is put forward to make a change, an economic assessment would be made of that change. In this case, we have not done an economic evaluation of what a change in that definition would mean for Canadian producers. We cannot comment on your concern, but, if it were part of a discussion on an international trade agreement, that would be looked at.
Senator Tkachuk: Would it mean that people could not sell Cuban rum in Canada?
Mr. Koestler: No.
The Chairman: Mr. Easter, thank you for appearing with your officials before the committee. Mr. Liston, if you could send a response to Senator Oliver's concern as quickly as possible, I am sure we could share it with the committee. We look forward to hearing from you.
Mr. Easter: I would like to say on behalf of the minister, thank you for dealing with the bill and having us appear this evening. As I indicated, there are three amendments that we believe are important for further clarity. Those will be forwarded to the committee for consideration of senators. We will forward the requested information to the clerk of the committee.
The Chairman: We will deal with the amendments first thing when we give clause-by-clause consideration Thursday morning.
Senator Oliver: They are government amendments. Do you support them?
Mr. Easter: We definitely support the amendments. When the bill was tabled, it was decided in further consultations with the industry that there needed to be some minor changes in wording to bring greater clarity to the bill, and that is what these amendments do.
Senator Robichaud: Theses are suggestions from the industry.
Mr. Koestler: Yes. Some were made by the industry and some by government in the discussions that were held.
The Chairman: Colleagues, we have from the Association of Canadian Distillers, Jan Westcott, President and Chief Executive Officer, C.J. Hélie, Executive Vice-President. From West Indies Rum and Spirits Producers' Association, we have Milan Stolarik. Gentlemen, who would like to begin?
Mr. Jan Westcott, President and Chief Executive Officer, Association of Canadian Distillers: On behalf of the Association of Canadian Distillers, I appreciate the opportunity to appear before you and comment on Bill S-38.
Our member companies include Bacardi Canada, Black Velvet Distilling, Canadian Mist Distillers, Corby Distilleries, Diageo Canada, Hiram Walker and Sons and Schenley Distilleries. Among those are some very old and prominent Canadian firms and Canadian names. Combined, our member companies represent nearly 80 per cent of distilled spirits production in Canada. We own and represent many import spirit brands here in Canada as well.
We would like to extend our sincere congratulations both to Agriculture and Agri-Food Canada and to International Trade Canada for successfully negotiating a bilateral trade agreement in wine and spirits with the European Union. We were one of the industry groups that pressed the government to pursue these negotiations, sometimes difficult, and to persevere and to conclude them successfully.
As you have heard, the agreement provides enhanced security and protection for the spirits industry signature products of ``Canadian Whisky'' and ``Canadian Rye Whisky'' in our second largest market after the United States. Open and secure access to export markets is of critical importance to spirits manufacturers. Fully 70 per cent of Canadian distilled spirits production is exported internationally, and 80 per cent of Canadian whisky made here at home leaves Canada to journey around the world as a very positive ambassador for our country. In the neighbourhood of half a billion dollars worth of spirits are exported. The value of the annual Canadian spirits exports is greater than the combined value of all beer, wine and cider exports. In terms of the EU, spirits represent about 90 per cent of all Canadian beverage alcohol exports to that area.
The principal value of the agreement to the Canadian industry is the recognition and protection it affords to our signature products, ``Canadian Whisky'' and ``Rye whisky.'' Under the terms of the agreement, all 25 member countries of the EU must provide the legal mechanism to ensure that only legitimate Canadian whisky made here in Canada and made to Canadian standards and specifications — whether in Gimli, Manitoba, in Lethbridge or Calgary, Alberta, in Amherstburg or Windsor, Ontario, or in Valleyfield, Quebec — can be sold in those countries as ``Canadian Whisky.'' That is an important point I will come back to.
The Chairman: I am glad you mentioned Lethbridge.
Mr. Westcott: The value of our business is tied to the inherent value of our brands. Formal recognition by the EU of Canadian whisky and rye whisky provides the Canadian spirit industry the opportunity to invest and grow our brands secure in the knowledge that our investments will not be undermined by fraudulent products designed to trade unfairly on the image and reputation of Canadian whisky. It is worth noting that this protection for Canadian whisky applies equally across the EU, including the 10 new accession countries as well as all future member states, whether they have a bilateral agreement with Canada or not.
In return for the EU recognizing and protecting Canada's own unique products, Canada has agreed to recognize and protect certain spirit drinks as exclusive products of specific EU member states, namely: Grappa, Ouzo, Jagertee, Pacharán and Korn or Kornbrand. Bill S-38 is intended to provide protection as agreed to in the agreement with the European Union.
As an aside, members should be aware that Canadian manufacturers are not producing these five products here in Canada, and therefore, we do not believe there are negative economic implications associated with the decision to recognize them as exclusive products of the EU.
Many consumers associate these products with specific EU regions or countries, and therefore it is reasonable to protect these terms so consumers are not confused as to their true nature. The reciprocal recognition of each of our own unique or flagship products as outlined in the agreement is in the best interests of both Canadian consumers and the Canadian industry and has our strong support.
Spirits Canada supports the intent of Bill S-38 to implement these aspects of the Canada-EU Wine and Spirits Agreement. Under section 3 of the bill, we note that the protection afforded the products listed in the schedule focuses on the use of the spirit drinks terms in the context of ``selling'' the products in question.
Not surprisingly, this phraseology is not identical to the language used in the Canada-EU Agreement to express Canada's obligations to protect certain spirits terms; nor does it replicate the language used originally to implement Canada's obligations to protect spirits terms under NAFTA. It is not uncommon for domestic implementing legislation to use language different from that found in a trade agreement, yet still fully implement the obligations under that agreement.
That being said, where there are differences in how an obligation is expressed in an agreement and implemented in legislation, the question facing the industry is whether the use of different words has any legal or practical significance.
The industry has identified several differences between Bill S-38, the trade agreements it implements, and existing domestic legislation relevant to the products in question. We are working with federal officials to ensure that these differences do not diminish Canada's implementation of its obligations.
We fully recognize that there may be no significant implications for our industry arising from Bill S-38's scope as it is currently drafted; however, it is important for us to ask the question, because, should Bill S-38 not provide the same level of protection described in our trade agreements and expected by our major trading partners, there could be serious consequences for exports of Canadian whiskies. Any perceived diminished level of protection by Canada for EU, U.S. and Mexican products covered by Bill S-38 could lead to diminished levels of protection for Canadian whiskies within those respective markets.
The current drafting of the schedule explicitly addresses the continued importation in bulk and bottling in Canada for three of the identified products. In particular, the schedule describes stringent rules for the use of the terms ``Scotch Whisky,'' ``Irish Whisky'' and ``Caribbean Rum'' when imported in bulk and bottled in Canada. In doing so, the schedule implicitly recognizes the practice of importing these products in bulk and bottling them in Canada. However, the schedule does not describe the similarly strict rules for use of the terms ``American Bourbon,'' ``Tennessee Whisky,'' ``Tequila'' or ``Mescal'' for bulk imports bottled in Canada as currently outlined in the Food and Drug Regulations, which I will refer to as the FDR. This dichotomy of approach may create some confusion as to permitted activities by Canadian bulk importers.
The opportunity for Canadian manufacturers to continue to import and bottle all of these identified products in Canada, in accordance with the bottling requirements and criteria established for each of the products as currently set out in Canada's Food and Drug Regulations, is of paramount importance to the Canadian spirits industry. In order to avoid any possible confusion, the industry recommends the adoption of a uniform approach across all products listed in the schedule to the greatest extent possible. Moreover, it may also be helpful to articulate the legal relationship between the Spirit Drinks Trade Act and the FDR in case of any confusion.
We have also been advised that it is the intention of the Government of Canada to eliminate certain provisions currently found within the Food and Drug Regulations that will duplicate provisions in Bill S-38 once it becomes law. That raises two issues: First, it will be important to have consistency between the Spirit Drinks Trade Act and the FDR. For example, without an appropriate amendment to section B.02.033 of the FDR, the provision of Bill S-38 permitting the blending of 1 to 1.5 per cent Canadian rum with Caribbean rum would be inconsistent with the general prohibition of adding Canadian rum to any imported rum.
Second, it is imperative that no provisions are deleted from the Food and Drug Regulations without a comprehensive assessment, including full consultation with the industry of the implications of such deletions.
We also note that, under section 3(2), the bill proposes an exemption for the protection of the designated spirit drinks names for any trademark registered or applied for in Canada before January 1, 1996. Presumably, this derogation is intended to reflect the agreement with the EU as outlined under article 34(3) of the Wine and Spirits Agreement. However, it is our understanding that article 34(3) refers only to the designated spirit names, and not all the names included within the bill.
We appreciate that Agriculture and Agri-food Canada officials undertook a thorough review of Canadian trademark registrations and applications during the negotiations with the EU. While we are uncertain of the practical effect of this potential discrepancy, we want to ensure, for many of the reasons articulated earlier, that Bill S-38 does not inadvertently diminish the level of protection afforded our major trading partners. Therefore, we have requested confirmation that the bill does not limit the protection available to spirit drinks not included in Article 17 of the Canada-EU Agreement.
As I alluded to earlier, this bill has an important role to play in the continued export success of Canadian distilled spirits. The bill is inextricably linked to the Canadian industry's export strategy and will facilitate the exploitation of that strategy by dealing with several outstanding international trade-related issues associated with spirits. In the light of this link, we asked ourselves whether there were any other outstanding spirits trade-related matters that could be addressed using this particular legislative vehicle.
As some senators may be aware, the current Certificate of Age and Origin provisions governing spirits were historically included under the distillery departmental regulations. Those provisions, amongst others, have been without a long-term legislative host since the renewal of Canada's Excise Act in 2001. Given the direct link between these provisions and the international trade of spirits, the question arises as to whether there is any potential for Bill S- 38 to also include the Certificate of Age and Origin requirements.
At this time, we are neither proposing nor recommending that these provisions be included in the bill. Rather, we are simply noting that it may be useful to explore whether the concept of including them has any merit. We hope that Agriculture and Agri-food Canada and others might consider the possibility that the Spirit Drinks Trade Act could be an appropriate new legislative host for these provisions. We await their view, and others' views, as to the potential of the bill in this regard.
In summary, Spirits Canada supports the adoption of Bill S-38, subject to clarification in regard to the specific issues raised herein. In addition, we expect to continue to work closely with Canadian officials and share with them any additional comments or suggestions as we have the opportunity to examine these issues in more detail.
Thank you for the time to appear and to be able to make our comments. We would be pleased to respond to any questions as we go forward.
Mr. Milan Stolarik, Advisor, West Indies Rum and Spirits Producers' Association: I will be very brief. The West Indies Rum and Spirits Producers' Association is very supportive of this bill, but would like to suggest some minor changes to the schedule of the bill to bring it up to date and to make it accurate.
Before I get to the specifics, let me just say that, as you know, Canada and the Commonwealth Caribbean have a special relationship, which they have had for over 200 years. There is also the Canada-CARICOM Trade Act, and Canada has made commitments to the Commonwealth Caribbean by way of the Rum Protocol, signed about 15 years ago. It also has trade legislation, which is called CARIBCAN, which is actually a one-way free trade movement of goods from the Commonwealth Caribbean to Canada. There is a long history to this particular issue.
Specifically, the West Indies Rum and Spirits Producers' Association would like to see two changes to clause 14. (1) (a) of the schedule, which is found on page 7 of Bill S-38. The first change is to take out the words ``of a Commonwealth Caribbean country'' immediately following the word ``products''. Second, we recommend that the term ``distilled and fermented'' be changed to ``fermented and distilled''.
Clause 14. (1)(a) would now read:
14. (1) Caribbean rum may be sold under that name if it has been
(a) made from sugar cane products fermented and distilled in a Commonwealth Caribbean country.
The reasons for these changes are as follows. The Caribbean community — CARICOM, as it is referred to — has a standard for rum that came into being in 1992. That was subsequent to the Food and Drug Regulations of 1989, which presently govern this matter.
The CARICOM rum standard, which I believe was circulated to you, does not lay down any criteria for the source of the raw material used in the distillation process. As a matter of fact, none of the other products from the various countries listed in the schedule specify sources of raw material. Consequently, it would be sensible and logical to amend the language of any new legislation to conform to the CARICOM standard for rum, and to correct some errors that were committed 16 years ago.
The reason for the second change is due to the fact that molasses are first fermented and then distilled and not vice versa. Again, we would like to correct a simple error, but it is there in legislation. This happened in 1989, when the regulations under the Food and Drugs Act were implemented.
I do not know where we go from here, Madam Chairman. I hope that the committee will recommend that these changes be made to the schedule of Bill S-38, to make it as accurate and up to date as possible. I would be pleased to answer any questions that you may have. Thank you very much for giving me the opportunity to speak to you.
The Chairman: You should be aware, too, that there are still some of our friends from the department who are here listening to your presentations this evening.
Senator Tkachuk: What is the difference between what you have and what is already in the bill? Is it to make it more general so that it does not have to be sugar cane products, because they do not grow sugar cane? How does that work?
Mr. Stolarik: At the moment, there is not a problem in the Caribbean that we can identify. Two or three years hence there may be some Caribbean countries that will no longer be able to grow the sugar because of economic reasons. They may have to import sugar. They can now import it from perhaps other Commonwealth Caribbean countries, but it is more economical to import it from Venezuela or Brazil, where they grow sugar on a mass-production basis.
Senator Tkachuk: With respect to the product that they were making the rum from, which they want to keep as their product, they foresee a time when they would have to import it; it would be like malt and barley from Saskatchewan being replaced by growing it in Ohio. Is that what they are asking for?
Mr. Stolarik: I think so.
Senator Tkachuk: Can we not import the sugar cane from Brazil and make the Caribbean rum right here?
Mr. Stolarik: No, because it specifies that it must be distilled in a Commonwealth Caribbean country.
Senator Tkachuk: Are they more worried about Brazil making the rum?
Mr. Stolarik: No, they are not worried about anyone making it. They are worried about not having the product from the Commonwealth Caribbean to make the rum to meet the standard.
Senator Tkachuk: It is confusing. I have several questions that I want to get to. This bill provides us with an agreement with the European Union. What about South American countries? Do we have an agreement with them for the protection of brands, like Canadian whisky, through NAFTA?
Mr. C. J. Hélie, Executive Vice-President, Association of Canadian Distillers: Yes, Chile through the FTA.
Mr. Westcott: Not necessarily with other countries. Obviously, we would like to explore these kinds of agreements with other countries to protect the term Canadian whisky.
You have to identify your priorities. Europe is an important export priority for us, particularly as it continues to expand.
Senator Tkachuk: Help me out. You may have heard me asking the questions earlier of the government on this issue. For the Coca-Cola product, the unprotected part is the cola; another company may make Pepsi-Cola; President's Club makes President's Club Cola. The term cola is equivalent to whisky. What you are protecting is Canadian whisky, because you can have bourbon, you can have Jack Daniels, you can have all different kinds of whiskies. Why is that not a copyright issue? Why is the industry out there in Brazil not copyrighting this, or in France? Why have we waited so long? Is that why we are now doing this?
Mr. Westcott: I do not think we have waited. There are levels. Clearly, on the trademark front, our companies have been very active. Many countries around the world produce products that have historically come to be recognized as being uniquely from that country. In our particular case, yes, there are a number of whiskies produced around the world. We produce a distinctive product called Canadian whisky. It is different from Scotch and Irish; it is not Tennessee whisky; it is Canadian whisky. People who drink whisky differentiate between our whisky and someone else's. As you go forward to invest in an export business and also invest back here in Canada to produce goods to export, it is important that, as you go into other markets, you can sell that whisky on the assurance that when someone buys something called Canadian whisky they know they are buying real Canadian whisky.
Senator Tkachuk: Do you not have that assurance when you buy Coca-Cola in Saskatchewan, even though it is out of Atlanta? We have a Coca-Cola plant; they have a formula in Prince Albert and they manufacture Coca-Cola. It tastes the same as in North Dakota.
Mr. Westcott: I cannot speak for the soft drink industry. In the beverage alcohol business, particularly in the spirits industry, the world has recognized for a long period of time distinctive products. Whether Coca-Cola or the United States was not paying attention or made an error many years ago and did not seek that kind of treatment for that particular product, I cannot say; I cannot answer that. In the case of spirits, that has been something that has been recognized and accepted for a long period of time. We define ourselves very much on the basis of where our products come from and how they are produced. The countries that produce them have laid down pretty strict rules about how they are produced them and what the product is, so that everyone is clear about the provenance of that and what that means when a consumer comes into a store.
We have had problems in our industry particularly. The spirits industry has been a victim of ``passing off'' and fraud in a number of other countries, with people purporting to produce something called ``Canadian Whisky,'' and some of our colleague whiskies as well, out of other things. We look at this bill as an important continuation of that recognition of our product.
If I cannot assure my member companies that their investments to develop export businesses, and then the investments to produce these goods here in Canada to service those export markets, are safe, if I cannot assure them that those goods will be protected and not traded off by anyone with some kind of fraudulent good, they will not make those investments. This is part of securing the investments that we make to produce our goods and to have them represented legitimately.
Senator Tkachuk: I am trying to understand this. A guy in France has a little distillery. He makes a whisky, and makes it the way we make it here. Would he be prevented from calling it ``Canadian Whisky,'' even though it tastes exactly the same?
Mr. Westcott: We would take the position that it would not taste the same and would not be ``Canadian Whisky.''
Senator Tkachuk: That is true, but you can sue the guy, can you not, for purporting to sell a Canadian whisky and using the Canadian brand, ``Canadian Whisky''?
Mr. Hélie: No, because trademark law is a private right. You can register and protect a brand name, say ``Canadian Club,'' but ``Canadian Whisky'' is a mark that is owned communally, across the industry. A company cannot register and protect ``Canadian Whisky'' on its own.
Senator Tkachuk: You are trying to register ``cola.'' That is what you are trying to do. How is that good for the consumer?
Mr. Hélie: They can be assured of the high quality and that everything that says ``Canadian Whisky'' is actually whisky made in Canada.
Senator Mitchell: I appreciate the honourable senator's wrestling with that concept, because it is difficult. Maybe I can pursue it further. It seems that the difference or the comparison would be Canadian Pepsi-Cola and Canadian Coca-Cola. You would trademark Coca-Cola, but you would protect Canadian cola under a trade agreement, for the very reasons that you are talking about; is that correct?
Mr. Westcott: I do not believe Canada invented the rules by which we do business around the world. I think it is important to keep that in mind. The fact is that the Scotch Whisky industry has, for many years, been making and exporting a product called Scotch Whisky, and they have been very diligent about ensuring that no one tries to sell something called Scotch Whisky that has not been made in Scotland to their specifications.
The Bourbon industry does the same in the United States, as does the Cognac industry in France. We have seen it for years in the wine business. No one seems to have any problem accepting that a Bordeaux wine is from Bordeaux. Someone mentioned the word Champagne. In my past life, I was the president of the wine institute, and I can tell you that that is the way it is. I am not sure that I understand your concern.
These are systems that have been developed over a long period of time, and we are trying to ensure that, as a relatively small country with a unique product that no one else in the world makes and sells but which we are successful in exporting, we continue to have the ability to successfully produce that product and to gain stature for our brands and to attract investment.
We use Canadian raw materials, Canadian expertise and Canadian packaging to run our businesses, and we want to ensure that when those products leave Canada everyone understands, when it says ``Canadian Whisky'' on the bottle, that it is real Canadian whisky in the bottle. Whether you like it is a different issue. You may prefer some other type of whisky or some other type of product, but we want to ensure that it is our whisky and that it is legitimate.
Senator Mitchell: On page 4 of your presentation you talk about the different treatment for importing in bulk and bottling in Canada. There are two categories of products or different kinds of products. You are concerned that the standards would not be the same and that that can be confusing to the industry.
It seems to me that one set of rules is more restrictive than the other set. It seems to me also that one set of rules is determined by the EU agreement and the other is determined under the NAFTA and that we are not completely in control of how we would establish those rules because we are negotiating with two different entities.
Second, if we had to set an objective, would you prefer that we push everything to the most restrictive, which might be the easiest to get in both or all cases, or, burdened by one case where it is most restrictive, would you prefer that we sacrifice the convenience of one set of rules to have at least some of the rules less restrictive?
Mr. Westcott: I will ask Mr. Hélie to speak to this.
Mr. Hélie: To clarify, neither of the two types of products identified here has to do with our obligations under the Canada-EU Agreement on Wines and Spirits. They both have to do with the way they are currently referred to in the Food and Drug Regulations. Those restrictions are listed in the Food and Drug Regulations for both sets of products. We are just wondering why some products were moved over to Bill S-38 while other products were left in the FDR.
Our recommendation is that, barring new information, perhaps we should leave all the specific blending provisions in the FDR and deal only with the protection of the spirit drinks names in Bill S-38, for both categories.
Senator Mitchell: We could do that and still fulfil our obligations under the agreements?
Mr. Hélie: We believe so.
Senator Mitchell: Mr. Stolarik, the question of fermented and distilled versus distilled and fermented is strictly an empirical fact that you are referring to, just a chronology of producing rum?
Mr. Stolarik: That is right.
Senator Mitchell: I would like you to address what I understand to be the government's concern with redefining ``Caribbean rum'' for the purposes of this legislation. The government's response is that it is probably a good idea, but that we are obliged to do that through the Canada's Caribcan commitments.
Mr. Stolarik: I am not entirely sure what the reasoning of the government is. I was involved in it many years ago, but I have been out of it since. I think the government is trying to take the wording from the regulations of the Food and Drugs Act and put it into this bill without any changes as a housekeeping matter. I guess that suits the government the best.
We are suggesting that, if you are going to make the change, change a couple of the words in there to make it more palatable to the producers.
Senator Mitchell: You believe that we could do that unilaterally rather than through the agreement process?
Mr. Stolarik: I am not sure there ever was an agreement process per se.
Senator Mitchell: That is interesting. Thank you very much.
Senator Mercer: Mr. Stolarik, I earlier asked the government officials a question about rum. I am from Nova Scotia, where rum is the spirit of choice. Some say we were weaned on it.
Mr. Stolarik: Caribbean rum, if I may say so, senator.
Senator Mercer: Definitely.
Why do we restrict our discussion to Commonwealth Caribbean countries? With all due respect to my colleague who will talk about the type of government that exists in Cuba, we have had strong trade relations with Cuba for many years. They produce rum. I have sampled it, as others have, and I find it very comparable to the rum from the rest of the Caribbean.
Is there any reason for the exclusion of Cuban rum?
Mr. Stolarik: Cuban rum per se is not excluded from the Canadian market. They can sell their product in Canada like anyone else through the liquor control boards. They cannot do what Commonwealth Caribbean countries have been allowed to do, however, which is to bottle in Canada with minimal blending. There is another act, which I hesitate to mention, that governs this business. The Commonwealth Caribbean countries were permitted to export their rum into Canada in bulk and bottle it here with minimal blending as specified in legislation. I believe the blending is 1 per cent to 1.5 per cent. That means that they do not have to ship glass to Canada. They can ship the rum in bulk, bottle it here, and sell it under their respective brand names.
I do not believe that Cuba has that right. They have to ship their rum already bottled, but they are free to sell it here like anyone else.
Senator Mercer: You would not object if they were added to the list and were given the opportunity to ship their rum in bulk to Canada and have it bottled here?
Mr. Stolarik: I would leave it in the hands of the government officials to determine whether it is worthwhile for Canada to do that.
Senator Mercer: I point out to my colleagues that Cuba is an active member of the Caribbean Canada Commonwealth Friendship Association. I find it curious that we include them in certain things and exclude them from others.
Senator Tkachuk: Under this agreement, the Caribbean countries are able to ship their product here and we bottle it. It is the distillers who have the rights to this product and who ship it, is it not?
Mr. Stolarik: That is right.
Senator Tkachuk: They are all licensed here, so the Canadian distillers distil the Caribbean products. They have a competitive advantage over Cuba and other countries that are not part of the agreement. Cuba has to ship bottled rum here, which is more expensive for the consumer, about whom we all worry.
Mr. Stolarik: That is correct. That is the advantage that was given to the Commonwealth Caribbean countries by the Government of Canada.
Senator Tkachuk: They are the only ones who have distiller agreements?
Mr. Stolarik: They are the only ones of which I am aware.
Senator Oliver: I will be brief, because Senator Mitchell asked the very question I was going to ask. I would first like to thank Mr. West for his presentation. It was a clear and excellent overview of a difficult act. It was very helpful.
To the three of you, the government was here before you making a presentation on this bill. They said they will bring in three government-sponsored amendments to this legislation, some of which came from the government and some of which came from the sector. Have you seen the amendments? Are you aware of them? Do you know what they say? Are you in agreement with them?
Mr. Westcott: We all have the same goal, and that is to bring in a piece of legislation that implements our obligations. It is in our interests, and we believe it is in Canada's interests, to implement our obligations in an accurate way. We have had lengthy discussions with the government about different issues. We are encouraged that the government has been paying close attention and has been in some cases sympathetic. The issue is just trying to get to an understanding so that there is clarity. I have not seen the amendments. I am looking forward to seeing them. I am hoping that they bring some clarity to issues we have put on the table, some of which we have talked about here. I think that is a positive step.
Senator Oliver: Perhaps they may not.
Mr. Westcott: They may not, but so far I am more than inclined to give them the benefit of the doubt, because they have been exceptionally open in talking to us about what it is they are trying to do, and their approaches and their strategies. They have asked us for input. They have, in some cases, told us that some of the points we raised were good issues that may not have been considered before. You can only go by what people do, and so far they have behaved very well, and we are quite happy.
Senator Oliver: Senator Mitchell asked about the issue with Milan. Before you came, I put your issue, and I will not repeat it, to the government officials. I told them you were aggrieved by the definition of rum as presented and you wanted an amendment. I proposed the amendment. They said they would not do it in this bill because it would be found to be ultra vires, which is a legal and constitutional word. They said it should be done in a trade agreement, not this way. That is what Senator Mitchell was saying to you.
Are you aware that the official position of the government is that they will not move an act on the proposed amendment you are making?
Mr. Stolarik: I was not aware of the fact that that was their official position, even though I suspected they were having difficulty.
Senator Oliver: They stated it tonight before you came. They said it would be ultra vires.
Mr. Stolarik: I am not sure whether it would be ultra vires or not. I will leave that to the lawyers, because I am not sure what it means in the context of this bill.
Senator Oliver: David Liston was their lawyer. Mr. Koestler made the statement, and the lawyer confirmed it.
Mr. Stolarik: I would have to talk to him further to find out what makes it ultra vires.
Senator Oliver: Based on what they said, you will not be able to advance your proposed amendment.
Mr. Stolarik: If they say that it is ultra vires and they will not proceed with it, I have no choice but to accept their position. They are correct that eventually this issue will have to be resolved in a trade agreement. That trade agreement is slowly working its way through the chambers. I think they have had one meeting thus far.
Senator Peterson: The question arises as to whether there is any potential for this bill to also include the Certificate of Age and Origin requirements. It is my understanding that age has a direct bearing on the price you can get for your product. Who does this now? What is the procedure? What process do they follow?
Mr. Westcott: In Canada, the legal requirement for aging whisky is three years. If you do not have it in small wood barrels for three years, you cannot call it Canadian Whisky. If it does not contain 40 per cent alcohol, you cannot call it Canadian Whisky. If it is not made in Canada, you cannot call it Canadian Whisky. Most of the countries around the world that produce whisky have standards, not exactly the same but comparable standards, for determining what constitutes products from their country.
It is fair to say that, generally speaking, age does denote more value. We are a unique industry in that, when we make our products, we then hide them. It costs a lot of money to hide them for a long period of time. If you like drinking 10-year-old, 15-year-old or 20-year-old whisky, you must realize that it costs a lot of money for someone to produce that — to make the whisky in the first place, then to buy the barrel and store the whisky in it for that period of time. Your assumption is correct. The older it is, generally speaking, the more valuable it is.
In Canada and most other countries that produce whisky, there are strict rules having to do with the confidence of being able to collect the appropriate taxes. Stringent records are kept of what product is put in what barrels and where it is stored and for how long. The Government of Canada participates in that by certifying that that product has been kept for a period of time and that it was actually produced in Canada. Many other countries that produce whisky have similar statutes.
In order for us to export our whisky, a number of other countries, including the United States, require us to provide them with age-and-origin certificates validated by government in order to be able to export that product as Canadian whisky.
That is a long-winded way of saying, ``You are right, and that is how and why.''
Senator Peterson: It is a marketing issue, then, and it does not have to be in the bill.
Mr. Westcott: It does not have to be in this particular bill, but if countries that we try to export to say, ``You cannot bring that product into our coumtry unless you can show an age-and-origin certificate that is validated by government, that is a significant issue for the industry and not simply a marketing issue.
Mr. Hélie: Historically, those requirements were part of the Excise Act regulations. In 2001, when the new Excise Act came in, this and a number of other elements were left orphaned. They are out there needing a permanent legislative home, and we are on the look-out for appropriate legislative vehicles for us to find permanent homes for those outstanding pieces of regulation that were previously included within the Excise Act.
Mr. Westcott: We are not saying, ``Put it in Bill S-38.'' We are saying, ``It is worth a look.''
Senator Peterson: It has to be somewhere, you are saying.
Mr. Westcott: Yes.
Senator Chaput: Mr. Stolarik, you talked about clause 14. (1)(a). Could you repeat the changes you said should be made there?
Mr. Stolarik: Yes, in 14. (1)(a), after the words ``made from sugar cane products,'' just leave out the words ``of a Commonwealth Caribbean country,'' and then make it read ``fermented and distilled in a Commonwealth Caribbean country.''
Senator Chaput: Does this mean that their products could be bought from another country? Could you buy it from Cuba, bring it into your country and make the rum, as an example?
Mr. Stolarik: You mean the molasses?
Senator Chaput: Yes.
Mr. Stolarik: You could bring in the molasses, yes.
Senator Chaput: If this is changed the way you want it to be changed.
Mr. Stolarik: Yes.
Senator Chaput: If it is left this way, is that possible?
Mr. Stolarik: Anything is possible, yes.
Senator Chaput: Even though it says —
Mr. Stolarik: There are other regulations that follow. Subclause (1)(b) specifies that the product has to be distilled in a Commonwealth Caribbean country. There are other safeguards there.
Senator Chaput: The change you want made is just on account of the sugar cane versus the molasses? I am sorry that I am not understanding.
Mr. Stolarik: I am sorry for not explaining myself properly. Molassses comes from sugar cane. You start with sugar cane. You cut it and make molasses out of it. You ferment it and distil the final product into an alcoholic beverage such as rum.
Mr. Hélie: I could try to explain it. You asked whether you could today import sugar cane from a non- Commonwealth Caribbean country like Cuba into a Caribbean country, ferment and distil and call it Caribbean rum. No, you could not do that today. Under the proposed amendment, that would be allowed. That is my understanding.
Mr. Stolarik: But only in a Canadian context.
Senator Chaput: I understand, yes.
Senator Robichaud: That would mean that would change the way things are happening in those countries?
Mr. Stolarik: In a way, yes, you are correct. The Caribbean standard does not specify where the input comes from, the input being the sugar cane. In Canadian legislation we specify the input into the rum, which is sugar cane grown in the Commonwealth Caribbean.
Senator Robichaud: This is not really our role, is it?
Mr. Stolarik: I would not think so, no.
Senator Robichaud: We might as well leave it out?
Mr. Stolarik: That is what we are recommending.
Senator Tkachuk: That way you can sell Caribbean rum, but you do not have to grow anything in the Caribbean. You could buy it cheaper in Venezuela and Brazil.
Mr. Stolarik: You could buy the sugar cane in those countries, but you still have to distil it in the Commonwealth Caribbean country.
Senator Ringuette: The Commonwealth Caribbean country is in regard to imports under the status of a most favoured nation?
Mr. Stolarik: Even better. It is the best standard. In other words, you have MFN, and then you have the GPT, general preferential tariff. This is the best. They get to export to Canada at zero tariff rates. They are like the LDCs, the least developed countries.
Senator Ringuette: What would be the import tariff on bottled Cuban rum, because it seems that is the only way it can come into Canada.
Mr. Stolarik: I do not know the answer. There is an excise tax.
Senator Ringuette: There would be an excise tax on that product in comparison to the Caribbean Commonwealth product?
Mr. Stolarik: Yes, I believe so.
Mr. Hélie: The import duty on rum would equal about two cents per 750 millilitre bottle.
Mr. Stolarik: So it is very minimal.
The Chairman: Thank you so much for spending the time with us tonight. This is an important part of the hearings on this bill. Like you, we will be finding out what the amendments are by Thursday, and we look forward to that.
The committee adjourned.