Impact of the Canada-US Free Trade Agreement on US Wine Exports
After several years of negotiations, Canada–US Free Trade Agreement went into effect on January 1, 1989. By definition, a free trade agreement creates a group of countries that mutually decide to reduce tariffs among themselves while maintaining their original duties against non-members. The Canada-US deal reduced limits on the imports and marketing of wine produced in the US.
Moreover, it enabled the elimination of tariffs on American wines. Since the implementation of the Canada-US Free Trade Agreement, the volume of wine shipped from the US to Canada has more than doubled annually. More significantly, as a result of the removal of numerous non-tariff barriers as well as tariffs, the value of exports has nearly quadrupled as US producers have transported higher-quality expensive wines.
In particular, the deal called for the abolition of three specific discriminatory practices in the winemaking industry. These practices included listing practices, in which the liquor control board in each US and Canadian province determined which wines were allowed to be sold, pricing practices based on additional “markup” formulas for imported wines versus domestic wines, and new distribution practices requiring Canada to treat US wines as if they were domestic wines. Due to the low quantities of wines accessible in Canada, the United States was primarily worried about listing procedures in government-run liquor control boards.
Imports accounted for about three-quarters of Canadian wine consumption before the free trade deal. Wine from the European Union accounts for roughly 78% of all wine imported into Canada. During the period under consideration, US exports to Canada averaged four million gallons per year, out of a total of around ten million gallons exported by the US.
In 1988, US wines accounted for 12.6% of all wines imported by Canada. The major wine export markets for the United States were Canada and the United Kingdom (UK). The US federal government and the California wine industry were both interested in the Canadian market due to its limited market share.
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Before the Canada-US free trade agreement, the National Trade Estimate (NTE) on Foreign Trade Barriers (US Trade Representative) estimated that the wine industry in the United States would lose $20 million to $30 million annually and that the Canadian market would be worth $100 million to $175 million per year if all existing barriers were eliminated, which proved positive after the agreement.
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