Canadian vintners are fuming over the European Union's decision to challenge a small tax break they're getting for wine they make from purely Canadian grapes.

"I am shocked that countries like France apparently aren't satisfied with Europe owning 50 percent of our market," said Ed Madronich, owner of Flat Rock Cellars in the Niagara region.

George Heiss, owner of Gray Monk Cellars in Kelowna, British Columbia, suggested a boycott of EU wines might be in order. "Canadians need to let the EU know that they won't stand for such bullying tactics," he said. "The public can certainly send a message with their purchasing decisions in provincial liquor stores."

The EU filed a formal challenge with the World Trade Organization last week. Some of Europe's largest wine producers, led by France, urged the EU commission to act. Mariann Fischer Boel, the EU's commissioner for agriculture and rural development, said the exemption discriminates against European products by preventing them from enjoying a level playing field within the Canadian market.

Dan Paszkowski, president of the Canadian Vintners Association, regards the situation very differently. "This is simply a matter of greed on the part of some of Europe's largest wineries who aren't satisfied with 50 percent of the market in Canada and want to jeopardize the future of our small and mid-sized wineries," he said.

All of the controversy began last summer when the Canadian government announced it would increase the excise tax for larger Canadian wineries on wines that included some imported grapes, but give smaller wineries a break on wine they produced from 100-percent Canadian grapes.

The exemption per litre of 100-percent Canadian wine totals about CAN$10 million in tax breaks annually. It works out to most of Canada's 250 producers getting $10,000 to $15,000 based on their small production volumes.

"Most wine-producing countries do not charge excise tax, and both the United States and Australia provide rebates to their smaller producers," notes Paszkowski. "Yet the heavily subsidized EU has chosen to focus exclusively on Canada."

The EU's challenge further bewilders Canadian vintners since the exemption applies to only about five percent of domestic retail sales in Canada - half of which doesn't even compete with imports for shelf space because this wine is sold at the wineries. "This further means that 95 percent of Canadian wine retail sales face exactly the same tax system as wines exported to Canada by EU countries," Paszkowski emphasizes.

It's the precedent being set that's dangerous, according to EU officials.


"Our primary concern is to address an issue of principle, namely to avoid distortions of international trade," stated Dorian Prince, ambassador and head of delegation of the European Commission to Canada.

While Canadian vintners insist the tax advantage is too small for the EU to squabble over, they maintain it's essential for small- and medium-size Canadian estate wineries to invest in employee training, new technologies, or vineyard improvements they might not otherwise be able to afford because of the small scale of their operations.

So Canada is ready to compare its small assistance with European initiatives.

"The Europeans provide more than $US 2 billion in grape and wine subsidies
which ultimately assist European products in entering export markets and
giving them the ability to do so at a competitive price," Paszkowski said. "When our country provides minimal assistance to a very small portion of our industry, the EU
suddenly claims it's unfair."

So the CVA, British Columbia Wine Institute, and others within the Canadian wine industry are pointing to the US$120-million program that France announced in 2005 to help its wine industry deal with an oversupply. They're also noting the EU agricultural subsidies available to Europe's wine-producing countries to restructure, replant or convert vineyards. The program is estimated to have been worth US$1 billion in 2004/05 alone.

If consultations now taking place fail to resolve the matter, the EU will likely ask the WTO to set up a panel to rule on whether the Canadian tax break is legal.







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