ONTARIO Case

Ontario Environmental Beer Tax (ONTARIO)



          CASE NUMBER:          55 
          CASE MNEMONIC:      ONTARIO
          CASE NAME:          Ontario Beer Can Controversy

A.        IDENTIFICATION
1.        The Issue
     In April 1992, after several years of negotiations and two
GATT panel decisions against Canada, the United States and Canada
finally reached agreement over how to change Canadian policies that
were determined to be discriminatory against imported beer.  Five
days later, the Ontario government placed an "environmental tax" of
10 per can on aluminum beer containers.  The United States claimed
this tax was merely economic protection because it did not apply to
any other aluminum beverage containers except beer.  The United
States responded by placing a $3 per case tax (50 percent ad
valorem) on beer imported from Ontario.  The Ontario government
responded equally with an additional tax of $3 per case on U.S.
beer.  Although Ontario offered GATT dispute settlement, the United
States refused, claiming this was yet another stalling tactic, and
that the case has already been settled by GATT twice before. 
Bilateral negotiations have been going on since late 1992, but no
agreement has yet been reached.  It is suspected that breweries in
Ontario are now trans-shipping their beer through other provinces,
such as Quebec, for export to the United States, thereby avoiding
the import penalties.
2.        Description
     The dispute between Canada and the United States dates back to
1984, when the European Community started GATT dispute settlement
procedures against Canada, claiming that they had discriminatory
policies against alcoholic beverages in the separate provinces. 
After negotiations were unsuccessful, the European Community and
the United States asked for a GATT panel hearing in 1985.   After
several unsuccessful negotiating attempts, the GATT panel ruled
against Canada in 1988, requiring them to remove the discriminatory
policies by the end of that year.  Two years later, U.S. brewers
complained that Canada had still failed to comply with the GATT
ruling, and the United States filed new charges with GATT.  In
October 1991, the second GATT panel found that Canada had failed to
comply with the 1988 ruling.  Canada promised to comply with the
new ruling and held negotiations with the U.S. Trade Representative
during the first four months of 1992 to determine what changes
would be made in order to prevent the discriminatory practices.  
     After reaching an agreement on April 25, five days later the
province of Ontario announced a new "environmental tax" of 10% per
aluminum beer can.   Since U.S. beer makers sell most of their beer
in cans, while Canadian beer makers bottle over 80 percent of their
beer, the United States felt that the "environmental tax" was
unfairly discriminating against imported beer.  Their claims were
substantiated by the fact that the tax only applied to aluminum
beer cans and not aluminum soft drink containers.
     Canadians cite the 97.3 percent return rate on glass beer
bottles as evidence that they are serious about this environmental
initiative.  However, this issue also raised serious disagreements
from the aluminum industry within Canada as well.  They disagreed
with the Ontarian government about using aluminum recycling rates
as "ammunition" in a trade war.  They claimed that the weight of
bottle caps that end up in landfills was more than the 12 percent
of aluminum not recycled.
     The United States continued to object to Ontario's
environmental tax, arguing that it was simply a new form of unfair
discrimination, especially since all other provinces had finally
complied with the GATT finding.  In response to U.S. allegations,
the Ontario government offered to let GATT settle the dispute.  The
United States argued that Ontario was simply stalling and not
complying with the GATT decision as they had promised.  On July 24,
1992, after two more months of negotiation, the United States
imposed a $3 per case tax on beer imported from Ontario.  Ontario
responded with an equal tax on Stroh and Heileman beers (the two
largest U.S. exporters into Ontario).  Although negotiations have
been under way since late 1992, there has been no settlement up to
now.
3.        Related Cases
     Keyword Clusters         
     (1): Trade Product            = BEER
     (2): Bio-geography            = TEMPerate
     (3): Environmental Problem    = Pollution Land [POLL]
4.        Draft Author: Kathyrn T. Bunting
B.        LEGAL Filters
5.        Discourse and Status:  DISagreement and INPROGress
     The EC started dispute settlement procedures with Canada in
1984, charging discriminatory provincial restrictions on alcoholic
beverages including beer.  A GATT panel ruled against Canada in
that case as well.  In 1988, the United States complained that
Canada had not lived up to the agreement.  
6.        Forum and Scope:  GATT and MULTIlateral
     Although this case has been underway for some time, and has
been sent to the GATT, no doubt it will now fall under the
strictures of the NAFTA agreement.  This case has several
similarities with the DANISH beer bottle case.
7.        Decision Breadth:  116 (GATT signatories)
8.        Legal Standing:  TREATY
     This issue has at various times fallen under the purview of
the GATT as well as the US-Canada Free Trade Area, now superseded
by NAFTA (see NAFTA case).

C.        GEOGRAPHIC Filters
9.        Geographic Locations
     a.   Geographic Domain : North America [NAMER]
     b.   Geographic Site   : Northern North America [NNAMER]
     c.   Geographic Impact : CANADA
10.       Sub-National Factors:  YES
     The United States has retaliated against Canadian brewers only
from the province of Ontario.  Ontario is the only province not in
compliance with GATT procedures.  This has led to a split between
the Canadian government and Ontario on the issue (see ITALYBAG and DUTCHWD cases).
11.       Type of Habitat:  Temperate [TEMP]
D.        TRADE Filters
12.       Type of Measure:  Import Tax [IMTAX] 
      Canada first imposed a 10 percent environmental import tax
and the United States responded with a 50 percent retaliatory
tariff.
13.       Direct vs. Indirect Impacts:  Indirect
     The Ontario beer tax is indirect, since it applies to all
aluminum beer cans, including those domestically produced. 
However, the import tariff imposed by the United States is a direct
measure.
14.       Relation of Trade Measure to Resource Impact
     a.  Directly Related     : YES  BEER 
     b.  Indirectly Related   : YES  ALUMinum 
     c.  Not Related          : NO
     d.  Process Related      : YES  Waste Land [WASL]
15.       Trade Product Identification:  BEER
     U.S. beer exports to Ontario totaled $30 million, while its
imports from there equalled $170 million.  The leading U.S.
exporters are Stroh Breweries and Heileman Breweries and the
leading Canadian exporters are Molson Breweries and Labatt's
Breweries.
16.       Economic Data
     Impact on domestic market may be larger than impact on the
trade market.  Expected price increases for Canadian beer and the
absence of lower priced brands could lead to smaller output and the
potential loss of 200 jobs.  
17.       Impact of Measure on Trade Competitiveness:  MEDIUM
     The United States imposed an ad valorem tariff of 50 percent
on beer imports from Ontario province only.
18.       Industry Sector:  FOOD
19.       Exporter and Importer:  USA and CANDA
E.        ENVIRONMENT Filters
20.       Environmental Problem Type:  Waste Land [WASL]
     Canada has alleged several problems that were addressed by the
tax.  First and foremost, was the preference for glass bottles in
Canada because they were more easily recyclable there.  An
additional reason was to protect the environment of Jamaica which
supplies the raw bauxite to make aluminum cans (see BAUXITE case).
21.       Name, Type, and Diversity of Species 
     Name:          Many
     Type:          Many
     Diversity:     335 higher plants per 10,000 km/sq (Canada)
22.       Resource Impact and Effect:  LOW and Structure [STRCT]
     The impact on the Canadian environment is likely to be
minimal.  Canada imports aluminum and Ontario has already an 88
percent recycling rate, one of the highest in the world.
23.       Urgency and Lifetime:  LONG and 100s of years
24.       Substitutes:  RECYCling
     "The number of times that a bottle is refilled is known as
'trippage'."  Some in United States report refilling rates of 5-6
times per year.  Coke bottles in the 1950s averaged 50 trippages,
but this rate has now fallen now to 1 to 8.5.  Canadian ratio from
various sites is 5 to 20.
VI.       OTHER Factors
25.       Culture: NO
26.       Trans-Border: NO
     Related to the case is the condition of Canada's landfills,
which are quickly being filled.  Canada has started exporting waste
to the United States, in part because the disposal rates are lower
than in Canada.  Containers make up a significant part of waste
volumes.
27.       Human Rights: NO
28.       Relevant Literature
"Alcan Threatens to Sue Ontario over 50 Percent Tax on Beer
     Cans."  The Toronto Star (May 22, 1992): 4.
"Canada Presses for Beer Case to go Back to GATT as U.S.
     Retaliates."  Inside U.S. Trade (BNA, July 31, 1992): 5-
     6.
Chaplin, Scott.  "The Return of Refillable Bottles."  Resource
     Recycling (March 1991): 1331-1335.
Dunne, Nancy and Simon, Bernard. "Canada-U.S. Beer War Gets Green
     Tinge."  Financial Times (July 31, 1992).
Durkee, Michael. "Stating the Case for American Beer." 
     The Globe and Mail (August 6, 1992).
Farnsworth, Clyde.  "U.S. and Canada may Meet on Trade."  
     New York Times (September 28, 1992).
Feschuk, Scott. "U.S. Denounces Plan to Break Ice in Beer War."
     The Globe and Mail, (July 30, 1992).
Inside U.S. Trade.  "Special Report" (June 26, 1992): S1-4.
"LCBO Cuts Off Two U.S. Brewers."  The Globe and Mail.  Toronto
     (July 28, 1992).
Morton, Peter.  "Canada Offers to Let GATT Decide Beer War." 
     Financial Post (July 29, 1992).
Morton, Peter.  "Proposal to Settle Beer War 'Flawed;" U.S."  
     The Financial Post (November 28, 1992): 3.
"Ontario Main Obstacle to U.S. Beer Sales in Canada."  
     The Globe and Mail (June 4, 1992).
Pape, Bob.  "Alcan mounts Attack on Beer-Can Levy."  Toronto Star
     (November 12, 1992).  
Ryan, Leo.  "Ontario's Can Tax Angers Aluminum, Beer Industries."
     Journal of Commerce (May 26, 1992)
"Stating the Case for the American Beer."  Toronto Globe and
     Mail (August 6, 1992).
"U.S. Close to Imposing 50 percent Tariff on Ontario in Beer
     Dispute."  International Trade Reporter (July 24, 1992):
     21-2.

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