Tuesday, September 01, 2015

Fathers of Confederation: "Be arbitragers not bootleggers!

Good Day Readers:

Sir John A. would have loved this debate given he was a bit of lush.

What's amazing in all this is assuming the cost of producing beer in Quebec versus New Brunswick is about the same, the cost of 24 cans or bottles is about $19 more in the latter. WTF is this not legalized provincial highway robbery?

Sincerely,
Clare L. Pieuk
Free our beer trade

There are no losers in the free trade of beer

By Karen  Selick
Monday, August 31, 2015
Karen Selick Litigation Director for the Canadian Constitution Foundation, is a member of Gerard Comeau's legal team

Pity the poor beer drinkers of New Brunswick. Except for a very small amount of beer - 12 bottles - that they're allowed to being into the province from elsewhere, they have to buy their beer from the ANBL (Alcool New Brunswick Liquor), the provincially owned distributor. ANBL slaps a hefty 89.8 per cent mark-up on the base price. This makes New Brunswick Canada's third most expensive beer jurisdiction. A case of 24 bottles or cans will cost New Brunswickers $19 more than what they would pay in neighbouring Quebec.

That price differential is what impelled Gerald Comeau to drive four hours round trip to stock up on Quebec beer in October, 2012. Mr. Comeau and 16 others were caught in a two-day RCMP sting operation. All his alcohol was seized, and he was charged with possessing excessive non-ANBL-acquired beer.

His trial took place last week in Campbellton, New Brunswick. Rather than pay the $292 fine, Mr. Comeau challenged the constitutionality of New Brunswick's Liquor Control Act. (A decision in the case is expected around the end of April 2016). His lawyers' argument in a nutshell was that Canada's constitution adopted in 1867, contains a provision guaranteeing interprovincial free trade of goods. The Fathers of Confederation didn't want trade barriers between provinces.

Prosecution witness Patrick Oland testified last Friday. He's the Chief Financial Officer of Moosehead Breweries, New Brunswick's oldest independent brewery. Mr. Oland said he is not overly concerned about New Brunswickers making personal beer runs into Quebec for their own use; however, he feared that eliminating the 12-bottle import limit would lead to increased bootlegging; that low-tax Quebec beer would start entering New Brunswick by the tractor-trailer load.
Beer is on display inside a store in Drummondville, Quebec, in July. (Ryan Remiorz/The Canadian Press)

"With Quebec beer, nobody knows just how much illegal importation is occurring right now."

Technically, bootlegging would be impossible once the law were changed. By definition, bootlegging is the making, distributing or selling of goods illegally. If the court struck down the import restriction as unconstitutional, then it would no longer be illegal to transport truckloads of low-tax Quebec beer into high-tax New Brunswick, so it wouldn't be bootlegging. Rather it would be arbitraging. That's the word used  to describe buying goods in one market and selling them in a different market to take advantage of price differentials.

Arbitrage happens all the time. For example, in 2013 enterprising Lithuanian arbitragers travelled to Norway to take advantage of a price war in diapers. They stuffed their cars and took them  home to sell for twice as much - all perfectly legal.

With Quebec beer, nobody knows just how much illegal importation is occurring right now. There are no customs houses forcing anyone to stop for inspection on the two dozen roads between the provinces. Truckloads may be making the trip as you read this. In fact one private investigator testified that on the six days when he observed the Quebec beer store just across the bridge from Campellton, fully two-thirds of the vehicles bore New Brunswick licence plates and drove back across the bridge after loading up. Even the prosecution admitted that New Brunswsickers do this "regularly." One new Brunswick resident told me that a common criterion used by local car buyers is how much beer the vehicle will hold.

The Liquor Control Act has been in force since the early 1960s but the 2012 sting operation was the only time the RCMP have ever tried to enforce the importation limits, New Brunswickers all seemed surprised to learn of the restriction when Mr. Comean was charged. The main map distributed by Tourism News Brunswick warns readers that they must use seatbelts, wear bicycle helmets and not use cell phones while driving, but it's silent about bringing beer into the province. Mr. Oland eventually acknowledged that free trade in beer would have advantages for Moosehead - it could consolidate its operations in one plant.

Even ANBL might see, if it stopped squawking that the sky would fall, that its total revenue might increase if it lowered its per-bottle tax and stopped motivating consumers to visit Quebec. That's what happened when Manitoba opened its borders in 2012 . In short, its hard  to find anyone who would lose from free interprovincial trade in beer.

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