Why Killing the IILA Didn’t Free the Beer

Rainer Knopff
August 25, 2020
As you take that satisfying summertime pull of the frothy, feel crisp cool wine on your lips or perk up to the sound of ice cubes rattling, you might pause to consider just how much your adult beverage has endured to find its way into your possession. Provincial liquor control monopolies, in particular, limit the acquisition and jack up the prices of “imported” beverages – even those produced in the next province. Hopes ran high that the most recent round of legal jousting and political fine-tuning would throw things wide open. Constitutional law expert and connoisseur of fermentation and distillation Rainer Knopff explains why, sadly, killing the IILA didn’t free the beer.

Why Killing the IILA Didn’t Free the Beer

Rainer Knopff
August 25, 2020
As you take that satisfying summertime pull of the frothy, feel crisp cool wine on your lips or perk up to the sound of ice cubes rattling, you might pause to consider just how much your adult beverage has endured to find its way into your possession. Provincial liquor control monopolies, in particular, limit the acquisition and jack up the prices of “imported” beverages – even those produced in the next province. Hopes ran high that the most recent round of legal jousting and political fine-tuning would throw things wide open. Constitutional law expert and connoisseur of fermentation and distillation Rainer Knopff explains why, sadly, killing the IILA didn’t free the beer.
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IILA, you ask? Good question. It’s short for the federal Importation of Intoxicating Liquors Act, which makes it an offence punishable by fine or imprisonment for anyone other than the liquor agencies of recipient provinces to “import” alcoholic beverages. Ottawa enacted the law in 1928 at the behest of provinces that wished to replace the outright prohibition of liquor (which most had variously imposed from the mid-1910s into the late 1920s) with government “liquor control” monopolies. Lacking the constitutional power over imports required to monopolize retail sales, the provinces needed federal help. The whole point of the law, the Supreme Court confirmed in 1997, was to “lend federal power to the provinces to cement their liquor monopolies.”

The provincial monopolies needed federally cemented barriers against both foreign and domestic imports (however oxymoronic the latter term might sound). Consider, for example, New Brunswick’s Liquor Control Act, which makes it illegal to possess all but negligible quantities of alcohol not purchased from the province’s Liquor Corporation. This prohibition would be undone not only if whisky from Scotland, malbec from Argentina or chardonnay from California could readily bypass the Corporation, but also if provincial residents could freely drive cases of Crown Royal across the border, float boatloads of beer across the Baie des Chaleurs or order large direct-to-consumer (DTC) shipments of pinot gris from Ontario. Accordingly, the IILA allowed no product from any out-of-province “place within or outside Canada” to dodge government liquor agencies. Cementing the liquor monopolies meant lending provinces Ottawa’s broad and exclusive jurisdiction over both international and interprovincial trade. 

Provincial laws from coast to coast are being fought by
Like provincial monopolies from coast to coast, the New Brunswick Liquor Corporation has veto power over domestic as well as international booze imports.

For generations free traders, commercial operators and ordinary tipplers have chafed under the trade restrictions predictably imposed by IILA-cemented monopolies. Canadian wineries and craft breweries, for example, often find it difficult or impossible to get into stores in other provinces. Former B.C. Premier Christy Clark reportedly once told her Ontario counterpart, Kathleen Wynne, to consider a gift of B.C. wine “a special delivery because if you went into a store in Ontario to buy this, you wouldn’t be able to get it.” Similarly, Deron Bilous, Economic Development Minister in Alberta’s former NDP government, complained in 2018 that “it’s easier to sell Alberta beer in Tokyo than it is in Toronto.

Not that the governments in which Christy Clark and Deron Bilous participated were paragons of free-trade virtue. When Clark’s Liberal government allowed wine to be sold in some grocery stores, it reserved the new retail space for B.C. wines. And Alberta’s NDP government discriminated against craft breweries from other provinces through aggressive “tax-and-subsidy protectionism” favouring its own brewers. Both forms of discrimination have since been dismantled, but they speak to the hypocrisy that abounds in interprovincial trade wars.  

In 2018 the Supreme Court of Canada had its chance to give the free-trade side in these wars a major boost. But by infamously declining to “free the beer” in its Comeau decision, the high court punted the issue to politicians. Ottawa stepped up in 2019, sliding into a huge omnibus budget bill provisions to kill the IILA’s backing for the provincial stranglehold on the interprovincial liquor trade (the law still requires foreign imports to go through the agencies). In removing “the only remaining federal barrier to trade of Canadian wine, beer and spirits within Canada,” exulted Prime Minister Justin Trudeau, we “freed the beer.”  

Canada should work to
In many provinces it's easier to enjoy a drink of South African craft beer than a wine from a neighbouring province. (Pictured, then-Premier of Ontario Kathleen Wynne)

No, they didn’t. Booze must still flow through restrictive provincial agencies even though that is no longer required by federal law. Those boatloads of beer and DTC shipments of pinot gris still can’t bypass the New Brunswick Liquor Corporation. Why? Because the Supreme Court’s Comeau judgment freed not beer but provincial politicians and bureaucrats, enabling them to monopolize interprovincial trade without federal assistance. Simply put, the Court changed its mind about the status and role of the IILA. Having previously described it as cementing provincial liquor monopolies, the Court portrayed the IILA in Comeau as merely “endors[ing]” what provinces could do without federal help. Had the 2019 federal amendments kicked out the concrete foundation needed by trade-restrictive monopolies, that might indeed have liberated interprovincial trade. But after Comeau, Ottawa could do no more than kill its endorsement of the monopolies. That emphatically did not free the beer.

Provincial protectionism continues to work against
Provincial protectionism: Both B.C.’s Christy Clark and Alberta's Rachel Notley sought to protect and promote their own province's output.

It should be noted that even when the IILA cemented New Brunswick-style retail monopolies, it did not require them. Focusing only on “importation,” the IILA always left provinces free to privatize the retailing of alcohol. Alberta famously did exactly this in 1993. Provinces are not free, however, to relinquish control of the “imports” governed by the IILA. This explains why the Alberta Gaming, Liquor and Cannabis Commission (AGLC) has remained the “legal importer” and wholesaler of alcohol coming from outside the province. The AGLC also wholesales alcohol produced within the province, allowing it to collect a “markup” on all alcoholic beverages before they move to privatized outlets. Even in Alberta, the IILA-mandated control of imports has remained highly convenient to the government.

The IILA proved convenient for Alberta in a more distinctly political way in early 2018, when the province countered B.C.’s opposition to the Trans Mountain Pipeline expansion by ordering “an immediate halt to the import of British Columbia wine.” Premier Rachel Notley even put a cork in DTC wine shipments from B.C. The IILA had been modestly amended by Stephen Harper’s government to enable DTC orders across provincial lines, but only “in quantities and as permitted by the laws of” receiving provinces. Just three provinces took up this invitation, and Notley made it clear that Alberta was not among them (though it had been turning a blind eye to the practice). Thankfully, the “pipewine war” was short-lived

Busted: In the Comeau case, the Supreme Court of Canada declined to “free the beer.”

Although Alberta remains the only province to fully privatize the retailing of alcohol, the strict monopolistic control exemplified by New Brunswick is no longer the most common model in Canada. Several other provinces have introduced carefully restricted private trade. The aforementioned grocery-store sales in B.C. are one example. That province also permits certain stand-alone liquor stores to exist alongside – sometimes literally side-by-side with – government liquor stores. Analogous blends of public and private retailing exist elsewhere in Canada. Private sales are tightly circumscribed to protect government outlets, however, and government stores continue to dominate the retail landscape everywhere but Alberta.

If the IILA’s pre-Comeau constraint of cross-border alcohol trade remained convenient even in Alberta, it was critical to provinces intent on maintaining the viability of government stores. According to Ian Blue, a senior Ontario-based litigator with deep experience in interprovincial trade issues, provincial monopolies existed only because of the IILA. It was the federal law, Blue argued in a 2009 article – fittingly entitled On the Rocks – that “create[d] provincial liquor monopolies.” Without this federal cornerstone, he suggested, government monopolies would topple.

Free the beer groups want to see liberation of our liquor laws, a move akin to the privatization of Alberta's liquor stores in the 1990s.
Free the beer groups are hoping for the modernization of liquor laws, akin to Alberta's move to privatize liquor stores in the 1990s.
Product variety, store locations and opening hours all proliferated following Alberta's privatization of liquor retailing in 1993 (Above: Alberta Liquor Control Board Store in Onoway, and below, in Edmonton).

Blue did not look to the political process to topple them; he hoped judges would do the job. By “clearly imped[ing] interprovincial trade in Canadian liquor,” Blue argued, the IILA infringed section 121 of the Constitution Act, 1867. That section states that “all articles of the growth, produce, or manufacture of any one of the provinces shall…be admitted free into each of the other provinces.” Previous jurisprudence had read section 121 as prohibiting only the establishment of explicit customs duties or tariffs at provincial borders, something the IILA did not do. But in a series of articles between 2009 and 2011, Blue argued that it was “long overdue” for the Supreme Court to “say goodbye” to this antiquated and narrow interpretation of the Constitution’s free-trade provision. Modern jurisprudence, his 2009 piece insisted, gave “the Supreme Court…no other respectable choice but to strike the IILA down.” Millions of consumers would have said “Cheers to that.”

In May 2011 Terry David Mulligan decided to test Blue’s contention. The well-known B.C. radio host, actor, and wine journalist publicly announced his plan to drive a case of wine from B.C. into Alberta, hoping to be arrested and charged so that he could challenge the constitutionality of the IILA in court. The RCMP declined to play along. “It does not appear prosecuting him is in the public interest,” said a local spokesman. Blue must have been disappointed that Mulligan failed to bring his concerns before a judge.

Former Premier Notley worked against
“Pipewine” politics: opposition to the Trans Mountain Pipeline expansion prompted Alberta briefly to boycott B.C. wine.

In October 2012 Gerard Comeau, a resident of Tracadie, New Brunswick, did get the issue of liquor monopolies into court, though that wasn’t his plan. Like Mulligan, Comeau drove alcohol across a provincial border – from Quebec to New Brunswick – but he did so for personal consumption, not to make a policy point. He was one of many Canadians who occasionally nip across a provincial border to get better-priced or tastier varieties of alcohol (as well as any number of other goods, all of which are legally transportable). This time the RCMP were interested, nabbing him in a two-day sting to charge New Brunswickers who brought comparatively cheap adult beverages home from Quebec. Facing a $240 fine, Comeau went to court.

Comeau won at trial, raising the spirits of consumers and free traders. New Brunswick appealed, but when its own high court declined to hear the case the province proceeded to the Supreme Court of Canada. Ian Blue represented Comeau at the Supreme Court. The case also attracted numerous intervenors, including nearly all other provincial and territorial governments and many non-governmental organizations.

Comeau was charged not with importing contrary to the IILA but with possessing alcohol “not purchased from” New Brunswick’s liquor monopoly. Nevertheless, the IILA was very much in play. In Comeau’s Supreme Court factum, Blue reiterated his claim that “provinces enjoy their monopolies entirely because of” the IILA. The federal law was “the cornerstone of provincial liquor monopolies in Canada” – the unconstitutional cornerstone, Blue was now able to argue before a panel of judges.

Advocates of common sense: Terry David Mulligan tried to provoke a court challenge to the constitutionality of interprovincial liquor restrictions, while Ian Blue was able to do so.

New Brunswick, on the other side of the case, took a similar position on the IILA’s importance. Quoting the Supreme Court’s 1997 line about the IILA cementing liquor monopolies, New Brunswick added that the federal law was “not permissive” but “require[d] mandatory compliance with provincial regulation.” “Each Act,” argued New Brunswick, “complements the other within their legitimate sphere of power” – and each was constitutional.

Both parties before the Supreme Court, in other words, maintained the traditional and court-affirmed view of the federal and provincial laws as establishing an interdependent arrangement of cooperative federalism, a package deal whose parts should stand or fall together. New Brunswick wanted the package to stand while Comeau and Blue wanted it to fall, but each side saw the federal IILA as necessary for provincial liquor monopolies. This was, after all, why the IILA had been enacted in the first place, and why the Supreme Court declared in 1997 that unless it “accomplish[ed] something that it was not within the competence of the provinces to accomplish themselves,” the IILA “would be surplus legislation,” unable to “cement” provincial liquor monopolies.

In Comeau, the Supreme Court turned cement into surplus legislation. The judges conceded that New Brunswick’s strict limits on the possession of alcohol not purchased from the provincial monopoly often meant that “out-of-province liquor is not just prevented from being ‘admitted free’; it cannot be admitted at all.” Because the possession limits applied as much to liquor bought from local “bootleggers” – that was the Court’s example! – as they did to imports, however, their admittedly “extreme” effect on interprovincial trade was “only incidental” to the “primary purpose” of “control[ling] the supply and use of liquor within the province.” What justifies trade-restrictive monopolies? Why, the desire to exercise monopolistic control, of course.

This circular reasoning does more than inoculate New Brunswick’s monopoly against the free-admission language of section 121 of the Constitution Act, 1867; it also protects it against the charge of trespassing on exclusive federal jurisdiction over interprovincial trade and commerce. Longstanding case law holds that a provincial law can “incidentally” affect federal jurisdiction if its dominant thrust – its “pith and substance” in the jargon of federalism jurisprudence – is provincial. The “primary purpose” of liquor control within the province is the “pith and substance” that justifies New Brunswick’s incidental “overlap” with the federal “trade and commerce power.” 

But this leaves nothing for the IILA to achieve that lies beyond “the competence of provinces to accomplish themselves.” The IILA, said the Supreme Court in its single substantive mention of the federal law, “endorses provinces’ capacity to enact such schemes” as New Brunswick’s (emphasis added). With that, the Comeau judgment reduced the IILA from a must-have to a nice-to-have. This legal demotion meant that the Trudeau government’s 2019 legislative amendments did not undermine provincial liquor monopolies at all; they merely deprived the monopolies of the newly described federal “endorsement.”

Unlike
Trudeau has failed to work to
Unlike the drastic ruling that ended prohibition in 1924, and despite Prime Minister Trudeau’s excitement, his government did not undermine provincial liquor monopolies.

The monopolies certainly should be deprived of federal endorsement, but they can and do manage without it. If the IILA were still foundational cement, removing it might indeed have begun unravelling the monopolies, because both individual consumers and out-of-province suppliers of alcoholic beverages could routinely bypass them. In that case, Trudeau’s claim to have freed the beer (as well as wine and spirits) would have come closer to the mark. Instead, he simultaneously had to concede that free trade cannot happen until the provinces “change their regulations.” Trudeau surely knew the Supreme Court had placed the real power to free the beer in provincial hands, making Ottawa’s partial repeal of the IILA a largely empty gesture.

Nearly as empty is the gesture premiers have talked about, namely raising the personal exemption of alcohol that can physically accompany one across a provincial border. This benefits mainly those who live near borders, like Gerard Comeau, who would no doubt approve. But what if Comeau wished to purchase Okanagan wine available at neither his local government store nor his favourite Quebec outlet? Lifting all remaining restrictions on DTC shipments is one answer to that question. Another is the fully privatized retailing of alcoholic beverages which, by making it “consumers, not bureaucrats, who decide what sells,” has vastly expanded product availability and accessibility in Alberta.

Hope remains alive that Canadian wine might one day flow freely, no matter the province you are in.

During the Covid-19 pandemic, a growing chorus has called for Canada to repatriate the manufacture of products necessary to health and security, or at least to stop outsourcing them to hostile regimes like China. But this logic does not apply to alcoholic beverages, even though they were as exempt from pandemic lockdown as groceries or pharmaceuticals. To the contrary, freeing the interprovincial trade of alcohol would be a start – but only a start – toward the enhanced domestic trade needed to offset the burden of greater economic nationalism. 

The Supreme Court’s Comeau judgment ensured that killing the domestic part of the IILA would contribute little beyond symbolism to making that start. The Constitution’s free-trade provision has shown enough post-Comeau life for judges to invalidate Alberta’s “tariff-like” discrimination in favour of local craft beer, so there’s evidently still a role for the courts. But freeing the booze is now mostly up to provincial governments. Is there enough thirst for political reform? Hope springs eternal.

Rainer Knopff is Professor Emeritus of Political Science at the University of Calgary. 

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