Is Hong Kong a model for the wine market in Alberta?
At the invitation of the Hong Kong government, I recently spent a week in the Special Administrative Region (SAR) of China. I met with government officials from InvestHK and Commerce and Economic Development, members of the wine and restaurant trade, wine store owners and a Hong Kong-based Master of Wine. I also attended the Hong Kong International Wine & Spirits Fair to learn about the city’s wine-related businesses, the regulatory and tax structures in which these businesses operate, and the wine culture and trends in Hong Kong, China and Asia.
What became abundantly clear is that this highly concentrated population centre (roughly 7.2 million people in 1,104 square km is the wine hub of Asia and one of the most important markets in the world.
The major catalyst for the rise of Hong Kong’s wine industry appears to be the elimination of all taxes on imported wine in 2008. Actually, it was the removal of all taxes on alcohol under 30% alcohol/volume which specifically benefited wine, beer and sake. All duty-related administrative controls for wine imports were also removed as was the need for wine importers to register, thus eliminating the tiered system of importers and distributors.
According to InvestHK (the government department responsible for attracting and facilitating foreign direct investment into Hong Kong), since the elimination of tariffs, the value of wine imported into Hong Kong increased from US$367 million in 2008 to US$1.38 billion in 2015.
In addition, all the major auction houses have set up in Hong Kong (which makes sense according to Gregory De’Eb of Crown Wine Cellars, who determined that 15 to 17 per cent of all fine and rare wine in storage facilities around the world was owned by Hong Kong collectors and approximately 50 per cent of the auction buyers for rare and fine wines are based in Hong Kong).
Crown Wine Cellars also may be the premier state-of-the-art wine storage facility in the world.
Hong Kong appears also to have become a major redistribution point to ship wine to other parts of Asia, in particular Mainland China (where the admin controls are much more arduous), as according to the Hong Kong Department of Commerce and Economic Development, 80 per cent of wine imported into Hong Kong is re-exported throughout Asia.
The question becomes, how can Alberta learn from the Hong Kong model?
Like Alberta, Hong Kong is a non-wine producing state. And we all know that liquor laws across Canada are antiquated and rooted in Prohibition-era thinking. The laws of this country should reflect the current social norms, as opposed to almost century-old attitudes.
Alberta took a major step by privatizing the importation and retailing of alcohol in 1993. The result was better selection and access for the consumer. But I’ve always said that privatization didn’t go far enough. There is already no barrier to entry in Alberta with respect to the importation of wines, but let’s contemplate going further.
First, from the HK model we see that it is okay to distinguish wine and craft beer from high-alcohol spirits.
Then, let’s go a little crazy. The Alberta government should eliminate provincial taxes on wine imports, eliminate the tiered system of importers and retailers, allow private warehouses for the storage and distribution of wine and allow direct sales from importers to restaurants and importers to consumers. The government should also allow wine auctions so people can sell their collections for profit (currently they can only donate to charity wine auctions).
The result should be even greater selection, better service, the lowest wine prices in the country and an increase in corporate tax revenue from existing and new companies in the wine industry and related businesses (which should more than compensate for the loss in import tax revenue — which is exactly what happened in Hong Kong).
It is important to note, as the issue arises anytime there is a discussion about evolving liquor laws that may make wine more accessible, that after the overhaul of the tax and regulatory system for wine in Hong Kong in 2008, the SAR has experienced no greater incidence of alcoholism or alcohol-related issues. That’s according to all members of the government and wine industry with whom I spoke.
A key component that needs to occur is beyond the control of the Alberta government, but may be imminent. The current court case may ultimately result in the elimination of barriers to interprovincial movement of all goods, including wine. It all starts in New Brunswick, where Comeau was charged with carrying 14 cases of beer and a few bottles of liquor across the border from Quebec. He fought the charges and won on constitutional grounds — but the case has been appealed and may end up going all the way to the Supreme Court of Canada.
If the case reaches the Supreme Court and if the decision is upheld and provincial borders are opened, due to Alberta’s open importation coupled with the archaic monopoly systems in the other Canadian provinces, it would create the opportunity for Alberta to become the wine distribution hub for the rest of Canada.
Here is the problem. A complete overhaul of the laws surrounding the importation, distribution and sale of wine in Alberta is long overdue and needs to be seriously reviewed. But until the government stops thinking about wine as a controlled substance and instead looks at it as most of the rest of the world does — as part of culinary, which is part of culture and integral to the cultural and economic fibre of a community, Alberta is going to miss a tremendous opportunity economically. Looking one step further, Alberta could potentially become a wine hub for parts of North America as, with the currency exchange, more expensive wines are less expensive for those paying in US dollars.
Complete reform of the liquor taxes, laws and regulations is beyond the scope of the Alberta Gaming and Liquor Commission (AGLC). They are operating within the framework of their mandate. The impetus must come from the Premier’s office and the Minister that oversees the AGLC — i.e., currently Premier Rachel Notley and Minister Joe Ceci.
Until the potential effects of the Comeau case are realized and the barriers to the interprovincial movement of goods are eliminated, the argument can be made that Alberta cannot reap the benefits of my proposed reforms. So, let’s compromise. The Alberta government should: lower taxes on wine imports (Hong Kong lowered taxes in stages before eliminating them entirely) and eliminate the tiered system of importers and retailers; allow private warehouses for the storage and distribution of wine; and allow direct sales from importers to restaurants and importers to consumer and allow wine auctions. The province should set the stage for when provincial barriers do fall. In fact, the Alberta government should support Comeau in his fight as the province stands to benefit significantly if the case is upheld.
There is little question that liquor laws across the country are antiquated and archaic. They are based in the government protecting us from ourselves and in many instances the laws and regulations have the opposite effect of what is actually intended (take fenced-in beer gardens, for example, which encourage binge drinking and overconsumption).
My message to the Alberta government (and all provinces across our great country): truly be progressive and create a system based in the next 100 years as opposed to the past 100 years. If the province doesn’t at least explore the possibilities, at minimum it is not reflecting the social norms of society and at worst, the province is missing out on an opportunity to diversify its economy in a very significant way.
The Premier and Minister must look beyond the myopic way that government in North America has traditionally looked at wine. It’s time to go beyond the political rhetoric about being progressive and actually be progressive. It’s time we entered the 21st century and kept up with the rest of the world.