Spirit Drinks Trade Act Compliance and Enforcement Policy

Introduction

The Spirits Drinks Trade Act (SDTA) received royal assent on November 3, 2005 and the Act came into force on June 1, 2006. The Act respects the implementation of international trade commitments by Canada regarding spirit drinks of foreign countries and recognizes that the use of certain spirit drink names are exclusive to their country of origin.

The purpose of the Spirit Drinks Trade Act Compliance and Enforcement Policy is to provide guidance to regulated parties on the legislative requirements regarding the use of names of certain spirit drinks of foreign countries, as well as the range of options available to Agriculture and Agri-Food Canada (AAFC) in order to achieve compliance with the SDTA.

The Minister of Agriculture and Agri-Food Canada (AAFC) is responsible for the SDTA, and assists the parties regulated by the SDTA in complying with the relevant legislative requirements. This is accomplished through a wide variety of approaches, including: promoting compliance through communication and education; assessing the level of compliance through inspection activities; and responding to non-compliance.

It is the responsibility of regulated parties to comply with the SDTA. Where compliance is not achieved, AAFC has a progression of tools in place to respond to non-compliance. While voluntary compliance is expected, if it is not achieved the consequences for the regulated parties are clearly identified, predictable and consistently applied. Regulated parties can expect that any action taken by AAFC will be treated seriously and completed in a professional manner.

The SDTA is administered by AAFC and is enforced by certain officers of the Canada Revenue Agency (CRA) and the Canada Border Services Agency (CBSA) who are designated as inspectors and analysts respectively.

This document is intended to provide guidance only. It is not a substitute for the SDTA. In the event of an inconsistency between this document and the SDTA, the SDTA prevails.

Guiding principles

The following general principles guide AAFC's compliance and enforcement activities in relation to the SDTA:

  • AAFC may help regulated parties learn about and understand the SDTA;

  • regulated parties and their sector organizations are responsible for being knowledgeable of the SDTA and for fully complying with it;

  • when responding to non-compliance, AAFC will act in a predictable manner which is appropriate to the circumstances and severity of the non-compliance and is consistent with established policy and procedures;

  • SDTA compliance and enforcement activities will be guided by:
    • the principles of fairness, impartiality and transparency; and
    • the powers and authorities set out in the SDTA to address non-compliance.

  • Compliance and enforcement activities will be carried out by trained, designated personnel in an unbiased and unprejudiced manner.

Legislation

The SDTA has been in effect since 2006. It reflects the implementation of international trade agreements regarding the use of names of certain spirit drinks from foreign countries, including:

  • the Agreement between Canada and the European Community on trade in wines and spirit drinks, and in side letters to that Agreement;
  • the North American Free Trade Agreement; and
  • commitments made by Canada at the Commonwealth Heads of Government meeting in 1985 to establish an economic and trade development program for the Commonwealth Caribbean countries and territories.

Under the legislation, spirit drinks cannot be sold using the name of a spirit drink included in the Schedule to the SDTA except where it has been produced, distilled, and manufactured in accordance with the SDTA. For example, a spirit drink may only be sold using the name Grappa if it has been exclusively produced in Italy, and the name Tequila may only be used to sell a spirit drink if it has been exclusively produced in Mexico.

Included in the Schedule to the SDTA are the following spirit drink names:

  • Grappa (Italy)
  • Grappa di Ticino (Ticino region of Switzerland)
  • Jägertee, Jagertee or Jagatee (Austria)
  • Korn or Kornbrand (Germany or Austria)
  • Ouzo (Greece)
  • Pacharán (Spain)
  • Scotch whisky (Scotland)
  • Irish whisky (Northern Ireland or the Republic of Ireland)
  • Armagnac brandy (Armagnac district of France)
  • Cognac brandy (Cognac district of France)
  • Bourbon whiskey (United States)
  • Tennessee whiskey (United States)
  • Tequila (Mexico)
  • Mezcal (Mexico)
  • Caribbean rum (Commonwealth Caribbean countries)

The SDTA, however, does provide exceptions for spirit drinks that have been blended or modified in accordance with Canadian laws and, for any registered trademark that was applied for before January 1, 1996. For example, a product may be blended or modified with an imported spirit drink as listed in the SDTA. In addition, the distilled product Ice Grappa is an example of an exception to the SDTA as this particular Canadian trade-mark was applied for in September 1995.

The Spirit Drinks Trade Act can be viewed online at the Department of Justice Website.

Decision-making roles and functions

Under the SDTA, the Minister of AAFC has designated certain officials of the Canada Revenue Agency (CRA) and the Canada Border Services Agency (CBSA) as inspectors and analysts respectively for the purpose of administering and enforcing the SDTA. Excise duty officers with the CRA who presently conduct audits under the Excise Act, 2001 will carry out inspections under the SDTA. The CBSA analysts will carry out the analysis of samples as may be required in enforcing the SDTA. The following key enforcement officials, designated by the Minister of Agriculture and Agri-Food, are responsible for the administration and enforcement of the SDTA.

Inspectors (designated officers from CRA):

  • carry out verifications to determine compliance with the SDTA;
  • communicate legislative requirements and how compliance will be assessed and deemed;
  • provide expert testimony and evidence in court.

The powers provided to inspectors for the enforcement of the SDTA include, the authority to enter places other than dwellings to inspect, examine and make copies of books, documents, and records, take samples, and seize and detain relevant articles.

Analysts (designated officers from CBSA):

  • analyse samples of products that are regulated under the SDTA;
  • communicate laboratory results and provide reports of analysis to AAFC and/or the CRA on samples analysed; and
  • provide expert testimony in court cases, as required.

Compliance and enforcement continuum

AAFC develops standards relating to the legislative requirements, and determines how compliance is to be assessed as well as appropriate responses to non-compliance.

The SDTA Compliance and Enforcement Policy is based on the concept of a compliance and enforcement continuum, which includes promotion and assessment of compliance as well as responses to non-compliance. AAFC has a role to play across this continuum.

The range of activities included in the compliance and enforcement continuum is illustrated in the following table.

Table: The range of activities included in the compliance and enforcement continuum
Promoting Compliance
(AAFC)
Assessing Compliance
(CRA and CBSA)
Responding to Non-Compliance
(AAFC, CRA, and CBSA)
  • Communication
  • Education
  • Inspections
  • Analysis
  • Notify
  • Seize & Detain Articles
  • Prosecute

Promoting compliance

AAFC believes that promotion of compliance through information and education encourages conformity with the law. Compliance is facilitated when the legislative requirements are clearly identified and accessible to regulated parties. Regulated parties have an obligation to understand the requirements of the legislation, and as such are responsible for educating themselves to become knowledgeable about the SDTA requirements and to comply fully with them. AAFC may use a number of different tools, including publication of information, awareness campaigns and other initiatives to inform regulated parties of the legislative requirements they must meet. Examples of information that AAFC may provide include information letters, industry advisories, questions and answers relating to the SDTA, and other educational material. AAFC may also partner with other governmental departments or industry groups and associations to impart educational activities.

Determining compliance

The primary objective is to encourage compliance with the SDTA, respecting Canada's international trade obligations related to the domestic use of certain foreign spirit drink names.

AAFC determines compliance with the SDTA through inspection activities. An inspector may submit to an analyst for analysis or examination any article seized by the inspector, any sample from it or any sample taken by the inspector. As previously indicated, certain officers of the CRA and the CBSA are designated as inspectors and analysts respectively.

The results of all SDTA inspections are recorded, communicated to AAFC and to the regulated party, and become part of its compliance history. If an inspection or follow-up inspection indicates that the regulated product is not in compliance with the requirements, an appropriate response will be taken.

Compliance of regulated parties with the SDTA is assessed through various activities, including:

  1. On-site Inspections - These are conducted by inspectors and will coincide with the CRA's scheduled excise duty audits to verify compliance with SDTA requirements. Inspection activities include:
    • examining and making copies of records, books and documents;
    • taking samples;
    • opening and examining containers.

    After completing the inspection, incidents of non-compliance will be discussed with the regulated party. Discussions may include a timeframe to achieve compliance. AAFC will be informed of all instances of non-compliance including any discussion the inspector may have with the regulated party regarding a timeframe for compliance.

  2. Specific Verifications - AAFC reserves the right to request a specific verification by an inspector of any article to which this Act or the regulations apply, at any time, regardless of whether the regulated party is scheduled for an excise duty audit.

  3. Analysis and Examination - This may be conducted by an analyst on any seized product or any sample of product taken by an inspector.

Responding to non-compliance

Once inspections have determined that a regulated party does not meet SDTA requirements, specific responses will be directed at the product and/or the regulated party.

AAFC has the flexibility to select the appropriate response based on the gravity of the non-compliance, considering factors such as the potential or actual harm, the compliance history of the regulated party and the intent.

A risk management approach

Various factors will be considered when deciding on the appropriate action for any given situation. Serious offences such as clear disregard of the legislation, covert acts for the purpose of concealing evidence or repeat offences require a different response than a first offence where the offending conduct has stopped and the business has been cooperative and has a good compliance history. The objective is to select the most effective and efficient instrument to address the specific situation and achieve lasting compliance.

Actions

Where it is determined that action is necessary, each case will be considered on its own merits. AAFC will choose the most appropriate tool to address the non-compliance and limit possibilities of re-occurrence. The range of tools available to AAFC to respond to instances of non-compliance includes:

  • Letter of Non-Compliance - This formal written letter to regulated parties identifies specific non-compliance. The letter provides a clear record of, and reference to, the responsibilities for the regulated parties. It also communicates future intentions if the regulated parties do not comply, up to and including forfeiture and prosecution. The letter of non-compliance will identify a timeframe for the regulated party to meet compliance and a follow-up inspection will be conducted to verify compliance.

  • Seizure and Detention - Any article that an inspector has reasonable grounds to believe contravenes the SDTA may be seized and detained for such time as may be necessary.

  • Forfeiture - If a person is convicted of a contravention of the SDTA or the regulations, seized articles may be forfeited and disposed of by the crown.

  • Penalties - The SDTA provides that, upon summary conviction or a conviction upon indictment, the penalties assessed may be a fine or imprisonment, or both.

Contacts and further information

Questions concerning the Spirit Drinks Trade Act (SDTA) Compliance and Enforcement Policy may be directed to:

Food Industry Division
Food Value Chain Bureau
Agriculture and Agri-Food Canada
1341 Baseline Road, Tower 5, 2nd Floor
Ottawa, Ontario K1A 0C5
Telephone: 613-773-0181
Fax: 613-773-0200

In addition, a listing of Regional Canada Revenue Agency (CRA) Excise Duty Offices may be found under the Excise Duty Memorandum Chapter 1.1.2. Personnel located at the CRA Regional Duty Offices would be able to provide information on compliance with the SDTA.

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