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Wines are on display at the Summerhill LCBO in Toronto on March 12, 2013.

PETER POWER/THE GLOBE AND MAIL

Ontario winemakers fear Canada's trade deal with the European Union will put the squeeze on their growing industry because of a special provision that applies only to the LCBO.

The Ontario government shares that concern and is planning to press Ottawa to compensate the province's wine industry, just as Ottawa is promising to help out cheese farmers if they are hurt by the trade deal.

General business reaction to the Canada-European Union Comprehensive Economic and Trade Agreement has so far been overwhelmingly positive – with the vocal exception of the Dairy Farmers of Canada. Now Ontario wine producers are speaking out.

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"We are highly concerned that this will just put us at another competitive disadvantage," said Patrick Gedge, president and CEO of the Winery and Grower Alliance of Ontario, whose members produce more than 85 per cent of all Ontario wine.

During the talks, European negotiators took issue with a practice that is unique to the Liquor Control Board of Ontario. Rather than charging a "cost for service" fee based on the volume of imported wine, the LCBO adds a 6-per-cent fee on the price of imported wine. The result is that shipping costs for expensive wines are higher than for lower-end wines.

The EU successfully argued that shipping a $200 bottle of wine shouldn't cost more than shipping a $10 bottle of wine.

For Ontario consumers, CETA should mean more expensive European wines will come down in price. But for Ontario winemakers, the cheaper competition could be bad for business.

Queen's Park sources with knowledge of the negotiations say the province pressed Ottawa on the matter during talks over the trade agreement. Ontario is the only province that charges import fees in this manner and Canada agreed in its agreement-in-principle with the European Union that the province will change its rules.

One Ontario source said Ottawa's reason was clear: The cheese provisions will affect every province, but the wine change affects only Ontario.

Ontario Economic Development Minister Eric Hoskins said on Friday that the province's import fee was "an important issue" in the negotiations.

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"We've indicated that we would require the federal government to also provide compensation in this regard," he said. "We haven't received that assurance. But the minister of finance has asked or will be asking as well for a meeting with his federal counterpart specifically to address this issue."

A spokesman for Trade Minister Ed Fast said the deal does mean Ontario must change its wine rules so that they comply with World Trade Organization rules. However he stated the deal will not hurt the sector.

"The current manner in which the LCBO recoups its cost is not consistent with Canada's obligations at the WTO," said Rudy Husny in an e-mail. "We appreciate the Government of Ontario's commitment to ensure that a methodology is adopted which is consistent with our WTO obligations."

According to the Wine Council of Ontario, the province sold $346-million worth of wine under the Vintners Quality Alliance brand, which is an industry quality standard that certifies the product is made from 100-per-cent fresh Ontario-grown grapes.

Exports were worth $40-million, split evenly between icewine and table wine. The top 10 countries for export are the United States, China, South Korea, Singapore, Japan, Hong Kong, Britain, Taiwan, Malaysia and France.

Mr. Gedge said better access to the European market will be good for icewine producers because of the product's international reputation and the profit margins involved. However, he does not see big export opportunities in Europe for Canadian table wine priced under $15 a bottle.

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"The margins are quite thin," he said. "At those selling points, to invest in selling to other countries and to the EU, it better be quite a remarkable sale."

With a report from Adrian Morrow in Toronto

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