By Rosalyn Steward, Assistant Chief Counsel
On March 16, Advocacy visited Lakefront Brewery in Milwaukee, Wis. Lakefront was started by brothers Jim and Russ Klisch in 1987, with the assistance of SBA loans. What is now a Milwaukee landmark started with Jim’s affinity for beer making, and some good old fashioned sibling rivalry when Russ decided he wanted to try his hand at home brewing, as well. Eventually, they turned their hobby into a business, and started small with their first location being an old bakery building around the corner from their home. Russ actually built the company’s first bottling machine so that they could start bottling their beers.
The Lakefront brand grew quickly, and it was soon time for a new location. Serendipitously, the City of Milwaukee had a building it wanted to sell- the old Milwaukee Electric Railway and Light Company’s coal-fired power plant. The city was on the verge of tearing the historical structure down and building apartment complexes unless a local business agreed to take it on. The Klisch brothers purchased the property and made the move in 2000 and never looked back. The new space provided ample room for this small business to expand to house their full brewing operation and beer hall, where everything on the menu originates from Wisconsin farms and local entrepreneurs. Their beer is known nationally and internationally with their Brewery Tour having been awarded the 4th best Brewery Tour in the nation.
Lakefront was the first brewery in the country to have their beer certified as organic and gluten free, and in fact, their top selling beer is the gluten free brew. Lakefront’s popularity has also led it to expand to foreign markets, often at the request of consumers that grew to love Lakefront while living in Milwaukee. They currently export to Ukraine, Canada, and South Korea.
Wisconsin’s proximity to Canada positions it as a likely trading partner, but the Canadian beer distribution system is a maelstrom of rules and regulations. Each province of Canada retains its own authority with respect to the taxation and distribution of alcohol. For example, the Canadian province of Alberta has a completely privatized liquor distribution system, while Manitoba’s is centrally regulated by the Manitoba Liquor Control Commission. Provincial sales tax is collected on behalf of the provinces, in addition to a goods and services tax levied at 5 percent of retail price.
The North America Free Trade Agreement (NAFTA) created duty free access for most beverage alcohol products imported into Canada from the U.S., so the customs duty does not apply. However, non-Canadian breweries have to use a Canadian broker, whose fee is generally 25 percent of the cost of the goods. Further, the federal excise tax on alcohol is imposed on all products, regardless of origin.
Despite the complications of navigating Canada’s tax and trade laws, Russ says that overall NAFTA has worked for him. The uncertainty surrounding the steel and aluminum tariffs is a major concern for him as he uses steel barrels for his beer. The price for barrels increased immediately after the potential imposition of tariffs was announced. Russ doesn’t want the U.S. getting into a trade war, and shares the sentiment of many small businesses, they desire to operate in an environment that is stable and secure.
Advocacy was in Wisconsin for Regional Regulatory Reform Roundtable and NAFTA Modernization Outreach Meetings on March 15-16.
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Rosalyn Steward is Assistant Chief Counsel for International Trade. She can be reached at Rosalyn.firstname.lastname@example.org.