House of Commons - Scottish Affairs - Appendices to the Minutes of Evidence

Select Committee on Scottish Affairs Appendices to the Minutes of Evidence

APPENDIX 21

Memorandum from the Department of Trade and Industry

1. INTRODUCTION

1.1 The Department welcomes this opportunity to submit a Memorandum to the Committee. Although not sponsoring the drinks industry (the summary background note at Annex A on the industry structure has been provided by the Ministry of Agriculture, Fisheries and Food—MAFF), the DTI has for many years had particularly close contact with the Scotch Whisky Association (SWA) on issues and individual problems arising in the context of international trade. There is substantial day-to-day contact between the SWA and the Department on aspects of individual cases. We hold senior level meetings once or twice a year with officials from the SWA and the Gin and Vodka Association, which MAFF and the Scottish Executive also attend, to discuss matters of strategic importance and agree priorities. The industry has ready access to DTI Ministers.

1.2 There has been much less contact on trade matters with the beer, soft drinks and bottled water sectors, although we remain ready to progress any cases as the need arises.

1.3 Dialogue between all sectors and the DTI and Office of Fair Trading on general competition issues is primarily through their UK trade associations, such as the Brewers and Licensed Retailers Association. However, in particular cases—such as a merger or a European Commission investigation—the relevant officials are in close contact with the companies concerned.

1.4 Competition and overseas market access are both key to the DTI's objective of creating strong and competitive markets by taking action to improve the openness, efficiency and effectiveness of markets at home, in Europe and across the world.

2. OVERSEAS TRADE POLICY

2.1 The UK is the fifth largest trading nation and we rely more than many other countries on our ability to trade and invest freely. In 1999 the UK exported around £166 billion of goods and £64 billion of services. This was equivalent to more than 25 per cent of GDP (in comparison with, for example, Japan, whose exports are equivalent to around 10 per cent of GDP). And in 1998 the stock of inward direct investment in the UK was around £184 billion, while UK companies had direct investments overseas of £296 billion, making the UK one of the world's major inward and outward investors.

The International Context

2.2 The overarching framework for international trade is provided by the World Trade Organisation (WTO) Agreement. This was established at the end of the Uruguay Round of multilateral trade negotiations and entered into force on 1 January 1995. It has substantially wider scope than the General Agreement on Tariffs and Trade ("GATT"), of which the UK was a founder member, and a new binding dispute settlement mechanism.

2.3 The GATT, now WTO, Agreement is based on the three main principles of non-discrimination, transparency, and uniform administration of rules. In the context of market access, non-discrimination is arguably the most important of these and comprises two aspects:

Most Favoured Nation ("MFN") Treatment.

National Treatment.

2.4 While the GATT provided for dispute settlement against breaches of its rules, its enforcement provisions were weak. The WTO Agreement established, for the first time in international trade, binding procedures under which WTO members must comply with rulings within a specified reasonable timeframe. This is important as it encourages effective implementation of WTO rulings and a mechanism for resolving disputes between WTO members. At the same time, there remains an emphasis on sorting out disputes through mutally acceptable solutions rather than recourse to formal dispute settlement procedures.

2.5 The Government regrets that World Trade Ministers did not reach agreement on the terms for the launch of a new WTO Round of trade negotiations when they met in Seattle from 30 November to 3 December 1999. The UK, EU and many other WTO member governments had hoped to launch a comprehensive round reflecting our belief that this is the best means of delivering substantial trade liberalisation consistent with sustainable development. Such a comprehensive approach is also the best way to ensure the Round delivers benefits for developing countries. The preparatory process for the re-launch of the Round has been remitted back to Geneva under the direction of the WTO Director General, who has been asked to make recommendations on the timing for this Conference and the re-launch of the new Round. Most WTO member governments, including the UK and EU, remain committed to re-launching a new Round at the earliest opportunity. Meanwhile, in the absence of a new Round, negotiations began earlier this year on agriculture and on services under the "In-built Agenda" established at the conclusion of the Uruguay Round.

2.6 In the run up to Seattle, we widely consulted key UK industries on priorities: the Committee may be interested to note that there was a particularly close match between those which the Government and the SWA had identified.

The European Context

2.7 The EU's Common Commercial Policy carries with it exclusive Community competence for international trade in goods and cross-border services. As regards other services, competence is shared between the Community and its member states. The Commission negotiates with third countries on trade policy and individual cases on behalf of the EU as a whole, on the basis of a common position established with the member states. The UK plays an influential role in shaping EU trade policy, both broadly and in respect of individual cases. Within the Community's institutional framework, the EC Treaty Article 133 Committee of officials meets weekly to consider external trade matters and presents an important forum for ensuring that UK priorities are taken on board. The DTI also has close contacts, and regular written communication, with Commission officials. As appropriate, we also discuss matters of common interest bilaterally with other member states.

2.8 The long-term nature of trade policy is such that it is important that issues are raised with trade partners on a regular basis. The EU has bilateral trade agreements with a wide range of countries. These offer a framework within which views can be exchanged, policy developed, and solutions to problems sought bilaterally. Particularly important are the European Economic Area ("EEA") Agreement, establishing a single market with the EFTA countries (except Switzerland); the Europe Agreements which the EU has entered into with the countries wishing to join the EU; and the Partnership and Co-Operation Agreements with several countries of the former Soviet Union. The EU also maintains an active dialogue with the US under the Transatlantic Economic Partnership; additionally, it is a member of ASEM[101], providing a valuable plurilateral link with the countries of South East Asia, and has opened negotiations aimed at trade liberalisation with MERCOSUR[102] and with Chile.

2.9 Where is is not possible to resolve matters bilaterally in this way, then as regards countries already within the WTO, the EU can raise issues in the course of the WTO's periodic reviews of individual members' trade policies (the Trade Policy Review Mechanism). Where a country's legislation is in breach of its WTO obligations and that country is not able to revise it, dispute settlement action can be brought. The EU has done so in a number of cases—for example, as regards alcoholic beverages with Japan, Korea and Chile (see paragraph 3.4 below).

2.10 For trade partners not yet in, but seeking to join, the WTO, the EU's bilateral market access negotiations in the context of WTO accession provide the opportunity to ensure that such countries provide open markets as soon as possible after (and, in some cases, before) their WTO accession. All concessions negotiated bilaterally are applied to all WTO members when the aspirant member accedes. Current examples of such prospective commitments include agreements by China and Georgia to reduce tariffs on Scotch whisky; by Croatia to remove discriminatory tax regimes; and also by China to improve trading rights for spirits. In a rare example of a WTO aspirant implementing a commitment before accession, Taiwan removed its discriminatory tax regime in January 1999. Such commitments are in addition to applicants' acceptance of the broader WTO requirements on non-discrimination, transparency, and uniform administration which themselves should bring substantial benefits to our producers seeking to export to or invest there.

2.11 The UK also raises issues directly with countries, at Ministerial (especially during inward and outward visits) and official level—the DTI has a senior official level trade policy dialogue with major partners (US, Canada, Japan, Korea, China, Taiwan, Australia); spirits are frequently on the agenda. We also frequently raise matters of topical interest through our diplomatic posts abroad and with other countries' embassies here in London.

3. TRADE BARRIERS

3.1 A principal focus of Europe's approach to the removal of trade barriers in third countries is through the EU's Market Access Strategy (Council Decision 98/552/EC refers). The Strategy was launched in 1996, with strong UK support, of identifying and resolving market access barriers experienced by European industry in third countries. A further important element was the setting up of the market access database, which includes details of some 1,300 specific barriers to European exports covering 58 countries, as well as basic information of interest to EU exporters. A new development is to create an exporters' guide to import formalities applied by third countries: it is hoped that by the end of next year it will cover about 70 countries.

3.2 Complementing the strategy is the Community's Trade Barriers Regulation (EC) 3286/94, providing a mechanism for the Commission to investigate alleged breaches by third countries of Community rights under international trade rules, in particular the WTO, so as to establish the economic and legal facts of the case, and the possible injury to EU producers.

3.3 In the past, a recurrent concern of the SWA was the use by certain third countries of the description "Scotch Whisky" for their domestically produced brands. Such instances have lessened in recent years—and the 1995 WTO Agreement on Trade Related Aspects of Intellectual Property Rights ("TRIPS") provides for particular protection of geographical indications for wines and spirits.

3.4 But discriminatory taxation and duties by third countries remain a key problem. In recent years, we have successfully pressed the EU to seek redress in the WTO against Japan, Korea and Chile in respect of their discriminatory treatment of imported alcoholic beverages and spirits. The first of these complaints (Japan) was won in 1997 (the Panel findings were confirmed on appeal in1998): the Japanese were taxing whisky six times as much as domestically produced Shochu. The successful result of this case was estimated at the time to be worth £75 million per annum to British spirits exporters. In the case against Korea, which the EU won last year (again, the Panel's findings were upheld on appeal), the domestic spirit (Soju) was taxed as 35 per cent of the rate applied to imported spirits, on which an import duty of 20 per cent was also imposed. In Chile, whisky was subject to a special sales tax of 65 per cent, compared with 25 per cent on domestic Pisco and 30 per cent on other spirits. Again, the WTO Panel's finding, confirmed on appeal, went in favour of the EU. We shall look to build on these results, not only through checking that all of the three countries comply with the rulings of the WTO but, ideally, do so in a way which will ensure maximum market access—and also by seeking EU action in the WTO against other countries exercising similar discrimination.

3.5 A list of trade cases of concern to the UK spirits' industry is at Annex B. This illustrates the range of difficulties faced by the industry, the importance we attach to resolving them, and the variety of ways used to do so.

4. COMPETITION IN THE SCOTTISH DRINKS INDUSTRY

4.1 The Office of Fair Trading (OFT) keeps competition in UK markets under review and is the first point of contact for complaints about anti-competitive agreements and abuses of market dominance. The OFT is not aware of any current competition issues in the soft drinks, bottled water or spirits industries in Scotland. However, concerns have been expressed about some local concentrations in Scotland of the ownership of licensed premises by large brewing companies. The OFT, recognising the importance of choice of beers and value for money in pubs, is considering these concerns as part of its monitoring of the Beer Orders (see paragraphs 4.6 and 4.7).

Background on competition policy

4.2 The Government believes that free and competitive markets provide the best means of improving economic efficiency, encouraging wealth creation and delivering better choice and value for money for consumers.

The Competition Act 1998

4.3 UK competition law has long been in need of reform. In particular, there have been criticisms that the existing Restrictive Trade Practices regime was ineffective in terms of dealing with anti-competitive agreements as well as being over-bureaucratic. The Competition Act 1998 was therefore passed in the first session of the current Parliament.

4.4 The Act is modelled closely on the EC competition rules as contained in Artcles 81 and 82 of the EC Treaty. It introduces prohibitions of anti-competitive agreements and abuses of market dominance. The Director-General of Fair Trading (DGFT) has been given much stronger powers of investigation and enforcement. Companies in breach of the prohibitions risk financial penalties of up to 10 per cent of their UK turnover and will also be liable to third party actions. The intention is to create a regulatory framework that is tough on those who seek to impair competition but allows those who do not compete fairly the opportunity to thrive.

4.5 The Act came fully into force on 1 March 2000. It applies across the UK. The general policy of the Government in relation to devolution has been to treat the UK as a single market, with business to be subject to the same competition regime throughout.

The Beer Orders

4.6 The UK brewing industry was referred to the Monopolies and Mergers Commission (MMC) for investigation in 1986. That investigation resulted in a number of measures, from 1989 onwards, being taken to weaken the links between brewers, especially large national brewers, and pubs. These are known as the Beer Orders. The main provisions are contained in The Supply of Beer (Tied Estate) Order 1989 and The Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices) Order 1989. The Tied Estate Order required the national brewers owning more than 2,000 pubs to release from tie half the pubs they owned in excess of that number by 1 November 1992. It also gave the national brewers' tied tenants the right to serve a guest beer and source wines, spirits and soft drinks from any supplier of their choice from 1 May 1990. The Loan Ties Order enabled recipients of brewers' loans to terminate them without penalty on giving three months' notice, required brewers to publish wholesale price lists for their beers and prohibited brewers from imposing restrictions on the future of licensed premises when they are sold.

4.7 The OFT monitors the brewing and pub industries closely and investigates any suspected anti-competitive practices: structural changes in the industry, such as the closure of breweries, or contractual matters, such as the treatment of tied tenants by breweries and pub chains, cannot be addressed by competition law. There have been some developments in the industry since 1989, including the growth of pub chains as a counterweight to the market power of the large national brewers, and the DGFT announced a review of the Beer Orders on 14 January 2000. The DGFT submitted his report of the review to the Secretary of State for Trade and Industry on 31 July: Ministers are now considering that carefully.

Mergers

4.8 In the event that a merger qualifies for investigation under the Fair Trading Act 1973, in the first instance it is for the DGFT to assess its likely impact. He then advises the Secretary of State for Trade and Industry whether or not the merger should be referred to the Competition Commission for further investigation. In preparing his advice, the DGFT takes into consideration that views of all interested parties. All cases are considered by the Secretary of State on their own merits in the light of the independent advice of the DGFT. However, very large mergers affecting more than one EU member state may instead be investigated by the European Commission.

4.9 There is one recent qualifying merger which has involved the Scottish drinks industry. On 9 November 1999 the Secretary of State announced that the acquisition of Highland Distillers (whose principal brands are The Famous Grouse and The Macallan) by the Edrington Group and William Grant & Sons would not be referred to the Competition Commission. This was in accordance with the advice of the DGFT.

4.10 The DTI is currently considering responses to its consultation document on proposals for reform of the UK merger control regime (which was published in August 1999). The Government plans to publish a formal Response to the consultation this Autumn.

European competition rules

4.11 European competition rules may apply where an anti-competitive agreement or practice or an abuse of a dominant position has an appreciable effect on trade between member states. The European Commission has granted a series of individual exemptions for the beer supply agreements of large UK brewing companies which would otherwise have been prohibited by Article 81 of the EC Treaty. The Commission does not consider that the beer supply agreements of UK regional brewers and pub chains are caught by Article 81 EC Treaty.

5. PRICING OF SOFT DRINKS IN PUBS, RESTAURANTS AND SIMILAR ESTABLISHMENTS

5.1 The pricing of soft drinks in pubs and similar establishments is an issue of concern to the Government. Last year the Government commissioned Verdict Research Ltd to carry out research on price display practices and price levels for soft drinks in pubs and other establishments to establish the position across Great Britain. The survey found that the difference between what consumers pay in off-licences and supermarkets, compared with what they pay in pubs and restaurants, was considerably greater for soft drinks than for beer and lager. The survey also found that 70 per cent of pubs were not displaying their prices adequately: this is clearly unsatisfactory. The Government believes that price information should be readily available to allow consumers to make informed and unpressurised decisions.

5.2 Accordingly the Government is reviewing the Price Marking (Food and Drink on Premises) Order 1979—the legislation which regulates price displays in pubs, restaurants and similar establishments—with a view to providing consumers with better and clearer price information. A formal consultation on the proposals has been conducted: the closing date for responses was 8 September. The responses are now being analysed and Ministers will consider the results over the next few months.

Department of Trade and Industry

September 2000

Annex A

THE SCOTTISH DRINKS INDUSTRY—BACKGROUND

SIZE OF THE MARKET

Current sales of food and drink produced in Scotland are £7 billion, according to Scottish Enterprises, of which Scotch whisky accounts for £2.6 billion. The Scottish beverages sector as a whole employs around 16,000 people.

SCOTCH WHISKY

Scotch Whisky is one of the UK's most important export industries. It is Scotland's second largest[103] and the UK's fifth largest[104] export earning industry. In 1999 exports of whisky were worth just over £2 billion, accounting for 75 per cent of the value of UK exports of alcoholic drinks and for over 90 per cent of total whisky sales by volume.

Consumption of whisky in the UK has exhibited long-term decline (in favour of wine and white spirits). In 1999 consumption was 323 thousand hectolitres, a fall of 22 per cent on 1990 and a fall of 30 per cent on consumption in 1985. In 1998 whisky represented 36 per cent of the volume of spirits consumed, down from 47 per cent in 1985.

Scotch Whisky provides an important source of employment in Scotland, particularly in remote areas where other employment opportunities are scarce. Some 11,000 people are directly employed by the industry and it is estimated that a further 30,000 jobs are created through indirect employment.

Whisky production has been increasing over the last few years and peaked at 4.8 million hectolitres in 1997. In 1998 it declined by just under 5 per cent to 4.6 million hectolitres, however it remained 20 per cent above the level of production in 1989. Whisky production accounts for 90 per cent of the spirit production in UK.

The leading brand of blended whisky is Bells's produced by Diageo plc, with nearly 20 per cent, by volume, of the UK market[105]. Diageo has 14 distilleries in Scotland. In second place is The Famous Grouse, produced by Highland Distillers plc and with 14 per cent105 share of the market. The Teacher's brand, owned by Allied Domecq, is in third place with 8 per cent105 followed by William Grant's in fourth place with five per cent105.

The leading brand of malt Scotch whisky is Glenfiddich (with a 22 per cent share of UK market[106]), produced by William Grant with 24 per cent of this sector including its Balvenie brand106. The company has three malt distilleries in Scotland. In second place is Glenmorangie with 14 per cent market share106 and three distilleries at Tain, Elgin and Islay. Other leading brands include Macallan (Highland Distilleries), and Glenlivet(Seagram) and Laphroaig (Allied Domecq), these three brands having around five per cent each of the malt whisky market106.

OTHER SPIRITS

There is substantial and increasing production of gin and vodka in Scotland. In 1998, 45 per cent of UK gin and vodka105 was produced and/or bottled in Scotland. Diageo, which holds UK market leadership in the gin market with its Gordon's brand, has a 43 per cent market share105. It has a distillery in Strathleven, Scotland.

SOFT DRINKS

In 1999 UK consumption of soft drinks' sector was 11,260 million litres[107] with carbonated soft drinks accounting for nearly 50 per cent of this total. The per capita consumption of soft drinks is higher in Scotland than in the rest of the UK with Scottish consumption estimated at around 18 per cent of UK volume consumption despite the country only representing less than 10 per cent of the UK population.

Highland Spring Ltd is the largest UK producer and exporter of natural mineral water. It is a privately owned company and is based at Blackford, Perthshire. Highland Spring is exported to over 40 countries and is the exclusive supplier of bottled water to British Airways. It holds 6 per cent of the UK still water brands and 5 per cent of the sparkling water sector[108].

Strathmore Mineral Water Company Ltd is part of the Matthew Clark Group (owned by Canandaigua). Strathmore produces a range of clear, mineral water based soft drinks marketed under the Strathmore Clear brand. Its plant is located at Forfar, Scotland.

A.G.Barr is a long established soft drinks business, based in Glasgow. It holds a 3 per cent share108, by volumn, of the UK carbonates market and a 5 per cent share108 of the non-diet carbonates market. Its best known brands are Irn Bru, Tizer and St Clements.

ALES AND STOUT

Scottish Courage is a subsidiary of Scottish & Newcastle Plc (formerly the UK's leading brewer until Interbrew's acquisition of both Bass and Whitbread's brewing operations in June 2000), with a third of the UK ales and stout market[109] by volumn. Its leading brands include McEwan's, Newcastle Brown, John Smith's, Younger's Tartan, Webster's and Courage Best. Scottish Courage's headquarters are located in Edinburgh.

Tennent Caledonian Breweries Ltd (TC) is part of the Scottish Beer Division of Bass Brewers UK, part of Bass Plc (which sold its brewing operation to Interbrew of Belgium in June 2000). Bass had a 21 per cent market share108 of the UK ales and stouts market. TC has 1,700 employees and is located in Glasgow. Its main brands include Tennent's Extra Lager and Tennent's Export

INDEPENDENT SCOTTISH BREWERIES

Caledonian Brewery

The brewery is located in Edinburgh. In 1919 its operation was taken over by Vaux & Co of Sunderland (now called the Swallow Group). In 1987 Vaux announced its closure and the brewery was sold to a management buyout. The company now has an annual turnover of £8 million and has a range of cask ales including 80/-, R & D Deuchars, and Campbell, Hope and King. It also brews Calders beer for Carlsberg-Tetley. Caledonian Brewery exports around 5 per cent of its turnover, mainly to North America and Sweden.

Maclay Group

Its brewery is located in Alloa and originally began beer production in 1830. Then in 1871 it commenced production at its Thistle Brewery (closed in 1999). 85 per cent of the owernship of Maclay is held by Evelyn Matthews and his family (the rest was acquired by Bass). Maclay is now divided into two operations with Maclay Wholesalers having 650 free trade customers throughout Scotland and Maclay Inns having a pub estate of 19 managed house and 13 tenancies in central Scotland. Maclay is now investing in a new specialist brewery in Alloa.

Annex B

Country	Barrier	Comment	Future action
P R China	65 per cent import duty (which with 10 per cent excise tax and a consumption tax impose >100 per cent tax burden).	Resolved through WTO Accession negotiations.	China will reduce import tariffs on all spirits through staged reduction over 5 years to 10 per cent. DTI will monitor.
	Foreign firms cannot import, distribute, advertise or promote spirits.	China has offered full trading and distribution rights by January 2003, with minority foreign ownership by 2001 and majority by 2002.	DTI will monitor.
	IPR legislation does not protect (i) "Scotch Whisky" as a geographical designation or (ii) the definition of "Whisky".		(i) should be resolved by China's WTO accession; on (ii), our Embassy is exploring possibilities with the Chinese authorities.
Philippines	Excise duty rate is higher (75-300 pesos) on imported spirits than domestic spirits (8 pesos).	Philippines is reviewing its taxation legislation.	Commission discussing with Philippines. DTI is in contact with the Commission about the possibility of seeking WTO action if necessary.
	Weak IPR protection: counterfeiting is wide scale, with few convictions and punishments are light.		HMG and Commission vigorously pursuing this at Ministerial and official level, and via the WTO Trade Policy Review mechanism.
Taiwan	Scotch Whisky taxed at the discriminatory rate of NT$440 as against other Whisky at NT$198 per litre.	Following DTI and Commission pressure, tax on all spirits reduced, in January 1999, to NT$198, and is expected to be further reduced to NT$185 per litre.	DTI continues to monitor the situation.
	Lack of legal generic definition of whisky (and of minimum 40 per cent alcoholic strength) undermines IPR protection both in Taiwan and elsewhere in region.	Taiwan has agreed to introduce legislation protecting "Scotch Whisky" but not quality definition (minimum 40 per cent).	DTI will continue to pursue this issue via Commission and on a bilateral basis.
Colombia	High duty/tax regime is a contributing factor to a thriving contraband trade in Scotch Whisky, which may account for as much as 80 per cent of Scotch Whisky sold in Colombia. Drug laundered money may finance this illegal trade.	HMG has had constructive discussions with the Colombian Government since May 1998 on this issue, pointing out that the situation could be improved if the fiscal burden on Scotch Whisky were lowered. Colombia's former Director of Taxation visited the UK in October 1999. Revised tax legislation has been mooted in the past, but no details have been pubished.	HMG continues bilaterally to pursue improvements in tax regime.
Turkey	A proposed Monopoly Bill may introduce a 1 million litre per annum minimum threshold for imports of spirits to allow companies to trade independently of the State monopoly, TEKEL, as well as a ban on advertising. There are also: restrictions on the issuance of import licences; onerous and discriminatory labelling requirements; and complicated tax measures.	These restrictions and proposed draft law do not appear to be in line with EC Turkey Customs Union which seeks to liberalise trade with the EU. Turkey will increasingly be required to bring its legislation into line with the EC law, following recognition of the country Turkey as a candidate for EU membership.	HM Ambassador wrote to the Minister in charge of TEKEL in July about the current restrictions and proposed draft law. HMG has been liasing with the SWA, European Confederation of Spirits Producers and the European Commission about raising these concerns with the Turkish authorities.
Mexico	The 1999 budget increased tariffs from 20 per cent to 30 per cent for EU bottled spirits and from 10per cent to 20 per cent for bulk imports, placing EU suppliers at a competitive disadvantage compared with NAFTA supplies.	Substantially resolved.	Tariffs eliminated on most spirit products, including whisky, following entry into force of the EU-Mexico Free Trade Agreement on 1 July 2000. EU vodkas and brandy will receive slower liberalisation treatment under the FTA.
India	Currently import duties stand at 210 per cent supplemented by a Special Additional Duty of 4 per cent bringing the total duty burden to 222 per cent. Licensing and other restrictions applied on imported spirits, including restrictions on the import of spirits bottled at source, all imports are therefore in bulk.	India is scheduled to reduce the current basic duty to 150 per cent by 1 July 2004 in line with its WTO Uruguay Round commitments. The industry would like to see duties reduced to 70 per cent or less. Following lobbying by the EU at the WTO in 1997, India undertook to liberalise imports of brown spirits including Scotch Whisky "bottled at origin", by 31/12/2000 and for all other spirits and liqueurs, including gin and vodka, between 1/4/2001 and 31/3/2002. The SWA are anxious to see the restrictions lifted as early as possible. SWA also wants confirmation that the Indian Government will consult them over their new regulations, to be introduced from 1/1/2001, governing the importation and sale of Scotch whisky.	HMG has consistently worked with the industry to try and persuade Indian Government of the revenue benefits, and reductions in contraband and counterfeit goods, to be gained from a lower duty rate. But little scope for progress outside a new WTO multilateral Round. HMG will continue to raise these issues in bilateral discussions.
Australia	Currently 5 per cent on imported spirits and marginally higher for brandy.	Australia is looking to abolish all tariff rates of 5 per cent or more by 1 July 2001.	HMG continues to lobby Australian government to abolish this "nuisance" duty.
New Zealand	Despite general harmonisation of both countries' food authorities, New Zealand has not followed Australia in introducing a prescriptive definition (including a 40 per cent minimum strength) for whisky. New Zealand's standard for Scotch is the basic one for spirits in general (ie 37 per cent minimum strength), and permits bottling from bulk imports at 37 per cent strength.		HMG continues to pursue the industry's case bilaterally with the NZ authorities.
Vietnam	Numerous trading barriers, in particular duties and taxes giving rise to a tax burden of >200 per cent. Customs use "check prices" which artificially inflate the value of imported foreign goods for revenue purposes. Foreign owned companies cannot import or distribute spirits and advertising and marketing of spirits is banned. Imported spirits must bear "strip stamps" to prove payment of duties. IPR protection is poor with no legal protection for Scotch as a geographical indication or generic legal definition of whisky, resulting in high levels of contraband and counterfeit Scotch whisky and other spirits.	Progress is difficult and slow. Vietnam is far from ready for WTO accession, so this avenue does not offer the prospect of an early removal of barriers.	EU and Vietnam are negotiating a market access agreement covering a limited number of sectors of mutual interest including spirits. UK Ministers raise whisky issues regularly with Vietnamese interlocutors.
Scandinavia	Due to derogations granted by the Commission to Finland, Denmark and Sweden, there is a limit on the volume of alcohol that consumers can import for personal consumption.	Sweden's derogation has now been extended from 30 June 2000 to 31 December 2003 to be in line with the similar derogations applying to Denmark and Finland.	Sweden has accepted the extension is for a non-renewable period, and has agreed to introduce the gradual removal of restrictions on alcohol imports from other MS.
Poland and Hungary	High tariff rates: Poland 75 per cent and Hungary 70 per cent	Athough there has been some success in achieving lower tariffs (Poland agreed to eliminate tariff quotas on EU spirits from 1/1/98), the import duty by both countries is far from the 40 per cent-45 per cent (or lesser) level which the industry would like to see.	The DTI will continue to press the Commission and through bilateral channels for a further and timely reduction in tariff rates in Poland and Hungary.
Canada	Discriminatory "mark-up" differential on a "cost of service" basis by a number of Provincial Liquor Boards.	The European Spirits Association wants the Commission to get Canada to urge Provinces concerned to reconsider the mark-up.	DTI continues work with the Commission to remove these mark-ups.
Russia	The Regulation of the market for spirits discriminates against EU spirit producers (vodka is the major problem) in a number of ways, including licensing requirements for importers and restrictions on transportation and entry arrangements. These are in breach of Russia's commitments under its Partnership and Co-operation Agreement (PCA) with the EU.	The Commission is in discussions with the Russian authorities, and is bringing forward a proposal for retaliatory action under the PCA.	DTI will develop the UK view on the Commission proposal, consulting with the industry as necessary.
Argentina	A 5 per cent differential between Scotch Whisky and other spirits, that was effectively removed in January when excise duties were raised and equalised, was re-introduced in May. Local importers report a major drop in sales.	This differential appears to be inconsistent with the WTO ruling in the cases against Japan, Korea and Chile that under GATT Article III all spirits are directly competitive/substitutable and should be similarly taxed.	The SWA and the British Embassy in Buenos Aires have been actively lobbying the Economic Ministry wo believe that the differential is consistent with GATT Article III. Details of the WTO ruling on Article III have been sent to the Ministry who have agreed to amend the differential if they believe the ruling is applicable. We await a response.
Uruguay	Differences between imported and domestic products were eliminated in the excise regime in 1999, but a new regulation was introduced in July 2000. Only products made wholly or part with alcohol aged for less than 3 years are included in the lowest tax bracket. This effectively discriminates against Scotch whisky and other spirits (which under EC legislation must be matured for at least 3 years), in favour of domestic products which do not.	Appears to be in contravention of GATT Article III. SWA have written to the European Commission asking them to raise the issue with the Uruguay Government for early removal of this provision.	Our Embassy is engaging the Uruguayan authorities. We are also liasing with the Commission and SWA.