Memorandum submitted by the Scotch Whisky
Association and the Gin and Vodka Association of Great Britain
The decision by the Helsinki Council to accept
Turkey as a candidate for EU accession was welcomed by the Scotch
Whisky Association (SWA) and the Gin and Vodka Association of
Great Britain (GVA). This decision resulted in a significant improvement
in the EU-Turkey dialogue which had effectively been on hold since
1997 when the Luxembourg Council did not grant Turkey EU membership
candidacy. Turkey's eventual EU accession will finalise the process
of trade liberalisation that began with the 1963 Association Agreement
and which was appreciably widened under the 1995 Customs Union
2. THE CUSTOMS
Under the CU Agreement, which entered into force
on 1 January 1996, the liberalisation of trading conditions for
Scotch Whisky and other imported spirits was expected as Turkey
agreed to implement most of the EU's Single Market provisions.
However, for the spirits sector, the changes since CU have been
far from beneficial. New obstacles have arisen including stricter
controls on import permits, additional labelling and certification
requirements, a tripling of excise taxes as well as the maintenance
of the state monopoly (Tekel) on the import, production and distribution
of most spirit drinks.
Exports of Scotch Whisky to Turkey have fallen
from a peak of £34 million in 1995 to just £20 million
in 1999. UK gin and vodka exports last year were around £1.6
million. Despite the problems, British spirits producers believe
that Turkey has massive potential as an export market. Once CU
provisions are fully implemented, EU accession will bring further
benefits, particularly on fiscal issues. Accordingly, the SWA
and the GVA and our colleagues in the European Confederation of
Spirits Producers (the representative body of the European spirits
industry), in conjunction with the Department of Trade and Industry
(DTI) and European Commission, have devoted considerable time
and effort to encouraging Turkey to abide by its CU commitments.
In this regard, Turkey is a DTI "Target Market" and
the resolution of the spirits industry's concerns is the European
Commission's number one trade priority for the market.
3. KEY PROBLEMS
A summary of each of the key problems facing
UK spirits producers/exporters is set out below.
(a) Alcohol monopoly (Tekel)
The 1942 Alcohol Act provided Tekel with a monopoly
of the import, production and distribution of spirits in Turkey.
While a partial liberalisation at the start of 1996 allowed whisky
to be freely traded (although under more restrictive import conditions
than other spirits), Turkey agreed under CU to "adjust"
the monopoly by the start of 1998 so as to remove any discrimination.
No such change has taken place.
Draft legislation (reportedly written by Tekel)
to amend the 1942 Act has been circulating since early 1996, but
is designed more to continue to protect the monopoly than permit
free trade. The Bill's most contentious aspect is its provision
only to allow traders whose imports exceed 1 million litres per
year to act independently of Tekel. (Perhaps only one importer
might attain this arbitrary and unique threshold.) Other companies
would be permitted to import freely but would be obliged then
to pass their spirits to Tekel, a direct competitor, for pricing
and distribution. There is a provision for the gradual reduction
of the threshold to half a million litres over a five-year period,
following which there may be scope for further changes to be made.
After waiting nearly four years for the expected
CU benefits to materialise, traders in Scotch Whisky and other
UK spirits wish to see clarity regarding the legislative framework
for future trading conditions. Therefore, despite their total
opposition to the principle of a threshold, they now wish to see
the proposed legislation adopted and a programme for the early
removal of the monopoly to be fixed.
(b) Import permits, certification and labelling
Although CU provisions do not allow the use
of import permits, a licence to import spirit drinks into Turkey
remains a prerequisite. The procedures are bureaucratic, with
each brand and bottle size to be imported sometimes requiring
up to five certificates, duly stamped by three separate authorities
and then translated into Turkish. Each permit is valid for only
Moreover, while Turkey agreed to allow free
movement for goods produced and labelled in accordance with EU
law, for spirits this commitment has yet to be implemented. Permits
have been refused for some Scotch Whiskies and the marketing of
some imported gins and vodkas has been obstructed. In addition,
revised labelling rules require imported spirits to show their
permit details and other information which is of no consequence
to consumers. Finally, unique in world markets, all whiskies are
obliged to show an age statement. None of these requirements are
compatible with Turkey's CU commitments, with many exceeding its
obligations as a WTO member.
The SWA and GVA believe that Turkey should be
pressed to implement its CU commitments with regard to permits,
labelling and certification. Not only would this remove some of
the barriers facing EU traders, but it would provide Turkish companies
with early experience of operating under Single Market conditions
and smooth the eventual transition to EU membership.
Since the entry into force of CU, excise taxes
have more than trebled and are equivalent to around 190 per cent
cif. This rate is excessive and acts as an incentive for the import
of low value and low quality spirits. Some of the latter seek
to complete unfairly with internationally established brands and
categories of spirit through misleading labelling. In addition,
the high tax rates provide an incentive for tax evasion and smuggling,
both of which distort trading conditions and also deny the Turkish
exchequer fiscal revenues.
The current tax structure, based on the value
of the spirit, discriminates against high quality and value UK
products, such as Scotch Whisky, gin and vodka. As an accession
candidate Turkey will be required to amend its tax structure to
make it EU-compatible. The Industry has already begun to try to
persuade Turkish officials that it is in their best interests
to introduce this change sooner rather than later.
As a result of the trade barriers, UK spirits
producers have been unable to secure market access. The absence
of transparency regarding the legislative framework for future
trading conditions has also prevented companies from being able
to plan with any certainty, in particular regarding possible inward
investment in the market.
UK spirits producers therefore hope the Committee
will feel able to add its support to the efforts being made to
remove the barriers facing a major British exporter. Such barriers
are incompatible with, and should be removed under, Turkey's Customs
Union commitments. Their removal will benefit trade, consumers
and government and facilitate Turkey's passage to EU membership.
By way of summary the industry's major concerns
are as follows:
the monopoly on most aspects of the
spirits trade that Tekel continues to exploit to prevent market
access for imported spirits;
the system of import permits (and
certification and labelling requirements) which act as an administrative
barrier to the free movement of goods; and
excessive excise taxes which encourage
evasion of payment and a structure of alcohol taxation which penalises
high quality and high value spirits.
The SWA and GVA believe it would be particularly
helpful if, during the Committee's visit to Turkey in November,
it was able to raise these concerns and obtain clarification on
any of the following aspects:
what the timetable is for (a) the
adoption of the Bill to amend the 1942 Alcohol Act, and (b) the
publication of its associated "implementation decree"
which will clarify how the proposed law will operate;
what the timetable might be for Turkey's
compliance with the CU obligations to abolish import permits and
permit free trade in spirits manufactured and labelled in accordance
with EU legislation; and
whether Turkey might be willing to
consider early moves to introduce an EU-compatible excise structure,
ie based on alcohol content (as opposed to declared value) of