Select Committee on Trade and Industry Appendices to the Report


APPENDIX 7

Memorandum submitted by the Scotch Whisky Association and the Gin and Vodka Association of Great Britain

1.  INTRODUCTION

  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 (CU) Agreement.

2.  THE CUSTOMS UNION AGREEMENT (CU)

  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 12 months.

  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.

(c)   Taxation

  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.

4.  CONCLUSIONS

  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 the spirit.

October 2000


 
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