Select Committee on Scottish Affairs Memoranda

Annex B

BarrierComment 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 five years to 10 per cent. DTI will monitor.
Foreign firms cannot import, distribute, advertise or promote spirits. China has agreed a rapid phase-out of these restrictions as part of her WTO accession. 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.
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.
Possibility of a new law which eliminates exclusive dealership rights and encourages parallel importing. Could damage brand, and encourage counterfeit and possibly dangerous products. Change of President may delay bill.
Scotch Whisky was 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 bilateral basis.
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 Columbia. Drug laundered money may finance this illegal trade. HMG has had constructive discussions with the Columbian Government since May 1998 on this issue, pointing out that the situation could be improved if the fiscal burden on Scotch Whisky were lowered. Columbia's former Director of Taxation visited the UK in October 1999. There is new tax legislation currently before Congress which could lead to lower taxes on imports. HMG continues bilaterally to pursue improvements in tax regime.

The major drinks companies are co-operating with the Columbian Government by funding, training, advertising and other efforts to combat the contraband trade in imported spirits.
The spirits industry's principal concern lies with a new Monopoly law, which was adopted by the Turkish Parliament earlier this year. It is designed to liberalise trade in imported alcholic beverages, but contains provisions which look to protect the dominant position of Tekel, the state trading monopoly. These include a requirement that companies should attain a minimum litre sales threshold before they are permitted to trade independently of Tekel. But there has yet to be any clarification of the size and make up of the threshold. Moreover, Turkey's import licensing regime, onerous and discriminatory labelling requirements, and complicated tax measures make it one of the most difficult markets for spirit drink producers in the world. The Monopoly Bill and other restrictions appear to be incompatible with Turkey's obligations under the EC Turkey Customs Union Agreement which seeks to liberalise Turkey's trade with the EU. The Agreement also requires Turkey to bring its legislation into line with the EC law in a number of areas, including the free movement of goods and competition.

The UK and the European Commission have continued to press the Turkish authorities to phase out the remaining restrictions affecting the alcoholic drinks market, most recently at the EU-Turkey Customs Union Joint Committee in June 2001. A long-promised meeting between the main parties, including Tekel and the European spirits industry, took place in Istanbul in July of this year, but without any clear resolution.
HMG will continue to liaise closely with the SWA, European Confederation of Spirits Producers and the European Commission in pursuing these concerns with the Turkish authorities at every opportunity.
Although tariffs have now been eliminated on most spirit products, including whisky, following entry into force of the EU-Mexico Free Trade Agreement on 1 July 2000, and those remaining are being phased out, Mexico's current system of taxation discriminates between domestic and imported spirits with a "banded" tax regime consisting of 19 different categories. Tax is levied at unitary rates (peso per litre) and ranges from 4.74 pesos for Aguardiente, a local brandy-type spirit, to more than 900 Pesos for Cognac. The Ministry of Finance (Hacienda) has acknowledged that the tax structure needs improvement and intends to introduce and ad valorem system of taxation in the near future. It believes that ad valorem is the fairest taxation system for its domestic market

We remain concerned that an ad valorem system may increase the discrimination against imported products (since the excise duty on an imported bottle of whisky for example will be higher in money terms than on a bottle of locally produced spirit). As such, the ad valorem system might be in breach of GATT Article III, covering non-discrimination in taxation on domestic and imported products
The new ad valorem system is due to be introduced shortly. We will assess its effects, once it is introduced.
Import duties of 214 per cent.India is scheduled to reduce the current basic duty of 214 per cent on imports of bottled Scotch Whisky to 150 per cent by 1 July 2004 in line with its Uruguay Round commitments. The Finance Ministry has yet to implement a reduction to 198 per cent by 1 July 2001 recommended by the Commerce Ministry. The SWA has been actively lobbying the Indian Government to reduce this to 70 per cent as soon as possible on the basis that a lower tariff will help to reduce contraband and increase government revenue. HMG will continue to raise these issues with the Indian authorities. The DTI has done some initial work with the SWA on a longer term strategy designed to engage the support of organisations both within and without India for a tariff reduction on Scotch Whisky. Meanwhile a joint priority has been to address the new additional duties noted below.
Quantitative Restrictions on imports of bottled Scotch Whisky (and other spirits) have been replaced by countervailing duties levied by the Centre and State governments. India has at least lifted its import licensing restrictions on imports of bottled Scotch whisky, as requested by the WTO, on 31 March 2001. But the Indian Government has levied an additional duty ranging for 75 per cent to 150 per cent ad valorem to compensate for excise duties levied on domestic products. This seems far in excess of the domestic rate. State governments have also imposed fees of up to 66 per cent on imported spirits to compensate for the lifting of quantitative restrictions. Mr Byers and Ms Hewitt as DTI Secretaries of State have taken up this issue with the Indian authorities. The Commission has also sent a demarche to India and a response is awaited.
Special Additional Duty (SADD) of 4 per cent on imported spirits. India has been levying SADD since July 1998 to compensate for the sales tax payable on domestic products. Imported spirits have been liable to sales tax since 1 March 2001, but the SADD has not been lifted. This appears to constitute double taxation. This issue has been included in the Commission's demarche mentioned above.
24 per cent interest on warehousing of imported goods. As from 15 January 2001, an interest rate of 24 per cent on applicable duties must be paid on the warehousing of imported goods after 30 days. No such interest is charged on domestic goods. This has also been included in the demarche.
A 5 per cent differential between the tax on domestic and imported whisky and the tax on other spirits, effectively removed in January 2000 when excise duties were raised and equalised, was re-introduced in May 2000 and renewed for another 12 months from 1 January 2001. Local importers report a major drop in sales. The SWA contends that this differential is inconsistent with the WTO rulings in the cases against Japan, Korea and Chile. The WTO concluded that under GATT Article III all spirits are directly competitive/substitutable and should be similarly taxed.

The Argentine Ministries have rebutted the SWA's claim, saying that the WTO rulings on GATT Article III are not applicable in this case.
DTI legal opinion is that the SWA is probably correct that the differential is inconsistent with GATT Article III, but that the SWA need to develop their argument to take the matter further. Meanwhile, our Embassy continues to make representations on the issue.
Differences between imported and domestic products were eliminated in the excise regime in 1999, but a new regulation was introduced in July 2000. This states that only products made wholly or part with alcohol aged for less than three 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 three years), in favour of domestic products, which do not.

In addition there is discrimination in duty-free sales at Montevideo airport where only two bottles of whisky are allowed compared with allowance of 12 bottles of all other spirits.
Appears to be in contravention of GATT Article III

HMA met Finance Minister Benison on 8 June, who gave no sign of accepting the arguments on the discriminatory nature if IMESI.
The EU Commission issued a Note Verbale in May. HMG continues to maintain contact with the Commission, and with the Uruguay government to get a solution to this issue, most recently in September this year.
On the duty-free sales issue, Sr Benison indicated he was unpersuaded by the arguments for raising the allowance for whisky to 12 bottles.
In February 2000 the Bolivian Government increased the Specific Consumption Tax (ICE) rates on all spirits to Bolivianos (Bs) 6.00 per litre. But following public pressure it reversed this decision in November 2000, when it cut the rate on the local spirit singani to Bs 1.40 per litre, and to Bs 1.44 per litre on all other spirits except whisky, which remained at Bs 6.00. Following representations by the Embassy, the Bolivians explained the ICE on whisky as a luxury tax as whisky is mostly consumed by the middle classes.

Given there is no local whisky production this tax is clearly discriminatory and contrary to GATT Article III.2 on "competitive and substitutable" products.
HMG will continue to make representations to the Bolivians.
Dominican Republic
The Government introduced differential rates of local consumption tax (ISC) on spirits from 1 January 2001, with rum taxed at 35 per cent and all other spirits taxed at 45 per cent. Production of alcoholic beverages in the Dominican Republic is essentially limited to sugar-based spirits (such as rum) and beer. There is no domestic production of other spirits such as vodka etc. On that basis and in light of previous WTO jurisprudence in this area, DTI legal opinion is that this is a case requiring analysis under GATT Article III.2, second sentence (directly competitive and substitutable products rather than like products). The fact that the taxation in question is levied on imports of alcohol at the frontier is not sufficient to take this case outside the ambit of GATT Article III. Our Embassy has already made representations to the DR Government. We are discussing with the industry and Embassy how the matter may best be further progressed.
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.
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 and our Embassy raise whisky issues regularly with Vietnamese interlocutors.
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.
High tariff rates in Poland range from 75 per cent with additional or alternative rates of import duties on some products. Poles have asked for power to impose protective measures for five years after accession. HMG is not in favour of transition periods and instead urge all applicants to make full use of the run-up period by moving steadily and completely to free market conditions before accession. The DTI will accordingly continue to press the Commission and bilaterally.
High tariff rates.Resolved

Tariff of 54.4 per cent at present is being reduced by 6.8 per cent per year until EU accession, at which point it will be abolished.
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 to work with the Commission in bilateral approaches to the Canadians to get these mark-ups removed.
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. At the end of last year the Commission published a proposal for retaliatory action under the PCA. In response to Member States' concerns about certain elements of this proposal, the Commission is currently considering bringing forward a revised version. In the meantime it will continue to hold discussions with the Russian authorities in an attempt to resolve the issue. DTI will develop the UK view on the Commission's revised proposal, consulting with the industry as necessary.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 1 November 2001