Memorandum submitted by the Scotch Whisky
Association
1. INTRODUCTION
1.1 The Scotch Whisky Association (SWA)
is the trade organisation which represents the interests of the
Scotch Whisky industry. Its main objective is to promote and protect
the Scotch Whisky industry.
1.2 Scotch Whisky is important to the economy
of Scotland and the UK. Exports of Scotch Whisky were £2.5
billion in 2006 and have been over £2 billion each year since
1993. As a result, Scotch Whisky is one of the UK's top five manufactured
exports and represents 25% of all UK food and drink exports. The
industry supports over 65,000 jobs and spends £1 billion
each year with UK suppliers of goods and services.
1.3 Continuing success in international
markets is vital to the health of the Scotch Whisky industry.
The SWA is a proactive campaigner against trade barriers and seeks
to ensure fair and non-discriminatory market access for competing
alcoholic drinks.
1.4 Turkey is a market offering considerable
potential for Scotch Whisky exports. However, Scotch Whisky is
unable to take advantage of the opportunities because market access
is unfairly restricted by onerous import permit arrangements and
discriminatory taxation, both of which are contrary to WTO rules.
1.5 The 1995 EU-Turkey Customs Union Agreement
(CUA) was designed to liberalise trade flows between the EU and
Turkey. Many of the EU laws Turkey undertook to implement under
the CUA would remove technical trade barriers and anticipate much
of the EU's acquis communautaire. Over a decade later, there continue
to be difficulties and delays in implementation.
1.6 The SWA welcomes the Committee's inquiry
into the economic consequences of Turkey's EU accession and the
opportunity to provide input on our experience in the market.
2. THE TURKISH
SPIRITS MARKET
2.1 The Turkish spirits market was estimated
to be 7.3 million cases in 2006. It is dominated by the national
spirit, raki, which alone had a market share of around 75%. Raki
consumption has been falling since a peak in the late 1990s: sales
in 1998 were around 8.2 million cases but in 2006 this was 5.3
million cases. Imported spirits (all categories) accounted for
780,000 cases in 2006, much the same level as over the five previous
years.
2.2 In 2006 Scotch Whisky exports to Turkey
were £15.7 million, a 19% fall from 2005. Before the EU-Turkey
Customs Union Agreement began in 1996, exports of Scotch Whisky
were £33.6 million. They have never since recovered that
level, and in 2001 had fallen to £12.6 million. Given the
growing Turkish economy, and the increased market for premium
imported products, SWA members believe that fair market access
to Turkey could lead to that market developing into a key export
destination for their products.
2.3 The Turkish market was dominated by
an alcohol monopoly, Tekel, for over 60 years. Tekel was the sole
producer of raki but also other spirit drinks, including vodka,
gin, brandy, liqueurs and whisky. For many years Tekel was also
the sole importer and distributor of imported spirits. The alcohol
arm of Tekel was privatised in 2004 and the market partly liberalised,
allowing other domestic raki producers to emerge.
3. MARKET ACCESS
FOR SCOTCH
WHISKY
3.1 Although the CUA prohibits restrictions
on imports or measures having equivalent effect, shortly after
the agreement took force, Turkey introduced a "control certificate"
(CC), effectively an annual import permit, for Scotch Whisky and
all other UK/EU spirits. No such permits would be permitted as
an EU Member State.
3.2 To obtain a CC, companies were required
to produce numerous documents which, for many years after 1996,
all required to be notarised, authenticated by the Turkish Consulate
and translated. The CC took at least a month to issue and often
more. The volumes quoted on the certificate could not be exceeded
and separate permits were needed for each bottle size of each
brand. No CC was required for domestic spirits.
3.3 There were particular difficulties for
Scotch Whisky because the CC application required an age certificate
to be supplied. However, as this can only be issued to accompany
consignments that are exported, the certificate could not support
any CC application. The impasse was finally resolved in 1998 through
the creation of a Turkey-specific certificate regarding the age
of Scotch Whisky and its compliance with UK legislation.
3.4 More recently, when preparations for
market liberalisation were being made in 2003, a new government
agency, the Tobacco and Alcohol Board (TAB), was created. One
of the TAB's first acts was to introduce a requirement for all
imported spirits to obtain a second permit, the certificate of
conformity for importation (CCI).
3.5 The CCI brings a requirement for importers
again to produce certificates, many of which replicate those used
to obtain the control certificate. When it was first introduced,
the CCI took around two months to be delivered. As a further import
permit, this requirement is not CUA-compatible and nor could any
EU Member State introduce such a requirement.
3.6 The procedures for obtaining each of
the permits have been refined over the years. Notarisation of
papers is no longer required and other aspects have been streamlined.
Today it is possible, in some cases, for the two permits to be
delivered within a month. Nonetheless there are still cases where
spirit drinks legally made and sold in the EU are delayed by over
six months by the permits system.
3.7 Under Turkey's CUA commitments (and
as is the case for all EU Member States) there should be no import
permits. Turkish spirits exported to the EU face no system of
permits in any of the 27 Member States; consequently their exports
quadrupled between 1997 and 2004. The onerous permit system discriminates
against imported spirits and does not meet Turkey's WTO commitments.
4. EXCISE TAX
4.1 Between 1996 and 2002, excise taxes
in Turkey comprised a large number of hypothecated levies, such
as the Veterans Fund, Education Tax and Pastures Fund. While complicated
it did not seem to discriminate between imports and domestic spirits.
All the levies were consolidated into a Special Consumption Tax
(SCT) on all spirits in 2002. The tax was levied at a rate of
212% of value and this rose to 275.6% in January 2003.
4.2 The SCT law was amended in October 2003
to introduce minimum excise yields for each category of spirit.
Under the new system the 275.6% tax would apply unless the alternative
minimum tax levels, levied per litre of product, would yield more.
The minimum taxes varied according to category with the highest
rates on the main imported spirit, whisky, and the lowest rates
on the main domestic spirits, ie raki and vodka.
4.3 The excise tax law was designed in a
way that, in most cases, it is the minimum tax rates that apply.
The rates and structure were further revised on numerous occasions
over the following 2 years. Since August 2005, Scotch Whisky has
paid an excise tax of YTL71 per litre of pure alcohol (lpa) while
the domestic spirit raki pays YTL36 per lpa.
4.4 EU Member States are required to apply
a single rate of tax, levied per litre of pure alcohol, on all
spirit drinks, although there are limited exceptions to this rule.
Turkey's current structure fails to meet EU and WTO norms due
to the protection it provides for the main categories of domestically
produced spirit.
4.5 The level of excise tax in Turkey is
also extremely high. Were Turkey in the EU, the tax levied on
whisky would be the third highest of all Member States; the tax
on raki would be the seventh highest. The high rates of excise
are partly responsible for a large smuggled and counterfeit spirits
market. Some of the latter is highly dangerous; in early 2005,
at least 40 people were killed from consuming counterfeit raki.
5. OTHER AREAS
OF CONCERN
5.1 Upon the arrival of every consignment,
several litres of Scotch Whisky are removed for analysis, known
locally as "sampling", and which is ostensibly designed
to guarantee that the products in the market are the same as those
for which the import permits were granted. For Scotch Whisky,
which is already subject to national and EU legislative requirements,
the additional analysis in Turkey is unnecessary and bureaucratic.
The quantity taken is well above what would be required for analysis
purposes. There is no similar systematic requirement for local
spirits.
5.2 Scotch Whisky has often had to endure
difficulties due to the frequent changes in administrative requirements,
lack of consultation and absence of transparency with the trade
regime. On one occasion, control certificate validity was reduced
without warning from 12 to 6 months. (This was subsequently reversed.)
Separately, traders have faced label changes, ie to declare age
on all whiskies, even when the producer was making no age statement;
or to include "serial and batch" numbers, without any
explanation as to what these are and how they differed to the
"lot code" which is already included on the packaging
of every EU foodstuff.
6. EU TRADE BARRIER
REGULATION COMPLAINT
6.1 The SWA and the EU spirits industry
through its trade association, the European Spirits Organisation,
have been in regular contact with the UK Government and European
Commission regarding the longstanding problems facing the spirits
sector. UK and EU officials have been extremely supportive in
the effort to remove the barriers.
6.2 Industry has also regularly been in
touch with Turkish officials to explain our concerns and seek
the application of CUA and WTO trading conditions. Similarly we
have been in frequent contact with local producers both before
and since the privatisation of the former production monopoly.
6.3 The aim of the SWA and the European
Spirits Organisation has always been to require Turkey to meet
its existing trade commitments under the CUA and the WTO. These
requirements are fully in line with the EU acquis. We believe
it would be inappropriate to defer consideration of the longstanding
trade problems to the EU accession negotiations. Not only is the
timeframe for the latter variable, but accession could be 10 years
away. Rather, existing commitments need to be met before negotiations
begin.
6.4 With implementation of the CUA led by
the EU, the Commission has raised the spirits industry's concerns
in every forum over several years. Willingness to address the
issues has not been forthcoming from Turkey. The UK has raised
our concerns bilaterally and the Embassy has sponsored visits
by SWA for discussions with Turkish officials.
6.5 With the support of the UK Government
and the European Commission, it has been agreed that a formal
complaint under the EU's Trade Barrier Regulation (TBR—Regulation
No. 3286/94 refers) procedure should be compiled by the EU spirits
industry. The aim of the TBR is to instigate EU-Turkey discussions
regarding the trade concerns and to find a mutually acceptable
resolution. In the event the discussions do not yield the required
results, the Commission would almost certainly bring Turkey's
failure to meet its international trade commitments before the
WTO.
6.6 The preparation of the TBR complaint
is well advanced and it is planned that it should be ready for
submission by around the end of October 2007. Before it is sent
to the Commission, however, and at the request of Turkish officials,
the industry will again visit Ankara to explain the TBR process
and determine whether or not the new government is ready to reconsider
its position on the longstanding concerns in a manner that would
negate the need for legal action.
7. CONCLUSIONS
7.1 Turkey has the potential to be a significant
export market for Scotch Whisky, if it could be traded in the
market under the same conditions as domestic spirits. Turkey has
already committed itself to allowing this freedom under the Customs
Union Agreement.
7.2 Scotch Whisky (and other UK spirits)
have been unable to secure meaningful market access to Turkey
due to Turkey's failure to meet its Customs Union (and WTO) commitments,
specifically through:
— the onerous dual import permit regime
for Scotch Whisky and other spirits;
— excise taxes on whisky which are
double those on the national spirit raki; and
— removal of imports for "analysis"
and a constantly changing administrative framework.
7.3 The SWA is seeking fair market access
and non-discriminatory excise tax in line with Turkey's existing
obligations. We believe Turkey should meet its current commitments
now rather than these being deferred until its EU accession. Removal
of the trade barriers will demonstrate Turkish ability to implement
the EU acquis in the spirits sector and eliminate accusations
of protectionism, while a more transparent and stable trade regime
will encourage investment.
7.4 We would welcome the opportunity to
provide further written evidence on any aspect of this submission
where such additional briefing might be helpful to the Committee.
October 2007
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