Memorandum submitted by The Scotch Whisky
Association
EXECUTIVE SUMMARY
Scotch Whisky is a major UK export interest
worth £3 billion in 2008.
Notwithstanding this success, action by the
UK Government in certain clearly defined areas, as set out below,
would greatly assist the industry to consolidate and even enhance
its export potential in the current global economic downturn.
Trade Policy and Market Access. The Government
should concentrate responsibility and expertise for trade policy
and market access work in one government department so as to maximise
the UK's influence on EU external trade issues.
EU Single Market. The Government should
not adopt any policies that impede the free movement of goods
in the Single Market, especially in areas such as labelling where
a common approach by Member States is needed; it should also seek
to ensure that EU procedures for the movement of excisable goods
under duty suspension work efficiently and effectively.
Support from Posts Overseas. The Government
should provide the maximum possible in-market assistance to UK
industry with a view to enhancing its export performance; support
on trade policy and market access should invariably be provided
free of charge, while support for trade promotion should be provided
free of charge wherever possible.
Alcohol and Health. The Government should
adopt an evidence-based approach to the national and international
debate on alcohol and health so as not to inadvertently damage
a major UK export interest.
Excise Taxation in the UK. The Government
should set a positive example to the rest of the world by moving
towards a fair tax regime under which all alcohol is treated similarly
regardless of the form in which it is presented to the consumer.
Regulation and Competitiveness. The Government
should ensure that all regulation is subject to rigorous assessment
of its likely impact on business in order to avoid damaging competitiveness,
also that it is implemented in the most industry-friendly way
possible.
Transport Infrastructure. The Government
should ensure adequate investment in maintaining/enhancing the
country's transport infrastructure so as to facilitate the export
of goods from the UK to world markets.
INTRODUCTION
1. The Scotch Whisky Association (SWA) is
the industry's officially recognised representative body. Its
54 member companies, all of whom are distillers, blenders,
bottlers, brokers or exporters of Scotch Whisky, together comprise
over 90% of Scotland's distilling and blending capacity. The main
purposes of the Association are to protect and promote Scotch
Whisky at home and abroad.
2. With some 90% of Scotch Whisky sales
being overseas, one of the Association's key priorities is the
export environment in which its members operate. Our principal
objective is to ensure that Scotch Whisky may be sold without
undue restriction and on equal terms with all other spirit drinks
in world markets. This includes:
— Pursuing the removal of tariff and non
tariff barriers to trade, and
— Promoting, supporting or opposing legislative
or other trade-related measures impacting on the international
trade in spirit drinks.
3. The success of Scotch Whisky exports
is vitally important to the UK's export performance. Annual exports
of some £3 billion mean, for example, that Scotch Whisky
accounts for 25% of UK food and drink exports and is consistently
among the United Kingdom's top five manufactured export earners.
It is often the UK's single biggest export to key markets, for
example Korea and Taiwan.
4. The impact of these exports in Scotland
is highly significant, with exports representing 20% of total
Scottish goods and services exports and 80% of Scottish food and
drink exports. This strong export performance helps to support
over 40,000 jobs across the industry and the wider UK supply
chain.
5. In 2008, in spite of the gathering economic
downturn, industry exports showed considerable resilience. Provisional
figures suggest that despite these conditions, annual exports
surpassed £3 billion despite lower shipment volumes
and a marked decline in the final quarter.
6. It is recognised, however, that 2009 will
be even more challenging. At a time when export-oriented sectors
have a key role to play in supporting the UK's balance of trade
and driving the economy out of recession, the Association welcomes
the opportunity to participate in the Committee's inquiry.
TRADE POLICY
AND MARKET
ACCESS
7. The Scotch Whisky industry exports to
some 200 world markets and, in spite of its considerable
success, still faces a large number of tariff and non tariff barriers
to trade. To be precise, an analysis in early 2009 identified
614 barriers to trade in 187 markets. While some are
relatively inconsequential, such as low level tariffs and administratively
burdensome licensing requirements, others such as India's 150%
import tariff or Turkey's discriminatory excise tax arrangements
are serious impediments to market penetration. As a result, significant
commercial opportunities are being lost.
8. The Association therefore fully supports
the priority that is being accorded by the Government to trade
policy work. The United Kingdom is a major trading nation and
has long supported the principle of open markets. The WTO Doha
Round and the ongoing free trade agreement (FTA) negotiations
between the European Union and its major developing trading partners
such as Korea, India, ASEAN and Mercosur are therefore important
for securing further trade liberalisation which, in addition to
enhancing UK exports, helps generate economic activity and reduce
poverty in third countries. The global economic downturn simply
adds urgency to the need for these negotiations to be successfully
concluded. Given the protectionist tendencies of some influential
EU Member States, particularly in certain important sectors such
as agriculture, automotive and chemicals, it is essential that
the UK provides effective leadership for a group of free trading
Member States in the EU's Article 133 Committee and elsewhere.
9. Although trade policy is extremely important
in terms of creating new opportunities for the Scotch Whisky industry
in developing markets, the impact of the day to day market access
problems of getting goods to nearly 200 world markets should
not be underestimated. The Association therefore welcomes the
Government's enthusiastic commitment to the European Commission's
market access strategy which is proving increasingly effective
at resolving market access problems across many sectors in key
export markets.
10. Given the importance of both trade policy
and market access issues to the Scotch Whisky industry, the Association
has some concerns about splitting the responsibility for the former
between the Department for International Development (DFID) and
the Department for Business Enterprise and Regulatory Reform (BERR).
At a philosophical level, notwithstanding the importance of development
to the international trade agenda, we believe that trade policy
should be the responsibility of a single government department
together with all the other trade functions such as market access,
trade defence and the EU internal market. In brief, we do not
believe it is necessary to have split responsibilities in order
to achieve joined-up government (policy making). It should be
emphasised that this does not imply any criticism of officials
in either DFID or BERR, who are invariably helpful and pro-active
on Scotch Whisky issues.
THE EU SINGLE
MARKET
11. Around 40% of all Scotch Whisky is sold
in the internal market. Harmonised trading rules within the 27 country
bloc ensure Scotch faces the same regulatory framework as all
other EU spirits. Most of the legislation affecting Scotch Whisky
in the EU is agreed centrally rather than nationally; whether
in relation to tax structures, bottle sizes or spirits definitions,
a single set of laws applying throughout the EU has greatly facilitated
the free movement of our product. As the EU expands, the benefits
our sector derives from Single Market rules are widened to the
acceding countries.
12. Nonetheless, the Single Market is not
perfect. Despite the principles of free movement we face two issues
in particular that deny us genuine border-free trade opportunities:
labelling and strip stamps. While labelling law is fixed at EU
level, Member States also retain the right to introduce national
legislation going beyond the requirements of the EU Directives.
Many Member States apply both national and EU laws and it is consequently
impossible for Scotch Whisky to move freely throughout the EU
using the same label. Regrettably a proposal for a new EU labelling
Regulation looks set to complicate this further by making it even
easier for Member States to introduce national measures.
13. Separately, over half of all EU Member
States require a form of fiscal mark, often a strip stamp, to
be applied on bottles as evidence of excise payment. These complicate,
slow down and add costs to the bottling process and any bottle
bearing a strip stamp no longer benefits from free movement: it
can only be sold in the Member State that supplied the stamp.
The administration of stamps is cumbersome and there are serious
doubts as to the effectiveness of the strip stamp regimes. We
favour the use of more sophisticated controls, such as the "Electronic
Movement and Control System".
14. There is a further regulatory issue
concerning the movement of excisable goods, which is impacting
adversely on the industry's operations in the EU. Duty-suspended
movements to EU Member States are subject to EU law. Currently,
a common EU-specified paper document—the Administrative
Accompanying Document (AAD)—is required to accompany the
goods during the entire movement. Members have reported inconsistencies
in the way in which the data requirements of the AAD are interpreted
in different Member States. This inconsistent approach has led
to loads being seized by Customs authorities and fines, over €20,000 per
container in some cases, being imposed. Over and above the fines
themselves, seizures increase administrative costs for exporters,
while delays to movements are not good for business.
15. Some of the problems associated with
the paper-based system should disappear with the introduction
of the pan-EU electronic Excise Movement & Control System
(EMCS) when it becomes operational in 2010, although there will
still be scope for Member States to interpret the data requirements
differently. The Association is confused and concerned that a
late amendment to the revised holding and movement directive (2008/118)
appears to require a paper copy of the electronic message to accompany
the goods, thereby potentially perpetuating the current difficulties.
16. In order for the Single Market to deliver
the intended commercial benefit to the Scotch Whisky industry,
it is essential that the UK Government addresses these important
issues in conjunction with the governments of other EU Member
States.
SUPPORT FROM
POSTS OVERSEAS
17. The Association is in frequent communication
with British Embassies and High Commissions on a wide variety
of trade related issues. Staff from the SWA also travel to a number
of our priority markets each year and invariably make a point
of calling on Posts to discuss topical issues for Scotch Whisky
in the market. The response and the support provided by Posts
overseas is generally excellent.
18. However, it has become apparent over
the last 18 months or so that UK Trade & Investment,
which now has overall responsibility for Commercial Sections in
Posts, is looking to charge for trade policy/market access work
under the Overseas Market Introduction Service (OMIS). OMIS is
designed primarily to help UK exporters to establish themselves
in export markets by providing advice and reports on business
opportunities, and helping to arrange visits including introductions
to prospective customers/partners. It is not intended to cover
Posts' trade policy work carried out in the wider UK economic
interest, even when requests for help originate from business.
19. Usually, the Association has successfully
resisted requests for payment under OMIS on the basis that its
work on behalf of the industry is almost exclusively related to
trade policy or market access. However, twice in the last six
months, we have been obliged to pay for assistance from Posts.
In each case, we have accepted that delivering on our request
would involve Embassy staff in a considerable amount of work and
we have therefore agreed to pay for these services.
20. In sum, we strongly believe that Government
should be doing everything possible to encourage and help UK exporters,
particularly in the present global economic downturn. Many companies
are finding the business environment extremely tough, with customers
having difficulty obtaining credit and consumer demand depressed
by recession in many important markets. It seems particularly
inappropriate that UK business should be asked to pay for services
that it might expect to be provided by Government from general
taxation. In this connection, it is instructive that the US Government
has funded promotional activities for US distilled spirits, especially
Bourbon and Tennessee Whiskies, in selected export markets for
a number of years.
ALCOHOL AND
HEALTH AGENDA
21. It is regrettable and undeniable that
there is a problem with alcohol misuse in the UK and in many other
countries around the world. The Scotch Whisky industry promotes
the moderate and responsible consumption of alcohol and is fully
committed to working with Government to tackle alcohol related
harm. However, it is deeply concerned that blanket, untargeted
alcohol and health policies have the potential to damage an important
UK export interest while doing nothing to reduce alcohol misuse.
22. The World Health Organisation (WHO)
is currently in the process of drafting a global strategy to reduce
the harmful use of alcohol. The industry is recognised as a valid
stakeholder in this process. However, some WHO member states and
a range of health advocacy groups appear to have their own pre-determined
agenda on what the strategy should comprise. This includes removing
alcohol from the normal rules and disciplines governing international
trade, as well as from the scope of all future negotiations on
trade liberalisation. This position is justified on the misrepresentation
that WTO rules prevent members from taking effective action to
protect public health against the harmful use of alcohol.
23. In reality, WTO members are free to
implement whatever measures they deem appropriate to regulate
alcohol, provided they respect the core principles of most favoured
nation and national treatment. Moreover, since only 8% of recorded
spirits production is traded internationally, it follows that
measures targeted at imported brands would have only a very limited
impact on public health. Indeed, there is sound evidence that
the products most prone to misuse are cheaper domestically produced
spirits, especially those sourced on the illicit market.
24. In the face of this challenge to an
important UK export interest, it is essential that the Government
adopts a proportionate, evidence-based approach to the alcohol
and health agenda, both in the WHO and in its UK policy. In this
latter regard, the industry welcomes the Prime Minister's rejection
of introducing minimum pricing for alcohol, which has the potential
to cause major damage in export markets because governments in
third countries might easily adopt similar policies in a protectionist
manner. We also believe minimum pricing would be illegal under
EU and international trade rules.
EXCISE TAXATION
IN THE
UK
25. The Association's longstanding position
on excise taxation is that alcohol is alcohol and should be taxed
at the same rate according to alcohol content regardless of the
form in which it is consumed, ie beer, wine or spirits. The UK
Government's example of taxing spirits 37% more heavily than beer
and 18% more than wine in terms of alcoholic strength is unhelpful
to the attainment of this long term objective.
26. Similarly, the excise duty escalator
introduced in 2008 is unhelpful in itself because it is likely
to encourage other governments to adopt measures that will raise
taxation well above the rate of inflation. This will be particularly
damaging in countries that use ad valorem as opposed to
specific tax methodology. Moreover, the escalator will widen the
already large differential between the drinks categories, to the
huge disadvantage of the UK's top export earner in the sector.
We do not believe it makes sense for the world's foremost spirits
exporter to pursue such policies.
REGULATION AND
COMPETITIVENESS
27. There is no doubt that compliance with
government regulation involves cost to business, no matter that
it may be framed and enforced in the most business-friendly manner;
also that the competitiveness of business is ultimately reflected
in these costs. As a matter of principle, it is therefore essential
that the effect on competitiveness is placed at the heart of all
regulatory impact assessments conducted by the Government.
28. Moving from the general to the specific,
the Association has particular concerns that the industry's future
competitiveness will be eroded by the EU Emissions Trading Scheme,
which places Scotch Whisky at a disadvantage vis-à-vis
other spirits with geographical indications such as Armagnac,
Cognac and Plymouth Gin.
29. Specifically, by 2020 the Scotch
Whisky industry will be faced with estimated increased costs of
around £30 million for the purchase of emission allowances
because, as a result of the way in which the scheme's eligibility
criteria are laid down in the legislation, its high volume production
sites are captured by the scheme whereas those of its main competitors
are not.
30. There is also a security-related matter,
which has the potential to cause considerable disruption to trade
unless it is addressed urgently. Under the provisions of EU Community
Customs Code changes, from 1 July 2009 exporters will
be required to provide electronic pre-notification of goods that
are exported from the EU, as part of the security amendments to
the Code that were developed following the 2001 terrorist
attacks in the US. Unfortunately, however, the detailed EU implementing
regulations are still to be published and the Association is concerned
that its members will face unrealistic timescales to make systems
changes in order to comply with the new requirements.
TRANSPORT INFRASTRUCTURE
31. The industry exports 95 million
cases[46]
of Scotch Whisky each year. Consignments destined for many European
markets tend to move by road using a variety of ferry crossings
from the UK to the continent. Goods destined for markets further
afield are carried in containers by road or rail to the UK's deep
water ports, including Felixstowe, Liverpool, Southampton and
Tilbury for onward movement by sea either directly to the destination
country or via one of the major European "hub" ports
such as Rotterdam or Antwerp. It is therefore essential for the
Government to continue to invest in the UK's road and rail infrastructure
so that goods can be transported quickly and efficiently from
production and warehousing sites in Scotland to the ports for
onward movement by ferry/cargo ship. Any degradation in the transport
infrastructure would have potentially serious consequences for
Scotch Whisky exporters.
SUMMARY
32. As the representative body of one of
the UK's most important export industries, the Association welcomes
the opportunity to make this submission to the Committee. The
issues raised here all appear to be of direct relevance to the
Committee's inquiry and are matters of current concern to the
Scotch Whisky industry. The Association hopes the Committee will
find this submission both clear and helpful, and stands ready
to provide in writing any further information that may be required.
17 April 2009
46 One case contains 12 bottles of Scotch Whisky. Back
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