Government Assistance to Industry
Memorandum submitted by The Scotch Whisky Association
1. Introduction
1.1 The Scotch Whisky Association (SWA) is the industry’s representative body, with a remit to protect and promote Scotch Whisky worldwide. Its 56 member companies – Scotch Whisky distillers, blenders and bottlers – account for over 90% of the industry.
1.2 Scotch Whisky is Scotland’s leading single product export and the UK’s largest FMCG export. Annual shipments in excess of £3.1bn in customs value represent over 20% of total Scottish manufactured exports and almost a quarter of total UK food & drink exports. The industry is worth £4bn a year to the economy, supporting 35,000 jobs.
1.3 The SWA works closely with the Department of Business, Innovation & Skills (BIS) and UK Trade & Investment (UKTI). The Committee’s inquiry is therefore a welcome opportunity to review Government assistance. Our comments are focused on the reserved issue of international trade, specifically BIS and UKTI assistance to industry on export matters.
2. Scotch Whisky International Priorities
2.1 The Scotch Whisky industry is export-oriented, with nine out of every ten bottles sold overseas. International growth, and optimism about future export potential, has supported in excess of £600m in new capital investment over the last two years.
2.2 The industry’s international trade priorities include improved and fair access to Brazil, China, Colombia, India, Mexico, the Russian Federation, South Korea, Thailand, and Turkey. Equally, appropriate outcomes to negotiations within the WTO and EU free trade agreement framework, as well as on EU regulatory and accession issues, are important.
2.3 Scotch Whisky’s export potential is negatively impacted by tariff and non-tariff barriers to trade. An SWA analysis (2010) identified around 660 separate barriers to the trade in Scotch Whisky in 186 markets. Issues include high import tariffs (e.g. 150% in India) and discriminatory taxes (e.g. in Colombia), as well as restrictive certification, labelling and licensing rules. Inadequate IPR protection can also undermine potential growth, whilst up to 15% can be added to the cost of a bottle of whisky by customs procedures. In each instance, export opportunities in a premium sector are lost.
3. UK Government Policy and Support
3.1 Efforts to improve the export environment, and to promote fair market access, are of the highest priority to the industry. The SWA and its member companies are proactive in seeking to remove trade barriers, as well as supporting trade liberalisation that promotes Scotch Whisky.
3.2 UK Government assistance on trade issues is therefore vital. We work closely with BIS, UKTI, DEFRA, and the British Embassy network. The support received over many years has proved invaluable and is generally of high quality. Working together, the industry and government can point to numerous trade barriers that have been removed, supporting the competitiveness of the sector and its supply chain.
3.3 The SWA enjoys a strong relationship with BIS on both trade policy and market access issues. There is a regular and constructive dialogue on finding practical solutions to these issues. Progress is annually reviewed and efforts made to agree joint strategy. We have also welcomed the opportunity to participate in BIS trade policy seminars and forums. Only by maintaining and developing an open dialogue with business will the Government ensure that its ‘commercial diplomacy’ delivers measurable results for the UK economy.
3.4 BIS’ representation on the European Commission’s Market Access Advisory Committee (MAAC), which considers external trade issues, has also been beneficial. The MAAC is an important mechanism for resolving market access problems confronting Scotch Whisky. More generally, ensuring the UK trade voice is heard within the EU is vital given the important role of the European Commission and the EU’s overseas delegations on trade issues.
3.5 The support received on EU internal market issues has been equally valuable, for example in relation to complex dossiers regarding product labelling and prescribed quantities. Assistance on EU accession candidate issues has been welcome.
4. Looking to the Future
4.1 The industry has welcomed the Coalition Government’s engagement on trade issues and the stress it appears to be putting on supporting UK exporters. The Prime Minister’s remarks at the FCO Leadership Conference (6 July 2010) and the UKTI business summit (14 July 2010), for example, highlighted the need to tackle trade barriers and open markets to British business. We agree that such an approach should be at the heart of foreign policy and that it has a vital role to play in supporting economic recovery.
4.2 We are encouraged that the BIS ‘Strategy for Sustainable Growth’, as well as its draft ‘Structural Reform Plan’, identify a need to develop exports. In this context, traditional manufacturing businesses, such as alcoholic drinks, should receive just as much support as new manufacturing sectors. There are major opportunities for accelerated growth in Scotch Whisky exports to both traditionally important and new emerging markets.
4.3 Plans to develop a Trade White Paper by the end of 2010, setting out a strategy for growth through free and fair open markets, are timely. Key export sectors, such as Scotch Whisky, should have the opportunity to contribute to the development of the White Paper at an early stage.
4.4 The SWA supports the priority that is being accorded to completing the WTO Doha Round and ongoing free trade agreement negotiations between the EU and major developing trading partners such as Korea, India, ASEAN and Mercosur. Trade liberalisation can enhance UK exports, whilst also supporting international development goals. The UK must provide leadership within the EU, countering protectionist tendencies within certain other EU Member States.
4.5 We look to BIS to ensure that the business perspective is understood clearly in other Government departments. A good example has been the development of a holistic UK approach to alcohol, health and trade during discussions at the World Health Organisation.
4.6 In assisting UK business to develop its exports, domestic measures can be just as important as overseas action. UK legislation can have negative, unintended consequences for exports. Fair and responsible taxation of alcohol in the UK, for example, would send out a clear signal to export markets, setting an important precedent. This autumn’s review of alcohol taxation in the UK is an opportunity to update a system that is no longer fit for purpose. BIS, UKTI and DEFRA should be bringing their perspectives to that review, recognising that it would help to promote the end of tax discrimination against Scotch Whisky in overseas markets.
4.7 The impact of the day to day problems of getting goods to nearly 200 world markets should not be underestimated. Route to market and trade facilitation issues should continue to be addressed. The SWA therefore welcomes the Government’s continuing assistance, both bilaterally and through the EU’s market access strategy, towards resolving market access problems in key export markets.
5. Responsibility for International Trade issues
5.1 Trade policy, market access, trade defence and EU internal market work should be driven forward by BIS and FCO, helping to deliver on the Government’s commitment to promote exports and ensuring a co-ordinated Governmental approach.
5.2 The SWA also welcomes the work of UKTI. We have received excellent support from UKTI staff in overseas posts in relation to export promotion activities and events. That work is rightly financed through the charging structure of the Overseas Market Introduction Service (OMIS).
5.3 Our experience has been, however, that there can be reluctance in commercial posts to commit resources to industry-level trade policy issues, which are not chargeable under OMIS. Consistency across the UKTI network is important. In this context, we welcomed the Committee’s report ‘Exporting out of Recession’ (January 2010), which touched on some of the issues regarding OMIS. The SWA has also received welcome assurance from UKTI that trade policy work should not be chargeable under OMIS.
6. Conclusion
6.1 The Association receives valuable support from the UK Government – including BIS, the FCO and UKTI - on international trade issues. On both trade policy and market access, there is positive engagement and a willingness to work with the industry to secure improved trading conditions.
6.2 We welcome the new Government’s desire to emphasise the importance of international trade within its foreign policy agenda. To ensure that approach is as effective as possible, trade policy work should be led by BIS and FCO, co-ordinating closely with colleagues in other departments as appropriate.
23 September 2010
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