Foreign Affairs CommitteeWritten evidence from the Scotch Whisky Association (SWA)
The Scotch Whisky Association (SWA) is the trade organisation whose main aim is to promote and protect the interests of the Scotch Whisky industry. A key element within that broad remit is to try to ensure that the trade regimes in which our members operate are non-discriminatory and permit fair competition. The EU is the industry’s single largest export market and is therefore of vital importance to our sector.
Our member companies, which range from small and medium-sized enterprises to multi-national companies, sold over 500 million bottles of Scotch Whisky in the EU in 2011: over 40% of all Scotch Whisky sales take place in the 27 Member States. Much of this success has been built on the harmonised trade rules in the internal market and the EU’s regular phases of enlargement.
We frequently campaign to ensure the internal market’s rules are appropriate to our sector and we greatly appreciate the dialogue with, and the support we receive from, UK officials. The EU legislation of greatest interest to our sector often bears the hallmark of UK participation. We only are able to secure rules meeting the needs of our sector through the UK’s EU membership and full involvement in its decision making processes.
The SWA therefore welcomes the Foreign Affairs Committee inquiry into the future of the European Union and UK Government policy. The attached submission seeks to highlight the benefits the UK’s EU membership has brought our sector within and beyond the EU’s borders. We have provided information regarding the internal market, EU enlargement and international trade relations. As a trade association, however, the Committee’s questions in relation to eg the “fiscal compact” lie outwith our remit.
Naturally we would be ready to provide further written information if that would be helpful.
1. Executive Summary
1.1 The Scotch Whisky Association welcomes the Foreign Affairs Committee’s inquiry into the future of the European Union and UK Government policy. Our sector liaises regularly with UK government departments and greatly appreciates their guidance and support in the effort to improve trading conditions for Scotch Whisky in the EU and in third countries.
1.2 The EU is the industry’s single largest export market and is vital to the Scotch Whisky industry. Global exports in 2011 were worth £4.23 billion, of which sales to the 26 other EU Member States accounted for £1.45 billion. Total sales within the EU, ie including the UK, amounted to over half a billion bottles, or 42% of the industry’s total volumes.
1.3 Scotch Whisky is sold in every EU Member State; our sector benefits greatly from harmonised trading rules in the single market, ie as opposed to the 27 sets of national rules that would otherwise apply. These advantages have been extended by EU enlargement. Although the internal market provides a (relatively) barrier-free trading environment, more is required for it to reach its full potential.
1.4 The UK plays a key role in the EU’s decision-making processes through the European Council and European Parliament. The Association is extremely grateful for the readiness of UK officials, MPs, MSPs, MEPs and Ministers to raise our sector’s concerns and pursue our interests in all relevant fora.
1.5 The UK’s EU membership has delivered benefits to Scotch Whisky which would not otherwise have been possible. We very much hope that, whatever decisions are taken regarding the EU’s future institutional architecture, and the UK’s role therein, these will not jeopardise the benefits of the internal market and the UK’s ability to influence and shape EU policies.
2. Introduction
2.1 Scotch Whisky is the world’s foremost internationally traded spirit drink. The Scotch Whisky Association (SWA) is the trade organisation which represents the interests of the Scotch Whisky industry. Its main objective is to protect and promote Scotch Whisky at home and in its overseas markets. More than 90% of sales take place outside the UK.
2.2 Despite the current economic difficulties, rising demand in both emerging and mature markets has resulted in export values increasing by an average of 10% a year over the last five years. The government regularly exhorts business to find new opportunities overseas. The Scotch Whisky industry provides an excellent example of the benefits of such trade. Much of the export success could not have been achieved without the UK’s EU membership.
2.3 Exports of Scotch Whisky to over 200 countries in 2011 were worth £4.23 billion. This equated to nearly 1.2 billion bottles; or 3.2 million bottles every day. Scotch Whisky alone represents 80% of Scotland’s food and drink exports, 23% of the UK’s and 7% of the EU’s (2010 data, as 2011 figures are not yet available for the whole EU). Scotch Whisky contributes £134 per second to the UK balance of trade.
2.4 The industry employs over 10,000 directly and a further 35,000 jobs across the UK are supported by the industry. Our sector spends £1 billion each year with UK suppliers of goods and services. Prospects for further export-led growth have resulted in the industry investing £1 billion in additional distillation, maturation and bottling capacity over the last five years.
2.5 The ability to export is vital to the health of the industry. Our members have been exporting for over a hundred years and are fully familiar with intra-EU and international trade and a wide variety of national trading environments, not all of which are benign. The SWA is an active campaigner against trade barriers and seeks to ensure fair and non-discriminatory trading conditions in all markets.
2.6 Our submission includes an overview of Scotch Whisky in the EU, and highlights some of the benefits it has brought as well as the work that remains to be done. It also looks at international trade aspects, and explains why the UK’s EU membership brings benefits within and beyond the EU’s borders. We have not sought to address questions in relation to, eg the “fiscal compact” since these lie beyond the Association’s remit.
3. Scotch Whisky in the European Union
3.1 Exports to the 26 other Member States were worth £1.45 billion in 2011. Total sales within the EU, ie also including the UK, amounted to over half a billion bottles. Scotch Whisky is sold in every Member State and our sector enjoys the advantages of the EU’s harmonised trading rules, ie as opposed to 27 sets of national rules. Our success in the EU is in large part a consequence of the internal market’s (relatively) barrier-free trade environment.
3.2 Our sector has long been involved with UK/EU officials and MEPs to try to ensure that EU legislative proposals are appropriate for our sector and enhance trade rules in the internal market. Our involvement is both direct and through our membership of the European Spirits Organisation—CEPS, which represents spirits producers at EU level. In the same way as CEPS relies on its members to determine the best policies for the industry, so too do the EU decision making processes rely on the active engagement of national governments and MEPs to pursue the interests of their constituents.
3.3 Thanks to the readiness of EU and UK officials to engage with our sector, much useful legislation for the Scotch Whisky industry has been passed. Policy areas where the Association has been actively involved at every stage include VAT and excise taxation, bottle sizes, spirit definitions, holding and movement of excisable products, strip stamps, environment, food labelling and protection schemes for geographical indications.
3.4 The policy work in which SWA and CEPS are engaged requires a constant dialogue with UK and EU officials in national capitals and Brussels, and with MEPs once those dossiers come before the European Parliament. The breadth of issues, and the level of engagement needed, are such that we could not secure trading conditions appropriate to the sector without UK support. Some of the dossiers on which we are engaged affect Scotch Whisky far more than any other spirit drink and the UK’s voice is critical in ensuring the enacted measures meet industry needs.
3.5 Among the advantages brought to our sector from the UK’s EU membership since 1973 are the following:
removal of excise tax and VAT discrimination against Scotch Whisky in France, Greece, Italy and Denmark;
adoption of EU rules to define and protect whisky, and to provide specific protection for geographical indications, such as Scotch Whisky;
introduction of common rules on labelling requirements and the bottle sizes in which spirits must be sold; and
removal of tariffs, quotas, tax discrimination, national labelling requirements and many other trade barriers in EU accession countries.
4. Single Market—Work Still in Progress
4.1 While we strongly support the principles of the Single Market, as is regularly observed it is far from complete. In our sector difficulties persist, notably on tax issues and inappropriate national rules which prevent free movement or protect domestic interests. Resolving such concerns does not happen overnight; the UK’s voice is needed over the long term to try to improve the operation of the single market.
4.2 A key area of concern is the EU’s excise tax directives which require Member States to apply minimum rates of tax according to category of alcoholic beverage. On spirits the minimum rate is €1,000 per hectolitre of pure alcohol (hlpa); for beer, it is €127 per hlpa; and on wine, the minimum rate is zero, a level applied by 16 Member States. All alcoholic beverages compete with one another and we believe the tax structure should reflect this situation. Instead the current crisis is being used by some countries to further widen discrimination against spirits; in many cases Scotch Whisky is the main imported spirit.
4.3 In addition, EU structures permit some national derogations from the broad principle that, within each category of alcoholic beverage, everything should be taxed in an identical manner. Thus, for example, there are lower rates of tax in France on rum from its overseas departments and on ouzo in Greece. There are other examples, too numerous to mention, of particular categories of spirit receiving preferential tax treatment sanctioned by the EU.
4.4 These have created the conditions in which some Member States, unilaterally and illegally, have introduced protection for domestic products: Hungary and Romania are the current worst offenders but Greece too has illegally extended its derogation for ouzo to include other local spirits. While there are means of redress in place, infractions proceedings, designed to enforce compliance with the acquis, are often slow and can take over four years before being resolved. In the meantime the discrimination continues.
4.5 Although it is usually the Commission that leads in removing such barriers, the UK’s involvement, at EU level, and bilaterally with the offending Member State, are extremely helpful in trying to resolve such concerns. We are constantly grateful for the UK’s support in this respect.
5. EU Enlargement
5.1 The internal market’s benefits have regularly been extended by EU enlargement. In acceding countries this has brought, among other things, the removal of many trade barriers including high tariffs, quotas, preferential tax rates, import permits, inappropriate laws defining whisky and national labelling rules.
5.2 The SWA has been closely involved in each phase of enlargement. Our main aim has been to ensure the EU acquis is implemented and enforced in the new Member States at the earliest opportunity, and that any derogations and/or transition periods in our sector are kept to a minimum. We have been helped greatly by the UK administration in this process. Through, eg the Enlargement Working Group, and bilaterally with the accession country, the UK has been extremely effective and persuasive in ensuring new EU members accede under the right conditions. Among other things, the UK was influential in securing:
the introduction of two benchmarks in Turkey’s accession negotiations which were instrumental in resolving two major trade barriers for the Scotch Whisky sector;
the agreement by Romania that, in advance of its EU accession, the tariff preferences it had negotiated for US whisky should also be extended to EU whiskies;
the introduction of a review period for certain tax derogations granted to some of the 2004 intake of accession countries; and
the refusal to permit any continuation of the preferential treatment (via excise tax and/or tariffs) of local vodka after Poland joined the EU.
5.3 More recently, we very much appreciate that the UK and others did not accept Croatia’s request for a seven year transition period to allow the sale of inappropriately labelled national spirits (“domaci rum” and “domaci brandy”), against which Scotch Whisky competes. Croatia’s accession in 2013 will therefore provide far greater potential for improving Scotch Whisky exports than if the current protection had been maintained.
5.4 EU enlargement has, over the long term, proved to be of massive importance to Scotch Whisky exporters. Some countries that have joined the EU over the last 25 years have been among the industry’s most important export destinations:
Before its 1986 accession, exports to Spain were typically £20–30 million a year. 10 years later they averaged over £200 million; between 2003 and 2010 they exceeded £300 million on four occasions.
Exports to Greece were worth £10–15 million a year between 1980 and 1985. When barriers were removed upon its 1986 accession, exports rose to £71 million after five years. They exceeded £100 million four times between 2003 and 2010. Prior to the recent economic difficulties, Greece was often cited as the country with the highest per capita consumption of Scotch Whisky in the world.
5.5 Among more recent accession countries, exports to Poland have increased from £5 million in 2003 to over £42 million in 2011.
6. EU and International Trade
6.1 Europe is the world’s largest trading bloc, accounting for one fifth of global trade. EU trade policy promotes the principles of free and fair trade around the world. While the Commission negotiates on behalf of the EU, the active involvement of Member States is critical in ensuring vital national interests are pursued in the negotiations. For example Free Trade Agreements (FTA) between the EU and third countries remove market access barriers, including excessive tariffs, and are an important tool in helping exporters gain better access to markets. In an export dominated industry such as Scotch Whisky, we are very grateful to UK officials and Ministers who regularly seek to ensure our interests are pursued in FTA negotiations.
6.2 The highest priority market for the Scotch Whisky industry is India. There is significant demand for Scotch Whisky in the market, but also major barriers, the most important of which is the excessive 150% tariff; effectively this prices our products out of the range of most consumers. The negotiations on the proposed EU-India FTA offer the only realistic chance of significantly reducing this tariff in the medium to long term. The Association is very grateful to UK officials in Delhi, Brussels and London who put in a considerable amount of time and effort to ensure the interests of the Scotch Whisky sector are taken into account during these complicated negotiations.
6.3 In the case of South Korea, where Scotch Whisky is both the UK’s largest export to the country and by far the biggest imported spirit, the entry into force of last year’s FTA provided substantial benefits. Not only will the 20% import tariff on spirits be eliminated, but the Agreement provides a mechanism to introduce legal protection for Scotch Whisky as a Geographical Indication. As in India, UK officials in London, Seoul and Brussels played a major part in delivering the successful outcome.
6.4 WTO trade rules have also been very useful in improving trading conditions for Scotch Whisky. For acceding countries, we have been helped enormously by the UK and EU’s readiness to ensure, in some cases, that longstanding barriers are resolved as a condition of accession. Elsewhere, WTO rules provide a mechanism for the EU, pressed by the UK, to take action against illegal protectionism in world markets. Our sector has been successful in removing tax discrimination in Japan, Chile, Korea and the Philippines.
6.5 More generally, the EU’s trade dialogue with third countries also helps it to promote and “export” the application of EU rules as best practice, and thereby shape trading conditions around the world. As mentioned earlier, the UK is active in seeking to ensure EU rules are appropriate for the Scotch Whisky sector; such rules can have a positive impact well beyond the EU’s borders.
7. Conclusions
7.1 The SWA firmly believes the UK’s membership of the European Union has provided significant benefits in improving trading conditions for Scotch Whisky in Europe and beyond. We could not have secured these advantages from outside the EU. And there remains much to be done, in particular to ensure that the proposed FTA with India delivers the tariff reductions that would help unlock this potentially huge export market.
7.2 The UK government has a vital role to play in promoting a level playing field for business in the EU. The EU Single Market and free movement of goods has already delivered huge benefits to Scotch Whisky producers. However, improving the Single Market and removing the remaining barriers to trade should remain a priority UK objective.
7.3 It is therefore critical that the British voice is, and continues to be, heard in Brussels and is successful in shaping EU policies. The UK would lose its current influence if, like EEA members Iceland or Norway, it was not part of the EU decision making process. Moreover, the UK would still be required to implement EU legislation which it had not helped shape.
7.4 We hope any decision regarding the institutional architecture and the UK’s EU membership will not jeopardise the advantages membership has brought, or weaken the influence and impact membership brings in the decision-making processes.
We hope the above comments will be helpful. If any further written information or clarification on any aspect would be useful, please do not hesitate to get in touch.
22 May 2012