Europe

01 Jul 2014

Although the European Union single market is often portrayed as a border-free trading environment, Scotch Whisky continues to face several barriers to trade in individual countries. The Global Affairs Department seeks to remove any barriers that exist or arise.

Mission

The Global Affairs Department (GAD) ensures Scotch Whisky can be sold without undue restriction and on equal terms with all other spirit drinks in:

  • The 28 EU Member States
  • The European Economic Area (EEA)/European Free Trade Association (EFTA) countries - Norway, Iceland, Switzerland and Liechtenstein.
  • The countries that are currently, or likely to be, EU accession candidates - all the states in the Balkan region and Turkey.

Principal Activities

  • Promoting, supporting or opposing EU and/or national legislative or other trade related measures affecting Scotch Whisky.
  • Pursuing the removal of intra-EU barriers to trade.
  • Seeking the introduction of EU-compatible trade legislation in each of the accession countries at the earliest opportunity.
  • Providing members with information on the regulatory framework for trade in Scotch Whisky in each of the countries for which GAD is responsible. 

The Work of the Global Affairs Department at EU level

The EU has expanded from six countries in 1957 to 28 today. With each phase of enlargement, more countries adopt Europe's common trade rules and remove their previous national, sometimes protectionist, legislation. But there remains scope for individual Member States to enact national legislation that can impact on Scotch Whisky. Some of that legislation has given rise to barriers which GAD is challenging. 

The application of the EU's trade environment means Scotch has become more accessible to a far wider audience. With over 500 million consumers in the EU, it is vital that the SWA monitors EU laws on a constant basis to ensure they remain proportionate and do not inadvertently give rise to barriers within the single market. This is doubly important as EU laws are sometimes used as the benchmark for other countries when considering new legislation. 

GAD spends considerable time assessing EU and national legislative proposals to determine their possible impact on the Scotch Whisky trade.  Much of this work involves a dialogue with the European Commission, Members of the European Parliament, UK government officials, public sector officials in other EU Member States and fellow members of spiritsEUROPE, the trade association for the EU spirits industry.

Some issues GAD is focusing on at EU level:

Labelling

Following a long debate, in 2011 the EU adopted a new law on food labelling the main provisions of which came into force in December 2014. 

The Association was closely involved in the evolution of the new legislation. Along with all other foodstuffs, the law sets down rules relating to almost every aspect of the information which consumers see on foodstuffs. 

For Scotch Whisky, this covers everything from the requirement to state alcohol content to the size of font required when whisky is sold in miniature bottles. The new law also contains specific provisions requiring the Commission to report further on areas including ingredient and nutrition labelling and in relation to the origin of foodstuffs. 

While the legislation laid down timeframes, as a consequence of political discussions between the institutions, as well as European Parliament elections, and changes in the Commission, there are likely to be delays in reports and the legislative process being proposed.

GAD is engaged in a dialogue with EU and national officials and other stakeholders to try to ensure that, whatever rules emerge, they are meaningful and do not discriminate against Scotch Whisky and other spirits. 

Definitions

EU rules set out how every spirit drink, including whisky, vodka and brandy, must be made. 

Additional provisions give protection for spirits with 'Geographical Indications' (GI), including Scotch Whisky, Polish Vodka, and Brandy de Jerez.

EU GI legislation recognises Scotch Whisky as a product that must be made in Scotland. The rules defining spirits play a vital role in the Association's efforts to protect consumers from fake 'whisky'/'Scotch Whisky' in the EU and other countries around the world. 

The very technical rules in this area were most recently updated in 2008. While this was a considerable improvement on its predecessor, it remained open to interpretation in some areas; this necessitated further close liaison between the Commission and industry and the welcome adoption of an Implementing Regulation, mainly to deal with use of compound terms (whisky liqueur, gin and tonic etc.) in summer 2013. 

The research conducted in the preparation of the new rules revealed other areas where the 2008 law could be clarified. The Commission is now working on a new legislative proposal in this area. In addition, as a consequence of changes within the Commission, there is a closer focus on the rules relating to the protection of 'geographical indications' (GI), such as Scotch Whisky. We are again engaged in discussions to try to ensure the current levels of protection for Scotch Whisky are not jeopardised.

Taxation

There are a number of EU Directives setting out how alcoholic beverages must be taxed. While these rules - mainly from the early 1990s - clarified and harmonised earlier national rules, they continue to give rise to difficulties:

  • There is a (high) minimum tax rate that must be applied on spirits but a much lower rate on beer
  • Although wine competes directly with other alcoholic beverages, EU Member States are allowed to exempt it from excise tax (more than half do so)
  • The rules allow Member States, in some circumstances, to apply lower rates of tax on some spirits. This always distorts competition in the market and the rules are often very poorly enforced.  Some countries have unilaterally, and illegally, applied their own derogations
  • The rules permit Member States to apply 'strip stamps' or other duty marks on spirits.  These always complicate trade logistics, add costs, discriminate against spirits and prevent free movement in the internal market

GAD is regularly involved, often alongside colleagues from spiritsEUROPE, in efforts to resolve trading difficulties that have arisen in this area. Occasionally, and in violation of EU and other rules, preferential tax treatment is granted to domestic spirits; this discriminates against Scotch Whisky and other imported spirits. We have recently worked on issues in Greece, Hungary, Romania and Switzerland. GAD challenges these measures in an effort to ensure fair and equal trading conditions for Scotch Whisky. In a breakthrough for the Association which had launched a formal complaint, the European Court of Justice ruled that tax exemption in Hungary for palinka, the country's traditional fruit spirit, is illegal.

EU Enlargement

The application of the EU's trade rules is a requirement for every accession candidate country. 

As each candidate's accession talks advance, the Association is involved in scrutinising their national laws to identify the areas where changes are required to meet EU norms. The outcome of this research forms the basis of the EU spirits industry's dialogue with Commission negotiators. 

Currently there are eight (potential) candidate countries at various stages of the accession process, including Turkey and the Western Balkan countries. GAD is in close contact with the Commission to ensure that barriers to trade are addressed and national rules are aligned with the EU acquis at the earliest opportunity. This is of particular importance with regard to Serbia where excise discrimination against Scotch Whisky is incompatible with EU rules.

Turkey

Turkey has long been seen as a potentially very significant export market for Scotch Whisky.

Although a Customs Union Agreement - essentially creating a free trade area between the EU and Turkey - was signed in 1995, Scotch Whisky exports face significant barriers preventing meaningful market access.

GAD has long been involved in a dialogue, primarily with officials in London, Brussels and Ankara, to try to overcome the difficulties. The trade regime remains generally unpredictable and opaque; new barriers have arisen as old ones disappear.

For many years, Scotch has faced considerable market access difficulties as a consequence of onerous administrative requirements. While these have been eased appreciably since the start of 2012, areas of difficulty remain and the SWA is monitoring developments closely. More recently, Turkey took the extremely unwelcome step of banning the promotion and advertising of alcoholic beverages. The same legislation also introduced a requirement for all drinks to bear a health warning label. In 2014, the Association challenged efforts to introduce a so-called track and verification label which would be a burden to the industry and of no added benefit to the consumer.

Another issue facing Scotch Whisky is the application of excise tax rates that are higher than those on the Turkish national spirit, raki. Following a welcome agreement in 2009 to harmonise all tax rates in stages by 2018, Turkey has significantly reduced the level of discrimination against Scotch Whisky, most recently in January 2015.