Select Committee on Scottish Affairs First Report


8. Trade barriers

96. During the inquiry a good deal was heard from the spirits industry concerning its treatment in foreign markets. Export sales have always been vitally important to spirits and, indeed, to the UK economy. Over 90 per cent of Scotch whisky is sold abroad, and it is the UK's fifth-largest export earning industry. Scotch whisky exports were worth just over £2 billion in 1999.[127] Recent SWA figures show that foreign sales increased by 3 per cent to £2.1 billion in 2000.[128] The transfer of much of the UK's white spirits production to Scotland also means that trade barriers increasingly affect economic prospects there.

97. The SWA described a considerable range of measures that affects its ability to trade freely, and estimated that its members face some form of barrier in 130 foreign markets.[129] As examples of the discriminatory treatment to which whisky is subjected to, the SWA singled out its treatment in Turkey and India.[130] In Turkey, daunting access barriers remain in place despite an agreement with the EU designed to facilitate trade. These included restrictions on the issue of import licenses, unreasonable certification requirements, discriminatory labelling requirements, a ban on advertising and excessive spirits taxes of around 190 per cent.[131] The Minister for Trade and Investment acknowledged that the problem was complex, but thought essentially Turkey was protecting its own particular spirit.[132]

98. The Trade and Industry Committee raised the matter in its report on Industrial and Trade Relations with Turkey, when it encouraged the Government to "make a representation to the Commission on the issue of spirit exports to Turkey on behalf of UK spirit producers.[133] In its reply to the Trade and Industry Committee, the Government wearily said that it had "made a number of representations to the Commission" concerning the difficulties caused by the failure of Turkey to meet its Customs Union obligations. It continued to work with the Commission and the SWA to find ways to ensure that appropriate action is taken by the Turkish authorities.[134]

99. The situation with India is even more acute. Department of Trade and Industry (DTI) analysis confirmed that the total duty on imported Scotch whisky before April 2001 amounted to 222 per cent. Licensing and other restrictions also apply on Scotch whisky. These included, until April 2001, limitations on the import of spirits bottled at source so that all imports are therefore in bulk form. Following the lifting of this ban, however, the Indian government imposed an array of new protectionist measures, and the SWA has identified what it believes are at least five clear breaches of WTO/GATT agreements. These include an "exorbitant and discriminatory fiscal burden, ranging between 464 per cent and 706 per cent".[135]

100. The problems in India and Turkey by no means represent the only tariff and non-tariff barriers to trade faced by spirits companies in foreign markets, penetration of which is vital to the continued success of the industry in Scotland. The SWA noted the support given by the Government.[136] The Trade and Investment Minister told us that the industry has regular access to DTI ministers.[137] The DTI in particular has continuously worked to remove unwarranted barriers to trade in spirits, which unfairly protects foreign producers against legitimate competition.[138] We fully support the Government's efforts.

127  HC 114-v, Session 2000-01, p.281, Annex A. Back

128  "Scotch exports top £2 billion for eighth consecutive year". Scotch Whisky Association Press Release, May 2000. Back

129  HC 973-ii, Session 1999-2000, p.41, para 6.1. Back

130  The Department of Trade and Industry provided a complete range of the discriminatory practices that spirits are subjected to in foreign markets. See HC 114-v, Session 2000-01, pp.276-286. Back

131  The situation concerning trade in spirits with Turkey is described fully in HC 973-ii, Session 1999-2000, p.42, para 6.3, and HC 114-v, Session 2000-01, p283. See also HC 324-i, Session 2001-2002, p.331, para 40. Back

132  HC 324-i, Session 2001-2002, Q.723. Back

133  Ninth Report, Session 2000-01, HC 360, para 28. Back

134  First Special Report from the Trade and Industry Committee for Session 2001-2002, Appendix 5, HC 197. Back

135  HC 324-i, Session 2001-2002, p.330, para 39. Back

136  HC 973-ii, Session 1999-2000, p.42, para 6.4. Back

137  HC 324-i, Session 2001-2002, Q.674. Back

138  A full description of the DTI's activities in this respect is detailed in HC 114-v, Session 2000-01, pp 282-286.  Back

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Prepared 28 November 2001