COMMISSION COMMUNICATION AND CONSULTATION: TOWARDS A SINGLE MARKET ACT (COM (2010) 608 final) SUBMISSION FROM THE SCOTCH WHISKY ASSOCIATION

Transcription

1 COMMISSION COMMUNICATION AND CONSULTATION: TOWARDS A SINGLE MARKET ACT (COM (2010) 608 final) SUBMISSION FROM THE SCOTCH WHISKY ASSOCIATION We are extremely grateful for the opportunity to provide input to the above consultation. The Scotch Whisky Association is the trade association that is responsible for the protection and promotion of Scotch Whisky. Scotch Whisky is traded globally: exports to around 200 markets in 2009 were worth 3.7 billion, with a volume equivalent to 1.12 billion bottles. The EU Single Market is vitally important to the Scotch Whisky industry. Scotch Whisky exports to the 26 other Member States in 2009 were worth 1.4 billion, and sales within the 27 Member States accounted for over 540 million bottles, or 45% of all Scotch Whisky volumes. Scotch Whisky exports outwith the EU represented 40% of all EU spirits exports, and accounted for 6% of the EU s food and drink exports. Scotch Whisky is, by far, the leading geographical indication (GI) spirit drink in the EU. Our members have greatly benefitted from the internal market and the (relatively) barrierfree trade environment. Among the advances the Single Market has brought our sector are: - the removal of excise tax and VAT discrimination against Scotch Whisky in France, Greece, Italy and Denmark (although, regrettably, some discrimination remains); - adoption of EU rules to define and protect whisky, other spirit drinks and geographical indications; - introduction of common rules throughout the EU on the pack sizes (quantities) in which spirits (and wines) must be sold; - removal of national certification requirements in respect of spirits from other Member States; - the removal of tariffs and application of Single Market rules in an increasing number of countries as the EU enlarges; - a greater degree of harmonisation with regard to labelling rules for foodstuffs in the EU than under 27 national regimes. Scotch Whisky is sold in every EU Member State and our sector is therefore fully conscious of the advantages of harmonised trading rules in 27 countries, i.e. as opposed to the 27 sets of national rules that would otherwise apply. The Single Market is, however, not complete. Scotch Whisky Association, 20 Atholl Crescent, Edinburgh EH3 8HF t: w: scotch-whisky.org.uk London office: 14 Cork Street, London W1S 3NS t: f: Registered Office: 20 Atholl Crescent, Edinburgh EH3 8HF Limited Liability Registered in Scotland No: VAT Registration No: GB European Affairs t: f: e: eur@swa.org.uk

2 Our sector has long been involved in discussions at EU level on legislative proposals which would further improve trading conditions: policy areas have included taxation, bottle sizes, definitions, holding and movement, strip stamps, environment and GI protection schemes, among others. The SWA s involvement is both direct and through our membership of the European Spirits Organisation CEPS. Thanks to the readiness of officials and MEPs to engage with stakeholders, some very useful legislation has been passed. In other areas the work is ongoing. We therefore greatly welcome the Commission initiative for a Single Market Act and the proposed improvements to internal market trading rules. We hope you will find the following views on the proposals interesting and helpful. Please note we have commented only on those of most immediate concern but have, where necessary, broadened these to include observations regarding related Single Market issues where our sector faces difficulties. We very much hope these can also be taken into account in the forthcoming legislative proposals; removal of these obstacles would move us closer towards a genuine Single Market between the 27 Member States. Proposal 3 Counterfeit And Piracy; Protection Of Intellectual Property Rights As the EU s leading spirit GI, we and our member companies attach great importance to clear and reliable provisions for the protection of intellectual property rights (IPR) and to the fight against counterfeit and piracy. We greatly appreciate the Commission s support on these issues and the very welcome dialogue in relation both to internal market rules and protection regimes in export markets. There is, regrettably, one area of concern regarding a blatant infringement of IPR and a breach of the ban on the export of counterfeit spirit drinks. In 2005 the SWA discovered that an Austrian canning company had produced over 15 million cans of fake Scotch Whisky, and a further 2 million cans of fake whisky, using industrial alcohol and flavourings. These products were exported outside the EU. The EU Spirits Regulation (Regulation 110/2008) protects both generic names such as whisky, and GIs such as Scotch Whisky, not only from infringing sales within the EU, but also as regards exports to the world market. Despite the fact that EU Regulations are directly applicable within Member States, the Austrian Supreme Court overruled lower court judgments and declined to give the SWA protection under the EU Regulation against further misuse of the descriptions Scotch Whisky and whisky. An Austrian criminal court has also ruled that the proprietor of the offending company did not have the necessary mens rea to have committed a criminal offence by the fraudulent use of these descriptions. There cannot be a true Single Market while Member States are allowed to flout the direct applicability of EU law. Yet, when the SWA raised its concerns at EU level, there was (certainly initially) considerable reluctance to take any action to ensure that Austria enforced EU law. This was surprising in view of Austria s blatant breach of EU law banning the export of counterfeit goods, but also as it could leave the EU open to allegations of double standards in the way it treats Member States and third countries. Our dialogue is continuing. We hope moves are made to ensure Austria meets its EU commitments. We have included separate comments in relation to IPR and 3 rd countries under Proposal of 10

3 Proposal 5 Promotion Of Electronic Commerce Some of the Association s smaller member companies operate websites selling specialist single malt Scotch Whiskies. Within the Single Market, EU Directives require, in principle, that excise tax is paid only once on spirit drinks, normally in the country of consumption. However, although concerns were raised regarding the practical operation of the regime for internet sales under the previous Directive (92/12), these have not been resolved by the new excise Directive (118/2008). In essence, internet sales of Scotch Whisky, often to purchasers in the EU s Nordic markets where excise taxes are excessively high, are invariably subject to double taxation, i.e. both at origin and at destination. While provisions exist for tax to be paid only once, it is invariably far too complicated, cumbersome and expensive for small traders to manage a regime in which excise tax on individual bottles can be tracked between country of origin and country of destination. In most cases therefore, excise tax is paid by the UK trader and again by the purchaser before collecting the bottle. In the interests of promoting such trade, particularly for smaller companies, we hope moves can be made to simplify the tax rules for cross border internet sales. Proposal 7 White Paper On Transport Policy We would agree that we are still some way off having a single transport system. We would wish for a thorough evaluation and communication from the Commission on what the perceived barriers are to achieving a single co-modal system. Proposal 8 Proposal To Revise The Energy Tax Directive In order to create a level playing field on energy taxation in Europe, we support a harmonised system of energy taxation that recognises Member States existing schemes. We would be keen to ensure that any proposal takes account of, and gives credit for, any low-carbon or green energy source and avoids including emissions covered by equivalent measures in EU Member States (preventing duplication of taxation/regulation). We believe strongly that energy taxation should aim to be revenue neutral (i.e. revenues from energy taxes should be recycled into initiatives to improve energy efficiency and knowledge of low-carbon technologies) and that installations already operating under the EU ETS should be exempt from any further measures. Proposal 9 Establishment Of High-Level Group On Services To Study Deficiencies In The Single Market Producers of Scotch Whisky, and other UK/EU spirits, are adversely affected by the asymmetrical relationship with their largest clients, i.e. the major retailers. This is evident in the specific approach each retailer takes with regard to product requirements. Within individual Member States, especially those countries where there is a substantial concentration of large retailers, there can be a proliferation of label formats and product specifications for the same brand of spirit drink because of individual retailer requirements, invariably designed to suit their specific selling environment or to gain competitive advantage. 3 of 10

4 The requirement to tailor goods for a specific retailer makes it harder for producers to control costs, and to achieve economies of scale in areas including print runs for labels and uninterrupted operation of bottling lines. (Frequent stoppages on high speed bottling lines (up to 600 bottles per minute) also reduces their efficiency.) The commercial importance of access to the major retailers, however, means producers have no choice but to comply with requests for specific formats / label variants. We therefore greatly welcome the establishment of a high level group to look at deficiencies in the Single Market. We hope it may be possible to include supplier / retailer relations and that this might result in a better understanding of producer interests and, in turn, an improved Single Market in which Scotch Whisky producers / bottlers can operate more efficiently and their brands move more freely than at present. Proposal 10 Possible Initiative On The Ecological Footprint Of Products And Carbon Emissions There has been a proliferation of available methodologies for environmental footprinting (from carbon to ecological footprinting). We would welcome an EU approach to establishing impacts. But we would stress that for blended aged spirits, such as Scotch Whisky, there is currently no acceptable methodology for establishing its environmental impact; such a spirit might contain over 30 Scotch Whiskies from different distilleries, all of different ages and produced in different parts of the country. The European Commission has taken a lead already in the European Sustainable Consumption and Production Round Table (SCP). The members of the European SCP are identifying scientifically reliable and uniform environmental assessment methodologies for food and drink products, including product category specifications where relevant, considering their significant impacts across the entire product life-cycle. They are identifying suitable communication tools and are promoting and reporting on continuous environmental improvement along the food supply chain and engaging in an open dialogue with its stakeholders. We would urge the Commission to allow this initiative to report its findings and make recommendations before making firm proposals in this area. We are yet to be convinced that a meaningful mechanism is available that can convey environmental information in a manner that consumers can readily understand. In addition it is far from certain that consumers of spirits make, or ever will make, purchasing decisions based upon, e.g. the embedded carbon or water in a particular brand. To be useful, consumer demand and understanding are crucial for any such labelling. For these reasons we continue to believe it is preferable for voluntary, as opposed to mandatory, rules to apply with regard to footprinting. Proposal 11 Presentation Of An Energy Efficiency Plan Again, we support this proposal but stress that existing EU measures (such as EU ETS and the energy efficiency aspects of the Integrated Pollution Prevention and Control Directive) be recognised in any future plan. 4 of 10

5 Proposal 19 Improving The Coordination Of National Tax Policies While the consultation refers only to corporation tax, we believe it important that excise tax provisions which impede or adversely impact on single market trade should also be addressed. There are 2 key areas of concern: the first relates to the varying levels of excise tax (a) between Member States, and (b) between categories of alcoholic beverage; and the second relates to the additional controls applied on spirits as opposed to other categories of alcoholic beverage. There are also a number of market specific concerns. a) Distortion Of Competition Caused By Differing Minimum Rates Of Excise Tax EU tax Directives require Member States to apply minimum rates of excise tax according to category of alcoholic beverage. On spirits the minimum rate is 550 or 1,000 per hlpa, although in 22 Member States it is already above 1,000; for beer, the rate is 127 per hlpa; on wine, the corresponding rate is zero, a level applied by 16 Member States. The differing minimum rates are perplexing given that the alcohol component of wine, beer and spirits is identical. The tax preferences heavily distort the EU market for alcoholic beverages since wine pays no tax in over half the Member States and in others it is always at a far lower rate than the level applied on spirits. In the case of beer, although it must be subject to excise tax, the levels applied by EU Member States are always lower, in many cases substantially so, than the equivalent rates on spirits. The differences are widening and the protection wine (in particular) enjoys is therefore also growing. Since the start of 2008, Member States collectively have increased excise taxes on spirits on 33 occasions, whereas for wine the number of increases has only been 11. At a time of economic crisis, the additional excise taxes, regularly justified by the need to improve finances and facilitate economic recovery, are falling disproportionately heavily on spirits. In some instances, however, anecdotal information suggests revenue targets are being missed because spirits are already at their point of revenue maximisation; as they are in competition with other categories consumers are purchasing lower or zero taxed drinks instead. It is possible that excise revenues would improve, and the excise structures would certainly be fairer, if there was a more equitable spread of the tax burden among the competing categories of alcoholic beverage. We hope therefore that the Single Market Act might be used to look again at current excise tax structures for alcoholic beverages so that the protection enjoyed by some categories, at the expense of spirits, can be reviewed. In an ideal world all alcoholic beverages should be taxed according to their alcohol content rather than the current regime in which the alcohol is taxed (or not) depending on the type of beverage in which it is found. b. Absence of Excise Tax Harmonisation The EU excise Directives permit Member States to apply rates of tax they feel are most appropriate in their market. The upshot is that, for a variety of reasons, there is currently a factor of 10 between the highest and the lowest taxing Member States: spirits in Bulgaria pay 562 per hectolitre of pure alcohol (hlpa) while in Sweden they pay 5,439 per hlpa. 5 of 10

6 Differing rates provide a huge incentive for cross border shopping from high to low taxing countries. As the principle of free movement is paramount, one would expect there to be significant transfers between high and low taxing countries with the result that excise rates would probably start to converge. However, internal market rules restrict both the quantities and the means of transport for such cross border transfers. This means the Single Market does not operate as intended (see also the comments on Proposal 5) and there is no pressure on those countries that apply excessive rates of tax (which always discriminate against spirits) to consider using more reasonable rates. A further reason for seeking to reduce excessive tax rates in some countries is that they currently give rise to considerable black market activity and illegal home distillation. We hope therefore that the Single Market Act can incorporate efforts to remove some of the potential restrictions to free movement. This is likely to give rise to more sustainable levels of tax which do not provide an incentive for illegal activity. c. Extra Controls on Spirits The high level of excise tax on spirits compared to other alcoholic beverages leads to other negative and anti-competitive consequences for spirits. 15 Member States require spirits sold in their domestic markets to carry a strip stamp or other form of excise duty mark which, in theory, is designed to demonstrate that excise tax has been paid. Such stamps are never required for beer, and only in 4 countries are they applied on wine or fortified wine. Strip stamps impede free movement in the Single Market. Whenever a strip stamp or duty mark is applied on a bottle of spirits for a particular market, that product no longer benefits from the free movement of goods. It is rare and largely impractical for traders to accept the logistical complexities and financial costs of removing strip stamps, and seeking reimbursement of excise tax, so the product can be sold in another country. Stamps add significant costs and complexities to the bottling operation and to company logistics and accounting operations, further diminishing the competitive position of spirits compared to other alcoholic beverages. Although the stamp / duty mark is designed to ensure excise revenues are collected, the evidence suggests they are ineffective. In some countries the level of excise collected is significantly below potential due to evasion and sometimes by the use of fake stamps. At a time when the EU has just rolled out its computerised EMCS programme, it seems anachronistic that so many Member States believe a thin strip of paper across the top of a bottle is an effective mechanism to guarantee revenues. We hope therefore the Commission will agree that this is a further area on which work is urgently required to remove market distortions and impediments to free movement for spirit drinks in the EU, and thereby enhance the Single Market. d. National Derogations In many EU Member States, derogations have been granted from the broad principle that competing products should be taxed identically. Although individual Member States are required to apply a single rate of excise tax on all spirit drinks, there are at least 15 Member States where certain categories of spirits receive preferential treatment. It is highly likely such preferences are incompatible with obligations under the WTO to apply non-discriminatory taxation to competing products. 6 of 10

7 Some tax derogations cannot be justified in any way. The Greek derogation for ouzo, for example, does not protect artisanal production. It simply protects local spirits producers and, regrettably, also provides justification for other countries seeking similar protection from fair competition for their national spirits. We therefore hope it can be abolished, perhaps in the context of the measures that are required to rearrange Greece s finances in a more stable and sustainable manner. Rum from France s Overseas Departments (FOD) also enjoys protection when sold in mainland France. While we can understand the importance of protecting employment and agriculture in remote areas of the EU where few alternatives exist, we are not convinced that tax protection in France is the most appropriate mechanism to achieve this. Of additional concern is the further protection FOD rum receives within the overseas departments themselves, both from the very low rates of excise tax compared to other spirits (and details of which have proved exceptionally difficult to determine) and from the octroi de mer ( dock due - essentially an import tariff) which applies on Scotch Whisky and other spirit drinks, even though the overseas departments are deemed to be part of metropolitan France and thus the EU. The rates of dock due in the individual overseas departments range from 25% to 50% and we very much hope the Commission will be ready to press for the removal of this intra-eu tariff when the current facility for their application expires in Tax problems are also acute in some of the countries that have recently joined the EU and which were granted derogations allowing home or small-scale distillation to benefit from reduced rates of excise. While the intention was to support traditional, artisanal practice, the evidence available suggests the scale of such distillation is far more significant. In some countries, we suspect the distillates from home/small scale distillation account for a third of the entire market. In addition, the enforcement regimes appear lax. We hope the Commission can look into this issue with a view to removing the derogations which distort commercial competition in those markets or, where derogations remain, ensuring there is adequate enforcement and that only those genuinely distilling at home for personal consumption benefit. Proposal 20 New VAT Strategy As the impact of VAT will affect our member companies in numerous different ways, the Association has not submitted a response to the Commission s recent consultation. Rather we have circulated details of the consultation directly to our member companies, encouraging them to respond directly with their own specific concerns and suggestions for improvements. Proposal 23 Regulatory Cooperation With Trading Partners; Market Access Negotiations The SWA and CEPS strongly support the WTO Doha Development Agenda. In addition, we greatly appreciate the regular and constructive dialogue on all aspects of the free trade agreements which the Commission is negotiating with a number of our trading partners. We warmly welcomed the 2010 agreement with South Korea. 7 of 10

8 The SWA s current greatest focus is the proposed FTA with India where, as a consequence of a highly protective environment for local producers, Scotch Whisky and other EU spirits have only a negligible presence in a market estimated at over 200 million cases a year. We look forward to maintaining the dialogue with the Commission on this crucial market which, for many years, has been our top trade priority for improved market access. The key to improvements is through reducing the exorbitant tariff (150%). However, it is also important to ensure any removal or tariff protection is not followed by ring-fencing the market by, e.g. State-led excise discrimination or the use of other non-tariff barriers. While protection of geographical indications within the EU is covered by Proposal 3, it is vital that any FTA negotiations also include this policy area. As with the dialogue on market access and trade facilitation, protection for EU spirits in line with TRIPS is critical. This is particularly important in markets where Scotch Whisky is starting to make inroads, and where early success can encourage imitations by domestic producers or give rise to counterfeit products. We have been grateful to the Commission for a successful outcome in securing recognition and protection of Scotch Whisky and other EU spirits in a number of jurisdictions. On a broader note, in order to promote regulatory convergence in many policy areas, it will be necessary to ensure that the evidence base underpinning regulation in thirdcountries is of a high quality. We are, for example, aware of the dialogue between the EU and US in relation to mutual recognition of the respective science bases for some regulations. At a practical level we hope this will mean that the US will accept the scientific research and analysis which underpins the very welcome exemptions from allergen labelling in the EU (as reflected in, most recently, Directive 2007/68, and in the forthcoming new Food Information Regulation). This being so, potentially allergenic raw materials benefitting from derogations in Europe would also receive exemptions in the US, and indeed in other markets that are considering such legislation. Proposals Employment And Lifelong Learning We welcome the proposal to develop a professional card and European Skills Passport. Care must be taken to ensure that not only academic qualifications are recognised but also corporate and vocational training and experience, and that workers/operatives in the widest range of occupations have access to a system of recognition. Proposal 42 Communication Aimed At Identifying Tax Obstacles Facing European Citizens As indicated in relation to Proposal 5, EU citizens, notably in the Member States which apply high rates of excise tax on spirit drinks, are invariably penalised when they buy spirits over the internet through double taxation. The higher prices inevitably act as a disincentive to cross-border internet sales, and are partly the reason why this area of trade has not yet developed more substantially. Proposal 47 Better Enforcement Of Single Market Rules And Improving Procedures For Infringement Cases The SWA fully supports the effort to ensure proper application and enforcement of Single Market rules. Very recently, however, there have been two instances, in Hungary and Romania, where, despite being warned in advance that proposed national measures 8 of 10

9 would breach Single Market rules, the governments nonetheless introduced changes which adversely impacted on trade in Scotch Whisky. At the time there were reports that the administrations in each country were aware the measures breached the acquis but they also knew that infractions proceedings, designed to enforce compliance with the acquis, can be very slow. The understanding is that the governments were ready to accept they would breach the acquis for the 3-4 years it would take an ECJ referral to confirm the incorrect application of EU law, since they could then reverse the measure without facing any sanction. We believe therefore that, in cases where proposed national measures clearly breach the acquis, and that breach is highlighted in advance, the Commission should use the revised infractions provisions under the Lisbon Treaty to reduce the time to bring cases to the Court of Justice. We very much hope a provision can also be put in place whereby the offending Member State can be made subject to financial penalty from the date the measure was imposed, since this would deter Member States from knowingly introducing non-acquis compliant measures. Furthermore, we believe it would be helpful a further deterrent could be developed under which offending Member States were obliged to compensate any traders that are adversely affected by such acquis-incompatible measures. Proposal 48 Increased Consultation With Civil Society In The Preparation And Implementation Of Texts We and our colleagues in CEPS greatly appreciate the existing dialogue with the Commission on a broad range of policy issues which, we believe, helps to ensure that legislation in the EU is properly targeted and more likely to be effective. While the proposed enhanced dialogue is very welcome, we believe the opportunity should also be taken to reintroduce transparency and dialogue in one policy area from which it was withdrawn. Under the Technical Regulation Information System (TRIS), proposed national legislation is submitted for scrutiny to all Member States and other stakeholders. This system has proved to be of immense value in (a) ensuring legislation is acquis-compliant, and (b) providing the trade with early information on forthcoming national legislative changes. (This system is not as effective as hitherto since, under freedom of information rules in 2001, our access to Detailed Opinions on legislative proposals was withdrawn! We never received a satisfactory explanation as to why this happened, nor any guidance on the problems the information s previous availability was thought to cause.) Regrettably, national labelling proposals, which came within the scope of TRIS until about 2006, were removed when the new Committee (SCOFCAH) was formed. As there is no public access to SCOFCAH working documents and no obligation on Member States to consult / notify stakeholders, proposed national labelling measures are no longer transparent. Scotch Whisky is sold in every EU Member State but, regrettably, there is not a single brand which can use just one label across the Single Market. Instead, as a consequence of a wide range of national language and labelling rules, Scotch Whiskies and other EU spirits need to be labelled for individual or small groups of markets rather than the EU as a whole. Not only is this an expensive and logistically complex exercise, but it undermines the principle of free movement of goods. Some of the labelling requirements are of questionable value. 9 of 10

10 The TRIS mechanism had enabled our sector, and doubtless others, to secure substantial improvements to some national labelling proposals that were not acquis-compliant. For example, in the last 10 years non-acquis compatible labelling proposals in Belgium and Italy were withdrawn, while the Commission, following dialogue with our sector, was able to point out shortcomings in Finnish labelling proposals which again led to their withdrawal. Without TRIS, however, there is a significant risk that future non-acquiscompliant proposals will be enacted because there is no longer adequate scrutiny. (Very recently, we have been alerted through a third party to a labelling proposal in Romania which, once again, looks capable of causing intra-eu barriers. If the proposal is enacted, it would not have to be submitted for public scrutiny the Single Market would nonetheless suffer under its provisions.) The difficulties regarding national labelling rules are about to be exacerbated. Under the Common Position for the proposed new EU food labelling Regulation, there is an explicit facility (today it is implicit) for Member States to enact national labelling laws going beyond harmonised European rules. Furthermore, the Common Position specifically states that such rules are not covered by TRIS. This is despite the proposal s Impact Assessment stating that national labelling laws can impede free movement and cause consumer confusion; in addition, the explanatory memorandum stresses the need for better regulation and a reduced administrative burden. And the Common Position itself stresses the imperative of the new law improving the free movement of goods! We therefore urge the Commission to introduce amendments so as to return national labelling rules within the scope of TRIS and to ensure that unnecessary national measures do not make it onto the statute book and further undermine the Single Market. Conclusion The Scotch Whisky industry has long enjoyed a constructive and wide-ranging dialogue with numerous services within the European Commission and is extremely grateful for the opportunity to engage in the current consultation. We very much hope this will lead to amendments in internal market and other legislation which improve the trade environment and thereby enhance our sector s already significant economic contribution. We hope the above comments will be helpful; if any further information or clarification on any aspect would be useful, please do not hesitate to get in touch. Edinburgh, February 2011 K:\COMMFILE\EC\1SMA\presponse SMA consultation doc 10 of 10