SUBMISSION FROM THE SCOTCH WHISKY ASSOCIATION 1. Introduction 1.1 The Scotch Whisky Association (SWA) is the industry s representative organisation, with a remit to protect and promote Scotch Whisky worldwide. Its 55 member companies Scotch Whisky distillers, blenders and bottlers account for 90% of the industry. 1.2 Continuing efforts to improve the export environment, and to promote fair market access overseas, are of the highest priority to the industry. The SWA welcomes this timely inquiry and is happy to discuss any points set out in its submission with the Committee. 2. Export rationale & trends 2.1 Scotch Whisky is Scotland s leading single product export, with annual shipments of over 3bn in customs value contributing 97 every second to the balance of trade. In 2008, Scotch Whisky shipments of 3.06bn represented over 20% of Scottish manufactured exports and 90% of food & drink exports. 2.2 Exporting is one of the industry s key strengths and international markets are a major focus for Scottish distillers. The sector is highly export-oriented, with nine out of every ten bottles of Scotch sold overseas. 2.3 International markets offer a range of opportunities for different distillers. Some operate on a global basis, others focus on niche markets. In challenging economic times, this market spread helps to mitigate the impact of weaker conditions in certain countries, as industry resilience during the recession has demonstrated. Scotch Whisky exports have a key role to play as the country looks to recover from economic recession. 2.4 Scotch Whisky exports support employment and investment in Scotland. They are crucial to the wider economy, supporting over 40,000 jobs across the industry and its wider supply chain. Over 1bn a year is invested with local suppliers of goods and services. 2.5 International growth, and optimism about future potential, has underpinned in excess of 600m in new capital investment over the last two years. This has resulted in levels of investment in distilling, warehousing, and bottling not seen since the early 1970s. Exports are a key factor in the expansion of existing, and opening of new, distilleries. 2.6 Scotch Whisky exports have considerable growth potential. Recent investments are supported by positive market trends for Single Malt and Blended Scotch Whiskies, both in traditionally important export markets (e.g. France) and also in emerging markets (e.g. Brazil, South Africa).
2.7 This builds on positive export trends in recent years. The value of exports has risen by over 1bn an increase of 51% - between 1998 and 2008. Export volume rose by 19% over the same period, an increase of 13.4m nine-litre cases. This reflects premiumisation within the sector and that distiller investment is returning more value to the economy. 2.8 Scotch Whisky s international presence supports tourism, attracting over one million distillery visitors each year and an additional 25m for the local economy. Its international reputation creates a positive halo effect for other Scottish businesses overseas. 3. Scotch Whisky s International Priorities 3.1 On behalf of the industry, the SWA s international focus is on (a) the global legal protection of Scotch Whisky as a drink that can only be made in Scotland, (b) securing fair and equal access for Scotch Whisky to its export markets, and (c) the promotion of Scotch Whisky as a protected, quality drink. 3.2 The industry s international trade priorities are set on a rolling basis on the basis of commercial potential and achievability. For the period 2010-2012, top market priorities include improved access to Brazil, China, Colombia, India, Mexico, the Russian Federation, South Korea, Thailand, and Turkey. Market-specific priorities are pursued in parallel with efforts to secure appropriate outcomes to negotiations within the WTO and EU free trade agreement framework, as well as on EU regulatory issues. 3.3 Export potential is negatively impacted by a large number of tariff and non-tariff barriers to trade. An SWA analysis (2009) identified around 600 separate barriers to the trade in Scotch Whisky in nearly 200 markets. 3.4 Issues include high import tariffs, discriminatory taxation, overly burdensome certification, labelling and licensing requirements. Trade barriers such as India s 150% import tariff or Colombia s discriminatory excise tax arrangements are serious impediments to market penetration. Increasingly, such barriers are spuriously based on health grounds. A lack of adequate intellectual property 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 are lost. 3.5 The SWA and its member companies work proactively to remove such barriers to trade, as well as supporting trade liberalisation measures that promote Scotch Whisky. The Association works closely with the European Commission, UK Government, the British Embassy network, and a range of international partners on trade policy issues. A strong industry presence is maintained on trade issues in Brussels and Geneva. 3.6 That the industry s priority is trade policy rather than trade promotion reflects that most Scotch Whisky companies brand promotional activities are already well-established in export markets.
3.7 The Scottish Government and public agencies are kept informed of these trade policy priorities and developments. Scottish agencies have limited practical involvement in pursuing such policy issues, reflecting responsibilities under the devolution settlement. The difference in focus means that there are challenges in ensuring industry export priorities are understood and reflected in Scottish Government strategy. 3.8 Where there is added value, the industry works on trade promotion activities in partnership with the Scottish Government, Scottish Development International (SDI) and others. Scotch Whisky often provides a platform for Scotland and Scottish business overseas. It is important that Scottish Ministers are aware of the trade issues faced by Scotch Whisky so that they can be raised as appropriate during overseas visits. 4. Public Sector Priorities & Support 4.1 The industry recognises that the large scale of Scotch Whisky exports can make it difficult for the Scottish Government and public agencies to engage on the industry s international priorities. This is particularly true in relation to food and drink exports, 90% of which are represented by Scotch Whisky. 4.2 The SWA has welcomed the efforts of SDI to engage with the industry on its priorities and its recognition of the strategic importance of Scotch Whisky exports. A good working relationship has been established at industry level, with exchange of information and regular dialogue. This is helping to ensure an appropriate focus on the industry s international strategy. 4.3 The SWA is undertaking an international communications programme in 2010 aimed at promotion of the Scotch Whisky Regulations to key audiences in target markets. Strong support from the SDI s international network for that programme has been welcome. 4.4 Practical SDI support for smaller distillers at the early stages of exporting, for example helping to develop a market strategy or supporting an exhibition presence, is welcome. It is important that SDI continue to liaise as closely as possible with the UKTI and British Embassy network. Companies want to see a consistent, co-ordinated approach from domestic agencies operating overseas and clarity on how best to link into the network. Co-location of offices may assist this process. 4.5 Nearly 30 companies operating in the sector are account managed by Scottish public agencies. A wide range of businesses across the Scotch Whisky supply chain are also supported. Some distillers report good links at account management level, citing useful support for example in relation to innovation best practice. Others believe relationships could be strengthened so that there is a stronger understanding of, and support for, investment decisions (e.g. energy projects) which impact on industry competitiveness.
4.6 The Scottish Government International Division s engagement with the industry s overseas priorities could be improved. This is important as the Government develops its international strategy and to ensure a co-ordinated approach between industry, government and public agencies. The Food & Drink Division is beginning to look more closely at exports and we hope that will lead to a better balance in policy in the future. As the Scotland Food & Drink organisation develops, there should be opportunities for more joined up thinking across the food & drink sector on exports. 4.7 The SWA works with the UK Permanent Representation to the EU, as well as the Scottish Government s Brussels office. It is important to understand that around 45% of all Scotch Whisky is sold within the Single Market. Most of the legislation affecting Scotch Whisky within the EU is agreed in Brussels rather than nationally; whether in relation to tax structures, bottle sizes or spirits definitions, a single set of laws applying throughout the EU has greatly facilitated the free movement of our products. As the EU expands, the benefits our sector derives from Single Market rules are widened to accession countries. 4.8 The Single Market is not perfect and the industry continues to face issues that may deny genuine border-free trade opportunities. It is important that the Scottish Government works closely with exporters to understand the potential implications of EU legislation, such as proposals for a new labelling Regulation. 4.9 Better co-operation on the Scottish Ministerial visits programme, as well as inward visits, would be welcome. This would allow more consistent Ministerial briefing on industry issues in export markets and opportunities to use Scotch Whisky s international reputation, as well as its global network, in a more effective manner. 4.10 Trade promotion efforts and a greater focus on the nuts and bolts of exporting should be supported. A better understanding of the complex international export environment and trade policy among officials would be helpful. The industry stands ready to share its expertise in such matters. 4.11 A more co-ordinated, long term export strategy at national level would be beneficial. It is unclear, for example, how Scotch Whisky fits into the Scottish Government s international strategy. 4.12 Attention needs to be paid to getting the balance right between supporting exporters and attracting inward investment to Scotland. The Scotch Whisky industry continues to benefit enormously from international investment in its people, facilities and brands, helping the sector to compete around the world. At the same time, supporting exporters of high value products, such as Scotch Whisky, plays to our national, competitive advantage.
5. Unintended Consequences of Domestic Policy 5.1 Domestic measures can have negative, unintended consequences for exports. A good example relates to the minimum pricing proposal contained within the Alcohol etc. (Scotland) Bill. 5.2 The industry is disappointed the Scottish Government has maintained that Scotch Whisky exports will not be affected by minimum pricing. SWA members believe that suggests a lack of willingness to take the industry's views seriously or a misunderstanding of the international market in which they operate. 5.3 The SWA believes that minimum pricing constitutes a barrier to trade, both under EU Single Market rules and also under the General Agreement on Tariffs and Trade. Put simply, countries can pursue public health aims, including tackling alcohol harm. However, measures should be non-discriminatory, proportionate, and necessary to tackle the issue. They should only be implemented if they are the least trade restrictive available to achieve this policy goal. Minimum pricing does not meet these tests. 5.4 If the Scottish Government were to introduce a measure in violation of EU Single Market rules and international trade law, it would have far-reaching, negative consequences for Scotch Whisky. Econometric analysis, and an assessment of countries which may seek to increase discrimination against spirits, suggests that new health-based restrictions premised on a minimum pricing precedent could result in an annual loss of up to 20% of Scotch Whisky exports. 5.5 The Scottish system need not be replicated abroad. If there is a domestic precedent of overriding trade rules, we believe this will lead to a domino effect of spurious health-based restrictions such as discriminatory taxes or pricing mechanisms - on Scotch being applied in export markets, designed to protect domestic spirits industries. 5.6 Anti-industry advocates also continue to push for the removal of Scotch Whisky and other drinks from normal international trade rules, as well as from future trade negotiations. The Scottish Government should take a more holistic approach on such issues, recognising the commercial and political realities of international trade and the global market in which Scotch Whisky companies operate. 6. Transport Infrastructure 6.1 Scotch Whisky consignments tend to move by road in Scotland and use a variety of ferry crossings from the UK to the continent, for example from Grangemouth and Greenock. 6.2 Goods destined for markets further afield are carried in containers by road or rail to the UK s deep water ports, including Felixstowe, Liverpool, Southampton and Tilbury for onward movement by sea; either directly to the destination
country or via one of the major European hub ports such as Rotterdam or Antwerp. 6.3 In looking to support Scottish exports, a key priority for the Scottish Government should be routes to market. There is a need to continue to invest in transport infrastructure so that goods can be transported quickly and efficiently from production sites in Scotland to the ports for onward shipment. Any degradation in the transport infrastructure would have negative consequences for Scotch Whisky exporters. 7. Data Collection & Statistics 7.1 The Association maintains detailed industry export statistics. These are published annually and based on industry-wide returns to HM Revenue & Customs (HMRC). 7.2 On the basis of our understanding of Scotch Whisky exports, we are concerned that the necessary data collection systems are not in place to provide an adequately detailed understanding of Scotland s export performance. 7.3 The annual Global Connections Survey is illustrative. The 2008 Survey published on 13 January 2010, for example, lists the total export of distilled potable alcoholic beverages from Scotland as 2.98bn. This contrasts with HM Revenue & Customs figures for Scotch Whisky exports alone at 3.06bn. The wider Scottish spirit drinks sector s export contribution is therefore being underestimated. 7.4 Given the ready availability of HMRC, SCDI survey and other figures, doubt is cast on the robustness of the overall Global Connections Survey. 8. Conclusion 8.1 Promoting export success should be central to Scottish Government and public agency efforts to secure sustainable economic growth. As Scotland s premier export industry, Scotch Whisky should be central to that effort. 8.2 Greater understanding of the international export environment, and better engagement on industry priorities, is required. SDI is making a determined effort to that end in relation to Scotch Whisky, and we would like to see a similar level of engagement from the Scottish Government as it develops its international strategy. Better co-ordination and partnership across industry, UK and Scottish Governments and public agencies is key. 8.3 The SWA and its members are keen to play a full part in that process and to contribute to the development of a more co-ordinated, long-term export strategy at national level. The Scotch Whisky Association March 2010