Written evidence submitted by the Wine and Spirit Trade Association (EUT0002)
Introduction
This evidence is submitted by the Wine and Spirit Trade Association (WSTA), which represents over 300 companies producing, importing, exporting, transporting and selling wines and spirits in the United Kingdom. WSTA members range from major retailers to brand owners, wholesalers to fine wine and spirits specialists, logistics companies, bottlers, distillers, wineries and vineyards. We work for a vibrant and sustainable wine and spirit industry, helping to build a future in which alcohol is produced, sold and enjoyed responsibly.
The economic value of the wine and spirit industry in the UK is often underestimated. It is worth around £50 billion per year, supports over 550,000 jobs and generates some £21 billion every year for the Exchequer. It is a global industry with the UK at its heart. Our industry is unique in its position that we rely on a balance of imports and exports: the UK is the world’s largest exporter of spirits, with the EU by far the single most important target export market, and the world’s second largest importer of wine, with wines from the EU accounting for just over half of imports by value in 2016.
We welcome the opportunity to respond to this inquiry as the UK wine and spirit industry is founded on historic trade flows into and out of the EU. It is imperative that the UK seeks a deal with which secures continued access and frictionless trade.
Executive Summary
1.1 By far the overriding priority for the UK is to secure agreement and the terms of its future relationship with the EU to protect the free movement of goods, as it is by far the most important market for the UK. Failure to secure an agreement on EU Trade post-Brexit would be detrimental to wine and spirits businesses based in the UK, resulting in loss of investment, relocation of major businesses and UK job losses. We are a global industry and many of our members, although UK based, have key links to other EU countries meaning opportunities lie outside the UK if the trading environment does not allow for the continuation of historic trade flows (i.e. no EU trade deal, customs red tape and tariffs). There is a real prospect that businesses may choose to move elsewhere within the Internal Market and Customs Union to ensure minimum disruption to trade, for example moving bottling of bulk imported wine, currently bottled in the UK, to other member states for re-exporting to the EU27.
1.2 “No deal” is not an acceptable outcome for our industry and, to avoid a “cliff edge” Brexit, an implementation period and clarification over its terms should be confirmed as soon as possible to give much needed certainty to business. We do not believe that there is enough time between now and 30 March 2019 for the UK Government to roll over EU rules and the multitude of EU bilateral trade agreements required for all UK sectors over trade, customs, movement of people and a resolution mechanism. Consistent Government messaging is required to secure this through working in partnership with the EU and UK business.
1.3 We are concerned that if the UK does not reach a free trade deal with the EU, WTO tariffs would be applied to wine from the EU which accounts over half of wine imports into the UK. Assuming the UK maintains its existing WTO schedules, customs tariffs of €13.10/€15.40 per 100 litres of still wine (depending on ABV) and €32 per 100 litres for sparkling wine would apply. This would add around 9p/10.5p and 22p per bottle of wine from the EU respectively, which would be hugely damaging to UK wine businesses - especially those operating on tight margins. The zero MFN rate for spirits needs to be retained.
1.4 45% of imported wine to the UK is from outside of the EU, and 83% of the UK spirit industry is exported, 55% of which is exported to non-EU countries. It is a major concern to our industry that the UK would leave the EU without confirming bilateral trade deals with key target export and import markets during an implementation period which retains access to those markets. Currently there is an EU Australia wine agreement which allows wine produced in Australia to use production methods not generally permitted in the EU and also allows for flexibility on certain labelling rules. Australia is the UK’s largest wine trading partner by volume and 350 million bottles were imported to the UK from Australia in 2015, 70% of the EU’s intake. To ratify a Treaty in Australia it would be required to sit for a minimum of 30 days on the floor of the Australian Parliament. Due to limited sitting time it would take approximately 6 months in total to confirm this one treaty which is integral to the UK wine importing market.
1.5 There are other smaller wine agreements between the EU and the US and the EU and South Africa, in addition to an EU FTA with Chile and Tariff Relief Quota (TRQ) arrangements with South Africa. Of the major non-EU wine producers supplying the UK, all but Argentina and New Zealand currently benefit from bilateral wine agreements with the EU, but the terms of the various agreements differ. For example, Chilean wine imported into the UK currently has tariff free access and approximately 15% of non-EU wine consumed in the UK by volume is Chilean. Once the UK leaves the EU, these bilateral wine agreements will no longer apply and therefore will need to be either rolled over or replaced. With the exception of Chile and South Africa, all other agreements which require renewing are related to non-tariff issues, such as production standards, labelling and recognition of geographical indicators.
1.6 Failure to secure access to the EU and related FTAs would result in the UK reverting to WTO rules. While we accept that Brexit will require the reintroduction of a customs border with the EU, we are concerned that such this would result in complex customs controls both ways. Without an implementation period, transitioning from the current systems without new measures in place would lead to gridlock at ports. This is especially concerning as there are currently over 130,000 businesses which do not currently trade outside of the EU that may struggle to deal with additional customs paperwork.
1.7 Although excise duties are levied nationally, the basic system of holding and movement is community-wide. The electronic Excise Movement & Control System (EMCS) allows goods to move within an almost paperless environment, helps to tackle excise diversion fraud and provides instant discharge of duty liability when the goods arrive at their destination. It remains to be seen whether the UK can still be part of EMCS after leaving the EU, however a system needs to be in place to ensure that new customs arrangements are in operation and that the UK’s import and export declaration system is able to cope with an increased number of customs declarations. It is vital that this system is delivered before Brexit and offers the same ease of movement as EMCS.
1.8 If the UK ceases to be part of the Internal Market, Customs Union and Free Trade Agreements, we estimate that the increased cost of a transaction will be in the region of almost £100 per shipment. This will have significant implications for consolidated loads. If certificates of origin are required, these will cost a further £45 each, due to the amount of manual input needed. Extra costs of IT, activing Authorised Economic Operator status, working capital and insurance for any extra stock will also be incurred and will vary between businesses.
2.1 Our wine and spirit trading relationship with the EU and related trade agreements is underpinned by common rules and regulations. For example, of the existing 46 spirit categories there are approximately 240 Geographical Indicators (GIs) registered in Europe, such as Irish and Scotch Whisk(e)y, Polish Vodka and Cognac. Wine is safeguarded in Europe by 1,929 Protected Designation of Origin (PDO) and Protected Geographical Indicators (PGIs), ensuring both a mark of quality and authenticity to consumers.
2.2 The UK currently has regulatory harmonisation with the EU and to diverge from this position too far may hurt EU-UK trade. The future regime should maintain a high degree of harmonisation or convergence of legislation including wine and spirits definitions and most oenological practices. However mutual regulatory recognition, as opposed to regulatory harmonisation, is essential to allow for UK wine and spirit businesses to take advantage of opportunities to cut over burdensome regulation.
2.3 The UK wine and spirit industry has a close working relationship with Comité Européen des Entreprises Vins (CEEV) and SpiritsEurope (SE), and we would expect post-Brexit that the UK would seek to continue engagement with these groups following Brexit. The WSTA has developed a joint Brexit position paper with these groups (Annex 1) which calls for the continuation of UK-EU collaboration.
2.4 The UK should immediately join the World Wine Trade Group (WWTG)[1] and seek a similar equivalent for spirits on leaving the EU, to allow for the facilitation of bilateral trade deals after Brexit through the Mutual Acceptance Agreement (MAA) which allows members to recognise individual practices and labelling. Rather than imposing singular regulatory burdens, this avoids the imposition of obstacles to trade and benefits winemakers, exporters and importers by assuring them access to markets without the trade barriers based on differences in wine-making practices. This approach could be adopted to facilitate trade in other sectors also, including spirits.
3.1 The Trade Bill provides the legal mechanism for the UK to enact trade agreements with the EU, third countries and other trade-related treaties after Brexit. However it is essential that the UK Government confirms an implementation period with the EU in order to convert the current EU agreements into treaties between the UK and the specific third countries. The WSTA believes that this is fundamentally possible if there is political will however there is not enough time to do so before March 2019.
4.1 The UK government quoted research in its recent Trade White Paper which believes 90% of global economic growth in the next two decades is going to be created outside of the EU, suggesting that there is major potential for growth in exports to developed and emerging markets outside of Europe. Many of our members have identified the US, Japan, Hong Kong and China as key export promotion destinations. However, whilst we expand trade into these new and growing markets, it is paramount that we retain the same level of trade access with the EU as we enjoy today. The EU currently offers exporters a mature market, well educated in the value of British food and drink products. Because of this, it is necessary to secure an implementation period so that the UK can develop comprehensive FTAs with both the EU and third countries, working with European partners to focus on an economically rational narrative.
4.2 The WSTA has agreed to work with our trading partners to develop model agreements to ensure Brexit does not disrupt the trade flow of wine and spirits into and out of the UK, while maintaining agreed technical standards. Greater clarity from Government on the transitional adoption of existing bilateral deals would be welcome.
4.3 The WSTA believes the following agreements should be adopted, as a matter of priority: US and Australian wine agreements, an FTA with Chile, a South African EPA, CETA, an FTA with Korea, and the 1994 exchange of letters between the US and EU on spirits.
5.1 It is of significant importance to our industry and beneficial to the UK economy as a whole that EU-Third country FTAs are transitioned to new UK-Third country FTAs. In doing so the most likely point of friction, which will not simply be a technical rectification, involves the distribution of tariff rate quotas in the agreements. For example, South African wine currently has access to a substantial tariff free quota in excess of 100million litres. South Africa will consider it important to retain some flexibility with how it fills this quota and so, it would not be unreasonable for them to request additional total quota split between the EU and UK. This is likely to cause contention if the UK approach negotiations from a static “technical rectification” perspective alone.
6.1 The Department for International Trade should continue to scale its number of staff and draw in further expertise. Negotiators on the other side of the table will likely have greater experience than the UK in this area and so drawing on all available experience and expertise will be vital. DIT’s main focus should be developing a new formal business engagement structure, so that decades worth of industry trade expertise can be fully utilised.
6.2 Based on our experience with the Department for International Trade, we believe better representation for wine and spirits would be beneficial to our sector. A wine and spirit policy group should be convened between officials and industry trade experts to identify key areas for negotiations. Additionally, there is only one dedicated trade promotion expert in DIT for alcoholic drinks. We believe there should be increased and better engagement with business by trade advisors and that those DIT trade advisors should focus on exploiting export opportunities in developed markets whilst we continue to open further markets with trade negotiations and agreements.
7.1. The government should consult with devolved administrations as it will be important that all parts of the UK see the benefit of trade and support the UK’s agenda to pursue transitioning these trade deals with third countries. In many cases Scotland, for example, will see huge benefit to the Scotch whisky industry through carrying across these agreements to a new UK-third country bilateral.
December 2017
10
[1] The World Wine Trade Group (WWTG) is an informal group of government and industry representatives from the wine-producing countries over half of which are from the Commonwealth: Argentina, Australia, Canada, Chile, Georgia, New Zealand, South Africa and the United States. Founded in 1992, the Group aims to facilitate international trade in wine and protect consumers, benefiting both wine exporting and importing countries. The WWTG recognises the unique characteristics of each WWTG member’s regulatory system and works towards the mutual acceptance of practices and labelling rather than imposing a single regulatory approach. For example the WWTG’s mutual Acceptance Agreement (MMA) recognises that each WWTG member has established acceptable mechanisms for regulating wine-making practices, and in turn agrees to accept the wine-making practices of all other WWTG members.
It facilitates trade in wine and avoids the imposition of obstacles to such trade by permitting the importation of wine produced in another member’s country in accordance with that other party’s laws, regulations and wine making practices. The MMA benefits winemakers, exporters and importers by assuring them access to markets without the imposition of trade barriers based on differences in wine-making practices.