EN Official Journal of the European Union C 261/3

Notice of initiation of an examination procedure concerning obstacles to trade within the meaning of Council Regulation (EC) No 3286/94, consisting of measures imposed and practices followed by the Eastern Republic of Uruguay affecting trade in Scotch whisky

(2004/C 261/03)

On 2 September 2004, the Commission received a complaint pursuant to Article 4 of Council Regulation (EC) No 3286/94 (1) (hereinafter ‘the Regulation’).

1. THE COMPLAINANT

The complaint was lodged by the Scotch Whisky Association (SWA) on behalf of the its 54 member companies, all of whom are distillers, blenders, brand owners, brokers and exporters of Scotch whisky, comprising together over 95 % of Scotland's distilling and blending capacity.

The SWA is an association acting on behalf of one or more Community enterprises within the meaning of Articles 4(1) and 2(6) of the Regulation.

2. THE PRODUCT

The complaint concerns Scotch whiskies produced from cereals in Scotland, in accordance with the provisions of Council Regulation (EC) No 1576/89, and classified within Chapter 22 of the harmonised Customs Nomenclature under HS subheading 2208 30.

However, the examination which the Commission is initiating may also cover other products, particularly those which interested parties making themselves known within the time limits mentioned below (see Section 8), can show are affected by the alleged practices.

3. SUBJECT

The complaint concerns four separate aspects of Uruguay's tax arrangements concerning imported whiskies:

1. Ageing requirement for whisky

According to the complaint, Uruguay's excise taxes on spirits (IMESI) are based on a system of price bands and fictional prices in order to determine the taxable base for each spirit drink. A flat tax rate is then applied in order to establish the final tax liability.

The price bands for whisky are set at levels designed to ensure that all domestic brands benefit from the lowest taxation. At the same time, Uruguay excludes from the lowest price band all whiskies aged more than three years. Since EU regulations require that whisky be matured for at least three years, Uruguay's ageing requirement has the effect of excluding EU whiskies from the lowest tax category.

2. Prepayment of tax

According to the complaint, Uruguay requires that importers pre-pay the taxes on imports at a rate of 80 % of the customs value of the goods. A similar requirement does not apply to domestic producers. Although the pre-payment is offset against the final tax liability, it nevertheless impacts adversely on importers' cash flow and renders imported spirits less competitive vis-à-vis their domestic counterparts.

3. Application of strip stamps

The complainant contends that there is also discrimination against imported products by virtue of the requirement for strip stamps to be affixed to them on arrival in the market, whereas strip stamps are not imposed on domestic products.

4. Lack of transparency

Finally, the complaint addresses the alleged lack of transparency and predictability of the IMESI system, due to the frequent changes in the price band thresholds and the fictional prices, and to the absence of any methodology or criteria to set those values.

4. ALLEGATIONS OF OBSTACLES TO TRADE

The SWA considers that the practices described in Section 3 constitute obstacles to trade within the meaning of Article 2(1) of the Regulation.

(a) Ageing requirement for whisky

The SWA contends that Uruguay's ageing requirement accords treatment to imported Scotch whiskies that is clearly less favourable than that accorded to ‘like’ products of national origin, in breach of GATT, Articles III.2 and III.4.

According to the SWA, the three-year ageing requirement has the effect of excluding from the lowest price band imported whiskies that would otherwise be included in such lowest band. Only imported whiskies are affected by such requirement, as Uruguay's standards for spirits require only two years of ageing for whisky. Moreover, the SWA claims that price bands for whisky are set at levels designed to ensure that all domestic brands benefit from the lowest taxation.

(b) Pre-payment of tax

The SWA claims that, in so far as Uruguay's pre-payment requirements for imported spirits constitute a restriction on the importation of spirit drinks from other WTO Members, they are in contravention of GATT, Article XI.1. Moreover, by applying internal taxation to imported products so as to provide protection for domestic production, the measures at issue are in breach of GATT Article III.2.

(c) Strip stamps

The SWA contends that Uruguay's strip stamp arrangements for imported spirits constitute a restriction on the importation of goods in contravention of GATT Article XI.1. In the alternative, the measures are in breach of GATT Article III.4 in so far as they accord to imported spirits treatment that is clearly less favourable than that accorded to ‘like’ products of national origin.

(d) Lack of transparency

The SWA claims that Uruguay's IMESI tax arrangements are in breach of GATT Article X.3(a) in so far as they are not administered in a uniform, impartial and reasonable manner, due to an alleged lack of transparency and predictability.

In the light of the factual information available and the evidence submitted, the Commission is satisfied that the complaint contains sufficient prima facie evidence of the existence of obstacles to trade within the meaning of Article 2(1) of the Regulation.

5. ALLEGATION OF ADVERSE TRADE EFFECTS

In 2002 SWA members exported Scotch whisky with a value of some EUR 20 million to Uruguay, making it the industry's fourth most important market in Latin America. Within the imported whiskies category, Scotch whisky represents some 90 % of the total sales of imported whisky in Uruguay.

The complainant claims that the practices subject to the complaint have contributed to a considerable fall in consumption of Scotch whisky in Uruguay. By the end of 2003, Scotch whisky's share of the overall whisky market had fallen from a little over 40 % (at the end of 2002) to just under 35 % as consumers traded down to lower-priced and lower-taxed domestic products in a context of economic difficulties. According to the complainant, with price a significant factor in consumers' purchasing decisions, the discrimination against Scotch whiskies in the ‘value for money’ segment has had a particularly negative effect.

The complainant has submitted estimates of the likely effect on the shelf prices of a selection of lower-cost Scotch whiskies if the current ageing requirement were to be eliminated. The shelf prices of a number of popular brands would fall by some 15 %, thereby enhancing their competitiveness vis-à-vis many domestic brands. Moreover, there are several other brands of Scotch whisky which could also benefit from inclusion in the lowest price band. At present, there is no incentive to trim margins because all Scotch whiskies are automatically excluded from the lowest price band irrespective of their price at the point of first sale. Moreover, the alleged discriminatory application of the pre-payment and the strip stamps requirements also affects the retail price of imported whiskies, thereby adversely affecting their competitive position in the market place.

Finally, the complainant refers more generally to the market performance of imported spirits in Uruguay, where also the other types of internationally traded spirit drinks, such as brandy, gin, rum and vodka, have made little impact in the market, especially if compared with the market penetration achieved in neighbouring markets.

The Commission considers that the complaint contains sufficient prima facie evidence of adverse trade effects, within the meaning of Article 2(4) of the TBR.

6. COMMUNITY INTEREST

The Scotch whisky industry exports each year goods valued in excess of EUR 3,5 billion to some 200 world markets. Over 10 000 people are directly employed in the production of Scotch whisky, while a further 50 000 jobs across the United Kingdom are dependent in part on the industry.

The Commission considers it essential to ensure a level playing field in third-country markets for our export industries, particularly with regard to internal taxes. Tariff protection should not be replaced with other protectionist barriers in breach of international commitments. This is especially important in the case of alcoholic beverages, as they typically bear a high tax burden through the combination of excise duties and value added taxes.

In view of the above, it is considered to be in the Community's interest to initiate an examination procedure

7. PROCEDURE

Having decided, after due consultation of the Advisory Committee established by the Regulation, that there is sufficient evidence to justify initiating an examination procedure for the purpose of considering the legal and factual issues involved, and that this is in the interest of the Community, the Commission has commenced an examination in accordance with Article 8 of the Regulation.

Interested parties may make themselves known and make known their views in writing on specific issues raised by the complaint, providing supporting evidence.

Furthermore, the Commission will hear the parties who so request in writing when they make themselves known, provided that they are primarily concerned by the result of the procedure.

This notice is published in accordance with Article 8(1)(a) of the Regulation.

8. TIME LIMIT

Any information relating to the matter and any request for a hearing should reach the Commission not later than 30 days following the date of publication of this notice and should be sent in writing to:

European Commission Directorate-General for Trade Mr Ignacio Garcia Bercero, DG Trade F.2 CHAR 9/74 B-1049 Brussels Fax (32-2) 299 32 64

(1) Council Regulation (EC) No 3286/94 of 22 December 1994 laying down Community procedures in the field of the common commercial policy in order to ensure the exercise of the Community's rights under international trade rules, in particular those established under the auspices of the World Trade Organisation (WTO) (OJ L 349, 31.12.1994, p. 71). Regulation as last amended by Regulation (EC) No 356/95 (OJ L 41, 23.2.1995, p. 3).