Why Open Markets Matter

05 May 2015

Last week I made a speech in Brussels that tried to re-make an argument that perhaps, sometimes, we take for granted. 

That is that open markets matter and, if we are to secure our industry's growth in the future, we need to keep making their case regularly and robustly. 

To understand why, just look to the past. 

Many of today's world-famous Scotch Whiskies started life in the 19th century as small, local brands.  Today, they are global.  And that has not happened by accident. 

Clearly, much of that is down to the efforts of distillers, building high quality, aspirational brands.  It has taken time, craftsmanship, and investment.  Dedicated people, world-class marketing, and routes to market have played their part. 

But the industry's success has also been supported by a clear focus on open markets, long-term thinking on trade issues, and collaboration at industry level. 

That matters because Scotch Whisky is at the heart of our economy and exports are its lifeblood. Every year, around £4bn of Scotch Whisky is exported around the world, representing nearly 20% of total Scottish exports.  Today, Scotch is the second biggest net contributor to the UK's trade balance. 

A key part of recent growth has been driven by positive economic trends.  Aspirational consumers with more disposable income - whether in New York, Shanghai or Mumbai - want to buy products of authenticity and status.  Scotch is sought after in the same way as a designer watch or luxury hand bag because of its cache and quality.  

As economies slow, however, we can be reminded that a bottle of whisky often attracts a lot of attention from regulators.  

High tariffs, discriminatory taxes, restrictive labelling and price controls.   Such measures are often protectionist and distort competition.  Increasingly, they are justified by spurious public health arguments.  In all, we count around 600 trade barriers in our export markets that prevent fair market access. 

Tackling such barriers takes time and needs consistent effort.  However, only by doing so will we fully realise the opportunities in emerging markets across Latin America, Africa, and Asia. 

We have to do the hard work of opening markets now so that we secure the benefits in 20 years' time.  So looking ahead, what are our priorities? 

First, the SWA attaches a high importance to maintaining the global rules-based trading system, underpinned by the WTO. 

The WTO plays an important role providing a framework to discuss potential barriers to trade and of course a forum to resolve disputes.  Tax discrimination against spirit drinks in the likes of the Philippines and Japan has been resolved under its auspices.   The WTO trade facilitation deal should help to remove cost and complexity from our businesses. 

Second, we are active supporters of ambitious free trade agreements. 

EU deals with the likes of South Korea have been important and we look forward to full implementation of recent agreements with Canada, Colombia and Singapore, as well as completion of important talks with Vietnam.  A future EU deal with India would be of enormous benefit. 

Such talks take time but they are often the once in a generation opportunity to remove tariffs, end discriminatory taxes, and facilitate trade.  Increasingly, they are a chance to tackle issues around services, investment and rules of origin.  They are key to the international protection of the Scotch Whisky geographical indication from unfair competition. 

The importance of such deals means that we are increasingly troubled by the debate around another potential agreement, the Trans-Atlantic Trade and Investment Partnership (TTIP). That debate appears to have brought old concerns on the winners and losers of trade back to the fore, as well as raising the spectre of new threats to public services or a race to the bottom in standards. 

It is important, as an industry, we tackle such misperceptions head on.  Whilst the direct benefits of TTIP to the whisky industry may be modest, we have to remind people that trade deals are about consumers, jobs and raising standards.   TTIP has the potential to become a gold standard on 'behind the border' issues, setting a valuable precedent for other negotiations. 

And as such negotiations get more complex, more flexibility and a final framework that allows talks on other issues to evolve could be a useful model to develop. 

Third, our plea to officials is that negotiating and concluding trade agreements is not an end in itself.  FTAs must be implemented and enforced if they are to deliver the promised benefits.  The same is true of the EU's own single market rules. 

Fourth, at a time when the industry faces the continued risk of protectionism and loud anti-trade rhetoric, we see it as our job to be ready to restate that our industry, like many others, is better off when markets are open.

Open markets create jobs, competitiveness, and consumer choice, as well as generating new ideas and value chains that help our businesses to thrive. 

It is understandable that people can be sceptical.  Such agreements have not always lived up to the hype.  Negotiations are by their nature uncertain and there is therefore a need to be transparent and to consult fully as they develop. 

However, as President Obama said last week, you can't stop the global economy on your country's shoreline.  Instead, we must work hard to ensure a level playing field, shaping deals that benefit everyone and raise standards. 

For 150 years, open markets have underpinned the whisky industry's export success and only by maintaining a global mind set will we see the industry's future potential fully realised. 

Take, for example, the 6 whisky distilleries that opened in Scotland in 2014 or the fact that around 30 distilleries are currently at different stages of development.  Like the distillers of the 19th century, today's new producers and their brands are likely to be small-scale and locally focused at first.  But it will be success in export markets that drive their future growth and support investment. 

We need to keep making an old case for new markets. 

David Williamson
SWA Public Affairs & Communications Director