EU confronts Colombia on ‘discriminatory’ tax

Spirits Europe has welcomed an EU request for World Trade Organisation (WTO) consultations with Colombia over the country’s “market-distorting” and “discriminatory” taxation system for imported spirits.

Spirits Europe has welcomed the EU’s request for WTO consultations with Colombia over a “market-distorting” tax system

According to the industry trade body, the move follows a series of failed attempts to address the import system in Colombia that results in “anti-competitive practices” in the spirits monopolies.

Currently Colombia’s excise tax regime applies a lower rate per degree of alcohol to products below 35% abv, which benefits locally-produced spirits such as aguardiente and rum, which are generally bottled at 30% abv.

Competing imported spirits, the majority of which are bottled above 35% abv, are subject to a tax rate 1.6 times higher.

Spirits Europe says this system prevents EU spirits producers from competing in the market, and contravenes the Free Trade Agreement (FTA) which came into force in 2013.

A ‘Joint Declaration’ in the EU-Colombia FTA allowed Colombia to maintain its alcohol tax regime for two years after the FTA, i.e. until 1 August 2015. Once that period expired, Colombia was required to ensure that the tax discrimination between domestic and imported spirit drinks was removed.

While the WTO and EU-Colombia FTA allow alcohol production monopolies, known as Licoreras, they do require imported products to be treated no less favourably than local products.

“This is a clear violation of WTO rules and, as a result, the European spirits sector strongly supports the EU’s decision to take the matter to the WTO,” Spirits Europe said in a statement.

Paul Skehan, director general at the trade association, added: “Robust enforcement of international trade commitments underpins EU exports and supports the EU’s growth and jobs agenda. It is a matter of demanding that Colombia complies with its international commitments to respect the principle of non-discrimination both for taxes and regulatory practices, and to ensure market access on terms that allow EU spirits exports to reach their potential.

“We will continue to work toward a swifter political resolution with the Colombian authorities. This would not only ensure compliance with international treaty obligations, it would also allow Colombia to create a more transparent market, reduce illicit trade and potentially increase tax receipts and revenue collection on spirits.”

David Frost, Scotch Whisky Association (SWA) chief executive, commented: “Scotch whisky is being treated unfairly in Colombia and is unable to compete against local spirit producers due to the discriminatory tax system and anti-competitive practices of the monopolies. We are pleased that the European Union has requested consultations with Colombia at the World Trade Organisation with a view to resolving these longstanding issues.

“The current model in Colombia is similar to the Chilean system that was condemned by the WTO in a case some years ago. The WTO panel on Chile and three previous ones – Korea, Japan and the Philippines – said that all spirits categories compete and therefore governments cannot discriminate between them.”

Colombia has been identified as a priority market for the UK spirits industry. It is the largest market in the Andean Community, representing more than one third of EU spirit drink exports to the region. In 2014, direct exports to Colombia were valued at €41.2 million. According to the SWA, 2014 Scotch exports reached £24 million in shipment value, up 7% on 2013.