HC Deb 20 July 1982 vol 28 cc363-72 2.38 am
The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mrs. Peggy Fenner)

I beg to move, That this House takes note of European Community Document No. 6168/82 concerning French Overseas Departments' rum and supports the Government's efforts to seek a reduction in the discriminatory taxation of spirit drinks which at present obtains in France. Document 6168/82 is a Commission proposal for a Council decision concerning "traditional" rum produced in the French overseas departments. This product is a dark, heavy rum which has a much stronger flavour—some might describe it as pungent—than the brands with which we, in Britain, are familiar. Indeed, its characteristics tend to limit its appeal and, not surprisingly, the main market is to be found in France and the French overseas departments.

This rum has long enjoyed highly preferential rates of taxation in France which place it in a favourable position in relation not only to imported spirit drinks like Scotch whisky and gin, but also in relation to other spirit drinks produced in France, such as cognac and brandies. It is now clear, however, that this preference is illegal under the Treaty of Rome unless and until special provision is made for it under article 227 of the Treaty of Rome. That is the purpose of the proposal in the document before this House.

Article 227 of the Treaty of Rome enables special treatment to be accorded to the French overseas departments. Certain provisions of the treaty were immediately applicable to the French overseas departments as they stood whilst others, notably on taxation, were to be subject to specific Council decisions. Such decisions were to be made within a two year time limit. A ruling of the European Court of Justice in case 148/77 made it clear that, in the absence of such decisions, the provisions of the treaty would automatically apply as they stood to the French overseas departments after the expiry of the two years although the Council retained the power to take decisions subsequently.

This means that, in the case of taxation, article 95 of the treaty is now applicable unless and until it is modified under article 227 in respect of French overseas departments' products. Article 95 requires member States to tax domestic and imported Community products equally and forbids the use of taxation to afford indirect protection to domestic products.

If adopted, the decision proposed by the Commission would allow the French, notwithstanding article 95, to continue to grant preferential tax treatment to this "traditional" rum but subject to two important provisos. First, the degree of protection afforded in metropolitan France must never exceed that obtaining when the decision is introduced. At present, the tax payable on traditional rum is 57.5 per cent. of the normal rate of tax payable on cereal based spirits, which is the highest tax category.

Second, the volume of French overseas departments' rum subject to preferential treatment in metropolitan France would be restricted by a quota based on the annual average of consumption in the 10 years preceding entry into force of the Council decision. The Commission's stated plan is to review the arrangements in the fifth year of operation and thereafter as necessary.

The Commission, and France, claim that there are important economic and social reasons which make it vital for some protection to be granted to this product in view of the economic importance of the industry to the overseas departments. We do, indeed, need to take account of the fact that these departments, while forming an integral part of France, are nevertheless developing regions with special problems akin, to those for example of Commonwealth countries in the Caribbean.

It is certainly the case that French overseas departments' rum is uncompetitive and, without aid, could not easily find a profitable outlet. This is doubtless why France has been prepared to concede it a preference over other French as well as imported spirits. What is less evident is whether this provision alone, without careful thought for the long-term future of the industry or of the islands, represents the best solution for the islanders and for the Community. This aspect would merit further deliberation in Brussels.

More important, however, is the question of principle which arises over any measure which might erode article 95 of the treaty. The principle which this enshrines, of equality of treatment for taxation between domestic and imported produce, is of vital importance to our spirit drinks industry which depends so much on export markets. That industry regrettably confronts trade barriers of different kinds in many parts of the world, but it is quite unacceptable that it should have to face discrimination even within the European Community. Yet that nevertheless remains the case in more than one member State.

In France, successive French Governments have operated a tax system, which has not only protected French overseas departments rum but also aided domestic, wine-based spirits against imported cereal-based spirits. As long ago as February 1980 the European Court of Justice ruled that the French tax structure discriminated unfairly against cereal-based spirits, such as whisky and gin. Unhappily, the discrimination continues, albeit at a much reduced level. A tax of 7,655 francs per hectolitre of pure alcohol is levied on Scotch whisky and gin, but lower rates obtain for non-cereal-based spirits—for example cognac is charged at 7,015 francs per hectolitre of pure alcohol. "Traditional" rum is taxed at the much lower rate of 4,405 francs per hectolitre of pure alcohol.

My right hon. Friend the Minister of Agriculture, Fisheries and Food has left the Commission in no doubt about our concern that tax discrimination still exists in France against grain-based spirits in spite of a ruling of the European Court of Justice. He has repeatedly urged the Commission to take speedy action to end it. Certainly we would wish to see the principles of article 95 fully observed before we could even contemplate any form of derogation.

There is another significant aspect which should not be overlooked. That is the special position which has been established in European market for rum imported into the Community under the Lomé convention by traditional Commonwealth suppliers such as the Bahamas, Guyana, Trinidad and Jamaica. One of the achievements of which the Community, and certainly the United Kingdom, can feel most satisfaction is the provision made by the Lomé convention for preferential access to the Community markets for products from the African, Caribbean and Pacific States, commonly referred to as the ACPs, in order to maintain the substantial traditional trading links with them. Under Lomé, ACP rum is granted access free of common customs duty to the Community, subject to quota. Much of this trade is with the United Kingdon and it is of course of the utmost importance to ensure that those favourable conditions of access are fully maintained in the future.

The Government's attitude to the Commission's specific proposals will be influenced by the comments made during this debate, to which I look forward with the greatest interest I can assure the House that the Government will in any event continue to press the Commission to fulfil its obligations to ensure that the provisions of the Treaty of Rome are fully implemented. I am sure that we can rely on the full support of the House in so doing.

Whatever the other considerations, there could be no question of our accepting the proposal in the document that is before the House while the member State concerned continues to defy the rulings of the Court of Justice. The Government wish to take into account the views of the Committee which has been considering the matter in another place.

2.49 am
Mr. Robin F. Cook (Edinburgh, Central)

It is a pleasant change to follow the hon. Lady in a debate on excise duty. I cannot resist observing that at a time when we have a record number of six Treasury Ministers, it appears that they have all retired from the field, no doubt exhausted by their labours on the Finance Bill, and left it to the hon. Lady. It is a particularly pleasant change to follow the hon. Lady, because she has shown more spirit in defence of the British distilling industry than we have seen from all the Treasury Ministers added together in the past six months.

As the background to a debate in which we are invited to comment on a derogation for a partner in the Common Market, it is appropriate to record at the outset that over the past few months the British Government have been punctilious in observing their liabilities and obligations in respect of excise duty under the EEC rules.

In the past four months since the Budget alone, we can see three examples of the way in which our excise law has been altered specifically and solely because of our EEC obligations. The first is the nature of the duty increases in the Budget which, once again, penalised those who drink beer. Under this Government the duty on beer has nearly doubled, which is a much greater increase than that in the duty on wine. The whole House understands why the Government have chosen that set of priorities. They are under pressure from the EEC to bring the duty into line with the alcoholic content of beverages, so that working men may be obliged to drink foreign wine rather than domestic beer if the price signals can be rigged appropriately.

Secondly, the Government proposed in the Finance Bill to dispense with the three-year maturation requirement for spirits sold in the United Kingdom. I am happy that in Committee we were able to persuade the Government to put that proposal into cold storage, but that, too, was embarked upon only because of EEC requirements.

Thirdly, an order which went through a Committee recently provided for the deferment of duty on certain imports, of which the most notable was foreign lager, which will improve the terms on which that lager competes in our market with domestic-produced lager.

That is a handful of illustrations drawn front only the past four months. Some of us may doubt whether the Government have been entirely wise in striving so officiously to fulfil to the letter their EEC obligations in respect of excise duty, but no one, either in this country or in any other member State, can be in doubt about the Government's punctilious observations of their obligations.

Some of our partners make a remarkable contrast to the behaviour of the British Government. Those partners do not display a similar punctilious observation of their obligations. That is particularly true of the French. Whisky still faces a discriminatory tax in France, despite a court judgment on the whisky industry's behalf over two years ago. Indeed, the French Government celebrated the second anniversary of that judgment in February this year by restoring a discriminatory element in the tax on, whisky, as opposed to that on brandy produced from wine within France.

That matter must be of concern to every hon. Member, but particularly to hon. Members, such as myself, who represent Scottish constituencies, because the whisky industry is in a grievous state. It is badly affected by two distinctive features of monetarist economics—the high exchange rate, which has endangered many of its traditional export markets, and high interest rates, which impose a particularly heavy burden on an industry which produces a product which has to be warehoused for a minimum of three years and frequently, in the case of many malt whiskies, for well over a decade.

In the past three years we have seen a dramatic deterioration in the condition of the industry. In the past year alone, there has been a drop of 25 per cent. in the output of the malt whisky distilleries and in the past two years about 4,500 jobs have been shed in the industry. Many of those jobs were in small communities in the Highlands and islands where the loss of jobs make a proportionately greater impact on the local community than it would in many an urban environment.

Despite the difficulties, the problems of the past two or three years and the fact that in many respects those problems stem from the Government's economic policies, the industry had never looked for financial assistance from the Government. However, it expects from the Government vigorous action to ensure that EEC obligations are observed equally by ourselves and our partners and are not unequally observed by us and not observed by our partners.

It is against that background that the House must assess the proposed derogation in respect of traditional rum in France. The derogation would legitimise a historic practice which gives a heavy tax advantage to traditional rum over any imported whisky. I think I am right in saying that the duty on the traditional rum which would be consolidated by the derogation in barley half the duty that would be applied to imported whisky.

The Opposition find it difficult to understand why this proposal is made by the Commission in advance of the general talks on harmonisation on excise duty, particularly when those talks have been proceeding for some time, are continuing at present, and are the occasions of regular meetings and of a voluminous production of paper. It is not at all clear why we should grant a specific derogation for one product in one country in advance of that general harmonisation. Indeed, any such deviation is bound to weaken the general drive towards harmonisation on excise duty, from which the whisky industry stands to benefit. Although the advantage in making that deviation in advance of the general talks on harmonisation is not clear, it is perfectly clear that it would be wrong, as the hon. Lady said, to legitimise a practice, carried out by a Government who have failed to bring themselves within the judgment of the European Court. I hope that the Minister will press that view firmly in the discussions on the derogation.

Before I conclude, I want to say something about another worry which the hon. Lady mentioned, and that is the worry that is felt by the Caribbean countries, particularly the Commonwealth Caribbean countries, about the effect of a particular derogation which would apply to rum produced by only two Caribbean States, the French Overseas Departments. As I understand it, all Caribbean States produce rum of some kind. Almost all of them share the same general social and economic grounds which are put forward to justify derogation in respect of Martinique and Guadeloupe.

It certainly appears wrong that the social objectives of the derogation should be achieved at the expense of any other Caribbean country which shares the same social and economic problems.

We could readily over-state the extent to which the traditional rum from Martinique and Guadeloupe is in competition with the rum from the other Caribbean countries, which does not sell so markedly in the French market. Nevertheless, the principle is important, and it is important to the ACP States and also the Commonwealth secretariat. It would be unfortunate if we were to grant this unique advantage to rum from two countries for sale in a third country within the Common Market. That unique advantage would be particularly strange because, as the hon. Lady said, the need to guarantee access for rum from the ACP countries has been recognised since the start of the Lomé conventions. Indeed, I understand that recently the Common Market itself has set aside 145,000 ecus to study the potential of the rum market in Europe. Having set aside money for that study, it would appear perverse if, in the middle of that study, we jeopardised its outcome by recognising and legitimating a particularly eccentric feature of the rum market in Europe. That is an added reason why the United Kingdom Government should persist in their view that they cannot consent to the derogation until there are specific changes in the French observations of its obligations in respect of excise duty.

The hon. Lady said that she wanted to hear the views of the House. I hope that she will be in no doubt that its views are against consenting to this derogation in the present circumstances. I hope that she will be left in no doubt by those in the House that we see no case for any advantage from giving this derogation in advance of general harmonisation. On the contrary, we see positive objections to granting such a derogation to a country such as France, which not only has not carried out its obligations under the treaty in general in respect of excise duty but has specifically failed to comply with the order of the European Court in respect of the admission of foreign spirits. In those circumstances, I am happy to assent to the motion, and I assure the hon. Lady that she has the Opposition's full support in pressing France to bring its excise duties into line with the court order.

3 am

Dr. J. Dickson Mabon (Greenock and Port Glasgow)

I was impressed to receive the information recently that, despite the fact that it is two and a half years since the ruling was made by the European Court in relation to French compliance with its ruling, it was only on 1 June, representations having been made to the Government of the French Republic early in April, that the French replied that they were not quite able to change the duties at that moment.

It is an old French trick to continue to delay; and no doubt others have followed their bad example in the past. I am more than encouraged by what the Minister has said tonight. Unfortunately, it is not reflected in the motion, which is cleverly drawn. I do not say that it is ambiguous, but it does not lay out in emphatic terms what the Minister has said.

Britain is concerned that the Court's ruling should be substantiated by practice in France. The British will not retreat on that. We shall insist on pressure on the French Government by the Commission rapidly to fulfil that obligation. There is no point in discussing derogations of any kind until that stage is reached.

There is no suggestion of a quid pro quo—that we note the matter and that the Council of Ministers assent to the derogation in advance of French compliance with the court's direction on the basis that the French will observe their undertaking, given that they get the derogation from article 95. We should not allow this to pass and then wait to see whether the French Government comply with the court's ruling.

I must declare an interest as adviser to the Scotch Whisky Association. I have been associated with the industry, prior to being an adviser, for many years, and I endorse what the hon. Member for Edinburgh Central (Mr. Cook) said about the present state of the industry.

However, I am somewhat alarmed at some of the hon. Gentleman's remarks about the industry's attitude. I look forward to the day when not only Britain but Europe will have an excise duty which directly relates the alcoholic content to taxation.

Taxation of various alcohols customarily ingested by the British has grown perversely over the years. It is no argument to say that the taxation of beer, as distinct from the taxation of claret, has a class basis. Class barriers in alcohol have been long since broken down. Many wealthy people drink beer and many ordinary folk drink wine. During my time in Parliament—I am sure that this must be true of you, Mr. Deputy Speaker—I have witnessed a working-class population moving over to drinking wine, when, 20 years ago, it was almost unheard of. It is a rather old-fashioned argument to identify one's class by the type of alcohol that is drunk.

Mr. Cook

The hon. Gentleman is attributing an argument to me that I did not use. I said that beer is produced in Britain and that, as we have hitherto been a rather poor manufacturer of claret, there is something to be said for preserving an excise system that does not encourage people to switch from beer to foreign claret.

Dr. Mabon

We have moved from class warfare to xenophobia. It is reasonable to encourage people to make a choice about alcohol, whether it is foreign or British. It is extraordinary to argue that we should consume only our own products and disdain others. I may have misrepresented the hon. Member for Edinburgh, Central earlier, but it is late and perhaps I misheard him. I hope that harmonisation, which is not bad, will include taxation within Britain and the Community on the alcohol content of drinks.

It is important that the Government press hard the need for French Ministers to conform to the Court's judgment. I do not accept that because one of our partners misbehaves—as the French have—that the British should do the same. It is extraordinary to argue that a citizen should misbehave because another citizen is misbehaving. I cannot accept that argument whether it applies to citizens or nations. It is not a question of us misbehaving because the French are, but of persuading the French to accept their obligations under the Treaty of Rome.

I am looking forward to hearing about the discussions in the European Parliament. I hope that our view is expressed there. There is no reason why the proposal should not be accepted.

A sugar refinery in my constituency still flourishes, despite the prognostications of the anti-marketeers. It flourishes, thanks to both Conservative and Labour Governments who established the Lome convention in the early days to allow over 1 million tonnes of cane sugar to be brought into the United Kingdom, the main consumer. That is still happening. The African, Caribbean and Pacific countries supply us with the sugar. The British have fought for, secured and honoured that agreement. We have kept it despite roars from anti-marketeers. Although rum is not as important to the economies of the countries under French possession, it is on the same level.

I am not against finding a way to bring traditional rums from the French possessions into France, or from our former territories into the United Kingdom. That must be understood by our French friends. But we must take account of the overall position of the alcohol regime. Fair's fair, and the French should know that.

3.8 am

Mr. Roger Sims (Chislehurst)

The French system of excise taxation on spirits is discriminatory. It involves higher rates of duty on Scotch whisky—in which I declare an interest—and on gin and vodka which are imported, than on locally produced products such as cognac, armagnac and brandy. The rates are, in turn, far higher than the rates on rum imported from the French Overseas Departments.

Of course, the wish to offer some protection to products from erstwhile colonial territories is something that we, as an ex-colonial power, can understand. However, these rates are not only protective but discriminatory to the point of causing gross distortion. We are talking of rates of about 4,400 francs per hectolitre of pure alcohol in respect of rum, against just over 7,000 francs for cognac and brandy, and 7,600 francs plus for whisky and gin.

The document before us asks us to perpetuate the situation for at least five years, yet the system of differential taxation was roundly condemned by the European Court of Justice as long ago as 1980, particularly in its effect on imported spirits such as Scotch whisky. France has simply chosen to ignore that ruling, despite the representations made by the Scotch Whisky Association and the British Government and despite the recent efforts made by my hon. Friend the Member for Enfield, North (Mr. Eggar). Through his European Court of Justice (Compliance with Judgments) Bill, he sought to exert some pressure on France.

However, France maintains this discriminatory structure in defiance both of the spirit—I hope that you will excuse the pun, Mr. Deputy Speaker—of the EEC and the letter of its law to the continued disadvantage of our Scotch whisky. Nevertheless, France wants part of the structure to be given the official blessing of the Community council so that its rum can benefit. To coin a phrase, that is a bit thick. I hope that my hon. Friend the Minister will find a suitable French colloquialism to convey that view.

After all, one of the criteria for not agreeing to the Commission's proposals is that those proposals are not in the United Kingdom's best interests. I suggest that these proposals fall squarely into that category. My hon. Friend the Minister has invited comments, but I urge her simply to do three things. First, she should resist the perpetuation of an unfair tax system. Secondly, she should use every means open to her to obtain French compliance with the 1980 judgment. Thirdly, she should continue to work towards the harmonisation of duties within the EEC on all alcoholic drinks, which would, of course, eliminate such problems.

3.13 am
Mr. Bowen Wells (Hertford and Stevenage)

At this late hour I rise simply to make two points. It is unacceptable for France to seek a special position for its overseas territories of Martinique and Guadeloupe when Britain is not seeking a similar position for the Commonwealth Caribbean countries at least that are Martinique and Guadeloupe's neighbours.

Through the device of calling Martinique and Guadeloupe overseas territories and departments of France, the French accord them tremendous advantages. The islands of Dominica and St. Lucia are tangential to, and within sight of, those islands, yet there is a marked contrast in the standard of living. If we sincerely want to develop or even maintain the standard of living in the British Commonwealth countries of the Caribbean we should encourage trade with those islands. To continue a preferential position with Guadeloupe and Martinique without seeking the same preferential treatment for the neighbouring islands is quite unacceptable. My hon. Friend the Minister has made it clear that that is firmly in the centre of the argument that she and her right hon. Friend the Minister are advancing to the Commission I hope that she will continue to resist any such blandishments of the French.

On my second point, I declare an interest as a parliamentary consultant to International Distillers & Vintners. It is ironic for us to give a preferential position to an imported spirit, while at the same time we continue domestically to discriminate against Scotch whisky producers in the sense that we have not found it possible to provide a system whereby Scotch whisky distributors have duty deferment. After delivery from bond the taxation—the excise duty—is payable immediately. It is not recovered from the customers until three months later. With interest rates at a high level that is a heavy and continuing burden on the industry. My right hon. and learned Friend the Chancellor of the Exchequer has been unable to relieve that discriminatory position. To find ourselves relieving French overseas territories of such a problem without making provision for putting the Scotch whisky industry even on the same basis as its competitors is unacceptable.

3.16 am
Mrs. Fenner

I conclude this interesting debate by thanking the House for the contributions that have been made on this most important issue. In the light of the comments that have been made, I reaffirm the Government's commitment to securing the full and effective implementation of article 95 of the Treaty as our primary objective.

I shall try to cover some of the points that have been raised. The hon. Member for Edinburgh, Central (Mr. Cook) commented on preference for wine. If he had viewed the position over more than four months, he would have seen that there has been no preference for wine. The relativities are now much the same as when we joined the Community.

The hon. Gentleman also mentioned the question of discussing the derogation for French overseas departments in advance of harmonisation, which is a good point. Talks on harmonisation have been in abeyance for nearly a year and show no sign of resumption. There is no great prospect of harmonisation on a basis that is satisfactory to the United Kingdom, but I agree that, pending that, we must press for the French to comply with the European Court of Justice's judgment.

I assure the hon. Member for Greenock and Port Glasgow (Dr. Mabon) that there is not and never has been any question of accepting this proposal in return for a long overdue compliance with the Court's judgment. We do not favour the commission's proposals, for reasons that I have made clear and which have been underlined in the debate. We insist, however, that the Court's judgment be implemented, come what may, and speedily. The hon. Gentleman referred to the concept of a quid pro quo. I reassure him on that.

My hon. Friend the Member for Hertford and Stevenage (Mr. Wells), who referred to duty deferment, will accept that that is a matter for my right hon. and learned Friend the Chancellor of the Exchequer. He also mentioned that the French overseas departments are part of France whereas the African, Caribbean and Pacific nations are third countries that enjoy preferential access. My hon. Friend rightly points out that they have similar economic problems. We will try to ensure that they are not discriminated against in any way.

I have noted the arguments that have been urged strongly by hon. Members on both sides of the House on behalf of our Scotch whisky and spirit interests for the need to put an end to the competitive edge that the present arrangements in France provide for the traditional rum from the French overseas departments. I fully concede the principle that all alcoholic spirits are in competition with each other to a greater or lesser extent.

I am pleased to note that, in spite of the highly preferential rates of duty that French overseas department rum enjoys, sales of Scotch whisky in France have risen by some 75 per cent. since 1975 while sales of FOD rum have been falling. I hope that that is reassuring to my hon. Friends. I hope and expect that our exports of Scotch whisky and other spirits will continue to enjoy even greater success. We will oppose in Brussels any measure that threatens that objective.

We also have in mind the traditional suppliers of rum in ACP countries whose competitive position and long-term interests must also be safeguarded. On that basis, I commend the motion to the House.

Question put and agreed to.

Resolved, That this House takes note of European Community Document No. 6168/82 concerning French Overseas Departments' rum and supports the Government's efforts to seek a reduction in the discriminatory taxation of spirit drinks which at present obtains in France.