Johnnie Walker, other whisky makers want to stay in the European Union

  • Article by: THE ECONOMIST
  • Updated: February 25, 2013 - 5:07 PM

Why Scotch whisky makers want to stay in the European Union.

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The dandy has been striding out ever since he first graced a bottle of Johnnie Walker in 1908, becoming the world’s favorite Scotch whisky. Having made his name along the trading routes of the British Empire, Johnnie Walker might be expected to support the Eurosceptics’ contention that Britain would be better off unshackling itself from an ailing European Union to seek its fortune on the global stage.

After all, the best hope of finding new Scotch drinkers lies with newly affluent Indians and Chinese.

Yet talk to whisky makers and what is striking is that they see the E.U. and its single market as vital, both now and in the future. Far from being a ball and chain, the E.U. is now the industry’s essential sword and shield for conquering world markets.

Why? Start with the E.U.’s single market. It is the world’s biggest economic block, in which most goods can be sold anywhere without hindrance. Despite its woes, the E.U. accounts for about 40 percent of total Scotch sales. France is the largest market, nearly twice as big as America, says International Wine and Spirits Research, a market-intelligence firm. Spain is a larger one than China, despite all its troubles (or perhaps because of them).

As new countries join the E.U. and remove their trade barriers, sales of Scotch tend to shoot up. This happened in Spain after the end of Franco’s authoritarian rule, when whisky drinking became a symbol of affluence and emancipation. In Greece a whiskaki, preferably a Johnnie Walker, became the preferred middle-class drink, a sign of being truly European. Sales in Greece have recently dropped because of the recession and rising excise taxes, but they are booming in Poland, which joined the E.U. in 2004 and has enjoyed strong economic growth.

Whisky palates vary from country to country. For Johnnie Walker as a brand, Europe has become a relatively smaller market. But for Diageo, the British multinational that owns the label, Europe still accounts for nearly 30 percent of total sales. And precisely because Diageo is a global company, the E.U.’s weight in trade negotiations is crucial. Paul Walsh, ­Diageo’s boss, says that many of the hundreds of drinks Diageo sells owe their place in the world to the E.U.’s ability to negotiate trade deals.

The biggest prize is India, which consumes almost as much whiskey as the rest of the world put together. Yet instead of Scotch, Indians drink local varieties bearing Scottish-sounding names, such as McDowell’s or Bagpiper, that are made from molasses. Scotch purists say these are rums, not whiskeys. But India imposes tariffs of 150 percent on imported whiskey, putting true Scotch beyond the reach of all but the rich. Makers of Scotch whisky hope the E.U. will win a major tariff reduction under a free-trade agreement that it is negotiating with India.

Scotch producers moan about protectionism elsewhere, but they benefit from E.U. rules defining Scotch whisky narrowly by “geographic indications.” It must be distilled in Scotland from the fermented mash of malted cereals, with or without whole grains, and matured in wooden casks for three years or more. It cannot be sweetened or flavored. Such rules preserve the distinctiveness of Scotch against competing whiskeys from, say, America or Canada. They also allow the industry to create an aura of connoisseurship like that for fine wine, insisting that only Scotch is “whisky,” while everything else is “whiskey.”

What about claims that the E.U. ties firms in red tape, hampering their competitiveness? Whisky makers acknowledge some irritants. But they prefer common E.U. rules to lots of national ones on everything from bottle sizes to labels. Harmonized regulations reduce costs and can set global norms. The worst country for adding labeling rules on top of E.U. ones, says Nick Soper of the Scotch Whisky Association, is Britain. All told, whisky makers say, British E.U. membership has produced benefits that would have been unattainable from outside.

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