Statement of Peter H. Cressy, Distilled Spirits Council of the United States, Inc.

The following statement is submitted on behalf of the Distilled Spirits Council of the United States, Inc. (Distilled Spirits Council) for inclusion in the printed record of the Subcommittee’s hearing on the implementation of U.S. bilateral free trade agreements (FTAs) with Chile and Singapore.  The Distilled Spirits Council is a national trade association representing U.S. producers, marketers and exporters of distilled spirits products.  Its member companies export spirits products to more than 130 countries worldwide, including to Chile and Singapore.

1. OVERVIEW

The Distilled Spirits Council and its member companies enthusiastically support Congressional approval and prompt entry-into-force of the free trade agreements with Chile and Singapore, which will bring about significant and measurable benefits for U.S. spirits exporters.  Over the past decade, the export market for U.S. distilled spirits products has become increasingly more important to the U.S. distilled spirits industry.  In fact, since 1990, U.S. exports of distilled spirits worldwide have doubled, growing to over $550 million in 2002.  While the Uruguay Round negotiations produced significant benefits for U.S. distilled spirits exporters, including substantial reductions in import tariffs and non-tariff barriers, numerous barriers still remain.  The U.S. distilled spirits industry actively supports the U.S. government’s efforts to seek the elimination or reduction of these remaining barriers within the context of the ongoing World Trade Organization negotiations, and in other multilateral and bilateral negotiations. 

The recently-concluded Chile and Singapore agreements eliminate several of the barriers that U.S. spirits exporters currently face in these markets.  Prompt Congressional approval and implementation of the FTAs will permit U.S. spirits exporters to benefit from improved market access to Chile and Singapore, thus ensuring the continued growth of the U.S. distilled spirits industry.

2. BENEFITS OF THE U.S. - CHILE AGREEMENT TO U.S. DISTILLED SPIRITS EXPORTERS

The U.S. – Chile Free Trade Agreement (FTA) will provide three significant benefits for the U.S. distilled spirits industry.  First, the U.S. – Chile FTA will ensure that U.S. spirits entering Chile are accorded the same tariff treatment as Chilean spirits entering the United States.  As a result of the “zero-for-zero” initiative, which began in the Uruguay Round, the United States has eliminated almost all tariffs on imported spirits products, including pisco, Chile’s most important spirits export.  In contrast, U.S. spirits currently face a tariff of six percent ad valorem in Chile. Under the terms of the U.S. – Chile FTA, Chile will eliminate its tariff on all spirits (with the exception of brandy and gin) imported from the United States two years after entry-into-force of the agreement.  The tariff on brandy will be eliminated immediately upon the agreement’s entry-into-force, and the tariff on gin will be reduced in twelve equal annual stages until the tariff is zero. 

Second, the U.S. – Chile FTA will place U.S. spirits exports on a level playing field with our competitors.  Chile currently has free trade agreements with Canada, Mexico and the European Union.  In both the Canada-Chile and Mexico-Chile agreements, Chile agreed to eliminate immediately its tariffs on all spirits products, including tequila and Canadian Whisky.  In the EU-Chile agreement, Chile agreed to a ten-year phase-out of the tariffs on Cognac, Armagnac, Grappa, and Brandy de Jerez and a five-year phase-out of the tariffs on all other EU-origin spirits.   The U.S. – Chile FTA ensures, therefore, that U.S. spirits ultimately will be able to compete on an equal footing with spirits from Mexico, Canada and the European Union.

Finally, the U.S. – Chile FTA provides essential protections for Bourbon and Tennessee Whiskey, two distinctly American spirits.  Under the U.S. - Chile FTA, Chile has agreed to provide explicit protection in the Chilean market for Bourbon and Tennessee Whiskey as distinctive products of the United States.  Such recognition ensures that only spirits produced in the United States, in accordance with the laws and regulations of the United States, may be marketed in Chile as Bourbon and Tennessee Whiskey. 

3. BENEFITS OF THE U.S. - SINGAPORE AGREEMENT TO U.S. DISTILLED SPIRITS EXPORTERS

Similarly, the U.S. spirits industry stands to gain significantly as a result of the U.S. - Singapore FTA.  First, Singapore will eliminate its discriminatory excise tax policy on distilled spirits.  Currently, Singapore assesses significantly lower excise taxes on domestically-produced spirits (samsoo, arrack and pineapple spirits) than on other types of distilled spirits in violation of the General Agreement on Tariffs and Trade (GATT) 1999 Article III, paragraph 2.  This discriminatory excise tax policy has placed U.S. distilled spirits at a competitive disadvantage vis-à-vis domestically-produced spirits.  Under the terms of the U.S. – Singapore FTA, Singapore will eliminate this discriminatory practice by harmonizing its excise taxes on imported and domestically-produced distilled spirits.     

The U.S. – Singapore FTA also guarantees that Singapore will not be able, at a future date, to impose tariffs on distilled spirits imported from the United States.  Singapore does not currently assess tariffs on most imported distilled spirits products.  However, Singapore’s WTO bound tariff rates are high and, consistent with its Uruguay Round commitments, Singapore may impose at any time tariffs ranging from S$30 per liter to S$70 per liter of alcohol on most categories of distilled spirits.  Under the U.S. – Singapore FTA, Singapore has committed to bind all tariffs at zero immediately upon entry-into-force of the agreement, thereby ensuring that U.S. spirits exports will continue to enter the Singapore market duty-free.

Finally, provisions in both the U.S. – Singapore FTA and the U.S. – Chile FTA include commitments that those countries will not adopt or maintain a merchandise processing fee for originating goods.  This provision will ensure that U.S. spirits exporters will not be subject to additional administrative costs in Singapore and Chile. 

4. CONCLUSION

In summary, the U.S. – Chile and U.S. – Singapore free trade agreements successfully address the principal trade barriers currently impeding U.S. exports of distilled spirits to Chile and Singapore.  The Distilled Spirits Council, therefore, strongly supports these agreements, which, once implemented, will provide considerable benefits to U.S. spirits exporters.  We stand ready to work closely with the Congress in seeking the swift approval of these agreements, so that U.S. spirits exporters may begin soon to enjoy improved access to the Chilean and Singapore markets.

Thank you very much for your consideration.