On Monday 13th July 2020, Liv-ex’s Managing Director and Chairman, James Miles, gave evidence at a government-led inquiry into the potential impact of rolling over current EU regulations on wine import documentation (known as the VI-1 form) once the Brexit transition period ends. You can read the evidence provided by James Miles below.
The inquiry was led by the Wine & Spirit All Party Parliamentary Group (WSAPG) and was conducted to examine the purpose of the form, how the current rules work in practice, the implications of introducing this requirement and what improvements and/or changes could be made to encourage future trade.
The WSAPG is planning to take written and oral evidence from any stakeholder with an interest or experience in the wine industry who can offer a constructive contribution to the inquiry. If you would like to submit evidence, you can find more information and guidelines on the WSTA website here.
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With our members’ help, Liv-ex continues to obsess about making the wine market more transparent, efficient and safe and removing barriers to trade.
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Evidence provided by James Miles on behalf of Liv-ex:
Please state your name, the business you represent and provide a short outline your business and how it is relevant to this inquiry
My name is James Miles. I am the Chairman and Managing Director of Liv-ex. We are the global marketplace for fine wine merchants. We have customers in 42 countries. 70% of our wine sales are for export. European wine accounts for 94% of our sales and about 50% of our supply comes from the EU. We trade the odd case of English wine, but nearly 100% of the wines we trade are produced overseas.
We are here to represent the fine wine trade. The UK is world class at fine wine merchanting and trading. It is an area that we as a country are globally competitive. Reasons for this include: a very dynamic domestic market, long-term relationships with wine producing regions over many hundreds of years, a light touch regulatory structure (built around our bonded warehouse system), our position bang in the centre of the global time zone, the English language, best in class logistics/ warehousing capability and world leading wine education, publications, journalists and wine critics, which help to make this country the best informed wine buying nation on earth.
In short, we are very good at promoting, distributing, and trading other people’s wine, not just in the UK, but all over the world. The fine wine market is worth £5bn per year and the UK is the leading player in this trade.
What is the expected impact on your business of VI-1s if they are introduced from 1 January 2021?
Rolling the VI-1 form over from EU law creates an existential crisis for the fine wine trade in this country. Compliance is prohibitively expensive, impractical, and frankly unnecessary. It is a business killer.
Unlike everyday drinking wine, fine wine is not a fast moving good. While everyday wines are usually drunk within 18 months of production, fine wine is often not consumed for 10, 20 or more years. This makes the supply chain long, complex and highly fragmented.
Fine wines are generally produced in small quantities, are highly priced and actively traded in the secondary market, both between merchants and between merchants and their customers.
Like many in our trade, all of Liv-ex’s business is generated in the secondary market. We do not trade with producers but with merchants and other intermediaries. We have hundreds of suppliers (mostly UK and EU based) selling thousands of products in small quantities. Liv-ex offers about 15,000 products on its platform. Indeed, most of our trade is in small quantities of no more than a few dozen/ relatively high value bottles. We do 10s of thousands of transactions every year at an average value of about £2,000 each.
The VI-1 form requires our EU suppliers to take a bottle from each of these transactions, send it to a lab, get it stamped by an official body (neither has yet been identified). The WSTA estimate that this will cost £300 per time – but this does not include the cost of the bottle sample which for Liv-ex trades are regularly worth hundreds or even thousands of pounds each. Assuming that we continue to operate as we do today and an average additional cost of £400 for each transaction, compliance would cost Liv-ex £6m (or 10% of sales!). This would obviously incur huge losses. There is zero chance of persuading any of our suppliers to subsidise these costs. They will simply sell the wines elsewhere.
As a business, therefore, we will have little choice but to move offshore impacting UK Jobs. Where we must ship to the UK, we will need to use the 100-litre exemption. This will be less expensive than obtaining a VI-1 but will increase our logistics costs and carbon footprint substantially. We estimate our costs which are about £5 per case today will rise to £75 per case (in some instances), because we will have to break down shipments into sub optimal lot sizes, increasing transport, labour and admin costs.
How will this affect consumers?
It will seriously damage consumer choice, reduce competition and raise prices. The UK is famous for the diversity and competitiveness of its domestic market. The VI-1 puts this at risk.
Do you currently have to deal with VI-1 forms? Do you feel that you are ready for them to be introduced for EU imports?
No. 94% of our trade is in EU wines. For the small quantities of non-EU wine that we source from outside the EU, we tend to import under the 100-litre exemption. Getting rid of the VI-1 form, would open up non-EU markets too. In other words, it would be an easy net win for the UK trade.
If the EU is not ready to produce VI-1s, what will happen to that wine? Could you replace those goods with wine from third countries instead?
No. European wines from France, Italy, Spain, Portugal and Germany account for 94% of the trade in fine wines. There are some great wines being made in non-EU countries, but currently this market is tiny compared to EU wines.
Do you think the businesses in your supply chain would be ready to produce VI-1s if they were introduced at the end of the transition period?
No. I think I have shown that it will never be practical for anybody to comply. It is also unclear currently how the process would work, which labs are authorised to carry out the work, who is going to authorise it or how and by whom the paper forms are going to be processed (we are going to need a substantial customs force to enforce compliance).
What steps do you think the Government should take to mitigate the impact of VI-1s? Or if the UK Government decided VI-1s are not fit for purpose, what system, if any, should replace VI-1s?
The case to get rid of VI-1s is overwhelming:
- The VI-1, which has been rolled over from EU law, is blatantly anti-competitive and protectionist. It is designed to serve the interests of the major wine producing nations in the EU.
- It does not serve the interests of the UK, which imports nearly 100% of its wine and is the biggest net importer of wine in the world.
- VI-1s serve no practical purpose for the UK market – no public health or customs and excise requirement. Our industry is already highly regulated, and these requirements are satisfied elsewhere.
- No other major trading nation or trading bloc outside of the EU has an import form with these requirements.
- No other alcoholic drink has an equivalent of the VI-1 in the EU.
- Currently it is questionable as to whether we have the customs officials to check the 600,000+ new paper forms or which labs are going to be authorised to do the checks or who is going to certify them.
- Getting rid of them would remove a barrier to trade for all wine imports (including those from outside of the EU), which would be a net win for the UK wine trade and consumers, lowering prices and increasing choice.
- It makes no political sense to leave the EU only to impose EU protectionist regulations on our own businesses and make the UK trade less competitive as a global wine trading hub. This is not “taking back control” it is shooting ourselves in the foot.
- Getting rid of the VI-1 is not subject to any trade deal with any country or trade bloc or the EU. It is in our gift to kill it. We should not prevaricate.
Our vision for the fine wine trade after Brexit is to expand our position as the global hub by making the most of the opportunities to reshape our trade policy by:
- Removing tariffs/ quotas
- Minimising complexity on import / export rules – getting rid of VI-1s
- Basing trade around mutual recognition of standards/ joining the World Wine Trade Group
- Implementing digital compliance of regulations such as payments of duty etc. – no paper forms
- Winning the support of government to promote the UK as a global hub for wines and spirits