INTRODUCTION

THE EXCISE OR the taxman has for centuries had an enormous influence over the fortunes of the whisky industry. Debates about the level of taxation continue to this day in Britain and elsewhere, although maybe not with the strength of feeling and vituperative language used more than 200 years ago by Robert Burns (who, ironically, was himself to become an excise man). Tax on alcoholic beverages is a major source of revenue for governments in both the UK and Japan. But people can and do argue how much that tax should be.

Particularly difficult for industry to accept are discriminatory taxes which favour competing products. That was the situation Scotch whisky faced in Japan when this issue rose to prominence in the mid-1980s.

This chapter charts the way this problem was tackled, with a large degree of success. It is a case study in how industry, the European Communities (EC as was, now the European Union) and individual member states can work together, and in how strong political leadership and day to day diplomacy can further commercial interests. It also demonstrates how the good underlying bilateral relationship between the UK and Japan, in particular at prime ministerial level, helped to provide a constructive framework within which a difficult issue could be resolved.

THE POLITICAL AND ECONOMIC CONTEXT

After the Second World War ended British economic recovery was slow. British industries feared copying of designs and ‘unfair competition’ from Japanese firms, which were struggling to revive. Protectionist pressures were strong in both countries and British trade with Japan was impeded. But it became clear that, as Prime Minister Ikeda's ‘double the income’ policies of the early 1960s looked likely to succeed, Japanese exports would grow quickly and Japan could become an important market for Britain. After eight years of negotiations Japan and the United Kingdom had concluded in November 1962 a revised Treaty of Commerce and Navigation. This came into force in 1963 and the principles of the GATT (the General Agreement on Tariffs and Trade) were to apply to trade between both countries, but two protocols attached to the treaty ensured that both sides could keep some restraints on imports.