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EBA stands for the European standards for cognac production

21/ 02/ 2020
  The member companies of the Association opposed the initiative of obligatory use of a share of domestic wine materials in the production of cognac in Ukraine. Such changes are proposed in the Draft Law No. 2431 of November 13, 2019, with an annual increase in the share of domestic wine material use up to 85% from January 1, 2027.  What are the arguments for this position? Firstly, such a requirement is contrary to the Association Agreement between Ukraine and the European Union. According to one of the articles of the Agreement, neither party should impose any rules of internal quantitative regulation regarding the content of a share of domestic raw materials in goods. Besides, the authors of the Draft Law refer in their arguments to EU legislation that has lost its validity * or to those that do not actually contain the requirements for the use of raw materials grown in the relevant geographical region in the production of cognac alcohol **. In addition, Ukraine will not be able to produce cognac from January 1, 2026, as it is a geographical indication of France. Therefore, setting a share rate after this date is inappropriate. Secondly, the Draft Law does not specify how the origin of raw materials will be determined. Given that Ukraine does not have an actual Grape cadaster, it will be difficult to determine the origin of particular wine materials. Also, there is no possibility for the State Tax Service to determine the percentage of domestic raw materials in the finished goods. At the same time a considerable fine of 200 percent of the cost of production is set for violation of requirements, but not less than 15 000 UAH.  Thirdly, the proposed initiative distorts competition in the market. By business conviction, such a requirement would limit access to the market for new cognac producers, since they would have to buy raw materials in sufficient quantity from their competitors, that may inflate or refuse to sell. At the same time, it would be not possible to set up a new cognac production without purchasing domestic wine materials since it is unprofitable to work only on the procurement of raw materials. And finally, the adoption of this draft law can lead to state budget losses and job cuts as a result of complicated business conditions. If the cognac production is stopped, according to the experts of the Association, the budget will not receive hundreds of millions of hryvnias in taxes and fees, more than 100 million hryvnia taxes on related industries, as well as a monthly excise tax on sales of excisable goods and the payment for licenses on a right of the wholesale liquor trade. In view of this, the experts of the Association appeal to the MPs - initiators of the Draft Law - with a request to promote its rejection. Hopefully, business opinion will be considered.  * Council Regulation (EC) No 479/2008 of 29 April 2008 and Commission Regulation (EC) No 607/2009 of 14 July 2009; ** Regulation (EC) No 110/2008 of the European Parliament and of the Council of 15 January 2008.    

The member companies of the Association opposed the initiative of obligatory use of a share of domestic wine materials in the production of cognac in Ukraine. Such changes are proposed in the Draft Law No. 2431 of November 13, 2019, with an annual increase in the share of domestic wine material use up to 85% from January 1, 2027. 

What are the arguments for this position?

Firstly, such a requirement is contrary to the Association Agreement between Ukraine and the European Union. According to one of the articles of the Agreement, neither party should impose any rules of internal quantitative regulation regarding the content of a share of domestic raw materials in goods. Besides, the authors of the Draft Law refer in their arguments to EU legislation that has lost its validity * or to those that do not actually contain the requirements for the use of raw materials grown in the relevant geographical region in the production of cognac alcohol **. In addition, Ukraine will not be able to produce cognac from January 1, 2026, as it is a geographical indication of France. Therefore, setting a share rate after this date is inappropriate.

Secondly, the Draft Law does not specify how the origin of raw materials will be determined. Given that Ukraine does not have an actual Grape cadaster, it will be difficult to determine the origin of particular wine materials. Also, there is no possibility for the State Tax Service to determine the percentage of domestic raw materials in the finished goods. At the same time a considerable fine of 200 percent of the cost of production is set for violation of requirements, but not less than 15 000 UAH. 

Thirdly, the proposed initiative distorts competition in the market. By business conviction, such a requirement would limit access to the market for new cognac producers, since they would have to buy raw materials in sufficient quantity from their competitors, that may inflate or refuse to sell. At the same time, it would be not possible to set up a new cognac production without purchasing domestic wine materials since it is unprofitable to work only on the procurement of raw materials.

And finally, the adoption of this draft law can lead to state budget losses and job cuts as a result of complicated business conditions. If the cognac production is stopped, according to the experts of the Association, the budget will not receive hundreds of millions of hryvnias in taxes and fees, more than 100 million hryvnia taxes on related industries, as well as a monthly excise tax on sales of excisable goods and the payment for licenses on a right of the wholesale liquor trade.

In view of this, the experts of the Association appeal to the MPs – initiators of the Draft Law – with a request to promote its rejection. Hopefully, business opinion will be considered. 

* Council Regulation (EC) No 479/2008 of 29 April 2008 and Commission Regulation (EC) No 607/2009 of 14 July 2009;

** Regulation (EC) No 110/2008 of the European Parliament and of the Council of 15 January 2008.

 

 

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