The Law of the Spirits

Like many international business leaders, I want the trade ministers working this weekend to strike a deal in the Doha Round to succeed. Further global liberalization in product and service markets will spur cost savings, innovation and trade growth for every country that contributes. At the same time, any agreement in Geneva must not be undermined by creeping protectionism at home. In the case of the spirits sector, that is precisely what a small group of European Union member states is seeking to do. Their plan would hurt not only foreign competitors but European companies as well.

The product in question is vodka. Under the auspices of a European Parliament review of Europe's spirit regulations, a small number of EU countries are seeking to restrict the ingredients of vodka to two raw materials: cereals, such as barley, or potatoes. They claim that these raw materials have a fundamental bearing on the end product. Their aim is to prevent vodka producers who use alcohols derived from other agricultural products, such as molasses and fruit, as permitted by EU regulations for nearly two decades, from being able to market their spirits as "vodka" in the EU. The effect, and most likely their intention, would be to force about 10% of the current EU vodka industry out of its own market and to heavily restrict vodka imports from outside the EU.

These changes are being pursued by producers in the Nordic, Polish and Baltic markets, who are looking to remove established and emerging competitors through regulation. If adopted, the only producers to gain would be from these markets. The biggest losers on the Continent would be in Southern and Central Europe: from Cyprus to Hungary to France.

Perversely, the proponents of a narrow EU definition for vodka are arguing against an existing EU standard that mirrors the standard around the world. This mandates that vodka can be made from any ethyl alcohol of agricultural origin. It has been adopted in most of the world's major vodka markets including the United States, Brazil and China. These countries, many of whom do not use cereals or potatoes to make vodka, will rightfully view the adoption of a narrower definition as an attempt to shut them out of the EU vodka market.

Nor does the bid to change the EU definition have any basis in consumer protection. There are no public health or safety issues related to one type of agricultural raw material for vodka compared with another that would allow Europe to erect trade barriers under global rules. And consumers show little interest in knowing what vodka is made from. It would be impossible to defend a narrowing of the definition in legal terms before the European courts and in the World Trade Organization's dispute settlement system -- and that is where the issue would ultimately land, should the definition be changed.

The most sensible way forward -- for all producers, regardless of geography -- would be to keep the current definition of vodka, one that recognizes Europe's diverse traditions and methods.