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Scotch: The Culture of the World's Leading Spirit

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I. Identification

1. The Issue

The underlying issue in this case study concerns the labelling processes for internationally marketed products named for the region, area, or nation where they are produced. Naming a specific commodity for the culture, region, or area from which the item was produced has created some controversy in recent years. In this respect, Scotland has successfully been able to obtain sole ownership of the label "Scotch" for its most famous export, Scotch Whisky. In an effort to prevent other countries, cultures, or regions from cheaply reproducing Scotch-type whisky and marketing it for international trade purposes, Scotland has gone to battle with the EU and other international bodies to protect the integrity of their product, as an expression of Scottish culture, taste, and cleverness.

2. Description

Scotch whisky is one of Scotland's most favorite cultural products as well as one of its most profitable trade items. Scottish distillers have been perfecting production processes of the world's leading spirit for centuries and deservedly have earned the right to be sole owners of the label "Scotch". In an effort to protect the integrity of the spirit and the cultural traditions associated with Scotch whisky, Scotland has gone to national courts (and more recently to international bodies governing world trade) concerned about protecting the cultural wholeness of Scotch for Scotland only and to prevent other nations from producing cheap copies or discriminating against Scotch whisky. This case concerns Scotland's intellectual property rights to its nationally-labeled trade item and protection of the cultural traditions associated with the production of Scotch whisky.

In order to understand these processes of production and the nature of traditions behind Scotch, a little background on the production process helps to explain why Scots (and others) cherish their Scotch as they do. The distillation and maturation processes requred to make Scotch have been specific to Scotland for at least 5 centuries, if not longer. Thus, it is impossible to conceive that this process could be replicated in another country with the same success. In fact, to analyze the production process from a Scot's point of view, nowhere else in the world can one find the Scottish peat used to smoke the barley, or the Scottish oak to make the maturation casks, or the Scottish air to seep through the casks and give the spirit its character Source 1.

There are two types of Scotch, malt whisky and grain whisky. For the purpose of this discussion, only the process of making the popular malt whisky will be examined. The process begins with soaking the barley, about 2-3 days, after which the barley is spread on the floor to germinate before it is dried and fired in a kiln with natural Scottish peat "cut from the moors of Scotland". The smoke from the fire flavors the barley, called peat reek, giving Scotch its distinctive flavor.

Next, the malted barley is ground, mixed with hot water in a mash tun that turns the starch in the barley into a sugary liquid, wort. The wort goes into a fermenting vat where yeast is added to ferment into crude alcohol, called wash. The mixture is then transferred to "swan-necked copper stills" to separate alcohol and wash. The role of the distiller is to increase the temperature in the still, slowly fermenting the mix to evaporate the alcohol. The "vapours" are funneled into condensers and re-converted to liquid before the process is repeated, malt is distilled twice. The second time, called middle cut, is selected according to the distiller's personal satisfaction. The distiller must decide the moment to funnel and re-convert the liquid. Then the distiller transfers the cut to oak casks for a period of maturation, at least 3 years Source 1. Perhaps, the most important aspect of this distillation process is the judgement of the distiller to collect the cut for maturation.

Another aspect of Scotch production that is important to Scots is the casks in which the Scotch is matured. The cask is responsible for the character and color of the spirit. The belief is that once in the casks, the spirit absorbs the clean, cool Scottish air through the porous wood, further distinguishing the taste. So treasured is this spirit that the Scottish say the small portion of the spirit that evaporates from the casks and rises to the "heavens" is called angels' share. After maturation the whisky is ready to be drawn and enjoyed, bottled as is or blended with various other whiskies (including grain whiskies).

By examining this process of Scotch production, it is easy to see why Scottish distillers take such pride in their labor, which requires immense dedication, precise and selective judgement of aroma, taste, and flavor, and knowledge of traditions of their mentors who have helped to make Scotch an international success. Scotland is the only nation in the world that knows exactly how to make true Scotch whisky. Therefore, the implications for international trade become more important, as no other nation can market "Scotch" for profit, despite the fact that malt whisky is produced in other nations.

Because Scotch is such a lucrative business, Scotland has plenty of this spirit within its borders. In 1994, it was estimated that 2.5 billion litres of pure-alcohol whisky was stored in bonded warehouses in Scotland. At the time of estimation, the value of a litre of pure alcohol was approximately 8 pounds sterling, therefore the stockes were worth 20,000,000,000 pounds sterling at sale. (NOTE: 1 pound sterling = $1.65 US dollars). To date, the most expensive bottle sold was a 50 year old single malt, selling at 47,000 pounds sterling ($77,550 US) in Milan in 1994 Source 2. Also, Scotch, as a noble spirit, outsells every other noble spirit in the world markets Source 1.

Yet, Scotch is more than just a trade commodity, it is as Scottish as tartans and haggis. The name "whisky" itself derives from the Gaelic "uisage beatha" or "usquebaugh", which meant "water of life" (Gaelic is a local language spoken in Scottish Highlands). Historical references to this "water of life" have dated as far back as 1494 when a man named Friar John Cor purchased "eight bolls of malt...wherewith to make aquavitae" Source 1. Scotch is such a celebrated drink that in the song Auld Lang Syne, the "cup of kindness" refers to whisky. Although malt whisky is also made in Ireland, Japan, and New Zealand, one can easily see that the success and cultural pride of Scots with this treasured spirit can never be reproduced.

3. Related Cases


PISCO
CASSIS
GERMBEER
MEXBREW
FETA

These cases discussed here are related to both major aspects of the Scotch case study. The first four cases, PISCO, CASSIS, GERMBEER, and MEXBREW deal specifically with alcohol issues, while the FETA case is more specific to intellectual ownership of a product named for a culture or geographic area in which it is produced. The PISCO case concerns an ancient Peruvian beverage called Pisco that was being cheaply reproduced and marketed in another country under the same name. The GERMBEER case also resembles this one in that it involves issues about Germany refusing certain types of beer importation with regards to German beer purity standards, an import law in Germany called the Rheinheitsgebot. The MEXBREW case also follows the lines of Mexican beer and standards for exportation and marketing abroad. Finally, the FETA case concerns the intellectual property rights of Greece with respect to the selling of feta cheese that is produced in countries other than Greece. Not only is the feta produced in other countries borrowing the label "feta" and essentially stealing the cultural conotations that go along with feta, but also the other countries are changing the ingredients in feta cheese production yet still calling the product feta.

4. Draft Author:



Elizabeth McRoberts, December 1999

II. Legal Clusters

The cases in this research involve court decisions at the EU level and also at the national level, that is the British National Courts. Recently, the Scotch Whisky Association (SWA), the largest lobbying voice for Scotch producers and distillers, have announced concerns over unfair tax discrimination of Scotch, particularly in Asia, and brand protection. The SWA is urging the European Union and the World Trade Organization to consider issues in the next round of trade talks (Seattle - Millenium Round) that concern brand protection for Scotch and equal taxation levels around the world for spirits. Scotch whisky trade is an enormous part of the British economy with about $4.84 billion (US dollars) worth of trade annually Source 3. The SWA and Scotch producers and distillers cannot afford to suffer the tax discrimination that is currently occuring in parts of Asia, specifically Korea, or cheap reproduction that is starting to appear in places like India. On a global scale, the Scotch concerns are looking to be addressed because the trade factor significantly affects the Scottish economy,

5. Discourse and Status:


The most recent dispute over the nature of Scotch whisky versus another spirit trying to absord the name whisky involves a 1997 case with the British national courts concerning the selling of Manx whisky, that which was produced and marketed by a distiller on the Isle of Man, an island near Scotland. In this case, the Glen Kella production company (actually only consisting of two people besides the owner) on the Isle of Man was producing and selling its product, Manx whisky, when the Scottish distillers realized that Glen Kella's production process was distorting the "whisky" label. In and around the United Kingdom, the term "scotch" or "whisky" automatically creates association with the traditional spirit of Scotland. Acutally, Glen Kella was taking Scotch whisky and performing a third distillation which was removing the tar and color from traditional Scotch and creating a colorless form of pure alcohol.

Glen Kella's owner and main operator, Andrew Dixon, stated in a British national court in March 1997 that his form of Manx Whisky was "pure whisky" without all the tar from the casks. However, this caused tremendous controversy among Scotch distillers and the Scotch Whisky Association who stated that "whisky must retain the colour, aroma, and taste derived from its distillation and maturation" (Financial Times London Edition, 3 December 1996:10) and that somehow the third distillation process destroys the essence of the whisky. Finally, the British High Court Judge ruled on 24 March 1997 that the production process of Manx whisky fell outside EU regulations governing spirits which "qualify" whisky as such and "to allow Glen Kella to call itself whisky would risk an insidious process of erosion of the integrity of the reputation or aura of true whisky" (Mason,1997:20). Thus, Glen Kella could no longer market its product as true whisky, and Scotland was able to uphold the integrity of the whisky which dominates world markets.

6. Forum and Scope:


European Union and Scotland

7. Decision Breadth:


15 countries of the European Union

8. Legal Standing:


This issue is bound first and foremost bound by the Maastricht Treaty on European Union, since Scotland is part of the EU by virtue of its British link. Consequently, Scotland also belongs to the World Trade Organization and all of the appropriate treaties regarding general trade (GATT) are applicable to Scottish products and trading practices.

III. Geographic Clusters

9. Geographic Locations

The center of this case study is Western Europe, specifically Scotland. The distillation, production, and origin of the trade is Scotland itself. However, because Scotch Whisky travels world wide, the actual locations could be global. With regards to where Scotch is traded most (Western Europe, the United States, and Asia), certain parts of the world are more important for this case study. However, the cultural implications are of global reach, as Scotch Whisky could be considered a vehicle for the dissemination of Scottish culture to parts of the world that are unfamiliar with Scottishness.

a. Geographic Domain:

Europe

b. Geographic Site:

Western Europe

c. Geographic Impact:

United Kingdom

10. Sub-National Factors:


Yes. Scotland, although officially devolved from the Union of the United Kingdom in September 1997, still retains economic integration with Britain as a whole. Scotland is a nation, with its own parliament and tax-levying power, but for international economic trade purposes, Scotland's economy is incorporated with the British economy, making the Scotch trade important for both Scotland and the United Kingdom.

11. Type of Habitat:


Temperate

IV. Trade Clusters

12. Type of Measure:


Intellectual Property

13. Direct v. Indirect Impacts:

14. Relation of Trade Measure to Environmental Impact

a. Directly Related to Product:

It is fair to say that in Scotland, Scotch is the business. The Scottish Trade International (STI) organization reports that each year Scotland exports food and drink products worth 2.7 billion pounds ($4.46 billion US) and 84% of this is whisky. Twelve percent of all Scottish manufactured exports are whisky and the industry employs some 16,000 people Source 4. Without a doubt, Scotch whisky is big business for Scotland and as is the case with most big industries, the environment is likely to be affected. In Scotland's case, the most important environmental factor is the perhaps the peat used in the smoking kilns.

The Scottish Natural Heritage organization explains why Scottish peat is so plentiful, yet possibly in danger. Perhaps the most famous peatlands are those found in the Highlands in Caithness and Sutherland. The climate of the Scottish Highlands is perfect because the cool, wet air and low rolling moorlands create the waterlogged conditons necessary for peat growth. The waterlogging stops plant remains from decomposing and over centuries, these remains become peat. Primarily for these reasons, the whisky that is produced in other parts of the world, for example, in Kentucky, USA, is not the same as the true Scotch whisky because the climate is not the same (not to mention the production process is completely different). Thus, it stands that any displaced Scottish national cannot just go to another part of the world and make the same Scotch whisky that he or she could have produced in Scotland. Peat grows best in blanket bogs in treeless landscapes and these areas happen to be exclusive to regions with cool ocean seaboards. In fact, one-tenth of the world's blanket bogs are found in Britain. Source 5

However, in recent years, some of the peat bogs have had problems with continued growth. For example, the surface vegetation (that which forms from plant remains) has been damaged by drainage, agricultural reclamation, peat extraction (for the industry), forestry, and of course pollution. The problem is that peat is no longer forming at the same rate and with the growth of the Scotch industry and the demand for more peat extraction, the chance for the peat bogs to replenish themselves is not improving. In addition, this could lead to furthered deforestation, in an effort to create more treeless landscapes for peat bogs, and the effects of deforestation on any nation can be profound to say the least. Thus, although the environmental impact of the Scotch industry may be slight as compared to other case studies which involve resource extraction at enormous rates, or species elimination, the effects are nonetheless significant in the end.

b. Indirectly Related to Product:

Yes. The wood used to make the oak maturation casks could likely be a factor in the deforestation process that seems to be occurring throughout the world. However, the depletion rate of Scottish forests is not as significant as the interrupted peat growth at the present moment.

c. Not Related to Product:

No

d. Related to Process:

Intellectual property rights are related to this case study since the product itself is actually named for its origin, it is especially important that only Scotland be allowed to market "Scotch" whisky. If another country produced a malt with different processes and/or different materials and marketed it as Scotch, then essentially that country would be deceiving its would-be consumers, as no other nation has spent centuries mastering Scotch distillation nor has had the same resources available to Scottish distillers.

For purposes of comparing the processes of Scotch whisky production versus whiskey production in other countries, one can look at the production of Jack Daniels Whiskey in the United States. Jack Daniels is one the United States' most famous spirits, which began production in 1866 in Lynchburg, Tennessee, USA. Jack Daniels found "pure spring water" in a cave in Lynchburg and began making his famous whiskey, which today still claims to use the same spring water as its founder. The first step in the process is the mixing of corn, rye, and barley malt with the spring water into mash, then it is cooked and fermented with yeast and placed into 100-foot deep copper stills. The mixture is then filtered drop by drop into huge "mellowing" tanks, which takes approximately 12 days and then roasted with charcoal made from sugarmaple trees burned in the open air. After distillation, the liquid is placed into white oak barrells where it expands/contracts with temperature changes and gains its color. Source 6

The obvious differences in the two processes of Scotch whisky versus American whiskey demonstrates that the Scotch whisky is indeed genuine to Scotland and the different ingredients and distillation measures most definitely affect the taste and quality of Scotch whisky and consequently contribute to Scotch's success in world markets. To be sure, the American whiskey is not trying to steal the name "Scotch" for its product, but it should be carefully noted, perhaps protected in global trade organizations, that Scotch whisky is not "whiskey" and the cultural processes that make Scotch are unique only to Scotland and Scottish people. The nation that invented Scotch deserves the right to own the label "Scotch" and maybe someday "whisky" as well. Nevertheless, the brand protection that would give these special rights to the Scottish people needs to be addressed in organizations like the WTO and the EU.

15. Trade Product Identification:


Food and Drink

16. Economic Data

Scotch Whisky Exports

1998 1997 % Change
Total Exports 254.2 mlpa* 276.6 mlpa -8
Value** 2,030 million 2,394 million -15
EU Exports 114.1 mlpa 110.3 mlpa +3
EU Value** 830 million 803 million +3


*mlpa = Million Litres of Pure Alcohol

**number is million pounds Sterling

Source 1

As this figures suggests, Scotland exported much more Scotch in 1997 than in 1998. However, analysts reoprt that 1997 happened to be an exceptional year for Scotch, after a period of decline for Scotch demand, there was a dramatic increase in 1997. Thus, although the numbers for 1998 show a percentage drop in the number of Scotch exports, overall the Scotch trade is growing, 3% to the EU, for example, earning 830 million pounds sterling in 1998.

In addition, it helps to put the entirity of alcoholic beverage trade into global context. Information from the ITC shows that in 1998, the total global imports of alcoholic beverages was $26,691,288 (US dollars) and the global exports of alcoholic beverages was $26,723,595. The five leading exporters of alcoholic beverages (respectively) were France, United Kingdom, Italy, Spain, and Germany. The five leading importers of alcoholic beverages (respectively) were the United States (including Puerto Rico and the US Virgin Islands), United Kingdom, Germany, Japan, and France Source 7.

From this data it is easy to see that the trade is somewhat lop-sided. It appears that the majority of the entire trade is located in Western Europe, both with exports and imports, with the exception of the United States being the major importer of alcoholic beverages, followed closely by Japan. Hence, most of the alcohol products made in West European countries (including Scotch) pour into the United States, and as a whole, the world consumes almost as much alcohol as it produces.

17. Impact of Trade Restriction:


Scotch whisky has been unfairly taxed in Korea, which affects Scotland's Scotch trade in Asia, one of its biggest marekts globally. As reported by the Scotch Whisky Association, the following are current (as of September 29, 1999) tax rates in Korea for spirits:

Type of Spirit       Present Rate

Soju                                35%

Liquers                          50%

Vodka, Gin & Rum       80%

Scotch Whisky           100%

Source 1

The Director General of the Scotch Whisky Association (SWA) has taken issue with the unfair discrimination by working with other European spirits producers and the United States in a case with the World Trade Organization and the European Commission to urge the Koreans to reform their tax rates. Korea had presented an inital proposal for reform, but the Director of the SWA, Hugh Morrisson, said it did not level enough of the disparity. Recently, the Dispute Settlement Body has ruled that Korea is violating international obligations by discriminating against immported distilled spirits and applying much higher liquor taxes than domestically produced soju. Thus, Korea has been given an ultimatum to reform its tax rates by Janurary 31, 2000, making all liquers taxable at a rate of 80%, including local soju.

18. Industry Sector:


Food and Drink.

19. Exporters and Importers:


United Kingdom and Many.

V. Environment Clusters

20. Environmental Problem Type:


As previously mentioned in category 14 of this case study, the current environmental problem associated with the Scotch industry is the lack of continued peat growth in the bogs in the Scottish Highlands. For reasons like agricultural reclamation, drainage, and pollution, peat growth in the Scottish Highlands is currently not at the same rate as it has been in previous years. Source 5 The problem is not necessarily as pressing as species extinction or enormous resource extraction as can be found in other case studies, but the end result is increased deforestation, and interruption of plant decomposition cycles in these moors.

21. Name, Type, and Diversity of Species

Name:

Type:

Diversity:

22. Resource Impact and Effect:


Natural resources in Scotland are important for the production processes of Scotch whisky. Scottish peat is burned to smoke the malted barley during the process and Scottish oak is used to make the maturation casks. In addition, the Scottish air that seeps through and "flavors" the Scotch is also an environmental contributor to the process and each of these factors is significantly important for the production of the world's most successful spirit.

Any disruption of these natural elements could be potentially dangerous to the Scotch industry. As previously mentioned, Scotch whisky trade and production is a huge industry in Britain and any threat from environmental problems that could interrupt the industry could be devastating for the Scottish economy. At the present moment, the environmental impact is not at crisis stage, that is, the disruption of peat growth due to other environmental factors is not threatening to disrupt the Scotch industry. However, the potential exists for lack of extensive peat growth to be a future problem. Furthermore, air pollution is a factor in many European nations and since part of the Scotch production process involves air seepage, the amount of pollution in that air could be a factor for future consumers, depending on how many potentially harmful agents may possibly make their way into the casks that flavor the whisky.

23. Urgency and Lifetime:


Low and hundreds of years.

24. Substitutes:

Possible substitutes for Scotch drinkers would be to consume other spirits. For example, if the Scotch industry was quickly diminishing the environmental health of the nation.

VI. Other Factors

25. Culture:


Roughly 28 million people of the world's nearly 6 billion are considered Scottish by birth or descent (Bruce 1996:3). Of these 28 million, only about 5 million actually live in the country of Scotland itself. Therefore, because most of the world's Scots actually live outside Scotland's national borders, the implications of Scottish culture in other parts of the world becomes overwhelming. This country has been birth home to several inventions and long-standing cultural traditions. In fact, there have been more major inventions by Scots than by any other nationality (according to population)Source 8. Thus, it is not surprising that the world's largest selling spirit comes from Scotland: Scotch. To understand the traditions and processes that go along with Scotch production and trade leads people to realize how important it becomes for Scotland as a nation to retain sole rights to the drink and most valuable trade commodity.

The fortitude of Scottishness has proven to be continual through the ages. In fact, Caledonia, as Scotland was formerly known, was the only country in Europe in ancient times that the Romans could not defeat Source 8. The philosophical principles of Enlightenment thought upon which modern democracy is based came from Scotsman Adam Smith (Bruce 1996:4-6) and the guillotine was actually used in Scotland 200 years before the French Revolution Source 8. Also, many people associate Scottishness with bagpipes and kilts, but there are actually more bagpipers in America than in Scotland. Source 8

Scotch whisky has been an integral part of Scottish cultural traditions for centuries. Scottish culture is hard to separate from the celebrations and festivals which Scotland enjoys annually and which almost always are accompanied by Scotch. One cultural celebration in particular that involves Scotland's most famous drink is the Scottish New Year Celebration. This New Year celebration, called Hogmanay is world reknown, and as most other national new year celebrations, invovles a significant amount of alcohol. In this particular celebration, boys band themselves together in groups, each with a leader, and all are clad in sheepskin, carrying a sack. These bands of boys go from house to house reciting Gaelic chants and carrying a bottle of Scotch to each house to celebrate. Source 9.

This is only one of many cultural events in Scotland that embrace the unique and special character of Scottishness and its most famous spirit. Scotch whisky is common to many celebrations in Scotland and the pride with which the Scots adore their "aqua vitae" or Water of Life should not be underestimated. Scotland wants to share their unique culture with the world, but as any other, Scotland also wants to remain the sole originator of all that Scotch whisky represents, including the economic success and the cultural uniqueness that goes along with Scotch.

In this period of history, Scotland does have an opportunity to address international bodies that do have the power to create the brand protection and intellectual property rights for Scotch whisky. The WTO in this next round of talks in Seattle can make a broad stand to protect the Scottishness of Scotch. This most unique culture and most lucrative business deserves the same adoration globablly that it wins inside its national borders.

26. Trans-Boundary Issues:


International trade and dissemination of Scottish culture.

27. Rights:


Intellectual Property.

28. Relevant Literature


Bruce, Duncan A. The Mark of the Scots: Their Astonishing Contributions to History, Science, Democracy, Literature, and the Arts. NJ: Carol Publishing Group, 1996.

Financial Times (London Edition). 3 December 1996, page 10.

Mason, John. "Manx Whisky Loses Clear Case of Unclouded Judgement." Financial Times (London Edition). 25 March 1997.

Source 1  [Accessed October 10, 1999].

Source 2  [Accessed October 10, 1999].

Source 3   E-mailed information from Reuters Scotch Whisky Industry Wants WTO Round.[November 23, 1999].

Source 4  [Accessed November 10, 1999].

Source 5  [Accessed November 10, 1999].

Source 6  [Accessed November 16, 1999].

Source 7  [Accessed November 2, 1999].

Source 8  [Accessed October 10, 1999].

Source 9  [Accessed November 10, 1999].