Proposals to set minimum tax rates on beer and spirit drinks across the EU were hanging by a thread Wednesday, after opposition from the Czech Republic killed off hopes of agreement.
Czech delegates turned down a deal in the European Council of Ministers on Tuesday, fearing political repercussions at home from potential price rises on beer.
The move prompted an air of pessimism. "It doesn't look good. I wouldn't say the discussions are dead, but they're not far from it," an observer close to negotiations told BeverageDaily.com.
Any EU deal on taxation must have the support of all member states, a clause that has repeatedly slowed up plans to introduce a minimum duty rate on alcohol across the bloc.
The hold-up will provoke anger from drinks industries based in countries with higher duty rates, like the UK, which claim the EU needs a level playing field.
Member state finance ministers asked the European Commission Tuesday to carry out a "comprehensive study of the taxation of alcohol and alcoholic beverages". Results are to be published in the first half of 2007.
"It makes it look like discussions have only just started. It doesn't bode well for what might happen next year," one observer said.
"Bearing in mind what has happened previously, we could once again be in a situation where one member state out of 27 might have a significant problem that can't be solved."
Commission officials have been pushing for a new minimum duty rate on alcoholic drinks for more than a year. The current rate is more than 13 years old.
Wine was excluded from discussions last year due to opposition from 12 member states, predominantly led by France.
Officials pressed ahead without wine, and recent weeks yielded a glimpse of optimism as Germany, which had previously opposed increasing duty rates on beer, jumped on board. Czech opposition meant hopes of a deal were short-lived, however.
Some have suggested the minimum duty rate should be adjusted semi-automatically to suit the market, thus avoiding lengthy arguments in the Council.
The constant wrangling has dismayed the Wine and Spirit Trade Association (WSTA) in the UK. "We are all in favour of a free market economy but it has to be on the basis of a level playing field," said Jeremy Beadles, WSTA chief executive, last week.
Concerns have grown in countries with higher duty rates that a lack of harmony across the EU has helped to foster fraud.
UK import taxes for alcoholic drinks were nearly double those of France, meaning "it is in the fraudster's interest to attack high duty rates in the UK", Edwin Atkinson, director general of the UK Gin and Vodka Association, told this publication last year.
"It is clear to all that the widely divergent levels of alcohol taxation in member states distort the market and facilitate fraud and smuggling, but without the agreement of all member states nothing can change," said former taxation commissioner Frits Bolkestein, after the Commission had released its proposals for a new minimum rate.