Scotch whisky accounts for $516.5m of total of $835m of UK products on US tariff list, writes Ian McKendrick.
Today will see the imposition of a trade barrier that the Scotch Whisky industry has not had to contend with for a quarter of a century. A 25 per cent tariff has now been imposed on US imports of single-malt Scotch whisky, following the World Trade Organization (WTO) ruling on Airbus subsidies earlier this month. Whilst the SWA and our member companies fully understand the complexity of the situation, we nonetheless find it deeply disappointing that Scotch has found itself caught up in a dispute that has had nothing to do with us.
We have argued for many months that this is very bad news for our industry. In terms of import value, UK products on the tariff list total around $835 million, with over $516.5 million of that being shouldered by Scotch Whisky.
Put simply, this means that Scotch whisky is now paying for over 60 per cent of the UK’s tariff bill, eight times more than the next most valuable UK product on the tariff list. The fact that single malts are being targeted is particularly damaging for smaller producers, who stand to be the hardest hit.
Many small Scotch whisky companies only produce single malts, and the US market has for many years been an export goal to aspire to. American consumers are big fans, and in recent years the growth and availability of single-malt brands in the US has given them more choice than ever before.
Scotch Whisky has been imported tariff-free to the United States for the last 25 years. This move undermines decades of hard work and investment which has seen sales boom in the US.
The SWA has made significant investment – over £500 million in the past five years – into production and tourism sites across Scotland. This investment, which has arisen as a result of the rising success of Scotch whisky on the global stage, has provided employment, infrastructure and tourism footfall in communities across the country, many of them rural.
The US whiskey and Scotch whisky industries are closely integrated and we trade in skills, knowledge and resources across the supply chain to craft the world’s best whiskies. As a perfect example, the UK currently spends around £70 million each year on oak ex-bourbon barrels from the US, and bourbon casks account for around 60 per cent of all the casks used for maturation in Scotland. These carefully forged and complex trading relationships all stand to be threatened by the imposition of tariffs on single malts.
EU tariff on US whiskey
Our industry is a strong supporter of free trade and open markets, which has seen the spirits industries on both sides of the Atlantic grow and prosper. We estimate that 25 per cent tariff on single malt Scotch whisky will see exports to the US drop by as much as 20 per cent in the next 12 months as the drink will become less competitive in the US market.
In time, consumer choice will diminish and Scotch whisky companies will start to lose market share that has been hard-won over many decades. In Scotland and throughout our UK supply chain, we expect to see a dropping-off in investment and productivity. Ultimately, jobs could be at risk.
We expect the damage to our industry to mirror the damage caused to exports of Bourbon and American whiskies to Europe since the EU imposed a 25 per cent tariff in July 2018. That tariff has done nothing other than damage an industry very similar to, and closely linked with, our own.
Our fellow trade association counterparts in the US and the EU have pushed to illustrate why the potential imposition of tariffs on EU spirits, including Scotch whisky, would be counter-productive to industries on both sides of the Atlantic.
We stand united with US distillers and other European spirits producers and we have called on the UK, US and EU governments for many months now to find a negotiated solution to the trade disputes that have given rise to these tit-for-tat tariffs.
As collateral in an unrelated dispute, any solution must ensure that duty-free trade can resume between the UK and the US to the benefit of whisky producers, their employees, the communities we work in, and consumers everywhere.
So what needs to happen now? We now need the UK and Scottish governments to work together to ensure spirits producers can weather the storm. We want them to consider a range of support to the industry, including reducing the UK tax burden on Scotch whisky in the autumn budget. This measure will provide an important lifeline while efforts continue to remove the tariffs, demonstrating the government’s clear support of our sector.
Despite multiple pressures on the UK Government, including Brexit, this issue must not fade from the minds of ministers. Scotch whisky is the UK’s most important food and drink export.
It has long been a standout example of global export success, and the US remains our most valuable market. The progress that we – and our hardworking member companies – have made, is now at risk if government strategy does not urgently use all the powers at its disposal to remove these damaging tariffs.
Ian McKendrick is international director at the Scotch Whisky Association