Spirits, collateral victims of the US-EU trade war
Bourbon from Kentucky, whisky from Scotland and perhaps soon French cognac, find themselves unwillingly caught up in the turmoil of the trade war between Washington and Brussels.
"I would never have imagined that the American whisky industry could be affected by retaliatory measures to taxes on steel and aluminium", laments Amir Peay, owner of the James E. Pepper distillery in Lexington, Kentucky. He was just preparing to expand into Europe, investing in a warehouse, buying a new bottle size, contacting distributors, when, in June 2018, Brussels retaliated to US sanctions by imposing a 25% tax on the import of all American whiskies, including Kentucky bourbon.
The target was not innocent: it was the state of Republican Senate President Mitch McConnell. But the decision caught the players in the industry by surprise. "I found out when a reporter woke me up at six in the morning and asked me what it felt like to be a pawn in the trade war," recalls Eric Gregory, president of the Kentucky Distillery Association. "My first reaction was wow! Bourbon really became famous, then quickly "oh my God, what's going to happen to us," he says.
A TAX THAT IMPACTS EXPORTS
At the latest survey by the American Federation of Spirits (Discuss), the new tax has reduced American whisky exports to the European Union by 28%. Yet everyone has been working hard, meeting with legislators, writing letters to trade officials on both sides of the Atlantic and speaking in the media.
A "W8 Summit", bringing together the eight largest whisky associations in the world, has also been convened in July 2018 in Louisville, Kentucky. This was just as European Commission President Jean-Claude Juncker was visiting Donald Trump in Washington. "They then said that the negotiations were progressing well. A year and a half later, the situation is only getting worse," deplores Mr Gregory. In a story of subsidies involving Airbus and Boeing, the US administration has since October imposed a 25% tax on imports of single malt whisky from Scotland and Ireland and on certain wines and liqueurs.
ALL SPIRITS CONCERNED
According to a proposal submitted for public comment until 13 January, this tax could be raised to 100% and could also apply to cognac, which is particularly prized in the United States, as well as to all European whiskys and wines. "We approached the European Commission at the beginning of 2018" to warn that a tax on American whiskies would expose them to retaliatory measures, recalls Karen Betts, director of the Scotch Whisky Association. But the EU has more to lose in this battle as it exports more spirits to the US than the other way round. As the big companies in the sector are often multinationals selling whisky, tequila and cognac as well, there is no question of protecting one spirit over another. Under the leadership of the organisations representing the sector in Brussels, SpiritsEurope, and in Washington, Discuss, the associations in each country work closely together, Mrs Betts assures. European representatives are due to come to Washington in January, when the comment period on potential new taxes expires, says Chris Swonger, director of Discuss. Together, they want to highlight the implications for the entire chain, from farmers to bartenders.
Everybody loses in a trade war
To remind decision-makers of the economic benefits, they had already organised a big party in September at the EU ambassador's home in Washington celebrating Kentucky bourbon. Washington and Brussels had agreed in 1997 to stop imposing taxes on their trade in spirits.
Trade in spirits has since surged by 450% to $6.7 billion in 2018, Swonger said. With tariffs, distilleries must decide whether to raise prices at the risk of losing customers, lower margins at the risk of losing jobs, or continue production at the risk of a surplus of bottles when the taxes are lifted," Eric Gregory points out. All this while an alcohol like bourbon takes several years to mature. "Everyone is a loser in a trade war," he regrets, "they have to come back to the negotiating table.
Source : larvf.com