American whiskey producers have had a particularly difficult year, with the pandemic exacerbating punitive EU tariffs in retaliation for those imposed by the United States. But recent rulings ending other levies may provide relief, writes Nicola Carruthers.
* This feature was originally published in the June 2021 issue of Spirits trade. Since the magazine went to press, the US has entered into five-year tariff truces with the EU and the UK. Neither agreement covers American whiskey
After a tumultuous year which saw distiller revenues plummet during the Covid-19 pandemic, the US whiskey industry took a hiatus when the European Union (EU) and the United States reached an agreement on the tariff incoming 50%.
On May 17, just weeks before a tariff hike went into effect, representatives of the two blocs said they had started talks to settle trade disputes over the global steel and steel industry. ‘aluminum.
As part of these discussions, they agreed to suspend the 50% tariff on American whiskey that would have come into effect on June 1, 2021. This decision would have doubled the current rate on American whiskey.
In 2018, former US President Donald Trump imposed a 25% tariff on steel and aluminum from the EU. The EU has put in place a 25% tariff on US whiskey and other products in retaliation.
The EU and the US have pledged to resolve their trade concerns “before the end of the year,” a joint statement from the two countries said.
Chris Swonger, chairman and CEO of the Distilled Spirits Council of the US (Discus), said the 50% tariff “would have forced many artisanal distillers out of the EU market.”
He continued, âWe recognize that there is still work to be done to bring EU and US spirits down to zero-for-zero tariffs. We greatly appreciate the continued efforts of the Biden administration to resolve these long-standing trade disputes and reduce the economic pain felt by these industries unfairly caught in the middle. “
Jack Daniel’s owner Brown-Forman has said he hopes negotiations will result in the total removal of tariffs on US whiskeys.
Eric Gregory, president of the Kentucky Distillers’ Association, also applauded the decision. âThis is good news, as distillers in Kentucky and across America were dangerously close to a crippling blow to European exports,â he said. “This gives both sides some breathing space to return to free and fair trade, and once again level the playing field for the Kentucky signing spirit.”
Gregory added that the dispute had “reduced exports and jeopardized the certainty of our largest overseas markets.”
Since the tariff came into effect in June 2018, US whiskey makers have lost millions of dollars in export sales. Export data shows that US whiskey exports to the 27 EU member countries fell 37% between 2018 and 2020, with exports to the UK falling by 53% during this period.
Tariffs slashed bourbon exports by 35% in 2020, as shipments to the EU nearly halved. Sales in the UK, formerly Kentucky’s largest European market, fell 50%.
Over the past year, distillers have seen sales plummet as tasting rooms have been forced to close due to the pandemic. A study by Discus and the American Distilling Institute in June 2020 found that artisanal distillers are expected to lose more than $ 700 million in sales in 2021.
Margie Lehrman, CEO of the American Craft Spirits Association, said: âMany American craft spirits producers have relied on overseas markets to grow their businesses and have faced drastically reduced revenue streams when tariffs have been implemented. “
She added: âWe recognize that this is only a first step in a more complicated process of eliminating these headwinds.
Greg Mefford, director of international sales at U.S.-based Luxco, which owns the Kentucky Lux Row Distillers and Limestone Branch Distillery sites, also said the price increase came at a difficult time for the industry.
Mefford said: âDoubling the tariff would not have been helpful for any business or consumer at a time when economies around the world and sectors, including foreign trade, are working hard to bounce back from the impacts of the past 12 years. . month.
âFinding a pricing solution isn’t just about boosting sales of American whiskeys in the EU – it’s about encouraging a trade that delivers good value to the consumer and generates income throughout supply chains in the EU. ‘EU and abroad. “
Ulrich Adam, managing director of the Spirits Europe trade body, called for “clarification that this suspension will continue until the end of the year or until the problem is resolved and the tariffs are completely removed” .
He added: âThe 25% tariff rate which has been in place for almost three years now has had, and continues to have, a significant negative impact on US whiskey exports to Europe, which have declined significantly in the past. result.
âA total elimination of these tariffs is necessary to reverse this trend and revive employment and growth on both sides of the Atlantic, in a very difficult market context marked by the Covid crisis. “
One company that has felt the brunt of tariffs is American single malt brand Westward Whiskey, which has been forced to absorb the cost of the tax.
Thomas Mooney, co-founder and CEO of Westward Whiskey, said: âHistorically, Europe has contributed over 20% of our sales, and the UK has led the way. It takes years and considerable investment to transform an export market into a meaningful part of our business. We have been investing time and money in the UK for 15 years.
“For some time, we have absorbed the cost of the 25% retaliatory tariff in order to compete, in addition to the already higher costs that US exporters face (for example, the need for a 700ml bottle that we let’s buy at a higher price.) If that tariff had increased to 50% on June 1, we would no longer have had the opportunity to remain competitive, and significant damage would have been caused on both sides of the Atlantic.
Jared Himstedt, Chief Distiller of Texas Whiskey Balcones, added: âThis decision helps to make our whiskey more readily available and accessible to new consumers in Europe.
WORK TO DO
Katharine Jenkins, senior vice president of global sales and marketing for Tennessee whiskey brand Uncle Nearest, said there was “a lot of work to be done as the original tariffs remain in place, despite being phased out for most other spirits “.
Now, attention will turn to the long-standing feud between aircraft makers Airbus and Boeing, which has hit a number of categories of spirits with tariffs. US tariffs imposed on Scotch single malt in October 2019 have now cost the industry more than Â£ 500million (US $ 682million) in exports.
The EU’s decision to freeze the 50% increase follows the US and EU agreement in March on a four-month suspension of tariffs on the two countries’ products, including rum, vodka and cognac. The United States has agreed to temporarily remove tariffs on British products, including single malt Scotch whiskey, for the same period. Adam of Spirits Europe hopes the two sides âwill find common ground to resolve the Airbus-Boeing disputeâ before the four-month suspension period ends in July.