US hits Scotch whisky and French wine with 25% tariffs
The tariffs arise after the US won a $7.5bn arbitration award - the largest arbitration award in World Trade Organization (WTO) history - in its dispute over EU subsidies to European aircraft manufacturer Airbus.
The WTO award entitles the US to impose countermeasures on EU goods as of October 18.
European spirits organisations say the tariffs are an unfair blow to the industry, given that it is unrelated to the aviation industry. Scotch whisky producers, for example, say the tariffs will 'undoubtedly damage' the sector.
Spirits organisations are calling on both the EU and US governments to take urgent action to de-escalate the trade dispute.
Spirits suffer from aviation dispute
The US’ initial list of products to be affected by 25% tariffs include French wine, Scotch and Irish Whisky, German roasted coffee, most EU cheese and butter, olive oil, olives, and a number of non-food products.
New aircraft from the EU (over 30,000kg) will be subject to tariffs of 10% - thus applying to Airbus aircraft.
spiritsEurope, the trade organization for EU spirits, is calling on the US and EU to resolve their trade disputes. It says it is unfair for spirits to suffer from a dispute in the civil aviation sector.
Ulrich Adam, Director General of spiritsEUROPE said: “As a totally unrelated sector, it is unacceptable for the spirits producers having to pay the price for a dispute that is essentially about civil aircraft subsidies.
"It is particularly irritating to see that unrelated sectors like ours will be hit by an extra 25% tariffs when the sector at stake will only be imposed a 10% rate!
"Most importantly, for the last 18 months, we have recurrently underlined that imposing tariffs on spirits harms consumers and producers on both sides of the Atlantic alike.
"The success of the spirits sector in the US and in the EU is mutually reinforcing. Indeed, many of our European producers operate distilleries and production sites in the US, while many American producers also own distilleries in Europe.
"We call on the President-elect of the European Commission and the Commissioner designate for Trade to find a negotiated solution with their American counterparts as soon as possible and to de-escalate the current situation.”
spiritsEurope says the spirits sector has already been disproportionately hurt by the ongoing (separate) steel and aluminum dispute between the US and the EU – as a result of which the EU imposed a 25% tariff rate on imports of US whiskey in July 2018.
Why does an aviation dispute affect wine and spirits?
In a dispute that dates back some 15 years, both the EU and US claim each other's plane manufacturer (Airbus in EU and Boeing in the US) are unfairly subsidised.
The WTO has ruled that EU supported Airbus with subsidized loans, while the WTO also handed the EU a victory in its counter case against Boeing.
Both sides are therefore entitled to enforced countermeasures. In this case, the US may impose tariffs of up to $7.5bn on EU goods (down from its request of $11bn) - with wine and spirits on the list.
The EU has threatened to retaliate similarly against US goods (the WTO's ruling on what tariffs it may impose is expected next year).
'The tariff will undoubtedly damage the Scotch Whisky sector'
The value of Scotch Whisky exports to the US reached over £1bn ($1.23bn) last year, and the US market accounts for 10.7% of Scotch Whisky export volumes. In 2018, 137 million bottles of Scotch Whisky were exported to the US - equating to more than 4 bottles per second.
Karen Betts, Chief Executive of the Scotch Whisky Association (SWA) said: “Despite the fact that this dispute is about aircraft subsidies, our sector has been hit hard, with Single Malt Scotch Whisky representing over half of the total value of UK products on the US Government tariff list (amounting to over $460m).
“The tariff will undoubtedly damage the Scotch Whisky sector. The US is our largest and most valuable single market. The tariff will put our competitiveness and Scotch Whisky’s market share at risk.
“We are also concerned that it will disproportionately impact smaller producers. We expect to see a negative impact on investment and job creation in Scotland, and longer term impacts on productivity and growth across the industry and our supply chain. The tariff will also have a cumulative impact on consumer choice.”
Like spiritsEurope, the SWA is urging the EU and US not to draw spirits into aircraft trade disputes.
"We believe it is imperative that the EU and US now take urgent action to de-escalate the trade disputes that have given rise to these tariffs, to ensure that these latest tariffs are not implemented on 18 October, and to ensure that other tariffs – including on the export of American Whiskey to the EU – are removed quickly."
WTO approval automatic
The US has requested a meeting with the WTO on October 14 to approve the countermeasures against the EU. “Pursuant to WTO rules, the WTO will provide this authorization automatically at that meeting,” says a statement from the US’ Office of the United States Trade Representative. “The EU is not allowed to retaliate against WTO-authorized countermeasures.”
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