Scotch whisky feels Brexit pinch

It’s a wee bit tense for Scotland’s whisky producers at present.

They were caught up in a tariff war last year when the United States slapped a 25 per cent tariff on single malt Scotch whisky exports last year, in response to the EU’s tariff on bourbon whiskey. It was the latest move in a tit-for-tat battle between the EU and the US that stretches back more than 15 years.

Now with the Brexit no-deal clock ticking down, the industry that employs 11,000 people in Scotland and supports about 40,000 jobs in the UK, now faces more uncertainty.

Single malt makes up about 33 per cent of all Scotch exports to the US and according to the Scotch Whisky Association, the US actions drove down Scotch whisky exports by 30 per cent. The tariff pain was compounded when bars and restaurant were closed during lockdowns brought on by COVID-19.

The US is by far the biggest market for Scotch, accounting for £1 billion annually, but producers have had to rethink their export plans.

Alan Davis, Head of Tax at MHA Henderson Loggie in Scotland, says declining whisky exports are leaving holes in the Scottish economy.

“The Scottish parliament are keen supporters of the Scotch whisky market, given its vital importance to its economy, representing almost £4 billion gross value added,” he says.

“Scotland hosts 128 malt and grain distilleries, the most concentrated producing area in the world. 

“They recognise that the reduction in demand may be damaging in both the short and long term and have sought additional financial levers, including additional borrowing powers, from the UK Government to support Scottish business generally, beyond the £6.5 billion of additional support to help during the COVID-19 crisis.”

While World Trade Organization rules mandate zero tariffs on Scotch whisky exports into markets including the EU, the US and Canada, a no-deal Brexit scenario may mean Scotch whisky is hit with other imposts from EU-sourced items such as corks and glass bottles.

A separate UK trade deal with the US is the best opportunity for Scotch whisky to have the damaging tariffs lifted.

The Scotch Whisky Association has called on the UK Government to ‘redouble its efforts’ in removing tariffs as soon as possible to reduce pressure on the industry.

However, Mr Davis noted the US is playing hardball and a quick deal with the US before the presidential election now seems unlikely.

Complicating the relationship further are the issues around the Irish border and friction between the UK and Scottish parliaments.

As part of the EU Withdrawal Agreement, companies moving goods from Great Britain to Northern Ireland must fill out export declaration forms.

But the UK’s recently introduced legislation, the Internal Market Bill, would give ministers the right to overrule or ignore this part of the EU customs law.

The European Union has launched a legal challenge against the Bill. The Scottish Government has recommended the Scottish Parliament rejects the legislative consent motion, effectively signalling its disapproval of the Bill.

The US has warned that any attempt by the UK government to backtrack on the Brexit agreement on Northern Ireland would jeopardize a future US-UK free trade deal.