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For thousands of distillers across the country, a celebration is in order. After four long years, they will finally be able to sell their whiskeys in the UK and EU without the burden of heavy tariffs. The Biden administration successfully negotiated the 25% tariff suspension over US whiskeys imposed by the UK and EU following Trump-era trade disputes over steel and aluminium. The UK tariff suspension comes into effect on June 1.
Craft distillers, who have struggled for years under the double burden of high tariffs and pandemic disruption, have good reason to celebrate, but they remain acutely aware that the suspension is only temporary. EU tariffs on US whiskeys in the steel and aluminum dispute are set to resume in two years if there is no deal.
It takes time to increase export capacity and distillers need certainty to plan ahead. Take the example of the Koval distillery based in Chicago. Its founder, Dr Sonat Birnecker Hart, is eager to regain access to European shelves, but she knows it takes time and money. It took years of “whisky diplomacy” at international trade shows and phone calls with overseas distributors to gain a highly competitive overseas sales space. Tariffs have erased much of this progress. His company’s exports to the EU and Britain had increased by 25% every year until the tariffs hit. Then they dropped 60%.
Now distillers like Dr. Hart are faced with a choice: Am I going to “go all out” in a campaign to regain market share, only to potentially have it ripped from under my feet in two years? Or am I playing it safe and potentially ceding valuable territory to competitors?
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Many of America’s more than 2,000 craft distillers face that choice, and supply chain issues make it even harder. To complicate matters further, even though it is a two-year suspension of customs duties, it is really only a year and a half at best, because it takes six months to bring products to a ship and for the ship to cross the Atlantic Ocean.
Certainly, suspensions are a welcome and exciting development for an industry that for years could hardly catch a break. The pandemic has forced distillers to close their tasting rooms and cut restaurant sales – two major revenue streams. Just when the pandemic seemed to be waning, inflation drove up the price of corn, barley, glass bottles and other inputs.
In addition to seeking a permanent return to duty-free trade with the EU and UK, the Biden administration can maintain momentum by negotiating new market-opening deals to lower import duties on American spirits to other countries. The new Indo-Pacific economic framework would be a great starting point, but tariff reductions are not on the table. India, the world’s largest whiskey market and one of 12 negotiating countries, has imposed a 150% tariff on imported spirits for decades, preventing American spirits from entering a market potentially important. The industry is urging the administration to build on its significant wins with the UK and EU and expand export opportunities for American spirits to potential consumers in other markets. The best way to do this is to enter into agreements with trading partners that reduce or eliminate customs duties on our exports.
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The data is clear: 86% of spirits exports go to countries that don’t have tariffs in place, and exports to these countries are growing much faster than to countries that haven’t eliminated tariffs, according to the database. ‘USITC. When American spirits are sold abroad, they do more than just spread good cheer and enhance cultural exchange. They also create jobs up and down the supply chain, from local family farmers to bottling and shipping facilities.
If America’s vibrant craft distillers cannot sell their products to the 95% of the world’s population who live outside of our country, their prospects for growth will be limited. With the temporary tariff suspension, American distilleries have had great success. Now we hope for a more permanent solution.
In the meantime, we’ll toast to this exciting show of progress – and an even brighter future for American whiskey.