US suspends tariffs on single malt Scotch whisky

WhiskyImage source, Getty Images

The US has agreed to suspend tariffs on UK goods including single malt whiskies that were imposed in retaliation over subsidies to the aircraft maker Airbus.

Tariffs will also be lifted on UK cheese, cashmere and machinery.

The duties will be suspended for four months while the two sides seek a long-term settlement.

On 1 January, the UK dropped its own tariffs on some US goods, put in place over a related dispute about US subsidies to Boeing.

It is the latest twist in a decades-old trade row that has seen the EU and the US target billions of dollars worth of each other's exports with taxes.

The UK is part of the dispute as a former EU member. Airbus makes wings and other parts in the UK, but assembles its commercial aircraft in the EU.

It has hit Scotch whisky producers particularly hard as the US is a key export market. Distilleries have reported £500m of losses since 2019 due to the tariffs.

Prime Minister Boris Johnson said the trade truce, due to come into force on Monday, would boost British business.

"From Scotch whisky distillers to Stilton-makers, the US decision to suspend tariffs on some UK exports today will benefit businesses right across the UK," he tweeted.

"Fantastic news as we strengthen the UK-US trading relationship and work to build back better from the pandemic."

'Absolutely delighted'

Simon Cotton, boss of Speyside-based textiles firm Johnston's of Elgin, says he's "absolutely delighted" the tariffs have been suspended.

The company, which employs 850 people, has been taking a "25% hit" on every knitwear product it exports to the US - "a significant cost" at a time when Covid and Brexit also pose challenges.

In Speyside many other businesses have felt the impact of the US tariffs, including whisky distilleries and shortbread makers.

"This has been a particularly difficult tax for the businesses here, so it's a huge relief for the region," says Mr Cotton. "We're hoping this paves the way for a permanent removal of these tariffs."

Karen Betts, head of the Scotch Whisky Association, called the suspension "fabulous news".

"The tariff on single malt Scotch whisky exports to the US has been doing real damage to Scotch whisky in the 16 months it has been in place, with exports to the US falling by 35%," she said.

"So today, everyone in our industry - from small companies to large - is breathing a sigh of relief."

For more than a decade, the EU and US accused each other of propping up their home aviation markets with tax breaks, research grants and other aid.

But tensions flared in 2019, when former US president Donald Trump retaliated by putting tariffs on $7.5bn (£5.4bn) of EU goods, including UK products such as whisky.

Image source, Reuters

Last November, the EU hit back by targeting $4bn of American goods with duties as punishment for US subsidies for Boeing.

Since it left the EU, the UK has been lobbying Washington to drop the duties on its goods as it seeks a wide-ranging trade deal with the US. Talks with Washington abruptly broke off in January but resumed after Joe Biden became US president.

Mr Biden's top trade nominee, Katherine Tai, has said she will make it a priority to resolve the row with the EU and Britain - although for now US tariffs continue to apply to EU goods.

In a joint statement on Thursday, the UK and the US said that the suspension would "ease the burden on industry and take a bold, joint step towards resolving the longest-running disputes at the World Trade Organization".

The two countries added that it would also allow time to focus on negotiating "a balanced settlement to the disputes, and begin seriously addressing the challenges posed by new entrants to the civil aviation market from non-market economies, such as China".

Airbus welcomed the removal of "lose-lose tariffs" and urged the UK and US governments to reach a long-term settlement.

More than £500m-worth of whisky sales have been lost since October 2019, when the 25% tariff was introduced on single malt Scotch. Smaller distillers were hit hardest.

The US is the biggest single-nation export market by value. President Trump's US Trade Representative reckoned it was a good source of political leverage in the 17-year trade dispute over aircraft manufacturing.

Scottish cashmere sweaters were also targeted. In the political calculation of trade disputes, the US did not include Irish whiskey or Italian cashmere, giving them the opportunity to exploit the rift and grow market share.

It was not until last autumn that the European Union and the UK won the right, at the World Trade Organisation, to hit back over Boeing subsidies by US governments. That levelled the field on which to negotiate a resolution.

Donald Trump used trade tariffs as a bludgeon intended to protect American jobs, and although Joe Biden is not noted as an enthusiast for globalisation and free trade, this suspension of tariffs signals his administration is in the business of negotiated deals between partners.

It acknowledges the trans-Atlantic partners should perhaps focus more on manufacturing competition from China. But there is work to be done: the EU, UK and US have not only the Boeing/Airbus dispute to resolve, but another one over steel and aluminium, which explains the 25% tariff currently on imported American whiskey.

For Liz Truss and the UK government's attempts to secure post-Brexit trade deals, this is a significant step forward. It seems the Biden administration is not prioritising the European Union ahead of Britain. However, a UK-US free trade deal is a long way from here.