Scotch whisky: US tariffs

Douglas Ross Excerpts

Thursday 30th January 2020 Westminster Hall

[The Parliamentary Under-Secretary of State for Scotland (Douglas Ross)]

It is a pleasure to serve under your chairmanship, Ms Buck.

I congratulate my right hon. Friend the Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) on securing this important debate. I also thank him for his unstinting commitment to the Scotch whisky industry, as a constituency MP and in his roles in the Scotland Office as a Minister and, latterly, Secretary of State for Scotland. This industry, which means so much to everyone who has contributed to the debate, could have had no greater champion in Whitehall and Westminster than my right hon. Friend during his time in office.

I am delighted to respond to the debate on behalf of the Scotland Office. The issue clearly covers several different Departments, such as the Department for Environment, Food and Rural Affairs—with an interest in the GREAT campaign, which I will come on to—and the Department for International Trade. The Minister of State, Department for International Trade, my right hon. Friend the Member for Bournemouth West (Conor Burns), was keen to be present to respond to this debate but had other commitments, given the “Global Britain” debate in the main Chamber. I have spoken a lot with him over the past few weeks, and the Scotch Whisky Association met the Secretary of State for International Trade about this issue earlier in the week.

As well as being the Under-Secretary of State for Scotland, I am the Member of Parliament with more Scotch whisky distilleries in my constituency than anyone else. The great, iconic Moray and Speyside industry benefits the whole of Scotland and the United Kingdom. Unlike my right hon. Friend the Member for Dumfriesshire, Clydesdale and Tweeddale, however, I do not go to sleep memorising figures, but I will reiterate some of his.

Global exports reached £4.7 billion in 2018, so we can all recognise what a successful and important industry Scotch whisky production is for Scotland and the whole of the United Kingdom. Growing markets stretch from South America to the far east, and Scotch whisky is a key British product recognised for its quality. It is a global success story, our biggest export, our most cherished product and our national drink. Whisky is part of what makes Scotland.

For all the continued success, this is a time of considerable anxiety for the industry, as we have heard today and in the months since the tariffs were applied. The US makes up a significant share of the market—more than £1 billion by value in 2018, of which some 33% was single malt Scotch whisky—so it is particularly disappointing that Scotch whisky has been targeted in this dispute, alongside other important sectors. The trade war is over an industry and area unconnected with the other affected sectors. The other affected industries in Scotland include cashmere. My right hon. Friend mentioned the efforts of my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk (John Lamont), who raised this issue at business questions last week and has been doing work in his local community. UK biscuits are also affected by the 25% tariff, a large proportion of which is Scottish shortbread. Moray is home to Walkers Shortbread, as it is to Johnstons cashmere woollen mills.

I have been fully aware of the problems faced not just by the Scottish whisky industry but by many others since the tariffs were applied at the end of last year. I do not underestimate the effects that those tariffs have, and will continue to have, on the industry, particularly, as others have said, on small and medium-sized businesses. Those include some craft distilleries, which have done so well to break into the market in recent years. I am determined not to allow the tariffs to threaten the jobs, communities and businesses across Scotland that rely on the whisky industry. The hon. Member for Paisley and Renfrewshire North (Gavin Newlands) made the point that many of us are fortunate to have distilleries in our constituencies—some more than others—but that the industry affects all our constituencies in Scotland and many more across the whole of the United Kingdom, because of the supply chain.

The UK Government are clear that the tariffs are not in the interests of the UK, the EU or US. We are working hard to support a negotiated settlement. Departments are working together. When the Secretary of State took office, one of his first jobs was to write to the US ambassador on this topic. I will say more about DEFRA and the Department for International Trade a little later. The issue has been raised at the highest level in the UK and the US Administrations. The President and the Prime Minister have discussed the issue on a number of occasions; many hon. Members have reiterated the Prime Minister’s comments about dealing with the tariffs. I want to continue to do everything I can to facilitate a conclusion. I am confident that the strong relationship between the Scotch whisky industry and the United States will continue to prosper, as it has done for many years.

The hon. Member for Glenrothes (Peter Grant) was quite right to mention the work of the Scotch Whisky Association alongside the Distilled Spirits Council of the United States. At the reception I hosted at Dover House on Tuesday, there was a strong message: two industries on each side of the Atlantic are working together with a common aim. They have been to the US, Brussels and London on visits. It was a powerful message to show those two organisations working hand in hand. It was said that a light could not be put between the two of them on this issue, and they make a compelling case.

I want to pick up on a few points made by hon. Members. The hon. Member for East Lothian (Kenny MacAskill) made a strong, passionate speech. I am delighted that visits to Moray are ingrained in his memory; his story of his visit to Grant’s was important to set the historical context of the debate. As well as mentioning the importance of the Scotch whisky industry to the whole of the United Kingdom, the hon. Member for Paisley and Renfrewshire North (Gavin Newlands) came up with a new parliamentary term: his “hon. non-Friends.” I hope we can agree on many things and be friendly in our discussions about this issue.

I commend the hon. Member for North East Fife (Wendy Chamberlain) for her maiden Westminster Hall speech; it was excellent. I like to claim—correctly—that I have the most Scotch whisky distilleries of any constituency in Scotland, with four. She is a long way behind me, but having the spiritual home of Scotch whisky is a claim I am not able to make. She made that point very well. Her work with Diageo before coming to this place is extremely useful to this debate. I am sure she will continue to contribute with that same passion and expertise.

The hon. Member for Glenrothes was right about the industry’s fear that the tariffs could not only increase on single malt Scotch whisky but go on to blended Scotch whisky. We are acutely aware of that and are doing everything possible to ensure that the Scotch Whisky Association’s message on that is heard loud and clear. My hon. Friend the Member for West Aberdeenshire and Kincardine (Andrew Bowie) made a strong pitch for the distilleries in his area, as he always does. He has made commendable efforts—as have others—to promote Scotch whisky since he came to this place in 2017.

As a Government, we are particularly disappointed that the US has chosen to use the WTO compliance panel report released just before Christmas as a basis potentially to increase tariffs. Our view is that the panel has made a number of errors in its assessment of UK and EU compliance, and an appeal has been lodged on that basis. We are clear in all our engagement that tariffs do not benefit any parties, and that the best outcome is through negotiation of specific issues within the Airbus-Boeing dispute. We continue to raise those at the highest levels in the US Administration. It is very helpful that the Scotch Whisky Association is making its case so strongly and is working with industry partners in the US to demonstrate that the tariffs are counterproductive on both sides of the Atlantic.

We recognise the vital generation of jobs that the Scotch whisky industry provides: some 42,000 jobs across both Scotland and the United Kingdom. They are often located in more rural areas of Scotland, enabling those places to thrive through direct employment in distilleries and through ancillary industries such as packaging and haulage, and the wider attraction of tourism right across Scotland. Understandably, tourism has not come up a lot in the debate, but distillery visitor centres have a great impact on local economies. A report last year showed the huge impact that those visitor centres make in communities that host distilleries. That should not be underestimated.

I am aware that Scotch whisky industry representatives have proposed a range of measures to address the potential impact of the tariffs. It is important to note that any such action would have to be within the WTO legal framework. I will continue to work with colleagues across Government to consider all the options.

I see that the hon. Member for North Ayrshire and Arran (Patricia Gibson) is typing away; we are all very busy. She might want to type in the Scottish Conservatives’ and the Conservative manifesto for the recent general election. She asked me if I considered reforming the taxation system for Scotch whisky. Not only have I considered it, but the Prime Minister has considered it and it was in our 2019 general election manifesto. I know that not only because the Prime Minister announced it, but he did so at the Roseisle distillery in Moray on one of the first days of the general election campaign, in early December.

I say nothing about the hon. Lady missing a key point in the Scottish Conservatives’ manifesto—I cannot honestly tell her that I remember every detail of the SNP manifesto—but it was the No. 1 key ask by the Scotch Whisky Association of all political parties. I hope I can reassure her that in November, the Prime Minister came up to Scotland to make that commitment. The Chancellor will work with his Treasury colleagues to ensure that the commitment to review alcohol duty more broadly will be taken forward. There will be further announcements about the review in due course.

As my hon. Friend the Member for West Aberdeenshire and Kincardine rightly mentioned, for the past two years, duty on Scotch whisky has been frozen, largely down to the efforts of Scottish Conservative MPs in dialogue with Treasury colleagues, ensuring that our iconic Scotch whisky industry did not suffer any increase in duty, along with other spirits in the same two Budgets.

The hon. Member for Cambridge (Daniel Zeichner) mentioned geographical indications; because Scotch whisky is a vital sector of the UK economy, we have supported and will continue to support it in a variety of ways—in particular the designation as a geographical indication, which affords protection against fraud and any undermining of its renowned quality standards. As part of the withdrawal agreement, the UK committed to protecting all EU GIs unless and until a subsequent agreement superseding it entered into force. That includes third-country GIs recognised in the EU following direct application to the EU. That will help to ensure a smooth transition to the future relationship with the EU. Existing UK GIs, which include Scotch whisky, will continue to be protected in the EU along with other fine Scottish products, such as Scottish farmed salmon and Scotch beef.

I mentioned that this debate over Scotch whisky includes DEFRA. The Government have played their part in promoting our whisky worldwide. The Food is GREAT campaign led by DEFRA, in partnership with the Department for International Trade and VisitBritain, is part of the UK Government’s GREAT Britain campaign. The Food is GREAT campaign aims to demonstrate the quality, craft, heritage and innovation of key UK food and drink products to consumers, trade and media worldwide, to help build demand for UK food and drink exports. This is Scotland’s No. 1 industry for international exports, so it is vital that the UK Government use their extensive international reach to support the sector’s export growth.

I am delighted to say that demand for Scotch whisky is growing around the world. Between 2017 and 2018, demand increased by 10% in Singapore, by 18.5% in Mexico and by 34% in India. Those are just some of the countries in which we have seen significant increases in recent years, and I am sure we all welcome that. We will work closely with the industry across the UK to refresh the UK food and drink international action plan, looking well into this decade and beyond at opportunities to continue to expand our markets and further increase our export ambitions as we negotiate a series of free trade agreements in the years ahead, as several Members mentioned.

The UK and the US are strong partners and allies, and the US-UK economic relationship is crucial. That is acknowledged by the US Administration. Indeed, we have already ensured trade continuity in the whisky industry by signing the agreement on distilled spirits and spirit drinks with the US. Among other things, that protects Scotch whisky’s status in the United States as only

“products of Scotland, produced in compliance with applicable…laws and regulations”.

Both countries are committed to mutually beneficial economic arrangements that benefit UK consumers and companies. In pursuing a future trade agreement with the US, there is the opportunity to deepen that relationship and set a global benchmark for how two leading, open and mature economies trade with each other.

We shall also, of course, negotiate an ambitious free trade agreement with the EU and work with global partners to transition existing EU FTAs and other sectoral agreements to ensure that the Scotch whisky industry continues to benefit from such arrangements.

It is clear from the debate that there are many great opportunities for growth for the Scotch whisky industry. The message coming through to us is that the spirits sector—as we heard, this is not just about Scotch whisky; gin and other spirits are booming—and the Scotch whisky industry in particular stand ready to take those opportunities. I am very grateful for that, and I have no doubt that the Scotch whisky industry will continue to flourish both at home and across the globe, but we need to do our part as well. There is no doubt that the tariffs that have been applied are already having a severe effect. If they continue, their projected effects are stark; it has been said that they may cost up to £100 million a year.

My right hon. Friend the Member for Dumfriesshire, Clydesdale and Tweeddale did an outstanding job of presenting the case on behalf of the Scotch Whisky Association and the industry. Perhaps the most telling figure he used, notwithstanding that the debate may finish slightly early, was that during a 90-minute debate, 5,400 bottles of Scotch malt whisky will leave the UK to go to the US. Each and every one of them will be subject to a 25% tariff, which the producer has to pay to the US Treasury. That is what happens in just 90 minutes, which shows the cumulative impact that the industry has faced in the 90 days or so that have elapsed since the tariffs were applied.

The Government are determined to do everything we can to support the industry. I believe our efforts have been aided not only by the strong message put forward by my right hon. Friend, but by the generally consensual nature of the contributions by Members of all parties. We must continue to highlight this issue and work on both sides of the Atlantic to remove these tariffs, so that not only Scotch whisky but other products, such as cashmere and shortbread, can continue to be iconic, sector-leading Scottish brands that are sold around the world, rather than being punished for being exported to the United States. We must nurture and continue to work with those markets, which have so many benefits, and I want to see Scottish products continue to lead the way. If we can remove these tariffs, we will be able to do that.

On that note, I thank you, Ms Buck, for your chairmanship of the debate, and I thank my right hon. Friend for securing it.