Scotch whisky: US tariffs

Peter Grant Excerpts

Thursday 30th January 2020 Westminster Hall

[David Mundell (Dumfriesshire, Clydesdale and Tweeddale) (Con)]

I beg to move,

That this House has considered the effect of US tariffs on the Scotch whisky industry.

It is a pleasure to serve under your chairmanship, Ms Buck. I am delighted that the Minister, my hon. Friend the Member for Moray (Douglas Ross), is responding to the debate, because he is the Member of Parliament with the most whisky distilleries in his constituency. He has been a powerful advocate for the industry since he was first elected.

For some years, the Scotch whisky industry has enjoyed a renaissance. There is a romance about Scotch, a heritage that is unmatched, and a global reach that is unrivalled. As an economic reality, Scotch whisky provides jobs and investment in rural communities, underpins a supply chain that extends across the UK, and has become central to Scotland’s tourism offer, attracting visitors to our shores from all over the world. As Secretary of State for Scotland, I spoke often of the whisky industry’s stand-out success. By the end of my tenure, I could recite the numbers in my sleep: £4.7 billion in exports to 180 countries globally, 40,000 jobs supported across the UK, 20% of UK food and drink exports, 41 bottles exported every second.

Global Britain, which is being debated in the main Chamber right now, is surely about reinvesting in the UK on the world stage; championing rules-based trade; and demonstrating that the UK is open for business, outward-looking and confident in its trading prospects. The Scotch whisky industry has led the way on that in its 150 years of exporting. Distillers large and small bestride the world and the brands have become some of the most recognised globally, as I saw for myself when promoting the industry in countries as diverse as Argentina, Mozambique and Japan, always with positive support from the Scotch Whisky Association and its members.

This great Scottish and British export has been put under considerable pressure since the imposition by the United States last October of a 25% tariff on the import of all single malt Scotch whisky and Scotch whisky liqueurs. I asked an urgent question in Parliament ahead of the tariff’s imposition and during the debate that followed, along with other Scottish Members, I set out the industry’s concerns about its potential impact. The Prime Minister spoke to President Trump, as I requested in those exchanges, and many MPs lobbied US Ambassador Woody Johnson.

Regrettably, the tariff imposition went ahead. I should be clear, however, that the US is legally entitled to impose the tariff because of the World Trade Organisation’s ruling on the long-running dispute between the EU and the US about aircraft manufacture. To cut a long story short, the WTO found that both Europe and America had given illegal subsidies to Airbus and Boeing. The WTO said that until the subsidies were repaid and their impact eliminated, each side was entitled to impose retaliatory tariffs on the other’s exports to encourage compliance. That may be legal, but it is a bitter blow to the Scotch whisky industry.

The US is Scotch whisky’s most valuable global market; more than £1 billion of Scotch whisky was exported there in 2018. The disconnect between the source of the dispute and the UK products affected by the tariffs is particularly galling. The US chose not to impose tariffs on imports from UK aircraft manufacturers, so Scotch whisky is bearing almost two thirds of the total tariff liabilities imposed on UK exports to the United States.

Our cashmere and shortbread industries are feeling the pain every bit as much. As the Minister and my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk (John Lamont) have highlighted, those industries have also been targeted and their imports to the US subject to a 25% tariff. Given the importance of cashmere to the Borders, my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk raised his concerns directly with the EU Trade Commissioner. Depressingly, they have not even replied, which suggests that the EU does not recognise the economic impact of those taxes on businesses in rural Scotland.

[Peter Grant (Glenrothes) (SNP)]

I commend the right hon. Gentleman for his tenacity in pursuing this matter, which concerns us all. He has highlighted the vastly disproportionate effect that the tariffs will have on the Scotch whisky industry. He has also referred to other important Scottish exports that are affected. Has he seen any analysis of the proportionate effect on Scotland’s economy, compared with the economy of other parts of the UK, of the imposition of those tariffs? If that has not been produced, does he agree that it would be a good idea for the Government to produce it?

[David Mundell]

I thank the hon. Gentleman for his helpful intervention. I will come on to the initial feedback in relation to the impact of the tariffs. If we cannot resolve the issue in the short term, however, his suggestion has much to commend it.

As the hon. Gentleman alluded to, it is the small businesses, the new distilleries, that will be worst-hit as a consequence of a dispute in an industry with which they have no connection. Large spirits companies have portfolios of products that make them less vulnerable to market changes, but as Diageo chief executive Ivan Menezes recognised today, it is “devastating” for the industry as a whole. He said:

“It’s not a big impact on Diageo on the single malts into the US, however for the industry in Scotland, it’s devastating. It impacts small distillers, farmers and employees there. Thousands of jobs. That’s our focus. We hope sense will prevail between the US and the UK and the EU to get these tariffs down.”

It could get worse. Following a WTO ruling last December that the UK, among other European countries, was still in breach of WTO rules in its support for Airbus, the US Government proposed to increase existing tariffs and expand the coverage to include more products. As early as next week, we will know whether the tariffs on Scotch malt whisky or other Scottish products will rise or widen in their scope. Most troublingly, they could include blended Scotch whisky.

Meanwhile, since June 2018, the EU has imposed a 25% tariff on US whiskies in response to US tariffs on steel and aluminium. That is another long-standing dispute and another unrelated sector bearing the painful consequences of Governments’ failure to resolve disputes. It is a far cry from the mid-1990s, when the US and the EU, together with Canada and Japan, agreed to remove all tariffs on imported brown spirits. That unleashed an increase of 270% in total Scotch exports to the US. That is impressive, but it is put in the shade by the 400% increase in US whisky exports to the UK over the same 25-year period. Friendly competition has been good for both industries, for tax revenues and for consumers.

It could not be clearer that the UK Government need to resolve the outstanding issues on UK subsidies to Airbus to ensure that the UK is fully compliant with international law in the WTO’s view. That is evidently key to ensuring the return to tariff-free trade in whisky across the Atlantic.

--- Later in debate ---

[Peter Grant (Glenrothes) (SNP)]

I am very pleased to be speaking a lot sooner than expected, Ms Buck.

[Ms Karen Buck (in the Chair)]

Members have been admirably restrained.

[Peter Grant]

It is the first time that I have seen so many Members fail to reach the indicative time limit. I will try to reciprocate because the Minister will undoubtedly have a lot to say. I commend the right hon. Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) on securing the debate and on the very detailed and thoughtful way in which he set out not only the value of the whisky industry to Scotland, but the very serious harm that the tariffs can and have caused.

Very few of us in the Chamber represent constituencies that would make someone think immediately of whisky, yet everybody who has taken part in the debate—and the Minister perhaps more so—has in their constituencies significant numbers of businesses that rely on the wealth of the Scotch whisky industry. Unfortunately, the debate has clashed with another major parliamentary highlight, the maiden speech of my hon. Friend the Member for Aberdeen South (Stephen Flynn). I have no doubt that, had he not been in the main Chamber, where he is supported by a number of hon. Members, he would have been here to speak.

Very few manufactured products anywhere in the world are as iconic as Scotch whisky—we are one of the few countries in the world to have a diminutive adjective for nationality that people immediately identify with our best-known export. As has been mentioned, the industry is critical to the economies of Scotland and the whole of the UK. It supports around 42,000 jobs and contributes £5.5 billion to the UK economy in gross value added. That is important to an economy the size of the United Kingdom, so how important must it be to one the size of Scotland?

What surprises a lot of people, no matter how often I remind them—I will continue to remind people and am grateful to the hon. Member for North East Fife (Wendy Chamberlain) for doing so, too—is that my constituency in central Fife is one of the cornerstones of that industry and of the wider distilled spirits industry. Diageo’s Cameron Brig distillery in Windygates produces 480 million bottles of spirits annually. The nearby bottling and packaging plant at Banbeath in Leven, which the hon. Member for North East Fife mentioned, packs 39 million cases of spirits every year. At the recently opened Cluny Bond warehouse at Begg, 1.1 million casks of the golden nectar are sleeping as they wait for the angels to come and work their magic. Those facilities represent Diageo’s recent investment of almost half a billion pounds in my constituency, providing jobs for a workforce that fluctuates between 1,000 and 1,500 people.

The statistics published last week in the most recent Scottish index of multiple deprivation confirmed that parts of Levenmouth, and Buckhaven in particular, are among the most deprived areas in Scotland. Cameron Brig is barely a mile from those communities, and the massive vote of confidence and real commitment to corporate responsibility—rather than just words in the annual report—are welcome signs that things may be starting to improve for thousands of my constituents. They see one of the world’s biggest brand names investing in them and their neighbours time and again.

Anything that jeopardises the long-term sustainability of the Scotch whisky industry, or fundamentally undermines the market forecasts on which Diageo have invested heavily in my constituency and others elsewhere in Scotland, is of concern to us all. It concerns me as the SNP Treasury spokesperson but also as a constituency MP that, although Diageo do not yet expect tariffs to cause any problems to the Fife operations, that will change if they are continued or extended to cover blended whiskies and other sprits.

We can already see the impact of the tariffs: during their first full month, there was a 33% fall in malt whisky exports to the USA, as hon. Members have mentioned. If that continues, it will equate to a £100 million drop in annual sales, which could reach £200 million or £300 million if the tariff is also applied to blended whiskies. Although we should not forget the damage that has been done to other exporting businesses, as the right hon. Member for Dumfriesshire, Clydesdale and Tweeddale alluded to, it cannot be right that 62% of the entire UK tariff is hitting one industry that had absolutely nothing whatever to do with the escalating dispute. Will the Minister consider producing an analysis of the proportional impact of the tariffs in the different nations and regions of the United Kingdom? I will bet that it bears no relation whatever to the proportional analysis of the nations and regions that benefit from the Airbus operation.

It remains to be seen how effective the UK Government will be at persuading the American Government to think again, as it is very difficult to persuade an irrational President to do anything rational. The UK Government have the chance to use the Budget to help Scotland’s world-leading drinks industry to get through what is literally an existential threat to many businesses. The Scotch Whisky Association is asking for a 2% cut in spirits duty, and I hope the Government will give that careful consideration, although in reality, such a cut would return only a small proportion of lost sales revenue.

A more fundamental problem is the continued and inequitable way in which different kinds of alcohol are taxed in the UK. It is not fair, rational or defensible for different kinds of alcohol to be taxed according to how they are made rather than by their alcohol content. If someone at the pub buys a glass of whisky and a glass of wine that contain exactly the same amount of alcohol, they pay 16% more duty on the whisky than on the wine. The only justification for that is it has aye been, and that is no justification at all.

If the Prime Minister is to keep his promise to scrap the import duty on American bourbon, he should make it clear that he expects complete reciprocity from the President of the United States and the complete abolition of import tariffs on Scotch whisky. A number of hon. Members present were there earlier in the week when we met not only senior representatives of the Scotch Whisky Association, but the President and CEO of the Distilled Spirits Council of the United States. They are determined to see the import tariffs on Scotch whisky and the export tariffs on their product abolished. They do not want a protectionist Government to protect them artificially; they want to be able to compete on fair terms with top-quality spirits, not only from Scotland, but from elsewhere. That is one of the few cases that I have seen in which an industry that would expect to benefit from the imposition of import tariffs is among the first to shout out that they want them abolished.

This sorry affair is yet another indication, for those prepared to look with open eyes, that Britain’s place on the world stage—it is currently being debated in the main Chamber—is nowhere near as influential as some people like to think, and that getting any kind of rational trade deal from a wholly irrational President will be neither quick nor easy. I hope that this debate and other exchanges will make it clear to the bully boys in No. 10 and the White House that we will not allow either of them to treat the economy of our nation as a pawn to be sacrificed in the way that our fishing industry was sacrificed.