Whisky firms could face huge tariff increases after Brexit
SCOTCH whisky producers have been warned the UK’s decision to leave the European Union will increase trade tariffs by as much as 20 per cent in a number of core markets.
Industry body, The Scotch Whisky Association (SWA) said the “unavoidable fact” that the UK will lose access to the EU free trade agreements (FTAs) is one of the biggest challenges facing the industry.
The SWA cautioned that trade tariffs in South Korea will rise from zero to 20 per cent when the UK exits the EU, unless transitional arrangements are put in place. South Africa, Colombia and Peru will see similar changes.
SWA chief executive David Frost said negotiators were entering “unchartered territory”.
Mr Frost added that it was reassuring to know Scotch will not face a tariff on exports to Europe, while in some global markets existing zero tariffs will continue, including in the US, Canada and Mexico.
With the UK left to negotiate its own FTAs or rely on World Trade Organisation rules, Mr Frost called on the UK government to negotiate grandfather rights on existing FTA provisions or negotiate some other transitional arrangement that would allow the UK to continue to participate within existing frameworks.
Three-way talks will need to take place between the UK, the EU and the countries in question to agree new deals, and while Mr Frost believes deals will be reached, it may not be for some time.
“I’ve never known an FTA being completed in less than three years,” said the former diplomat. “Having said that if we were talking about modifying an existing trade agreement then your starting point wouldn’t be zero, but [even then] it’s certainly years rather than months.”
More than 90 per cent of Scotch whisky is sold outside the UK, making it the country’s biggest net exporter. Of the £3.8 billion of Scotch exports in 2015, £1.2bn was into EU countries.
Looking at countries where the SWA has flagged tariff concerns, South Africa buys £122m of Scotch, South Korea buys £100m, Peru buys £31m and Columbia £23m.
While these are not the biggest markets for Scotch, agreements must be put in place to allow continuity of trade.
Mr Frost added: “I know only too well the mammoth task that now awaits the UK Government in detaching itself from these existing arrangements.”
In addition, if the UK opts to build an FTA with the EU as opposed to adopting European Economic Area (EEA) status, that would also have a major impact on the industry, with food labelling, bottle sizes and even the definition of whisky itself being open to new interpretations of the law.
“If these laws are to be rewritten it will make Brexit more complicated and the industry will need to start planning now,” said Mr Frost.
Mr Frost said that he didn’t believe Brexit would hamper whisky producers – new and established – from entering and growing in new markets.
“That depends on commercial acumen and producers getting out there, and the industry is good at doing that,” he said.
He also called on British embassies to do even more than they already do in pressing the case to knock over barriers that stop fair access for Scotch in many markets.
He said barriers such as the high tariffs imposed by India, or rules and regulations that discriminate against Scotch producers could become more of a threat without the EU’s backing.
“In the past we’d get the European Commission and UK embassies to lobby governments on our behalf. After Brexit we don’t have the Commission so we’re reliant much more on the UK. It will have to step up its game.”
In spite of the challenges the issue will face, Mr Frost said he believed that the Scotch whisky industry will continue to be the international spirit of choice.
“We have been around as an organised industry for two centuries and been through much turbulence in that time. Yet we have continued to grow and to succeed. We will do in the future as well.”