Whisky redemption: Biden administration lifts hated tariffs on Scotland’s most famous export

March 4, 2021, 5:16 PM UTC

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Raise a toast!

Scottish whisky makers on Thursday hailed it as “fabulous news” after the United States suspended punitive duties on single malt whisky imports as part of a truce with Britain in a 17-year-old trade dispute over illegal subsidies for plane makers Boeing and Airbus.

The United States and the 27-nation European Union hit each other’s exports with billions of dollars of tariffs over the years in parallel disputes in which each accused the other of giving unfair help to Boeing and Airbus respectively.

In one of the ugliest examples of tit-for-tat trade wars that quickly spiral out of control, both sides drew up long lists of goods to target that had nothing to do with aerospace sector. The collateral damage has hit the wallets of aficionados of French wine, Irish and Scottish whisky and Italian hard cheeses. (In Scotland and Canada, the drink is spelled “whisky”—without the e.)

While Brussels and Washington remain at loggerheads over the issue, Britain has tried to defuse the issue since definitively leaving the EU at the end of last year. 

The British government said in December it was suspending retaliatory tariffs on U.S. goods in the Boeing case to try to reach a negotiated settlement to the long-running dispute over commercial aircraft subsidies.

Four-month suspension

The Biden administration responded with a conciliatory gesture of its own on Thursday. “The United Kingdom and the United States are undertaking a four-month tariff suspension to ease the burden on industry and take a bold, joint step towards resolving the longest running disputes at the World Trade Organization,” the two governments said in a joint statement.

The four-month truce would “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,” the statement said.

However, any global agreement on aircraft subsidies would need the participation of the EU. Germany, France, Spain and Britain form the consortium that makes Airbus planes, which together with Boeing, dominate the global market for airliners.

Scotch whisky makers, whose single malt whiskies had been hit with U.S. tariffs of 25 percent, were jubilant at the announcement, which should make imported Scottish single malts cheaper for U.S. drinkers. 

This is fabulous news, and our industry is delighted. The tariff on single malt scotch whisky exports to the U.S. has been doing real damage to Scotch whisky in the 16 months it has been in place, with exports to the U.S. falling by 35%, costing companies over half a billion pounds ($700 million),” Karen Betts, chief executive of the Scotch Whisky Association, said.

The United States is Scotch whisky’s most valuable market, valued at over one billion pounds ($1.4 billion) in 2019 when it accounted for a fifth of global exports. 

“From Scotch Whisky distillers to Stilton (cheese) makers, businesses across the U.K. will benefit from the U.S. decision today to suspend tariffs in this dispute,” British Prime Minister Boris Johnson said in a statement. “It shows what the U.K. can do as an independent trading nation, striking deals that back our businesses and support free and fair trade.”

Scottish cashmere knitwear makers and Yorkshire pig farmers should also benefit.

The British government is keen to reach a free trade agreement with the United States after ending its close relationship with its largest trading partners in Europe.

The suspension of U.S. tariffs will be a welcome boost for the U.K. economy as it recovers from the Covid pandemic which has cost more than 120,000 lives and shrunk the economy by 10 per cent. Politically, the fillip to the Scotch whisky industry could also help Johnson at a time when a number of polls suggest there is majority support in Scotland for independence from Britain.

The twin disputes over subsidies to Airbus and Boeing date back to 2004, but took years to wind their way through the World Trade Organization’s dispute system.

After winning authorization from the WTO, the Trump administration imposed $7.5 billion of extra import duties on European products in 2019 over illegal government subsidies for Airbus, hitting products ranging from aircraft to clothes, wine, Scotch whisky, olives and cheese. The sanctions drew howls of pain from the targeted farmers and manufacturers across Europe and raised the threat of a transatlantic trade war.

In November last year, the EU slapped $4 billion of import duties on U.S. products ranging from aircraft to ketchup, nuts and frozen orange juice after winning WTO authorization to do so in the parallel dispute over subsidies to Boeing.

The sanctions remained in place even though both sides said they had ended the subsidies or tax breaks that were at the heart of the cases.

The EU has said repeatedly that it is committed to a negotiated settlement of the dispute, and that it is in the mutual interest of both sides to end the damaging tariffs.

A European Commission spokesperson for trade told Fortune the EU is still engaged in talks with the Biden administration.

“Our aim is to find solutions to our ongoing trade disputes, including on Airbus/Boeing,” the spokesperson said. “Removing these tariffs is a win-win for both sides, especially with the pandemic wreaking havoc on our economies. We have proposed that both sides agree to suspend tariffs for six months. This will help restore confidence and trust, and thus give us the space to come to a comprehensive and durable negotiated solution.”

Update, March 4, 2021: This post has been updated to include a statement from the European Commission.

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