Scotch whisky: US tariffs

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.

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?

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 whiskeys 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 whiskey exports to the UK over the same 25-year period. Friendly competition has been good for both industries, for tax revenues and for consumers.

I commend the right hon. Gentleman for bringing this issue to the Floor of the House. He is making a compelling argument for the virtues of free trade, something that we have not had to do for some decades now, although I fear we may be returning to it again in the future. Does he agree that there is a fundamental disconnect here? If the sector that is in breach of WTO rules is not the one that suffers the penalty, there will never be any incentive for the behaviour to be improved.

The right hon. Gentleman makes an excellent point. His constituency makes two excellent whiskies, Highland Park and Scapa. People involved in the distilleries have nothing to do with the steel and aluminium industry; they have nothing to do with competition in the aircraft industry. It is completely wrong that they should be drawn into what is not their dispute. That is why we must resolve the underlying disputes.

The right hon. Gentleman refers to Highland Park and Scapa, both of which are products that are owned by larger groups, and so will probably be better able to sustain the damage brought by the tariffs. Surely, however, we must view the industry as one unit. The small, start-up distilleries, from Arran back in the 1990s to Kilchoman and Ardnahoe on Islay now, are the businesses that will suffer the most serious impact; they play an important role for the success of the conglomerates.

I absolutely agree. It was very welcoming to hear Ivan Menezes, head of Diageo, one of the most successful spirits companies in the world, focusing on that. He said that although Diageo has a portfolio of spirits and can weather the storms, this is devastating for the industry as a whole; Diageo wants to see a resolution through its own offices and through the Scotch Whisky Association for the whole industry.

Since a tariff was imposed on 18 October, export figures appear to paint a bleak picture, although there may have been some additional exporting ahead of the possible introduction of the tariffs to avoid them. According to the Scotch Whisky Association, single malt Scotch exports to the US in November 2019 fell by 33% by value compared with November 2018, following a fall of 26% in October. Although it is too early to tell the longer-term impact, if such drops in exports are sustained over a year and mirror the fall in US whiskey imports to the EU in the last 18 months, that would mean a loss of around £100 million in exports to the United States, with a corresponding impact on investment, productivity and, eventually, jobs at home.

For medium-sized and smaller distillers, single malt is all they have and the US market is vital. They have invested in single malt because that industry is growing. Over the last decade, global sales of single malt have grown 166%, and growth in the United States has been even higher—up 230% over the past 10 years. These small and medium-sized distillers cannot shift their investment and are being hit particularly hard.

Distillers are waiting now to see what will happen in the next few weeks. They have paused investment, reduced exports and delayed launching new brands. Some have cut jobs in the US and have stopped hiring in Scotland. Over time, as stocks in the US market run down, the impact will be clearer. Some brands will disappear from the US market altogether, as it becomes uneconomic for smaller distillers to export them. Market share and brand recognition built up over many years, once lost, will take a considerable time to rebuild. The longer the tariffs are in place, the more profound the impact will be on the industry and in Scotland.

It might be helpful to Members to know that we will start the winding-up speeches at about 2.40 pm. Given the number of people who want to speak, Members should limit themselves to about five minutes, so that everybody has a chance to be called.

I thank the right hon. Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) for securing the debate, and I am pleased to participate in it. I wish it were not necessary for me to do so, but recent US tariffs are a cause of great concern.

The impact of the 25% tariffs imposed by the US on single malt whiskies on 18 October, despite protestations, has gone unanswered by the UK Government. It is damaging to our distilleries and to Scotland as a whole, given that exports of single malt whisky are worth £1.3 billion. They account for 28% of all Scotch whisky imports, with the US accounting for 25% of all single malt exports last year. The increased price that the tariffs cause can and will cause significant damage to those exports. The Scotch Whisky Association believes that single malt exports to the US will fall by 20% and that vital market share will be lost as a consequence, as the right hon. Gentleman set out.

The finest single malt whisky is distilled on the isle of Arran in my constituency, and the tariffs are a matter of great concern. Ultimately, jobs are threatened, and sustainability of employment is extremely important in island communities such as Arran. Hundreds of Scottish exporters, including our world-renowned Scotch whisky industry, face paying the price of punishing US trade tariffs. The impact of the tariffs is already being felt. In November 2019, the value of single malt Scotch whisky exports to the USA was £25.7 million, compared with £38.6 million in November 2018. That makes a mockery of any pretence of a “global Britain”, and it is important that the matter is sorted out urgently.

The Prime Minister vowed to remove tariffs on US whiskey once the UK leaves the EU. In doing so, he is putting his trust in a President who has consistently used punishing tariffs as his first political lever. Scotch whisky is crucial to Scotland’s thriving food and drink sector, with the EU market in 2018 valued at around £1.4 billion, which is equivalent to about 30% of Scotch exports. The grim reality is that Scotland will face great vulnerability when it loses its collective bargaining strength because it is no longer a member of the EU.

It is a pleasure to see you in the Chair, Ms Buck. I congratulate my right hon. Friend the Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) on securing this important debate. It is timely not only because of the importance of the issue, but because it is Burns season. I am sure that everybody present is doing their part to support Scotland’s biggest export, and that they have been doing so over the past few weeks.

The contribution that the whisky industry makes to Scotland’s economy is huge, and exports are a crucial part. The industry exports the equivalent of 41 bottles of Scotch whisky every second, and it was worth £4.7 billion in 2018 alone. The contribution to our national productivity runs at £210,000 gross value added per employee, and the industry supports more than 42,000 jobs across the UK—these are figures we have already heard. The industry directly employs 10,500 people in Scotland, 7,000 of whom are in rural constituencies such as my own in west Aberdeenshire, where we have the well-known and loved brands Royal Lochnagar and Fettercairn. It is important not to forget that the tariffs also adversely affect small or micro-distilleries, such as Lost Loch or Deeside distillery in West Aberdeenshire and Kincardine.

There is strong support for the whisky industry from every party represented in the Chamber. We all want an end to the unfair tariff regime imposed by the United States. I want the interests of Scotland’s whisky industry to be central to future trade negotiations with the United States, and I have faith that the UK Government will champion the industry in those talks. However, we can unilaterally take immediate action, both domestically and internationally, to help the industry through this difficult time. The response needs to come from both the UK and Scottish Governments, because it is not a party political issue. Targeted funding is needed to help the industry weather the tariffs, perhaps by investing in Scotch whisky tourism. We could do something similar to the Distilled Spirits Council of the United States, which provides the US whiskey industry with funding of over $1 million to promote American whiskeys in Europe; we could respond to that in kind with our own ring-fenced fund, which could be a cross-government initiative. The UK Government in Westminster have a significant role to play, especially with the Budget coming up.

I thank the right hon. Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) for securing the debate. As he well knows, Scotch whisky is synonymous with the Scottish nation and is vital to the UK Treasury, and tariffs do matter. It is not the case that only some distilleries are already feeling the pain, as other Members have mentioned. It is quite clear that it could be a difficult challenge for the entire sector.

I am reminded of going to meet one of the industry’s chief executives—I think she was from Grant’s, in the Minister’s own constituency—many years ago. The tale she told about tariffs is apposite to what we are discussing today. She explained that, historically, Scottish and Irish whisky exports were at par—they were level pegging until world war two. There was a global lack of whisky following world war two, and the Irish Government, under a particular Taoiseach, decided to try to protect the home market in order to curry favour, as there was an impending election. The consequence was that Scotch whisky took off and Irish whiskey slumped. The tariffs that were imposed on Irish whiskey have meant that it has never been able to match Scotch whisky and will never catch up, so the historical record shows that tariffs can be extremely harmful. Given that I heard that from the chief executive of Grant’s, I am sure the Minister will take cognisance of it.

As colleagues including my hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson) said, we face particular risks. Obviously, the backdrop is the dispute between the EU and the USA over Airbus, but Brexit is in danger of hindering, not helping, the position. We will lose the support of the world’s largest trading bloc; in return, we are seeking to curry favour and obtain a special deal and a special relationship with the United States of America, which is imposing tariffs. What reason do we have to believe that we will be treated any better on a trade deal than we are on this issue?

It is a pleasure to serve under your chairmanship, Ms Buck. I congratulate the right hon. Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) on securing the debate. It is good to see him making the most of his release from the clutches of the ministerial machine and giving us an opportunity to debate this vital issue.

UK Governments of both shades have for far too long viewed whisky simply as a cash cow to top up the Exchequer’s coffers. I welcome the fact that the Government have started to listen to the industry in the past couple of years and have delivered a freeze, but more must be done.

There are more direct and indirect whisky industry jobs in my constituency than in any other in Scotland. That assertion has not been challenged in the nearly five years since my election in 2015, and I think I stand on very solid ground in making it. I have Diageo at Shieldhall and Blythswood; Chivas at Paisley for the time being, until it is moved to Kilmalid in the summer; the Glasgow distillery in Hillington, which I share with my hon. Friend the Member for Glasgow South West (Chris Stephens); and logistics jobs at many haulage firms across Renfrewshire. Trump’s tariffs, following a Boeing-Airbus trade dispute that is wholly unrelated to Scotch whisky, are putting the jobs of my constituents and hundreds of others across Scotland at risk.

The Scotch whisky industry is a modern, efficient, high-value industry that marries tradition with modernity in a way that is rare—in many ways unique. It has brought increasing success and economic benefits to Scotland. As has been said, new distilleries are opening and former ones are coming out of mothballs to come on stream and meet the demands of an industry that has been a roaring success over the past years. I am deeply concerned that, with Trump’s re-election campaign looming, those jobs will be collateral damage in the pursuit of electoral college votes, and that further harm will be wreaked not just on the economy as a whole but on local economies such as my constituency and those of many of my hon. Friends, and indeed hon. non-Friends—[Interruption.] “Non-Friends” is better.

It is a pleasure to serve under your chairmanship, Ms Buck, and to make my second speech in a parliamentary debate. I want to illustrate the impact on the US tariffs on whisky in my constituency. North East Fife is not only the home of golf but the spiritual home of whisky. The earliest written reference to Scotch whisky appears in the exchequer roll in 1494, which says that Brother John Cor, a Lindores monk, was commissioned by King James IV to turn eight bolls of malt into aqua vitae. Today, North East Fife is the proud home of four distilleries: Daftmill, Eden Mill, Kingsbarns and the recently revived Lindores.

Lindores is a fantastic example of the variety of positive benefits that the industry can bring. In addition to its distilling—its first single malt is currently in the vaults—it is a hospitality venue, playing host to weddings, other private events and visitor tours. Eden Mill and Kingsbarns have visitor centres, and as I said in my maiden speech, produce gins, further adding to the diversity of drinks production. Daftmill is a small distiller, located on a working farm, where production is dictated by the seasons. Its output may be small, but it is in high demand. The annual Fife whisky festival, centred in Cupar, is now a well-established event, attracting distillers large and small from across Scotland and beyond to North East Fife. This debate is not just about distillers; the supply chain is affected too. Take Crafty Maltsters—farmers based in Auchtermuchty, who have diversified into malting their own barley. Scotch whisky production in North East Fife brings many economic benefits in many ways.

In North East Fife, we feel the impact of larger whisky operations in neighbouring constituencies. I should declare an interest: prior to my election to Parliament, I worked at Diageo for four years. It has a large packaging plant in Leven, in the constituency of the hon. Member for Glenrothes (Peter Grant), and some of my constituents are among its employees. During my time there, I saw how larger businesses in industry can, through corporate social responsibility programmes, deliver real benefits. Diageo’s “Learning for Life” programme supports unemployed people into careers in hospitality through four weeks of training and a work placement with a local employer, with courses running throughout the UK. One of the most satisfying aspects of my time with Diageo was volunteering for that programme and seeing the difference in attendees over the six-week period.