With the new administration still unpacking its boxes in the White House, the world is watching for signs of how things might change in Washington. And in southeastern France, the interest runs particularly high.
“The Cognac sector called on French and European authorities to contact the new U.S. administration as soon as possible on this subject,” says Laurine Caute, spokesperson for the Bureau National Interprofessionnel du Cognac (BNIC), a trade organization representing Cognac producers. “Cognac alone generates 60,000 jobs in France. Everyone needs to return to its senses and end the dispute.”
That dispute? Just before New Year’s Eve, on Dec. 30, the outgoing U.S. administration announced that it would impose a new tariff of 25 percent on imports of Cognac, part of an ongoing trade war on alcoholic beverages that has developed over the past three years.
The concerns go far beyond France: Alcohol producers throughout Europe, as well as the U.S., are feeling the pinch. New tariffs on alcoholic beverages have slowed the sales of spirits and wine on both sides of the Atlantic, raising prices and reducing availability for consumers. While President Biden clearly has plenty of work ahead of him due to the ongoing pandemic, the delayed vaccine rollout, and the stagnant U.S. economy, removing these new tariffs on alcoholic beverages is at the top of the wish list for many distilleries, wineries, importers, exporters, restaurateurs, bartenders, and consumers.
The impact has been particularly pronounced for smaller producers, according to Sonat Birnecker Hart, president of Koval, a craft distillery based in Chicago.
“The tariffs hinder growth on both sides of the Atlantic, particularly affecting craft brands like mine that have to eat the costs to remain competitive,” she says. “Koval was seeing real growth in Europe for our whiskeys before the tariffs. We saw a decrease in sales, the loss of some markets that had expressed interest before the tariffs, and the burden of greater costs to export our products and compete.”
Strangely, these retaliatory duties on alcohol started when the U.S. announced new tariffs on European steel and aluminum in 2018. Alcoholic beverages got involved when the E.U. imposed a new 25 percent duty on bourbon in response, perhaps hoping that such a move would get the attention of Kentucky’s Mitch McConnell, the Senate majority leader at the time, since bourbon and other whiskies rank among the top exports from his home state. While that might have put the issue on McConnell’s radar, the situation soon snowballed.
In retaliation, the U.S. added a new 25 percent duty on single-malt Scotch and single-malt whiskey from Northern Ireland — think Bushmills — as well as other European liqueurs and spirits in 2019, linking them to an ongoing World Trade Organization dispute about European subsidies for the airline manufacturer Airbus, which is itself mirrored by similar complaints from Europe about U.S. support for Boeing.
The resulting alcohol trade war has since caused a 39 percent drop in imports of Scotch to the U.S., as well as a plunge of 41 percent in exports of American whiskey to the E.U., its largest export market, according to the Distilled Spirits Council, a trade group in Washington, D.C., known as DISCUS.
Robert Maron, vice president of international trade at DISCUS, says that such tariffs have the unintentional result of friendly fire, accidentally damaging an industry that is already deeply suffering.
“In the case of the spirit sector, the U.S. and the E.U. are very integrated,” Maron says. “Many of the large American whiskey-exporting companies are also large importers of Cognac and Scotch. So when the U.S. and the E.U. are imposing these tariffs, oftentimes they’re hitting their own companies. Imports in the beverage-alcohol space create jobs throughout the U.S. When they’re imposing tariffs on imports from the E.U., they’re also impacting jobs across the hospitality sector in the U.S., which of course is hurting significantly due to the necessary closures of Covid-19.”
Although Scotland and the rest of the U.K. have since left the E.U., the British government has only dropped the E.U.’s new tariffs on U.S. rum, brandy, and vodka, retaining the three-year-old duty on American whiskey, while the U.S. has not dropped any of its tariffs on whiskies from the U.K.
Through a spokesperson, the Scotch Whisky Association (SWA) told VinePair that it feels it’s particularly unfair for distillers to get drawn into a dispute over subsidies for airplane manufacturers.
“There is deep disappointment across the Scotch whisky industry that distillers are still paying the price for an aerospace dispute that has nothing to do with us,” the spokesperson said. “The tariff on single malt Scotch whisky, now in place for 15 months, has caused us to lose over £450 million [$617 million] in exports to the United States, and our losses continue to mount.”
Not only are jobs, orders, and revenue disappearing, consumers on both sides of the Atlantic are facing higher prices and a narrower selection. The situation is bad, Maron says, but things are scheduled to get worse in just a few months.
“Tariffs are taxes that consumers ultimately have to pay,” Maron says. “What’s most troubling with all of this for American whiskey drinkers, and the E.U. in particular, is that the E.U.’s tariff on American whiskey is scheduled to automatically escalate to 50 percent in June of 2021 if the underlying disputes on steel and aluminum aren’t resolved.”
Organizations like DISCUS, the SWA and Spirits Europe are urging leaders in the E.U., the U.K., and the U.S. to de-escalate the alcohol trade war, citing the inauguration of the 46th American president and his administration’s interest in wanting to work more closely with its allies as an opportunity for things to go in a new direction. This week, a total of 72 U.S. and E.U. trade associations, including DISCUS, sent a letter to both President Biden and Ursula von der Leyen, president of the European Commission, asking for the immediate suspension of all reciprocal tariffs unrelated to the steel, aluminum, and aircraft disputes, and highlighting the need to reset and rebuild the trade relationships between the U.S. and the E.U.
In the southeastern French commune of Cognac, Laurine Caute says her organization is supporting the call for a renewed transatlantic relationship, as well as for the suspension of all tariffs during negotiations. The U.S. is Cognac’s largest export market, she says, accounting for 103.5 million bottles in 2020, a 1 percent increase from the year before, despite the pandemic.
“The new U.S. president will be free on a diplomatic level to negotiate, but to negotiate you need both sides,” she says. “Our French government and Europe need to send him the right messages right away to appease tensions and start over. Otherwise, we will all lose, on both sides of the Atlantic.”
Published: January 27, 2021