The Scottish island of Islay, where migrant geese wheel above harvested barley fields and sheep graze below the walls of a white-painted distillery, looks an unlikely global trade battleground.
But within the Kilchoman Distillery, founder and managing director Anthony Wills fears 25 per cent tariffs imposed by the US on imports of single malt Scotch could wreck his hopes to grow sales to the vital US market.
The tariffs, which took effect on Friday, stem from complex disputes between the US and EU over state subsidies for aircraft builders and a separate cross-Atlantic argument over steel and aluminium. They are hitting a Scotch whisky sector already worried about the potential impact of Brexit.
Smaller independent whisky producers, like Kilchoman, that have built a foothold in the US single malt market will be hit hardest by the tariffs and face having “their feet taken out from under them”, said Mr Wills in an interview at the distillery he established in 2005.
“If you decide to increase the price by 25 per cent on the shelf, then the sales will just fall off a cliff,” he said.
The US is the biggest export market for Scotch whisky, with sales worth over £1bn in 2018. Of this, £344m were single malts that are now to be subject to the 25 per cent tariff, according to the Scotch Whisky Association, an industry lobby group.
While large international spirits groups such as Diageo and Pernod Ricard will be shielded from some of the impact by their large blended whisky operations, many small distillers are concentrated on the fast-expanding market for single malts.
David Ashton-Hyde, general manager at Annandale Distillery in south-west Scotland, said the tariffs would add to the difficulty of small producers trying to break into major markets.
Annandale had been very hopeful for its prospects in the US single malt market following a tie-up with TV streaming service Netflix and strong online sales of individual bottles.
“It’s a worry,” Mr Ashton-Hyde said. “[The US] is a market we would like to explore, so we are hoping the governments will sort something out.”
Many whisky producers complain that they have nothing to do with the fight over subsidies for aerospace companies that led World Trade Organization arbitrators to this month approve punitive US tariffs on $7.5bn worth of goods from the EU.
The move follows a WTO ruling that the EU had failed to withdraw billions of dollars in illegal subsidies to Airbus for the development and launch of its A380 and A350 airliners.
Mr Wills admits whisky was an obvious target for US action because of its high market profile and because the EU, along with Mexico, in 2018 imposed 25 per cent tariffs on US whiskies including bourbon in retaliation over Donald Trump’s earlier introduction of steel and aluminium tariffs.
The US willingness to hurt the Scotch sector raises big questions about the likely extent of Mr Trump’s indulgence toward the UK on trade after Brexit.
In a telephone conversation with Mr Trump on October 9, Boris Johnson, the prime minister, “underlined his disappointment” at the move and “pressed the president not to impose the tariffs”, a Downing Street spokesperson said.
Colin Clark, the Scotland minister, said on Thursday that the British government would continue to raise the issue with the EU and US “until these tariffs are dropped”.
Conor Burns, UK minister of state for international trade, appeared to suggest that after Brexit London might mollify Washington by offering to scrap the tariffs on bourbon.
“While we remain a member of the European Union, we have to comply with the rules of the European Union . . .[but] when we leave the European Union, nothing is off the table,” Mr Burns told MPs on October 7.
But calls for a rethink or even postponement have fallen on deaf ears in Washington.
Karen Betts, SWA chief executive, said the tariffs were very bad news and were likely to reduce US imports of single malts by around a fifth over the first 12 months — similar to the impact on bourbon imports to the EU.
“Consumer choice will diminish and Scotch whisky companies will start to lose market share,” Ms Betts said. “In Scotland and throughout our UK supply chain, we expect to see a dropping-off in investment and productivity. Ultimately, jobs could be at risk.”
On Islay, Kilchoman’s Mr Wills said he had agreed with his US importer that initially they would jointly absorb the cost of the tariffs, but that he did not know how long that would be sustainable.
The importer also took unusually large shipments ahead of the tariffs coming into effect — and even flew in thousands of bottles to beat the Friday deadline.
These measures should tide Kilchoman over through the crucial pre-Christmas sales period, but they further complicated the distillers’ efforts to limit the potential impact of a possible UK exit from the EU on October 31.
Mr Wills said Brexit and uncertainty about future trade with the EU remained an even bigger headache than the US tariffs.
“We know what is happening with the tariffs . . . We haven’t a clue what we are in for with Brexit,” he said. “Planning for Brexit, Jesus Christ. You can read a bloody book as thick as this wall here and not be any the wiser.”
