The Scotch whisky industry may face changes in the wake of the UK Brexit vote

The Scotch whisky industry may face changes in the wake of the UK Brexit vote

The Scotch Whisky Association has warned of major uncertainty ahead as Brexit puts the UK's tariff-free access to important global markets including South Korea and South Africa at risk.

The trade body today outlined what's in store for Scotch whisky in the wake of the UK's decision to leave the EU, which has seen both Sterling and consumer confidence fall. While the SWA maintained that some things will not change - including the UK's 0% tariff to the EU, US and Canada - export costs could inflate unless the UK government updates trade agreements.

At risk are Scotch's "significant tariff reductions" in South Korea, South Africa, Colombia and Peru unless authorities agree transitional arrangements, the SWA said. The group said the UK will eventually need to negotiate its own free-trade agreements or rely on World Trade Organisation rules.

However, it warned: "This will take a major upgrade of capacity within the UK government and can't be done quickly."

"Scotch Whisky is one of the UK's most successful exports," SWA head David Frost said. "We are calling on the UK Government to bring clarity to the transition to Brexit as soon as possible, and to negotiate to ensure that the current open trading environment is not affected. Finding practical ways forward on export practicalities and on free trade agreements should be high on the agenda as negotiations begin in the coming months."

Highlighting the continuing uncertainty in UK industry following the Brexit vote, the SWA said that the UK Government has not yet been clear whether it wants the UK to have European Economic Area (EEA) status, like Norway, or "a more distant relationship" based on an FTA with the EU, like Canada or Switzerland. It said an EEA would see the UK retain most EU single market laws at the price of accepting free movement and a budget contribution, whereas as an FTA would require the UK to adopt its own rules.

"The difference is crucial because many laws setting out the rules for Scotch and the food and drink sector generally are made at European level - for example rules on the definition of whisky, food labelling, bottle sizes, and so on," the SWA said. "If these laws are to be rewritten it will make Brexit more complicated and the industry will need to start planning now."

Calling on the UK Government to pursue an "open and free" trading policy, the SWA said the Scotch industry's priorities are:

  • Broad clarity on the nature of the future arrangement that is sought with the EU, so it knows how much new legislation to expect
  • Agreement with the EU on practical arrangements enabling us to export Scotch Whisky to and across Europe as simply as possible. It will also need new UK legislation for customs enforcement and interception of counterfeit goods
  • Existing FTAs' provisions to be subject to transitional arrangements, or to be 'grandfathered' (ie continue application to the UK after Brexit)
  • Over the medium term, UK development of its own network of trade agreements with non-EU countries
  • No further burdens on business at such a sensitive time.

The SWA also said there will be new administrative requirements on rules of origin for exports to the EU and that producers will no longer be subject to EU rules on excise duty or VAT. Meanwhile, tariff-free access to the US, Canada, and Mexico will continue as this is offered to all countries already. "In many other markets that already demand high tariffs, for example India, Brexit will not make the situation any worse," the SWA added.

Last week, Diageo's CEO, Ivan Menezes, foreshadowed today's SWA announcement by maintaining that Brexit will not affect Scotch exports. Speaking after Diageo's full-year results, Menezes said the decision by the UK to leave the European Union "is not a big deal in terms of business performance" because many 0% export tariffs will remain in place.

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