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Major spirits brands dodge the US tariff bullet... for now - Analysis

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Last week, the US Government announced a list of imported European goods that from 18 October will be subject to extra tariffs. The list, which includes a range of spirits and liqueurs, was expected after the World Trade Organisation sided with the US in a long-running battle with the EU over aeroplane subsidies. But, despite grumblings from spirits trade groups over the unfairness of being penalised for a dispute in an unrelated sector, the main takeaway for alcohol was that things could have been a whole lot worse.

Remy Cointreaus Cognac brand, Remy Martin, will avoid the new US tariffs

Remy Cointreau's Cognac brand, Remy Martin, will avoid the new US tariffs

From the off, it was clear that the worst-case scenario had been avoided when the tariffs were revealed to be 25%, and not 100%, said Jefferies analyst Ed Mundy in the wake of last week's announcement. Most importantly, some of European spirits' biggest and most exported brands cheerfully side-stepped the Trump administration's measures.

Pernod Ricard's Cork-made Jameson is unaffected as the tariffs will only hit Irish whiskies from Northern Ireland and not the Republic of Ireland. Campari's Grand Marnier also escapes unscathed as French liqueurs were left off the list despite liqueurs from other countries such as Spain, Italy and Germany being included. Diageo's category-leading Scotch whisky Johnnie Walker misses out by virtue of being a blend, but luckiest of all is Remy Cointreau's work horse brand, Remy Martin, which benefits from the omission of Cognac. If the brand had been included, Bernstein estimates Remy Cointreau would have taken a 12% hit to its global EBIT, such is the importance of the Cognac brand's US sales.

Indeed, spirits such as Johnnie Walker and Remy Martin avoided the tariffs with such lithesomeness that Bernstein analyst Trevor Stirling likened them to Keanu Reave's lead character in The Matrix movie, when he bends space and time to dodge a hail of bullets. But, Stirling is quick to point out that, although companies have been relatively lucky, trouble may still lie ahead. (Also, spare a thought for European liqueur specialists such as Zamora Co and Mast-Jagermeister, which have already attacked the tariffs and the effect they will have on brands such as Licor 43 and Jagermeister.)

In a note today, Stirling says the tariffs may yet be avoided if an agreement is reached before 18 October. But, if not, the EU might respond with retaliatory tariffs next year, raising the prospect of a trade war similar to the one the US is already waging with China and which has also affected alcohol. Also, don't forget, the EU already has levies on US whiskey that have shaken Jack Daniel's owner Brown-Forman.

Furthermore, according to Stirling, the US "has claimed the right to change the tariff rates or products affected at any time". The country may implement "rolling tariffs", Stirling says, meaning the roster of products could change every quarter.

To quote another Keanu Reaves character, this time from Bill and Ted's Excellent Adventure, that outcome would be totally bogus.

Could 'delocalisation' signal the death of provenance in spirits? - Editor's Viewpoint


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