Could further drinks tariffs be on the horizon?

As the slow Covid-19 recovery begins, the EU has warned of potential retaliatory tariffs against the US, while President Trump has vowed to investigate countries implementing a digital services tax.

As businesses begin re-opening as Covid-19 restrictions ease, could the drinks industry be dealt a further blow in the form of further trade tariffs?

European Union Trade Commissioner Phil Hogan intimated that this could be a possibility last week, revealing that the EU may be forced to impose its own sanctions on US goods as a result of the long-running dispute over subsidies given to aviation company Airbus over rival Boeing.

The US has already imposed tariffs on $7.5 billion worth of EU goods – including wine, spirits and liqueurs – as result of this dispute. Currently, still wine (not over 14% ABV) made in France, Germany, Spain and the UK transported in containers of 2 litres or less; Scotch whisky; single malt whiskey from Northern Ireland; and liqueurs made in Germany, Ireland, Italy, Spain and the UK that are exported to the US are subject to 25% import tariffs. 

There was a possibility that these tariffs could be raised to 100%, but, after reviewing the case in February this year, the US government decided to raise tariffs on aircraft imported from the EU to 15%, up from 10%, but keep wine and spirit tariffs the same.

However, speaking at an informal meeting of EU trade ministers last week, Hogan said the EU could be forced to retaliate.

He said: “We have continued our efforts to reach a fair and balanced resolution of the civil aircraft disputes. I regret that the US has stepped back from the settlement talks in recent weeks. Positions are therefore still quite far apart. If this remains the case, the EU will little choice but to exercise its retaliation rights and impose our own sanctions in the Boeing case, once we have the WTO-award.”

He added that such measures should not be “seen as an escalation – rather, it is fully in line with our entitlements under the WTO agreements – and essential to bring the US back to the negotiating table”.

He said he expects the WTO award to be issued in early July and that member states would be consulted prior to any action taken.

“The Commission will carefully calibrate its proposal to make the best use of whatever level of retaliation is authorised by the WTO, with a selection of products where we can exert pressure on the US without causing problems for our own industry,” he said.

While the US government has not issued a formal reply to Hogan’s comments, in May, United States Trade Representative Robert Lighthizer said the EU had no cause for retaliation, given the removal of a Washington state tax benefit for Boeing.

He said: “This step ensures that there is no valid basis for the EU to retaliate against any U.S. goods. For more than 15 years, the United States has called on European governments to end their illegal aircraft subsidies. We will continue to press the EU to negotiate a resolution that respects the WTO’s findings.”

Digital services tax

In a separate dispute, at the beginning of this month, the US launched an investigation into countries that have adopted, or are considering adopting, a digital services tax.

For example, the UK introduced a 2% tax on 1 April for companies whose worldwide revenues are in excess of £500 million, with more than £25m of these revenues derived from UK users. It has been dubbed the GAFA tax, an acronym for the companies most affected: Google, Apple, Facebook and Amazon.

The US had previously investigated France, which approved a 3% digital services tax last year. In December 2019, the US government proposed additional tariffs of up to 100% on French goods including wine, cheese and handbags in retaliation to this tax. However, in January this year, President Trump and the French President Emmanuel Macron agreed to a truce for a year.

The US has now launched an investigation into practices in Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom. It will be accepting public comments until 15 July.

USTR Lighthizer stated: “President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies. We are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”

There has been no suggestion so far of any potential tariffs, nor the industries that would be affected should tariffs be imposed.