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U.K.’s E.U. Exit Unleashes Uncertainty For U.S. Wine And Spirits Industry

June 27, 2016

With Scotch whisky heavily reliant on the European Union, and the U.K. one of the most important export markets for California wine, the drinks industry is dealing with a strong tide of uncertainty in the wake of the shocking Brexit decision.

When U.K. voters decided last week to exit the E.U. by a 52%/48% margin, spirits and wine players in the U.K., U.S. and E.U. were suddenly faced with the daunting prospect of having to operate under an entirely new framework for trade.

Not surprisingly, industry trade groups on both sides of the pond expressed unease with the U.K.’s decision to leave the E.U.

The Scotch Whisky Association (SWA), which says that 90% of its production is exported (with nearly 40% going to the E.U. and another 10% to the U.S.), had previously stated that membership in the E.U. was crucial to the category’s future health amid declining shipments. While saying in a statement that “the process of leaving the E.U. will inevitably generate significant uncertainty,” SWA chief executive David Frost responded to news of the exit last Friday by reaffirming support for the U.K. government as it transitions to an independent entity while urging consideration to all parties involved in negotiating access to the E.U. and other export markets. “There are serious issues to resolve in areas of major importance to our industry and which require urgent attention, notably the nature of future trade arrangements with both the single market and the wider world,” he said.

Meanwhile in the U.S., the Distilled Spirits Council expressed disappointment with the referendum’s outcome, citing trade statistics from 2015 in which U.S. exports to the U.K. reached almost $231 million—with the U.K. the top market for U.S. spirits exports. “As the result of a 1994 treaty, the vast majority of spirits exports and imports between the U.S. and the E.U. have entered both markets duty-free,” said Christine LoCascio, senior vice president of international trade, in a statement. The U.S. trade group also said it would continue working with both governments to ensure the duty-free access for U.S. spirits remained in place.

Uncertainly also abounds for the U.S. wine industry. The U.K. has long been the number-one export market for U.S. wine, and the category continues to enjoy solid growth there. In 2015, the U.K. accounted for nearly 30% of total U.S. wine exports, and the category enjoyed double-digit growth in the market. —Kimberly Tharel and Peter Zwiebach

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