FAQ: Tariffs

What is a tariff?

Tariffs are an additional tax on Scotch Whisky or other products, charged on the import of goods in overseas markets.

Historically, tariffs have been used to protect domestic industries from foreign competition, and as a source of revenue for governments.

Tariffs are also used   to create leverage in international trade disputes. For example, by imposing tariffs on Scotch Whisky, as the United States did in October 2019, governments can  put pressure on other governments to negotiate a settlement and re-balance trade flows after they win a trade dispute at the World Trade Organisation (WTO).

So, when you read about how tariffs work, think tax.

Who pays tariffs?

Tariffs are collected by the national customs authority of the country into which the goods are being brought.

Who pays the tariff depends on the exporter’s contract with their distributors – and costs are often passed on to consumers.

The increased costs that tariffs cause can lead to a loss or reduction in exports and a loss of market share. This is because products paying tariffs can become more expensive compared to similar products in the same market. Since the tariffs on Scotch Whisky were implemented in October 2019, the value of exports of Scotch Whisky to the United States have fallen by 30%.

How are tariffs charged?

Tariffs are often set as a percentage of the value of the goods in question. For instance, the current US tariff on Single Malt Scotch Whisky is 25% – so if a bottle of Scotch Whisky that’s imported to the United States is worth $50, the tariff will be $12.50.

Are there any restrictions on setting tariffs?

The ability of governments to set tariffs is restricted by international commitments. Most major trading nations are members of the WTO and are subject to the obligations in its General Agreement on Tariffs and Trade.  This sets a limit for the tariffs they can apply and the same tariff has to be applied to the same product, no matter where it comes from.  This limit can only be exceeded in certain cases, such as under a WTO dispute. 

The Scotch Whisky industry faces various tariffs around the world, including a 150% tariff on Scotch in India, to a 5% tariff in China. The SWA works to reduce tariffs, and other non-tariff barriers to trade, around the world. Learn more about that here.