Just when you thought nothing would get done in Washington, D.C. there was at least one break in the log-jam. The U.S.-Mexico-Canada Agreement (USMCA) to replace the North American Free Trade Agreement (NAFTA) has been pending for months. Almost out of nowhere, the agreement was signed by Trump Administration and Democratic congressional leadership. The full text of the portion that applies to distilled spirits is included below.
The Distilled Spirits Council of the United States has applauded the signing of the agreement to move forward with the U.S.-Mexico-Canada Agreement to replace the North American Free Trade Agreement.
Craft Beverage Modernization & Tax Reform Act of 2019
Perhaps there’s hope for the Craft Beverage Modernization & Tax Reform Act of 2019 (CBMTRA) to make it through this year. I really hope so or a 400% federal excise tax will certainly put many small, independent, family owned distilleries out of business. The clock is ticking. The current temporary tax reduction expires on December 31, 2019 but the last day that congress can vote on making this permanent or creating an extension is December 20, 2019.
Learn more about the pending 400% tax increase here.
Tariff Free Trade Between the United States, Canada and Mexico
“The USMCA reaffirms tariff-free trade with two of our largest and most important export markets,” said Chris Swonger, president and CEO of the Distilled Spirits Council of the United States. “Since tariffs were eliminated under NAFTA in 1995, U.S. spirits exports to Canada grew by nearly 1,700 percent and to Mexico by approximately 1,500 percent. We believe the USMCA can build upon the incredible growth in U.S spirits exports under NAFTA to further increase American spirits exports supporting new, good-paying American manufacturing jobs.”
In addition to preserving duty-free trade in spirits, the USMCA preserves recognition for “Bourbon” and “Tennessee Whiskey”; reaffirms commitments concerning the internal sale and distribution of distilled spirits; and establishes new best practices regarding labeling and certifications for beverage alcohol, which will help to facilitate trade in distilled spirits among the three countries. Additionally, the United States secured Mexico’s agreement to take steps to provide distinctive product recognition for “American Rye Whiskey”.
It also includes text to officially recognize three spirits from Mexico including Bacanora, Charanda and Sotol.
What is Bacanora? — Bacanora is a regional mezcal that can only be made in the state of Sunora Bacanora made from 100% Agave Pacifica
What is Charanda? — Charanda is known as the rum of Mexico from the state of Michoacán. It’s made from sugar cane grown at or above 1,500 meters above sea-level. The distillation method is similar to other spirits made in Mexico.
What is Sotol? — Sotol is a regional mezcal created from the Desert Spoon which is not a true agave. It can only be made in Chihuahua, Coahuila and Durango.
“The prompt introduction and passage of legislation to implement USMCA will provide certainty to U.S. producers and importers and create new momentum for further discussions with the EU, China and Turkey to secure the swift removal of retaliatory tariffs on American spirits exports and U.S. tariffs on certain EU spirits,” said Swonger.
2018 Exports by the Numbers
- U.S. spirits exports to Canada were valued at more than $234 million; of this, 21% is accounted for by American Whiskeys ($49.6 million).
- Exports to Mexico in 2018 were valued at $61 million; of this, 32% is accounted for by American Whiskeys ($19.3 million).
- Canada ranked as the top export destination for U.S. spirits exports and Mexico ranked as the ninth largest.
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Here’s the full text from the new United States-Mexico-Canada Agreement (USMCA) as it pertains to distilled spirits and a side letter that includes some definitions of common liquors.
Key Achievement: Prohibiting Barriers for Alcohol Beverages
The United States, Mexico, and Canada agreed to non-discrimination and transparency commitments regarding sale and distribution, and labeling and certification provisions to avoid technical barriers to trade in wine and distilled spirits. They agreed to continue recognition of Bourbon Whiskey, Tennessee Whiskey, Tequila, Mezcal, and Canadian Whisky as distinctive products.
Alcoholic Beverages
USMCA incorporates existing market access provisions for alcoholic beverages from NAFTA and will maintain or slightly improve U.S. access to its USMCA partners’ markets for alcoholic beverages, particularly for U.S. wine exports to Canada. USMCA clarifies and expands on previous NAFTA commitments relating to the sale and distribution of wine and distilled spirits, and it extends the commitments to include beer.290 Annex 3.C of USMCA also preserves distinctive product recognition for certain distilled spirits and establishes new commitments on best practices such as labeling and certification requirements for wine and distilled spirits. In addition, USMCA would allow greater access to certain retail channels in Canada for U.S. wine sales.291
After the European Union, Canada is the leading export market for U.S. alcoholic beverages. U.S. exports of alcoholic beverages to Canada were $859 million in 2017.292 Wine accounts for almost half of all U.S. alcoholic beverage exports to Canada, which is the single largest country market for U.S. wine.293 U.S. wine exports to Canada were $420 million in 2017.294
USMCA incorporates prior commitments concerning the domestic sale and distribution of alcoholic beverages and tariff-free trade. In addition to preserving a cost-of-service-differential provision, the agreement includes an expanded and improved provision preventing liquor retailers and distributors exercising government authority (e.g., Canadian provincial liquor control boards or commissions) from assessing discriminatory price markups for wine, beer, distilled spirits, or other alcohol beverages produced. USMCA also codifies a number of industry best practices, including labeling and certification rules, which will facilitate trade in wine and distilled spirits.
USMCA preserves distinctive product recognition for “Bourbon Whiskey” and “Tennessee Whiskey” in Canada and Mexico, and for “Canadian Whisky,” “Tequila,” and “Mezcal” in the United States. In a Side Letter with Mexico, Mexico agreed to initiate the process of considering the granting of new distinctive product recognition for “American Rye Whiskey.”295
Both the Wine Institute and the Distilled Spirits Council expressed support for the provisions in USMCA.296 The Wine Institute also noted that the inclusion of the alcohol annex was a significant accomplishment. 297 Both trade associations pointed out, however, that barriers remain to U.S. alcoholic beverage exports, in North America and elsewhere. The Beer Institute also agreed and noted that NAFTA was overdue for update; they remain concerned about the effects of section 232 duties on aluminum.298
287 IHS Markit, World Trade Atlas database (accessed various dates).
288 Quantitative effects of USMCA presented in this chapter were generated by the Commission’s economy-wide model which includes the effects of USMCA agriculture market access provisions as well as other USMCA provisions affecting automobiles, intellectual property rights (IPRs), e-commerce, labor, international data transfer, cross-border services, and investment. For a full discussion, see chapter 2.
289 While the USMCA sugar provisions take effect upon implementation, dairy and poultry provisions are phased in, thus the model was estimated at six years after implementation.
290 USMCA, Chap. 3, Annex 3.C, Art. 3.C.1, “Distilled Spirits, Wine, Beer, and Other Alcohol Beverages” contains parties’ commitments related to the internal sale and distribution of alcoholic beverages. Under NAFTA and the U.S.-Canada Free Trade Agreement, these provisions had previously been more narrowly applied to only wine and distilled spirits.
291 USMCA, Chap. 3, Annex 3.C, “Distilled Spirits, Wine, Beer and Other Alcoholic Beverages,” Canada-United States, Side Letter on Wine.
292 USITC DataWeb/USDOC, FAS Value, Total Exports reported for Schedule B numbers 2203, 2204, 2205, 2206, 2208.
293 USITC DataWeb/USDOC, FAS Value, Total Exports reported for Schedule B numbers 2203, 2204, 2205, 2206, 2208.
294 USITC DataWeb/USDOC, FAS Value, Total Exports reported for Schedule B numbers 2203, 2204, 2205, 2206, 2208.
295 USMCA, Mexico-United States Side Letter on Distilled Spirits.
296 Distilled Spirits Council, “Distilled Spirits Council Applauds Three Country Trade Deal,” October 1, 2018.
297 Wine Institute, “Wine Institute Applauds Market Access Gains Made in USMCA” October 1, 2018.
298 McGreevy, The Beer Institute. Written testimony submitted to the U.S. International Trade Commission in connection with inv. no. TPA-105-003, United States-Mexico-Canada Agreement: Likely Impact on U.S. Economy and on Specific Industry Sectors, October 29, 2018.
287 IHS Markit, World Trade Atlas database (accessed various dates).
288 Quantitative effects of USMCA presented in this chapter were generated by the Commission’s economy-wide model which includes the effects of USMCA agriculture market access provisions as well as other USMCA provisions affecting automobiles, intellectual property rights (IPRs), e-commerce, labor, international data transfer, cross-border services, and investment. For a full discussion, see chapter 2.
289 While the USMCA sugar provisions take effect upon implementation, dairy and poultry provisions are phased in, thus the model was estimated at six years after implementation
290 USMCA, Chap. 3, Annex 3.C, Art. 3.C.1, “Distilled Spirits, Wine, Beer, and Other Alcohol Beverages” contains parties’ commitments related to the internal sale and distribution of alcoholic beverages. Under NAFTA and the U.S.-Canada Free Trade Agreement, these provisions had previously been more narrowly applied to only wine and distilled spirits.
291 USMCA, Chap. 3, Annex 3.C, “Distilled Spirits, Wine, Beer and Other Alcoholic Beverages,” Canada-United States, Side Letter on Wine.
292 USITC DataWeb/USDOC, FAS Value, Total Exports reported for Schedule B numbers 2203, 2204, 2205, 2206, 2208.
293 USITC DataWeb/USDOC, FAS Value, Total Exports reported for Schedule B numbers 2203, 2204, 2205, 2206, 2208.
294 USITC DataWeb/USDOC, FAS Value, Total Exports reported for Schedule B numbers 2203, 2204, 2205, 2206, 2208.
295 USMCA, Mexico-United States Side Letter on Distilled Spirits.
296 Distilled Spirits Council, “Distilled Spirits Council Applauds Three Country Trade Deal,” October 1, 2018.
297 Wine Institute, “Wine Institute Applauds Market Access Gains Made in USMCA” October 1, 2018.
298 McGreevy, The Beer Institute. Written testimony submitted to the U.S. International Trade Commission in connection with inv. no. TPA-105-003, United States-Mexico-Canada Agreement: Likely Impact on U.S. Economy and on Specific Industry Sectors, October 29, 2018.
‘Side Letter’ Related to U.S.-Mexico-Canada Agreement (USMCA)
November 30, 2018
The Honorable Ildefonso Guajardo Villarreal
Secretary of Economy
Mexico City
United Mexican States
Dear Secretary Guajardo:
In connection with the signing on this date of the Protocol Replacing the North American Free Trade Agreement with the Agreement Between the United States of America, the United Mexican States, and Canada (the “Protocol”), I have the honor to confirm the following agreement reached between the Government of the United States of America (“the United States”) and the Government of the United Mexican States (“Mexico”) regarding consideration of American Rye Whiskey, Bacanora, Charanda, and Sotol as distinctive products:
- Mexico shall initiate, subject to its applicable laws and regulations, the process to consider prohibiting the sale of any product in Mexico as American Rye Whiskey, if it has not been manufactured in the United States in accordance with the laws and regulations of the United States governing the manufacture of American Rye Whiskey.
- The United States shall initiate, subject to its applicable laws and regulations, the process to consider prohibiting the sale of any product in the United States as Bacanora, Charanda, or Sotol, if it has not been manufactured in Mexico in accordance with the laws and regulations of Mexico governing the manufacture of Bacanora, Charanda, or Sotol.
- For greater certainty, nothing in this letter shall be construed to create or confer any right relating to a trademark or geographical indication.
- This agreement is without prejudice to the outcome of the processes initiated by the United States and Mexico pursuant to this letter.
Mexico and the United States shall discuss preserving the integrity of Mezcal marketed in the territories of each Party and ensuring that the laws and regulations of each Party operate effectively to preserve the status of Mezcal as a distinctive product of Mexico, and, if appropriate, consider a bilateral agreement.
I have the honor to propose that this letter and your letter of confirmation in reply shall constitute an agreement between the United States and Mexico, to enter into force on the date of entry into force of the Protocol.
Sincerely,
Ambassador Robert E. Lighthizer
United States Trade Representative
We’ll keep you posted as this important legislation moves along.
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