A new Whiskey Rebellion is brewing, and once again the subject is taxes.
Lower U.S. tariffs proposed for liquor bottled abroad uncorked the anger of American distillers.
The latest problems for U.S. whiskey makers began last winter in the closing days of negotiations for a new multilateral trade treaty. Reaching for a major concession that would please the Europeans and Canadians, American's special trade negotiator Robert Strauss soberly agreed to change the way the U.S. assesses liquor imports.
The result will be to erase a 110-year-old American home advantage and, some in the liquor business say, likely spell the finish for many domestic distillers.
The change is expected to provide a savings of more than $103 million to foreign distillers - money which, U.S. distillers fear, will be pumped into more advertising rather than lower retail prices.
In return, U.S. liquor makers got very little out of the trade agreement. What Strauss did was to bargain off the U.S. liquor industry to win valuable concessions elsewhere - notably, cuts in European tariffs on tabacco, beef and other agriculture items and an important Canadian industrial concession that the White House still won't disclose.
Critical as this particular deal was to completing the treaty, the liquor episode really adds up to a drop in the national economic budget. The trade agreement covers more than 5,700 items and other industries - steel, textiles, jewelry, radios and TV sets - stand to suffer as much as affect the nation's business life more than the liquor makers' case.
But the whiskey story is significant both for what it tells about how the trade talks were conducted and for what will happen to one of America's most spirited industries.
At issue is how the U.S. taxes liquor imports. For more than a century, the tax has been levied on quantity, regardless of alcoholic content.
Most domestic distillers have imported their liquor in bulk at 100 proof, then watered it down to the widely consumed 86 and 80 proof levels and bottled it here. But foreign distillers, making the most of the premium placed on foreign brands, preferred to bottle abroad. As a result, foreign distillers paid the same tax on their 86 and 80 proof bottles that U.S. distillers were paying on 100 proof shipments.
Europeans and Canadians called the U.S. levy a "tax on water."
Under the new agreement, liquor imports will be taxed on alcoholic content. Everyone will be equal. But that's what worried U.S. distillers. For equality will force a change in marketing strategy for American firms - a move, likely, away from domestic bottling to the opening of foreign bottling plants and the loss of U.S. jobs.
"The proposed change would take away the economic practicality of shipping into the United States of bulk," Stuart Watson, chairman of Heublein, one of the nation's largest distillers, said in a statement. "As a matter of fact, it could make it economically advantageous - and could be smart marketing - to bottle outside the U.S. and ship into this country products that are now produced in the U.S."
For some smaller distillers, the change could have even more serious consequences. "What they are doing now may well be a death knell for some domestic distillers," said Lester Abelson, president of Chicago-based Barton Brands.
The tariffs cuts could not have come at a worse time. Imports have gained steadily on American whiskey makers in the past two decades, increasing dramatically from 35 million gallons in 1958 to 137 million in 1977. Today, they account for 28 percent of the total U.S. market - a market worth more than $15 billion, according to industry groups.
Strauss met with angry U.S. liquor makers in February. According to several who attended the meeting, the president's special trade representative conceded that the interests of America's distillers had been traded away. He said he wouldn't be happy either were he in their position. But he stressed the concession the country got in return.
The liquor makers found difficult to accept, in effect, playing fall guys so that other U.S. agriculture and industrial interests would benefit. They believed that if they gave something up, they should get something directly in return.
Initially, the largest U.S. distillers tried to sue Strauss and block the trade agreement. They alleged that Strauss failed to follow proper procedure by notifying the industry of his intentions to trade them away.
They also complained that, for a time, the only liquor representative on the industry advisory committee for the trade talks worked not for an American company but for Canadian-based Joseph Seagrams & Sons, Inc. which - along with Hiram Walker Inc. in Canada and Distillers Co. Ltd. of England - stands to gain the most from the new tariff.
But the liquor companies dropped their suit when promised some relief. Congressional committees have approved a package of tax benefits that should save U.S. distillers from $19 million to $43 million, according to different sources. CAPTION: Illustration, no caption, By Alice Kresse - The Washington Post