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What Scottish independence would mean for Scotch whisky

 

Today, the people of Scotland are headed to the polls to determine whether they're going to remain in the United Kingdom or forge ahead as an independent Scotland. Vox's Amanda Taub has already explained why Scotland should stick with the UK. But she left out the most important reason Americans should care about the question of Scottish independence: what would it do to the production of Scotch whisky?

The whisky industry doesn't want independence

This isn't a totally frivolous question, because in Scotland, distilling isn't just a livelihood — it's an industry. In fact, if Scotland were already an independent country, whisky would be its third-biggest business, after oil and banking. Since independence might shake up the banking industry  — the Royal Bank of Scotland is threatening to relocate its corporate headquarters (though not jobs) to England if it has to — Scotch could be an even more important industry to an independent Scotland.

Like any other industry, the Scottish whisky distillers dislike economic uncertainty. And between questions about what currency an independent Scotland would use and the will-they-or-won't-they of whether the European Union would let Scotland join, Scottish independence would bring about a lot of uncertainty. So it makes sense that the distilling industry would be wary of breaking away.

The Scotch Whisky Association isn't officially opposing independence, but its spokesperson told CNBC that "the consensus within the Scotch industry is that the potential risks outweigh the advantages." In particular, the whisky distillers are worried about the shrunken banking industry and what that would mean for access to credit.

But they're also concerned about whether independence would affect trade policy, making it harder, or more expensive, to ship Scotch abroad to markets like (ahem) the United States.

The global regulations behind the Scotch market

Ninety percent of all Scotch gets shipped out of the UK. The United States is the biggest individual market: Americans consumed $1.3 billion in imported Scotch in 2013. But the European Union countries, combined, drink more Scotch than the US does. And the Scotch industry sees that as a big risk.

Right now, there aren't legal restrictions on exporting Scotch to other EU countries, because Scotland is in the UK and the UK is in the EU. If Scotland were to break off, it would want to join the EU on its own — but other countries might vote against it. And if Scotland were left out of the EU, Scotch exporters would have to deal with tariffs and trade barriers.

But the exporters' problems wouldn't end with the EU. Right now, most countries' laws recognize that "Scotch" can only be used to refer to whisky that was distilled and aged in Scotland. That's because the UK, in negotiating trade agreements, requires other countries to abide by the British law regulating Scotch production. If Scotland left the UK, it might have to renegotiate those trade agreements. Not only would other countries have the opportunity to make it harder or more expensive to export Scotch, but they might not even agree to keep the legal definition that requires whisky called Scotch to be made in Scotland.

The Scotch industry is worried that their government wouldn't have the diplomatic connections to keep Scotch exports smooth. One Scotch distiller told CNBC that the Scottish government would only have half as many embassies around the world as the UK does now — and he sees that as a very bad sign.

A silver lining — a decade or two from now

What's bad for the Scotch distilling industry isn't necessarily bad for consumers. If Scottish currency is a lot weaker than the British pound is today, for example, whisky could get cheaper. But the difficulties Scotland would have if it left the EU would probably be enough of a problem for American Scotch drinkers to outweigh the potential benefits.

The most important question for an independent Scotland might not be its trade relationship with the US, but with another former British possession: India. India consumes half of the world's whiskey and totally distorts the global liquor market. That's another factor that makes it impossible to predict what Scottish independence would mean for Scotch.

But even if the short-term outlook for Scotch drinkers is disastrous — if, say, distillers have to shut down or go out of business because they can no longer cover their costs — that could be good news to American Scotch drinkers twenty or so years from now. A New Yorker article from 2013 on the global business of Scotch explains that slumps in the global market now can mean well-aged premium Scotch stashes later:

Even cheap whisky needs time to mature: by law, whisky can't be sold in the United Kingdom until it has been aged for three years. This means that distilleries often find themselves selling spirit in circumstances that have changed since the spirit was distilled. In the British recession of the mid-nineteen-seventies, a number of distilleries were mothballed; there was a similar slump a decade later. As a result, a lot of great whisky was orphaned, and scrappy companies known as independent bottlers bought some of it, to resell to connoisseurs, usually in small editions and at high prices.

CORRECTION: This article originally overstated the effects of Royal Bank of Scotland's potential relocation to England. Iain Kidd, a resident of Glasgow, points out that the RBS would just be relocating its corporate headquarters to the UK — it wouldn't necessarily affect operations or jobs. (Kidd, however, describes himself as a "vodka enthusiast" on Twitter, so his assessment of the Scotch economy should be assessed accordingly.)