10% for Bushmills, 15% for Jameson: Businesses struggle with the North-South tariff gap

Irish Times

3 days ago

The Border has always presented economic headaches along with financial opportunities. As of last week a new element of complexity has been introduced: companies that export to the
United States
, and operate across the two jurisdictions on the island of
Ireland
, now must figure with two different sets of
US tariff
rates.
Businesses in the Republic without a presence in the
North
will now peer enviously across the Border at the lower rate to be applied there. This is the first year since Ireland – both parts – joined the European Economic Community in 1973 that such a differential has been in play.
In the Republic, under the terms of the European Union's framework agreement with Donald Trump, a 15 per cent tariff will be put on exports as of today.
In Northern Ireland, businesses can export to the US at 10 per cent – as per the terms of the agreement reached between London and Washington in May.
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This differential is perhaps best illustrated by Irish whiskey. While Jameson and other whiskey brands in the Republic will be subject to a 15 per cent tariff rate, Bushmills and others in the North will face a 10 per cent hit.
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This competitive advantage for northern exporters comes with the bonus that EU countermeasures against the US have also been avoided.
Under the Brexit protocol arrangement, Northern Ireland remains essentially part of the European single market for goods. This means that while northern businesses can still export at UK rates, EU tariffs apply on any imports they acquire.
Had the EU gone down the road of aggressively countering US tariffs with targeted measures against American imports, those tariffs would have been applied at the ports of Belfast and Larne.
Brexit laid bare the constant Border-hopping required to keep the Irish dairy industry going. This comes into focus again as a result of Trump's tariffs, which will be lower for the UK than for the EU. Photograph: Charles McQuillan/Getty
As it turned out, political tensions around the protocol, for now, have abated.
However, the nature of operating a business in Ireland is not always neatly confined to one jurisdiction or another. Supply chains and production can criss-cross the Border multiple times.
For example; Brexit laid bare the constant Border-hopping required to keep the Irish dairy industry going.
In April, the chief executive of Lakeland Dairies, Colin Kelly, said moving some butter exports to Northern Ireland to avail of a lower US tariff was something it might consider. The Co Cavan headquartered co-op is the country's second largest dairy producer, with 3,200 members.
At the time Kelly made his remarks, Donald Trump was threatening the EU with a 20 per cent general tariff.
The Lakeland boss said moving elements of its production process to the North could be an option if rates there remained lower than in the Republic. He said Lakeland continuously looks to make its operation as efficient as possible – but its customers would ultimately have a big say on where produce was sourced from.
Colin Kelly, chief executive of Co Cavan-based Lakeland Dairies. Photograph: Orla Murray/Coalesce
When asked by The Irish Times this week if Lakeland was still considering such a move, a spokesperson said the co-op could not comment.
Industry observers believe Lakeland would be unwise not to explore its options. They note that Kelly is vastly experienced – he joined from Kerrygold owner Ornua – and is someone who understands the US market very well. Kerrygold is a big player at the premium end of the US butter market.
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The Irish Farmers Association (IFA) is critical of the deal struck by the European Union. The US market accounts for almost €2 billion in Irish food and drink exports – around 11 per cent in total.
According to the IFA's chief economist, Tadgh Buckley, if different tariff rates materialise it could give dairy producers in the North a clear edge.
He believes that Northern Ireland-based dairy suppliers to the US market could take advantage of their lower-tariff advantage.
'A difference in rates between the EU and the UK would give them a capacity to adjust their price points against Irish dairy products in the US market and remain at similar margins,' he said.
With the 10 per cent over the Border, do you set up a subsidiary in the North? Is that a loophole? I don't know
—
Seamus McMahon
Lakeland Dairies currently supplies butter to the US market under the Vital Farms brand, and it is thought that 50 per cent of Lakeland's milk comes from farmers in the North.
The Kerrygold brand could very much be in Lakeland's sights.
Its reputation as a premium product should insulate it from increased competition to an extent, but it is now at a definite disadvantage, according to industry experts.
Seamus McMahon, founder of Brehon BrewHouse in Co Monaghan, straddles the worlds of dairy and beer production. He has provided milk to Baileys for more than 40 years from his farm in Killanny, while also running a successful microbrewery in Carrickmacross. Brehon beers are currently available in 12 US states.
'We sent a container of beer out at 10 per cent last week – it will arrive in the US at 15 per cent. Breweries in the North are definitely working at an advantage to us,' he says.
His mind is already turning to ways of perhaps using Brehon's location to minimise the financial impact.
'With the 10 per cent over the Border, do you set up a subsidiary in the North? Is that a loophole? I don't know,' he says.
Brehon already collaborates with the Two Stacks whiskey company in Newry – operating a 'casemates' programme. This involves producing beer in whiskey casks to make 'whiskey-aged porter'.
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'They supply a blend of whiskey products to markets around the world including America – maybe we end up collaborating more with them,' says McMahon. 'Do we produce it with them and avail of the 10 per cent? It's not something we have spoken a lot about yet – but it is something we will have to consider.'
McMahon says Brehon has invested too much time and money in the US market to simply walk away. It accounts for around 20 per cent of all the brewery's sales. But there is little doubt that the 15 per cent is a painful blow.
'We operate on 25 per cent margins and are competing with beers from all around the world – 15 per cent is more than half your profits whatever way you look at it.'
He is also considering teaming up with a brewery based in the US and producing some beer there.
Separately, as an experienced dairy farmer, he too notes the incentive now on offer for companies connected to the industry to consider shifting North.
His relationship with Baileys is a case in point. Owned by British drinks giant Diageo, it is another all-Ireland operator. Milk from farmers on both sides of the Border is used in its cream liqueur – which is produced in Dublin and at its global supply facility in Mallusk, Co Antrim. Should Diageo want to, it certainly has options to shift some of that production.
Seamus McMahon runs a dairy farm in Co Monaghan as well as a microbrewery. Photograph: Philip Fitzpatrick
Whatever about dairy and beer, whiskey producers in the Republic – and the farmers who supply them with barley – are faced with an even bigger challenge, says the IFA's Buckley.
The Irish whiskey industry is not dissimilar to its dairy industry in that the production process can be split across the two jurisdictions. Whiskey can be distilled in one location but bonded and bottled in another. In other words, it can be distilled in Dundalk, only to spend much of its life maturing in a warehouse in Newry. Or vice versa.
Unlike butter, which already had a tariff rate of 16 per cent at the turn of the year, Irish whiskey enjoyed the zero-for-zero regime that had done so much to boost its presence in the US.
Buckley says how country of origin is defined for whiskey and dairy production will be critical to determining the impact on the IFA's members – and there is still a lack of clarity around that.
Stephen Kelly is chief executive of Manufacturing Northern Ireland, the representative body that has had to guide its members through the Brexit mess of recent years and now Trump's tariffs. He does not believe there will be a huge shift North but the better tariff rate applied to goods entering the US from that part of Ireland could certainly affect some investment decisions.
'A 5 per cent difference is not going to see companies in the Republic closing a multimillion-euro operation and moving to the North,' Kelly says. 'Five per cent is essentially a currency differential – we have seen the dollar move 5 per cent in the past week alone. Instead, what you might see is companies in the South acquiring some assets in Northern Ireland.'
He doesn't expect individual companies to close operations on the basis of these tariffs – rates that could be around for three weeks or three-and-a-half years.
Kelly describes the behaviour of US buyers over recent months as 'constipated'. The uncertainty around exact tariff rates has meant that investment and purchasing decisions have been stalled. He says, at the very least, there is now an element of clarity on tariff rates – whatever that is worth given Trump's at times erratic behaviour.
In Magherafelt, Co Derry, Bloc Blinds – which designs and builds window blinds for the lucrative US consumer market – had been adjusting operations in advance of the trade agreements.
Cormac Diamond, Bloc Blinds: 'The stability that will hopefully come with [the US trade agreements] will give consumers more confidence'
It was fully ready to shift some additional production to a plant it acquired in Fort Worth, Texas, last year. The apparent end of trade hostilities means managing director Cormac Diamond can now plan with greater conviction.
'As we are operating in the consumer goods sector in the UK, European and US markets, the stability that will hopefully come with this will give consumers more confidence,' Diamond says.
'The next big thing is the high likelihood that US interest rates will reduce and drive a boom in consumer spending. The increased consumer demand from this will hopefully offset any of the tariff challenges facing us in the US and also for exports from the UK and EU to the US.'
One thing noted by all of the above is that the deal struck by the EU and the US last week is just a framework agreement. While it offers apparent certainty after months of Trumpian chaos, there is still work to be done by negotiators.
The spirits industry here remains hopeful that a carveout may yet happen and that trading on a zero-for-zero basis may some day return. And there are questions about the agreement's longevity. Who can say whether Trump will change his mind again and reopen hostilities with Brussels?
As McMahon puts it: 'We are going to keep going anyway – you can't pull back. There is a regime there that might be gone in three years – common sense could still prevail, like it did with Brexit.'
The world waits to see whether the good old days of relatively free trade with the US will return. Meanwhile, those with businesses on the Border will see what they can claw back with the sort of ingenuity that has typified that region for decades.