Spirits giant Diageo suggests alternative to Trump's tariffs - letter

LONDON (Reuters) - Spirits giant Diageo has suggested the U.S. government consider tougher rules of origin requirements in trade agreements as an alternative to tariffs, a letter to the U.S. Trade Representative showed.

In the March 11 letter, Diageo, the world's top spirits maker caught in the crossfire of U.S. President Donald Trump's effort to remake global trade, argued that new rules of origin could support his aims and benefit the industry.

Such rules could give preference to goods, including alcoholic drinks, in which all ingredients and subcomponents are substantially sourced within the U.S. or via its key trading partners, Alden Schacher, vice president of government relations at Diageo North America wrote.

This would deepen U.S. supply chains, prevent "foreign adversaries" from using U.S. trade partners to circumvent tariffs and support the administration's policy objectives such as growing the U.S. economy, said the letter, one of hundreds published by the USTR from firms and trade associations about tariffs.

Diageo's proposed rules of origin would require that plants or grains used in the production of imported alcohol come from the United States or the territory of a strategic trade partner - any country that has a trade agreement with the U.S., such as Mexico and Canada.

The company also suggested that the rules ensure the distillation also occurs in the U.S. or the territory of the same partner, with any barrels used in ageing also sourced from one of those places.

Diageo sells billions of dollars worth of tequila and Canadian whisky in the United States. Executives have warned Trump's threatened 25% tariffs on Mexico and Canada could deal a $200 million hit to operating profit in the company's second half alone, before mitigation measures.

Trump on Thursday also threatened to slap a 200% tariff on wine, cognac and other alcohol imports from Europe.

In the letter, Schacher wrote that trade in distilled spirits is largely reciprocal and therefore actions to address imbalances are not necessary.

Schacher pointed out that Diageo employs thousands of U.S. workers, has 11 U.S. manufacturing sites, and spends $650 million every year on U.S. inputs including barrels, glass and cans.

(Reporting by Emma Rumney; editing by Philippa Fletcher)