Tariff Hikes Could Hit All EU Wines

I am not trying to be a buzz kill or a conspiracy theorist- but these are real things that affect our industry... thankfully prices in Burgundy have never been more affordable…

https://www.wine-searcher.com/m/2019/12/tariff-hikes-could-hit-all-eu-wines

Tariff Hikes Could Hit All EU Wines

The gloves are coming off in the trade war, as more European wines face the 100-percent tariff.

By Don Kavanagh | Posted Wednesday, 11-Dec-2019

The ugly trade war between the United States and the European Union looks like worsening, after US trade authorities suggested increasing tariffs and broadening their scope to take in all wines from the EU.

The Office of the US Trade Representative (USTR) updated its online registry of tariffs and suggested it could increase the number of products subject to tariffs as well as increasing the tariff rates – rates that could be as high as 100 percent, according to the way the USTR is talking this week.

The dispute arose after the US took the EU to the World Trade Organization over claims of unfair funding of the Airbus aeronautical giant to the detriment of Boeing. Those claims have been repeatedly upheld by the WTO, most recently on December 2.

The existing tariffs are mostly aimed at FranceGermany, the United Kingdom and Spain

"On October 18, the United States imposed tariffs of 10 percent on large civil aircraft and 25 percent on agricultural and other products, with the bulk of these tariffs being applied to imports from France, Germany, Spain, and the United Kingdom – the four countries responsible for the illegal subsidies," the USTR said in a press release posted on its site last week. "In light of today’s [December 2] report and the lack of progress in efforts to resolve this dispute, the United States is initiating a process to assess increasing the tariff rates and subjecting additional EU products to the tariffs."

Yesterday, it added an inline link to that press release leading to a document that outlined a beefed-up tariff regime. It did not release an accompanying statement.

"Annex II contains a list of products, originally published in the April 2019 and July 2019 notices for this investigation, under consideration for the imposition of additional ad valorem duties of up to 100 percent," the document said.

It went on to say that interested parties had until January 13 to make submissions on the proposals.

"The Office of the United States Trade Representative (USTR) requests comments with respect to whether products listed in Annex I should be removed from the list or remain on the list; whether the rate of additional duty on specific products should be increased up to a level of 100 percent; whether additional duties should be imposed on specific products listed in Annex II; and on the rate of additional duty to be applied to products drawn from Annex II."

Annex II contains two sections and the second section is where the pain lies for wine lovers. A list of products from the 28 EU nations includes – among a range of foodstuffs – the following: sparkling wine, TokajMarsala, grape wines with more than 14 percent alcohol, wine in containers of more than 10 liters, grape must capable of being fermented into wine, grape brandy, and "whiskies, other than Irish and Scotch whiskies".

The previous tariffs had affected wines up to 14 percent alcohol, and excluded Tokaj and any Irish whiskey not produced in the UK (i.e., whiskey produced in the Irish republic, rather than Northern Ireland).

The news that all EU wine and whiskey production could be subject to tariffs will be a brutal blow to producers in Europe, but also to US retailers who sell such products. Many are already struggling to deal with the 25-percent tariff already liable on some wines, particularly French wines.

The new tariff regime would also extend the additional rates to Italian wines, which were exempt under the October tariffs

Some trade sources had suggested ways of getting around the original tariffs, such as bottling the wine in the US, or beefing up wines so that they exceeded the 14-percent limit, but these new measures would kill those ideas.

Retailers are unlikely to be able to sway the USTR with submissions alone, however. Even the big hitters of the distribution tier – who employ large lobbying teams – have been unsuccessful so far in arguing against extended tariffs, Wine-Searcher understands.

To make a submission on the tariffs, visit www.regulations.gov enter docket number USTR-2019-0003 on the home page and click search. Then go to the "comment now" link. Submissions can only be made online.

 

 

  • I don't see how it's being a conspiracy theorist.

    You have an administration that's floundering in basic concepts of economics and how changes such as this disrupt many food chains; domestically more than anywhere else. I guess on the flip side, Americans could soon experience what it's like to pay for wine in Scandinavian countries...

  • I'm curious, when there are major dislocations like this, how do people on the import/distribution side of things handle pricing? Do the increases follow the SKUs that are imported during the time period that the tariffs are enforced? Is there some effort to subsidize prices of newly imported wines with wines already in stock to minimize volatility? Is this similar for dramatic changes in exchange rates? What do the mechanics of pricing look like under these circumstances? And then on the restaurant/retail side of things, does this affect the markup that you'd apply to these wines? Thanks in advance for any insights!

  • I don't think restaurants and retailers can soften mark-ups much.  It's going to hit the consumer the most.  If these tariffs stick, they will force a lot of people to change where their wine comes from.  South America, Australia/NZ, Canada, and domestic wine sales will all see a stark rise. 

    There is a lot of talk about petitioning these tariffs.  If this new tax revenue is sizeable and the federal government becomes dependent on it, making any changes will be very difficult. 

    One positive thought, taxing things that put a strain on the healthcare system can be a pathway to providing free healthcare.  Its how it goes down under.  A pack of cigarettes costs $40AUD, and the revenue's contribution to healthcare is traced and reported.  The same goes for a portion of excise tax on alcohol. 

  • I have seen a few different scenarios from importers. Some companies are shipping bare minimums to the USA. Some are (were) trying to overstock warehouses in the USA before the tariffs hit. Some companies are maintaining their prices and hoping that the tariffs are a short lived problem. Once the newly received wines and spirits are priced by importers in the US that really will be the determining factor. Items already in warehouses in the US aren't going to be affected by tariffs.It is quite the mess because not everyone can absorb the price increases. Large companies with a multinational portfolio fare better than companies with portfolios that are ruled by the tariffs. 

  • Dear Friends:

     

    We are reaching out to you to ask you to help us stop the expansion of the EU tariffs in the next month. As we all know, a second list (Annex II) has been proposed. This list adds basically every alcohol content and size that they missed in the first round for the already affected countries, adds other countries as well, and could mean up to a 100% tariff on them as well as changes upward to the already affected items. In short, if these measures are passed, it could essentially destroy the importation and sale of European wine in the US. This would mean a devastating loss of revenues, jobs, taxes, etc… to the US economy. We need to do whatever we can to make this fact as clear as possible to the government. The only way to do this is to be heard in mass. Thus, we are asking every one of you to do the following two tasks as soon as possible (by 12/19 at the latest):

     

    1. Please review the PDF document attached. Both the original list of items from October as well as the proposed items (Annex II) are on it. Follow the information listed and please electronically submit your comments regarding these tariffs (the USTB prefers submissions on your letterhead attached if possible). It is important to specify that you are a SMALL or MEDIUM SIZED business and to outline exactly what financial and employee effects you believe it will have on your businesses. The instructions for submitting are on the PDF. Please read the information carefully, because the instructions are different for submitting public (published) comments versus comments including company confidential data.

     

    1. Forward this email and task #1 to anyone and everyone you can in the industry be it wholesaler, importer, retailer, restaurant, etc.. The more people submitting their own comments to the USTR can only help all of our cause here.

     

    We know it is a pain to do this in the busiest month of our year, but nothing right now could be more important right now than beating this back. Here is the schedule for implementing these tariffs so we obviously have no time to lose. The fine wine alliance board and our attorney will be appearing at the public hearing in Washington DC:

     

    • December 30: due date for request to appear at a public hearing on January 7.
    • January 6:  due date for written public comments.  The USTR has invited comments specifically on “whether imposing additional duties on a particular product would cause disproportionate economic harm to U.S. interests, including small- or medium-size businesses and consumers.”
    • January 7: public hearing at the U.S. International Trade Commission in Washington DC. 
    • January 14: deadline for soliciting post-hearing rebuttal comments.
    • January Week 3 or 4: : though no specific date has yet been proposed, we would expect a decision and possible implementation by the International Trade Commission. 

     

    PLEASE HELP – SO MUCH AT STAKE HERE!

     

    Thank you sand happy holidays,

    --

    Harmon Skurnik

  • Can you attach the PDF link?

  • You can't believe in laisse faire and tariffs at the same time...

  • Latest Tariff Threat Could Double Prices of European Wines and Whiskies (Additional Coverage)

    Source: https://www.barrons.com/

    By Abby Schultz

    Dec. 16, 2019

    The latest salvo in the trade battle between the U.S. and the European Union over EU aircraft subsidies to the Netherlands-based Airbus could spike tariffs on a wide range of European wine, whiskies, and cheeses to 100%, a potentially crippling blow.

    "100% tariffs would be devastating, absolutely devastating," says Robert Tobiassen, president of the National Association of Beverage Importers. "This is a civil aeronautics dispute. We encourage the [Office of the U.S. Trade Representative] to revisit the 10% tariff on aircraft that went into effect. We believe the more appropriate resolution is an increase of those tariffs."

    On Oct. 18, the U.S. imposed tariffs of 10% on large aircraft exports and levies of 25% on US$7.5 billion of products chiefly from France, Germany, Spain, and the U.K., the countries chiefly responsible for the subsidies, according to the USTR. The tariffs were a response to an Oct. 2 ruling by the WTO in favor of the U.S.

    The products covered by the October levies included still wines from France and Spain, single-malt Scotch and Irish whiskey from Northern Ireland, and cheeses from France and Italy, but they spared a number of products that had appeared on preliminary lists, including sparkling wine, brandies, and non-alcoholic beer. Italian wine was also added to the newest list.

    But now the USTR is considering boosting the 25% tariff to 100% and broadening the products covered by tariffs to include wine produced in any EU country, wines with an alcoholic content above 14%, and sparkling wines produced throughout Europe-all of which was not subjected to the earlier levies. Non-alcoholic beer, brandies, and whiskies produced in any EU country are now swept into the mix, too.

    This latest tariff threat comes on the heels of a Dec. 2 decision by a World Trade Organization panel rejecting an EU appeal claiming it had addressed the WTO concerns.

    "The EU's frivolous case proves that strong action is needed to convince the EU that its interests lie in eliminating these market-distorting subsidies now and in the future, so that our industries can compete on a level playing field," U.S. Trade Representative Robert Lighthizer said in a Dec. 2 statement.

    Comments on the proposed tariff increases, and the list of products to be affected, can be filed with the USTR until Jan. 13.

    The 25% tariffs that went into effect on Oct. 18 are just starting to be felt in the marketplace, although many small importers are already feeling the hit, with some laying off employees as a result.

    "It's a lot of small importers who don't have a wide inventory who are being hurt. Large and medium-size importers are also facing challenges to manage the additional tariffs and still keep prices at a level where their products in the marketplace can maintain their market share at the retail level," Tobiassen says. "Jobs are being lost as we speak."

    To get a sense of the dent tariffs can make, Chris Swonger, president and CEO of the Distilled Spirits Council of the United States (DISCUS), points out that EU tariffs of 25% imposed in June 2018 on whiskey imported from the U.S has already led to a 28% drop in U.S. exports.

    "We've been in high-anxiety mode since the spring of 2018, when these [Airbus-related] tariffs were even being considered," Swonger says. "The news of last week just makes us even that much more anxious."

    The distilled spirits business on both sides of the Atlantic has grown at least 400% in a zero-tariff environment since 1997. Currently, trade groups in the U.S. and Europe are working together to encourage both the U.S. and the EU to negotiate to stem any further decline.

    "The U.S. and the EU distillers are in lock-step," Swonger says. "We want toasts not tariffs."

    Representatives from DISCUS are planning to go to Brussels at the end of January to meet with the new EU leadership, and Swonger is encouraged by recent trade agreements with China as well as Mexico and Canada. The likelihood of a bilateral agreement between the U.S. and U.K. also could create opportunities, he says.

    Concerning fine wine, the U.S. depends on imports from Italy and France. Imports of sparkling wine from France alone-which also faces a separate, potential 100% tariff in response to a digital-services tax imposed in Europe-accounted for 12.14% of total wine imports in 2018, and 2.76% of the entire wine market in the U.S., according to Michael Bilello, a spokesman for the Wine & Spirits Wholesalers of America.

    Given that 100% tariffs will essentially double the cost of French sparkling wine for consumers, "demand will begin to drop," Bilello says.

    Rocco Lombardo, president of Wilson Daniels, a California importer of fine European wines, put it bluntly: "If 100% tariffs went into place, it would be catastrophic for the wine industry in America."

    As a major importer, Wilson Daniels has been able to soften the blow so far from the 25% tariffs imposed in October with agreements from its winery partners. Also, "the dollar has been fairly strong against the Euro, [so] we made a decision to go ahead and mitigate the remainder of the tariff with compressed margins," Lombardo says. "It's certainly not ideal. But it is a way that we can maintain price stability in the marketplace."

    The firm is also investing in inventory to hedge the possibility of further tariffs.

    "We're looking at investing up to 12 months of floor stock inventory just so that we can hopefully see this to an end where both both sides find an amicable resolution, where tariffs are not a part of doing business," Lombardo says.

  • I’m in agreement with John that the Southern Hemisphere will be a new focus in the US and Canada, should this go into effect. We have a little bit of history to see how this plays out... I.e. France/England. Although it’s not an apples to apples comparison, I think it paints a picture of how buyers act in protest ...they go elsewhere. As unfair as it might be to European countries, I don’t know if Americans  would be willing/able to pay those types costs. 

  • If you read a lot of what Trump is saying in the media he does not understand what a tariff does. He thinks the exporting country is paying up which is completely false. Tariffs have a history of grave economic consequences and this has been acknowledged by the IMF and other economic entities... hoping the decision to raise tariffs does not go through.

  • Floundering economics? Are you serious? Or, was that a joke. 1.) Unemployment is down to 3.5%, Best unemployment numbers for Blacks, Latinos and Women in 50 years. 2.) Trump has added 6 million jobs. 3.) New trade deal with Canada and Phase one with China. 4.) Median Household income rose 2.3%. Average weekly paychecks rose 2.8%. 5.) Poverty rate and is down and food stamp rolls have declined.6.) Factory jobs are back. 7.) Manufacturing is growing. 8.) The Dow Jones continues it's record run. 9.) Corporate profits are up 10.) Job opening double digits. 11.) GDP over 3 years has averaged nearly 3.0% 12.) Home prices up...home ownership up including for African Americans ....you may want to stick to wine. 

  • Trump doesn't understand a Tariff? Neither does his advisors? Silly. While I'm a free-market proponent but let's have a little look at how we got here " WTO rules in favor of US in Airbus dispute, paving way for tariffs on $7.5 billion in EU goods." (Article below)  I would also be a Brexit proponent.....a small-government proponent etc. etc. If you love government.....you can't hate this ruling. I'm guessing the EU will blink. Just like China did. www.cnbc.com/.../wto-rules-in-favor-of-us-in-aircraft-subsidies-dispute.html

  • I'm guessing illegal subsidies to Airbus....has it's consequences. #AllJobsMatter. #WTOruling 

  • "The WTO has found that both Airbus and its U.S. rival Boeing (BA.N) received billions of dollars of illegal subsidies in a pair of cases that have run for 15 years. An adjudication in the Boeing case is expected early in 2020."

    bet a bottle of Krug that Boeing is charged with the same crime

  • "The WTO has found that both Airbus and its U.S. rival Boeing (BA.N) received billions of dollars of illegal subsidies in a pair of cases that have run for 15 years. An adjudication in the Boeing case is expected early in 2020."

    www.reuters.com/.../wto-clears-u-s-to-target-eu-goods-with-tariffs-over-airbus-idUSKBN1WT0T2