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Wine Sellers Brace for Second Round of Tariffs

August 7, 2020 by Dan McCue
Wine Sellers Brace for Second Round of Tariffs

WASHINGTON – As if a global health crisis wasn’t enough to have on their plate, wine sellers are bracing for the imposition of another round of tariffs that could raise the price of imported European wines and other products by as much as 100%.

Though no one knows for certain what the Office of the U.S. Trade Representative will say when it announces its decision on any potential changes to the tariffs next week, interest in the issue has been rife for months.

Tens of thousands of comments were filed with the trade agency before the end of the public comment period on July 26. 

Members of the U.S. Wine Trade Alliance, an advocacy group representing merchants and other members of the wine and spirits supply chain, alone sent the trade representative more than 35,000 letters and 7,800 messages voicing their concerns.

“Tariffs on imported wines from the European Union actually do more economic damage to the U.S. companies than they do to their targets in the EU,” said Ben Aneff, the Alliance’s president.

“Right now, the tariffs are 25%,” Aneff continued. “Should they go higher, the result could be devastating to wine merchants and others in the industry.” 

The tariffs are the result of a 15-year dispute between the United States and the European Union, over subsidies they’ve provided to their respective passenger jet manufacturers, Boeing and Airbus.

In 2006, the United States, filed a case with the World Trade Organization claiming Airbus, which is jointly owned by France, Germany, Spain and the United Kingdom’s BAE Systems, had received $22 billion in illegal subsidies.

Thirteen years later, in October 2019, the WTO awarded the U.S. the right to impose tariffs on $7.5 billion in EU imports annually. The U.S. promptly slapped partial tariffs on most Airbus passenger jets, but also imposed them on a number of additional products, including cheese, olives, wines and single-malt whiskey.

The EU Trade Commission said it would consider next steps, but its ability to file a formal appeal was dashed in December when the WTO Appellate Body ceased to function due to the United States blocking new appointments.

The Office of the U.S. Trade Representative then published a list of all the products that would be subject to the proposed tariffs in two annexes.

The first listed specific products that would be subject to additional duties of 10% to 25%, while Annex II lists products for which additional duties of up to 100% are proposed.

Annex II, meanwhile imposed tariffs not only on Germany, France, Spain and the UK but on the entire EU, many of whose members had previously been spared.

“A lot of people ask how these unrelated products got pulled into a dispute that had focused primarily on the aviation industry, and it’s something I don’t really have a good answer to,” Aneff said.

“I mean, these tariffs are just so sweeping … and they kind of took the wine industry with them,” he said.

Aneff said one reason the tariffs are being felt so severely across the entire U.S. wine sector is the way the industry was structured with the repeal of Prohibition in 1933.

“What we have here in the U.S. is a large, three tier system of distribution in which up to 85% of the sales dollars generated stay with U.S. businesses,” he said. “That makes tariffs on imported wine a particularly ineffective way to influence the EU.”

Aneff went on to explain how the structure of the wine industry differs from traditional retail.

“You can walk into a mall in Dallas and buy a Chanel bag from a Chanel store, and everyone who has touched this bag, getting it to the store and into your hands is European. The store is an EU-owned retailer, the manufacturer is in the EU, the distribution is largely EU owned … You cannot do that in the wine world … at least here in the U.S.

“Because of the way things were set up at the end of Prohibition, when you buy a bottle of wine, you’re walking into a U.S. retailer, probably a small business,” he continued. “There are more than 47,000 independent wine retailers in the U.S., and almost all of them are small family owned businesses.

“Meanwhile, that retailer is buying from a U.S. distributor — also probably a small family-owned business. And there are more than 6,500 wine distributors and importers in the United States, and that importer is also a U.S. company who is only then buying from an EU manufacturer.

“The point being tariffs on imported wines from the EU do significantly more economic damage to businesses here at home than they do to those in the EU,” Aneff said.

That’s not just the industry’s opinion.

Earlier this month House Ways and Means Committee Chairman Richard Neal said he’s made clear to U.S. Trade Representative Robert Lighthizer “that he must use these tariffs effectively to maintain pressure on Europe and that the tariffs must be strategically deployed and balanced against collateral damage to our businesses and employees at home.

“Many of the food and drink products on the list of proposed tariffs will impact our pillars of main street who are making sure our communities are fed and taken care of right now,” Neal said.

The proposed tariffs couldn’t have come at a worse time for many businesses that are still reeling from the impact of the coronavirus pandemic, and particularly restaurants.

“Restaurants are on the mat right now, as you and everybody knows,” Aneff said. “One of their single most critical points of profit are the sale of wine and spirits — especially the sale of imported wine. This is where they’re able to actually make some real profit margin.

“The restaurant business is very difficult,” he said. “The fact that the government is hitting them with this, after their sales collapsed at the depth of the pandemic, and at the very moment they’re trying to get up off the mat, is tremendously problematic.”

Aneff said even without the pandemic, the tariffs are the biggest threat the wine industry has faced “in our lifetimes, if not beyond.”

“This is an industry that employs almost 400,000 people, but it’s not six or seven big companies with 30,000 or 40,000 people each, it’s mom and pop businesses, and small entrepreneurs who love what they do. To have the U.S. government put this millstone around their neck is just a shame.”

As the industry awaits Lighthizer ‘s decision, Aneff said he believes the trade representative “has a better understanding than he once did about the disproportional damage the tariffs did to U.S. businesses.

“There’s a long way to go in getting them to fully acknowledge the issues at hand. August 12, which is when we expect a decision, is their next opportunity to revise the tariffs or eliminate them altogether,” he said.

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