Is it possible a wine tariff trade settlement is finally possible?
The Trump Administration won’t raise the 25 percent on selected European wines, which is about as much good news as we can hope for these days.
The U.S. Trade Representative’s statement yesterday said it wouldn’t increase the tariffs on French, Spanish, German, and British wine that have less than 14 percent alcohol. The agency had been re-examining the tariffs, as required by law, and had intimated a couple of weeks ago that it would consider upping the 25 percent rate. Instead, it left the tariff unchanged, as it did on some whiskeys, other spirits, and some food like Italian cheese.
European Union officials welcomed the news, saying the decision to refrain from an increase would help prevent a further escalation in the trade war. Both sides said they would try harder to reach a settlement.
The tariffs were enacted last October as part of a decades-old dispute about airplane parts, which keeps getting sillier and sillier as the world battles both a recession and the pandemic. Those of you who aren’t worn out by all of this can check out the tariff’s history here.
The Trump zombie tariff is lurking over the horizon, which means the price of European wine could double.
Why haven’t we been able to kill the Trump zombie wine tariff, which is bad economics and bad public policy?
July 13 update: Federal trade officials announced Friday that the U.S. has delayed imposing additional tariffs on French wine until January, as part of the dispute over the French tax on Facebook, Google, and Amazon. And there is still no word on whether the Trump Administration will impose additional tariffs on all European wine as part of the Boeing-Airbus trade dispute. So, yes, some good news — though not as good as so many have been reporting.
July 6 post: Just when it seemed safe to drink European wine without worrying that it could double in price, the Trump zombie wine tariff is lurking over the horizon.
That’s the 100 percent tariff on almost all European wine, which the Trump Administration proposed in February. The administration backed off then, raising tariffs on European airplane parts instead. Which made perfectly good sense, since the original trade dispute was about airplane parts.
But the proposal is back. Last week, the Office of the U.S. Trade Representative proposed tariffs on nearly $3.1 billion worth of European products and that would raise the current wine tariff from 25 percent to 100 percent.
None of this makes any sense, and not just because this whole thing is about airplane parts.
• The world economy is in recession. So why would any sane person consider raising taxes?
• The coronavirus. So why would any sane person consider raising taxes?
• France’s so-called digital tax on U.S. companies like Facebook, Amazon, and Google has somehow become part of the dispute, though why the federal government needs to protect these giga-billion dollar behemoths is beyond me. And doesn’t President Trump hate Amazon?
The good news, if there is any, is that most of the people I talked to say the tariff proposal is likely empty bluster, more posturing from an administration that has perfected bluster. Two wine industry officials, who asked not to be identified because of the sensitive nature of the topic, said they didn’t expect the 100 percent levy to be approved. One, who has been closely involved with negotiations, said, “My personal view is that the most likely outcome is no change” until the final World Trade Organization ruling later this year on the original aircraft parts dispute.
Having said that, this is no time for slacking off. After all, we all know how difficult it is to kill zombies. Hence, if you oppose the 100 percent tariff, you can leave a comment with the U.S. Trade Representative at this link. The comment period ends on July 26.
This week’s wine news: U.S. wine tariff update, which may include some good news. Plus, is this the beginning of the end of icewine?
• Big tariff losses…: The Robb Report, addressing last fall’s 25 percent wine tariff, says “The resulting price hike has made many bottles simply too expensive for U.S. sellers to import. Now, with an abundance of wine bottles in reserve, French vintners are reportedly slashing prices to stay afloat.” The story doesn’t get much more specific than that, though it does cite the French wine industry’s continuing woes. Still, one of the smartest people in the wine business told me, after the tariffs went into effect, that this was possible. Wine can’t be stored like steel, to be sold when demand picks up. It needs to be sold every vintage, and if vintages start backing up, the only way to sell them is to cut prices. We shall see.
• Too warm for icewine: Icewine is one of the wine world’s great treats – rare, expensive, and incredible to drink. Now, thanks to warmer winters in Germany, it may be going away. That’s because icewine is made by harvest frozen grapes on the coldest of winter mornings, and there haven’t been enough of those mornings this winter. The German wine trade group says there will be icewine vintage for 2019, and only one producer will make a tiny amount.
The bad news? We’re stuck with the 25 percent tariff imposed last fall until the next review, set for August.
Still, this is much more than a half empty glass. The decision seemed to reflect the wine industry’s tremendous and almost unprecedented lobbying effort against the 100 percent tariff, in which representatives from each of the three tiers testified at U.S. Trade Representative Office hearings, blitzed the old and new media, and organized public anti-tariff campaigns. In this, groups that typically disagree as often as they agree worked together for the greater good.
For example, the Wine Institute, the trade group for California producers, has been working for years to change state laws to make it easier for consumers to buy directly from wineries. This has been opposed by most of the second tier, since wholesalers have a monopoly on selling to retail and restaurants under the three-tier system and don’t want to allow any exceptions. But the two groups were side by side in opposing the tariff.
“It was one of the rare cases in the industry when everyone’s interests aligned,” says Cindy Frank, a long-time wine industry executive who has worked as an importer, wholesaler, producer, and retailer and who testified at last month hearings before the U.S. Trade Representative in opposition to the tariffs. “It’s the one issue that has worked itself all the way through the three-tier system.”
So where does this leave us?
• The tariff decision was announced on Friday afternoon. This timing, after everyone leaves for the weekend, almost always means the people announcing the news didn’t want to talk about it. Which often means they did something they didn’t want to do, and so didn’t want to have to explain their decision. Still, that aircraft tariffs were increased, when the initial dispute was about aircraft, speaks volumes. The World Trade Organization ruled in October that EU subsidies to Airbus were illegal, and that the U.S could impose tariffs in retaliation.
• Credit some of the decision to our friend, the three-tier system. Apparently, Trump Administration officials didn’t understand what three-tier was or how it worked. Their questions, said several people who testified, assumed retailers, importers, and wholesalers could easily replace European wine with imports from other parts of the world, just as they would steel or soybeans. The officials didn’t know how severely three-tier restricts how wine can be sold in the U.S.
• Economic turmoil. The wine industry lobbyists, as part of their effort, did an excellent job in showing that higher prices for imported wine would lead to job losses, bankruptcies, and lost sales up and down the U.S. supply chain, whether big or small retailers, producers, importers or distributors, says Southern Glazer’s Barkley Stuart, the chairman of the Wine & Spirits Wholesaler Association’s board of directors.
• The tariff was re-examined four months after it was applied as required by U.S. law. This was a point of confusion after the October ruling, and I reported the process incorrectly in the “Does anyone have any idea what’s going on?” post (and since updated). The next tariff review, as required by law, must come by August. In addition, the WTO is expected to announce later this year that the U.S. gave Boeing illegal subsidies in retaliation for the EU subsidies to Airbus. If that happens, then there’s political cover for both sides to negotiate away the tariffs, but no one knows if or when that will happen.
• Retailers, pricing, and rose season. As reported here and elsewhere, retailers, distributors, and importers have worked together since October to minimize the 25 percent tariff’s effect on prices. But, as one Dallas retailer told me, all bets are off on holding the line on prices when rose season arrives in the next month or so.