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Posted: Saturday, 08 February 2020 22:24

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Taxes on French Import make Wine Market crash in the USA

Feb 08: Import duty of 25% imposed on French Wine imports into the US By President Trump from October 18, 2019 has resulted in a fall of 44% by value with French producers asking EU to compensate them for the loss, writes Subhash Arora who feels that the reverse of this could well apply to India, in that reduction of duties could result in an excellence growth in wine import with the prices coming down

In what has come as a shock to wine growers, Deputy Foreign Minister of France, Jean-Baptiste Lemoyne says exports dropped 44 per cent by value in November as compared with October, after the additional penalty came into force on October 18. This when the threatened increase of 100% on Champagne and sparkling wines and a possible punitive increase on still wines, has been postponed for the time being.

President Donald Trump imposed 25 per cent tariffs on a range of European products in a battle over subsidies to plane maker Airbus, officials said on Friday while announcing the statistics on the drop of import. They were imposed after the World Trade Organization (WTO) established that the subsidies given to the pan- European aerospace group was not justifiable. EU still did not remove the illegal subsidies for the sector whose main rival is the US aircraft producer Boeing.

Although it may not be practical, the French producers have requested EU to compensate then for the loss of duty and hope for a positive response from the EU which is a mega bureaucracy and may have to wait for months. The tariffs have been especially painful to producers at the lower ends of the market, where a 25 per cent price hike makes an affordable bottle into possibly a luxury product . This is what has been happening in the Indian wine industry where duties work out to be anywhere from approximately 225-350%. A reduction in duties could spur the demand significantly.

Airbus manufacturing company is a joint venture of France, UK, Spain and Germany. Therefore, US  is targeting their products valued at US$ 7.5 billion and includes olive oil, Irish and Scotch whiskey, German industrial tools, British cashmere and a wide range of European cheeses. Incidentally, Italy has not been targeted though it is in EU, since they are not a part of Airbus industry. A further increase is in the offing if Europe imposes taxes on American biggies like Amazon and Facebook which it had threatened. France has suspended what it terms as digital tax after agreeing on further talks with the US.

Those tariff increase would come on top of 25% tariffs already imposed on a wide range of other European imports also, including Airbus jets, European cheeses, wines and other products in a dispute with the European Union over aircraft subsidies. President Trump views tariffs as a practical tool in such disputes which he has also used successfully against China. Such tariffs have to be paid by importers who pass them on to the distributors and finally consumers.

The U.S. is the largest consumer of French wines and spirits, importing $3.5 billion worth of bottles in 2018, up 4.6 percent from the previous year, according to the Federation of French Wines and Spirit Exporters.

US border taxes on imported wine are lower than those imposed by the EU. Americans drink  more European wine than Europe importing from the US. In 2017, the United States reportedly imported $4.5 billion in European wine but exported only $553 million worth to  Europe. Sparkling wines see a much wider trade gap- Thanks to the popularity of Champagne, and Prosecco and other bubblies like Cava, a miniscule $3.5 million worth of American fizz was exported to the EU.

Subhash Arora


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