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Tariff Suspension Welcome for French Wine Lovers
By Panos Kakaviatos
Mar 23, 2021
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A recent report from Liv-ex, a global marketplace for the wine trade, indicates “surging” activity in response to news that U.S. tariffs on European wines have been suspended.  “U.S. buying activity was up 36% in the days following the announcement, as American buyers flocked to snap up the wines previously subjected to the tariffs,” according to Liv-Ex.
 
Earlier this month, the United States Trade Representative (USTR) and European Trade Commission announced in a joint statement that all tariffs related to the Boeing-Airbus dispute would be suspended for four months.

Producers in French regions with lower alcohol levels like Alsace, the Loire Valley and Burgundy are rejoicing as the hefty 25% tariff applied only to wines with up to 14.5% alcohol.  As wines from these regions rarely approach even 14% alcohol, they could not fenagle as some Bordeaux producers did with some 2018 vintage wines: although labels indicated 14.5%, the actual levels were closer to 14% alcohol.

Merchants in the U.S. do not yet see an uptick in sales, but they are optimistic.  “I’ve certainly been buying more wine in categories like Bordeaux, where we were a bit thin, as it didn’t make sense to bring much of this in with the tariff in place,” explains Phil Bernstein of wine importer/retailer MacArthur Beverages in Washington, D.C.  “I’m of course concerned that it will come back, but I’ve got to think all parties involved will resolve this thing!”

Although the news is good, Bernstein adds that it has been “an absolute nightmare” to get containers right now as everyone is scrambling to bring in as much as they can during the four-month grace period.

Indeed, before the joint announcement, Bordeaux accounted for but 4% of firm bids to buy on Liv-ex among U.S. buyers.  Currently, the region now accounts for a whopping 55% of such firm bids, with the most sought-after wines being top Left Bank vintages (2005, 2009, 2010, 2015 and 2016).  Although largely driven by wines from Pauillac and the First Growths, Saint-Julien, Saint-Emilion, Pomerol and Margaux are also enjoying increased demand, according to Liv-Ex.
 
Other previously tariffed regions, such as the Rhône and Spain, have also seen a “significant uplift” in bids.  The value of Rhone bids from US merchants rose from 3% to 8%, with demand largely surrounding 2016 Châteauneuf-du-Pape.
 
This increase in demand for Bordeaux however, comes at the expense of regions previously exempt from the tariffs, according to Liv-Ex.  Italy, for example, accounted for 25% of U.S. bid values before the joint announcement, but that percentage has since fallen to 14%, although demand for Italian wines remains robust and the nation still accounted for 41% of U.S. trade value earlier this month.
 
Origin of the Tariff

The tariff had been in place for well over a year due to an ongoing trade dispute with the EU.  Both entities had accused the other of illegally subsidizing their aerospace companies.  In 2019, with acknowledgment from the World Trade Organization that the EU had unfairly subsidized Airbus, the US imposed tariffs on some EU exports, ranging from tractors to wines and spirits, worth up to US $7.5 billion.
 
When the WTO also ruled that the U.S. had illegally subsidized Boeing, that paved the way for the EU to impose counter tariffs last year on U.S. products, worth approximately US $4 billion.
 
Former President Donald Trump’s “America First” policies led to an enthusiastic embrace of the tariffs, as relations between the U.S. and the EU hit a low.  Hopes of improvement since Joe Biden’s victory last November has led to hopes that the relationship could be repaired and tariffs abolished, but a four-month pause is…by a long shot…better than nothing.