We’ll start back on April 12, 2019.
A notice is posted in the Federal Register: The United States Trade Representative (USTR) is beginning an investigation under Section 301 to enforce its rights in a World Trade Organization dispute involving large civil aircraft.
Back in April 2019, that sentence made as much sense to the American wine industry as it likely does to you now. More honestly, the American wine industry didn’t even notice the notice. We didn’t notice that wines from various European countries were included in the tariff schedule in the Appendix. And we certainly didn’t notice the hearing dates and comment period scheduled for impacted industries to weigh in on why specific tariffs might be a bad idea.
But we did notice when those tariffs took effect in October of 2019 because suddenly, the importers were looking at an extra 25% bill to pay on all still wines under 14% alcohol by volume from France, Germany, Spain, and the United Kingdom.
Big oops, right?
Another potential oops had been published in the Federal Register back in July 2019. This time it involved a Section 301 action related to the Digital Service Tax (DST) dispute with France. In the Appendix: a proposed 100% tariff on Champagne and other sparkling wines. Hearings were scheduled for January 2020 in Washington DC.
This time, the wine industry noticed and was heading to DC for the hearings.
But first, a little bit of an explainer:
Section 301 Enforcement is the process by which the USTR proposes, collects comments on, and then levies tariffs against other governments during a trade dispute. Unlike tariffs levied under the International Economic Emergency Powers Act, it’s a very orderly process:
- A 301 action is announced in the Federal Register with the proposed tariff schedule (amounts and items) included in the Appendix.
- A comment period and often, a hearing date, is set when anyone can make their case as to why their products should not be included.
- After this period, the final tariffs are decided, levied, and paid.
- 180 days later, the process repeats itself with another round of comments and adjustments to the tariff schedule.
This is called a 301 Carousel, and it can go on and on and on until the specific trade dispute is sorted out. Once a product has a tariff on it, the process allows for it to be removed, but the best situation is to prevent your product from being tariffed in the first place.
Back in January 2020, the wine industry was riding two of these carousels. The first was already spinning: those 25% tariffs levied in October 2019, part of the large civil aircraft dispute (which we’ll call the Boeing/Airbus action). The second was the DST action against France, with the potential 100% sparkling tax – and that ride was just getting started.
Which brings us to a very fancy room in Washington DC, where a bunch of wine industry folks are trying to convince trade bigwigs in the executive branch that wine isn’t the best target for a targeted tariff action, which very quickly becomes a lesson in the three-tier system.
In theory, the tariffs levied during one of these actions are meant to punish the target countries’ economies and industries while minimizing impact to US businesses and consumers. Whether this actually works in any reality is the topic for dueling think tanks across the country, but what is certain is that the tariffs are paid for by the company that receives the goods in the US.
In the case of wine, that company will almost always be an American-owned importer. Those bottles will then be sold to an almost-certainly American-owned distributor who will sell them to probably-definitely American-owned retailer or restaurant. This is the reality of our three-tier distribution system, and because of it, U.S. wine companies earn $4.52 for every $1.00 spent on imported wines, as calculated by the U.S. Wine Trade Alliance (USWTA.) This differs from other less-regulated industries where a non-American supplier can capture the sales revenue all the way to the point of sale to the end consumer and flow it back home.
In addition, the majority of businesses operating in the wine industry – especially the restaurant and retail accounts – are small, family-owned, and deeply rooted in their communities. Exactly the sorts of businesses that politicians of all parties say they don’t want to harm.
It became very clear during that hearing in January 2020 that the trade specialists determining the tariff schedule have no real understanding of the three-tier system. Why should they really…there are plenty of people actually operating in the industry who barely understand it.
That January 2020 realization – that our industry was entirely exposed to these and future carousels –kicked many people into gear. A big step was the formation of the USWTA mentioned above, a cross-industry group focused on educating the federal government about the unique structure of the wine industry and its composition of small businesses (yes, that’s code for lobbying against tariffs.)
Over the next months, comments flood the USTR portal. (Records were set.) Congresspeople send letters to the USTR expressing their concern. (Wine will apparently motivate people to reach across the aisle.)
Did it work? When the final tariff schedule related to the DST action was announced in July 2020, wine was not included, so it certainly didn’t hurt.
Meanwhile, the 25% tariffs related to the Boeing/Airbus actions were still in place. On the next revolution of that carousel, during the summer of 2020, additional wine tariffs were proposed, and the USWTA kicked back into gear. More comments were posted, more signed letters were sent. The result: tariffs would remain at 25%, a major victory if still a bit disappointing. At the end of 2020, additional wine tariffs were proposed and…
…is your head spinning? Mine certainly is – and I was actually involved in most of this!
So how does it end? Well, it doesn’t really. Not in any permanent, done and gone forever way.
The DST action was suspended back in 2021, but the underlying issue hasn’t really been solved. That carousel could start spinning at any moment. The Boeing/Airbus action was put on pause until 2026, but that was done by an Executive Order – and another Executive Order could easily undo it. The USWTA has eyes on the Federal Register every day to see if these, or any new Section 301 actions, are mentioned that involve wine.
In addition to the orderly (note that “orderly” doesn’t mean “easily comprehensible”) Section 301 tariff process, there was also a potential Universal Tariff put forth on the campaign trail leading up to the last election; 10% on all imported goods is the number that had been kicked around. But in trade policy language, “universal” rarely means “everything,” so the USWTA is hard at work putting distributors, retailers and restaurants in key districts in front of their representatives.
I wish I could give you an easy, happy ending to this tariff story, but the carousel is still spinning. Grab a glass of wine and let’s see what the next revolution brings.