San Francisco Chronicle Late Edition

Tar­iff may trig­ger soar­ing wine prices

Row over air­craft snares French, Ger­man la­bels

- By Es­ther Mob­ley Business · Alcoholic Drinks · Wine · France · Germany · United States of America · European Union · Union · San Francisco Bay Area · Graf, IA · Boeing · Airbus · World Trade Organization · Beijing · Laughlin, NV · Alice · Washington · Joe Biden · Joe · Bordeaux · Cognac · Bourgogne · Healdsburg · Office of the United States Trade Representative · United States International Trade Commission · Novato, CA · Jura · Jura · West Coast · North Berkeley, WV · Alice Waters · Napa

Cer­tain wines from France and Ger­many may soon be­come a lot more ex­pen­sive in the U. S., due to a 25% tar­iff that took ef­fect Tues­day.

The new fee, an­nounced by the U. S. trade rep­re­sen­ta­tive two weeks ago, is de­signed to pe­nal­ize the Euro­pean Union as part of an on­go­ing dis­pute over air­craft sub­si­dies that’s dragged on for more than 16 years. But ac­cord­ing to wine in­dus­try lead­ers, the great­est penal­ties will be paid by Amer­i­can busi­nesses, not Euro­pean ones, in­clud­ing Bay Area wine im­porters and restau­rants that have al­ready been strug­gling to sur­vive dur­ing the pan­demic.

For ev­ery dol­lar the U. S. spends on a bot­tle of Euro­pean wine, Amer­i­can com­pa­nies — in­clud­ing wine im­porters, dis­trib­u­tors, re­tail­ers and restau­rants — make $ 4.52, ac­cord­ing to Ben An­eff, pres­i­dent of the U. S. Wine Trade Al­liance. The tar­iffs “dis­pro­por­tion­ately dam­age busi­ness in the U. S.,” he said, “which makes tar­iffs par­tic­u­larly in­ef­fec­tive in get­ting the E. U. to change be­hav­ior.”

These tar­iffs apply to French and Ger­man wines with 14% or more al­co­hol by vol­ume, plus cer­tain brandies in­clud­ing Co­gnac and Ar­magnac. Cham­pagne and Cham­pagne-method sparkling wine are ex­cluded, though “ef­fer­ves­cent” wine, such as petil­lant na­turel, is sub­ject to the fees. Foods, in­clud­ing many cheeses, are also sub­ject to new tar­iffs, as well as air­craft parts like fuse­lages.

That means Amer­i­can wine drinkers may have fewer French and Ger­man wines to choose from at shops, and the ones that are here may get pricier. An en­trylevel Chardon­nay from Pas­cal Cle­ment, a pro­ducer in France’s Bur­gundy re­gion, could rise from $ 30 to $ 44, said its im­porter Steve Graf, co­founder of Valkyrie Selections in Healds­burg. That in­crease makes the wine “un­sellable,” Graf added. “I don’t think I’m go­ing to be able to con­tinue buy­ing wines from him.”

They are not the only tar­iffs be­ing levied on Euro­pean wines. An ear­lier round, also re­lated to the dis­pute over air­craft sub­si­dies, added 25% to French, Ger­man and Span­ish still wines un­der 14% ABV, plus Irish and Scotch whiskeys and spe­cialty foods.

By in­tro­duc­ing the new tar­iffs, the Of­fice of the U. S. Trade Rep­re­sen­ta­tive is try­ing to match the value of re­cent ac­tions by the E. U., the lat­est backand­forth in the trade wars cen­tered around Amer­i­can air­craft man­u­fac­turer Boe­ing and its Euro­pean com­peti­tor, Air­bus. The con­flict orig­i­nated when the U. S. com­plained to the World Trade Or­ga­ni­za­tion that Air­bus had re­ceived il­le­gal sub­si­dies, giv­ing it a sig­nif­i­cant eco­nomic ad­van­tage. Ever since, the World Trade Or­ga­ni­za­tion has au­tho­rized both the U. S. and the E. U. to levy tar­iffs against each other’s goods in vary­ing amounts.

The an­nounce­ment from the U. S. trade rep­re­sen­ta­tive’s of­fice did not spec­ify why wine, brandy and other food prod­ucts specif­i­cally were tar­geted in the new ac­tion, but said that France and Ger­many were tar­geted be­cause those two coun­tries have pro­vided the largest lev­els of sub­si­dies. The Of­fice of the U. S. Trade Rep­re­sen­ta­tive did not re­spond to a re­quest for com­ment.

It’s in­evitable that any coun­try’s tar­iffs will have some im­pact on its own com­pa­nies, es­pe­cially com­pa­nies that sell for­eign goods. By May, im­ports of the French wines af­fected by the 2019 tar­iffs had dropped by more than 53%, ac­cord­ing to data from the U. S. In­ter­na­tional Trade Com­mis­sion, which would sug­gest that the tar­iffs were hav­ing the de­sired ef­fect of pres­sur­ing the French econ­omy.

But An­eff said in the case of wine tar­iffs, the eco­nomic dam­age to U. S. com­pa­nies has ac­tu­ally ex­ceeded the dam­age to the E. U. That’s largely be­cause al­co­hol sales are reg­u­lated by U. S. states, not the fed­eral govern­ment, and so there are mul­ti­ple mid­dle­men — im­porters, dis­trib­u­tors and a retailer or restau­rant — that are af­fected by in­creased costs.

More­over, An­eff cited other data from the U. S. In­ter­na­tional Trade Com­mis­sion show­ing that over­all French wine ex­ports rose by 2.77% af­ter the 2019 tar­iff im­ple­men­ta­tion, in­clud­ing a 35% in­crease in ex­ports to China. In other words, even though U. S. buy­ing slowed, French winer­ies have been able to find other mar­kets for their prod­ucts.

Mean­while, Bay Area busi­nesses braced for the new ex­pense. A $ 43,000 tar­iff bill will await Valkyrie Selections when its next ship­ment of 2,800 cases ar­rives by boat from France next week. While Graf can ab­sorb some of the new cost, it’s in­evitable that some por­tion of that new bill will be passed along to con­sumers. By the time his newly tar­iffed French wines hit the re­tail shelves, he ex­pects prices to be 1525% higher than they cur­rently are.

“Ul­ti­mately there’s go­ing to be less choice on the shelf,” said Kate Laugh­lin, vice pres­i­dent of No­vato im­porter Mar­tine’s Wines. More than 90% of the Mar­tine’s port­fo­lio is com­prised of French im­ports, and she ex­pects some of the more ob­scure cat­e­gories — like wines from France’s Jura re­gion — to be­come non­vi­able with the new fees. “These are not fun­gi­ble prod­ucts,” Laugh­lin said. “These are very dis­tinct prod­ucts that we’re deal­ing in.”

The abrupt tim­ing of this new tar­iff an­nounce­ment struck many in­dus­try play­ers as par­tic­u­larly un­fair. The or­der came on Dec. 30, giv­ing just two weeks’ ad­vance no­tice. But con­tainer ships can take six weeks to bring wine from Europe to the West Coast, mean­ing that many im­porters al­ready had ship­ments un­der way and were help­less to avoid the new costs.

“We can’t turn the boat around,” Laugh­lin said.

“That’s the thing that is fun­da­men­tally un­fair — we have or­ders al­ready in mo­tion that are now go­ing to cost us 25% more.”

Billy Weiss, owner of North Berke­ley Im­ports, had just been fig­ur­ing out how to ab­sorb the ef­fects of the 2019 tar­iffs when this new round was an­nounced. He said that the ear­lier tar­iffs, ap­plied to low­er­al­co­hol wines, were not as dele­te­ri­ous as they might have been in an­other pe­riod, since the cur­rent vin­tages from France — 2018 and 2019 — were warmer years and tended to re­sult in high­er­al­co­hol wines.

“Most of the ( French) wines we’ve brought in were nat­u­rally over 14.1%,” said Weiss, who im­ports from about 60 French winer­ies. “So while we’ve had some ef­fect, it was re­ally a small sub­sec­tion of my busi­ness.” That’s about to change; now, all of his French wines will be af­fected. ( The im­pact on Ger­man wines, which Weiss does not im­port, will be smaller since fewer Ger­man wines ex­ceed 14%.)

Weiss said he had been left with no choice but to raise prices for his cus­tomers, in­clud­ing restau­rants. “When you have all these restau­rants that are go­ing out of busi­ness, do we re­ally want to raise the cost of wine for them?”

Lead­ers of the restau­rant in­dus­try have spo­ken out against the tar­iffs too. “Frus­trat­ingly, restau­rants have been caught in the cross­fire of a much larger trade war,” wrote chefs Alice Wa­ters and Kwame On­wuachi in a Dec. 30 oped in the Washington Post. They ar­gued that, be­cause the tar­iffs add a sig­nif­i­cant fi­nan­cial bur­den to restau­rants, their staff risk los­ing their jobs. As a re­sult, they wrote, “work­ing­class Amer­i­cans such as line chefs, dish­wash­ers and wait staff suf­fer the most.”

Wa­ters and On­wuachi have helped form a group called the Coali­tion to Stop Restau­rant Tar­iffs, whose goal is to per­suade the ad­min­is­tra­tion of Pres­i­den­t­elect Joe Biden to elim­i­nate the wine and food tar­iffs as soon as pos­si­ble.

That choice may even­tu­ally lie with Kather­ine Tai, Biden’s pick for trade rep­re­sen­ta­tive, but the time­line on which she might act was un­clear. An­eff, of the U. S. Wine Trade Al­liance, said the nom­i­na­tion of Tai was a “boon” for the wine in­dus­try but still thought it un­likely that a new trade team would be in place by the next spec­i­fied date for re­view­ing the tar­iff sched­ule, in Fe­bru­ary. That means the cur­rent wine tar­iffs could be in place for most of 2021.

“That be­ing said, Biden will have the power to make whole­sale changes es­sen­tially on day one,” An­eff said. He hoped that the Biden ad­min­is­tra­tion would be con­vinced by the sim­ple fact that these wine and food tar­iffs have, so far, not made the im­pact on the French econ­omy that the U. S. trade rep­re­sen­ta­tive had in­tended.

Weiss of North Berke­ley Im­ports echoed a sen­ti­ment shared by many oth­ers in the wine in­dus­try: Why should small, fam­i­ly­owned wine com­pa­nies be in­volved in a fight that’s re­ally be­tween cor­po­rate, in­dus­trial man­u­fac­tur­ers? “This is re­ally a dis­pute be­tween Air­bus and Boe­ing, not be­tween Napa and Bordeaux,” he said. “And it just means that the choices of Bay Area con­sumers will be more lim­ited and more ex­pen­sive.

“It’s im­por­tant for peo­ple to un­der­stand,” Weiss con­tin­ued, “that small busi­nesses are es­sen­tially be­ing used as a pawn.”

 ?? Pho­tos by Scott Straz­zante / The Chron­i­cle ?? An in­ter­na­tional dis­pute over air­craft sub­si­dies will mean a 25% tar­iff on some French wines.
Pho­tos by Scott Straz­zante / The Chron­i­cle An in­ter­na­tional dis­pute over air­craft sub­si­dies will mean a 25% tar­iff on some French wines.
 ??  ?? Ship­ments en route will be hit by the un­ex­pected 25% tar­iff, says Kate Laugh­lin of Mar­tine’s Wines.
Ship­ments en route will be hit by the un­ex­pected 25% tar­iff, says Kate Laugh­lin of Mar­tine’s Wines.
 ?? Scott Straz­zante / The Chron­i­cle ?? Jonathan McCul­lough pre­pares a de­liv­ery at Mar­tine’s Wines ware­house in No­vato.
Scott Straz­zante / The Chron­i­cle Jonathan McCul­lough pre­pares a de­liv­ery at Mar­tine’s Wines ware­house in No­vato.

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