A wider swath of wine and spirits including Italian wine, blended Scotch whisky gin, vodka, beer, and other food products, such as olives, chocolates, and pastries, could face U.S. retaliatory tariffs as high as 100% later this summer.
These potential tariffs, as well as the threat of increases to current 25% levies on French still wine with an alcohol content below 14%, single-malt Scotch whisky, and other wines, spirits, and agricultural products from countries in the European Union and the U.K.—to as high as 100%, are causing worries across the wine and spirits industries, given the impact the tariffs already have had on the U.S. economy, trade associations say.
The tariffs under review by the office of the U.S. Trade Representative (USTR) initially were imposed in October 2019 on a rotating list of products from France, Germany, Spain, Italy, and the U.K. in response to a World Trade Organization ruling concerning European Union subsidies to
Airbus.
The ruling allowed the U.S. to impose retaliatory tariffs on imported goods representing up to US$7.5 billion worth of trade value.
Industry officials argue these levies—which must be reviewed by the USTR every 180 days—already are hurting U.S. businesses and consumers. Consumers, for instance, are facing a 46% hike in the price of certain distilled spirits and cordials, and a 41.4% hike in the price of some wines from some EU countries as a result of the current 25% levies on wine and spirits, according to study results presented this week by the Wine & Spirits Wholesalers of America (WSWA).
These tariffs also are expected to lead to job losses of 98,000 in the beverage alcohol industry in the U.S., representing more than $3.8 billion in wages, and a cost to the U.S. economy of more than $11 billion this year, WSWA said.
“Doubling down on tariffs could be a knock-out blow to many in our industry,” Michelle Korsmo, WSWA’s president and CEO, said in a webinar update on the tariff situation this week. That’s because many wholesalers already are dealing with the fallout of the pandemic, which has devastated business for restaurants, bars, and tasting rooms that the industry serves.
“We’re the ones who are suffering through no fault of our own,” Burton May, an executive vice president at Opici Family Distributing in Glen Rock, N.J., said during the webinar. Opici “ate about 10%” of the cost of the tariffs from October to March, leading to a 1% reduction in its gross profit. “A 1% margin hit, plus the pandemic—that’s a huge impact for us.”
The list of products previously spared from tariffs, but now being considered, includes still wines from Italy, Greece, and Portugal.
With the wine industry already suffering from the initial levies, anything additional would be “devastating,” not only to the U.S. wine business, but to restaurants and other industries that rely on wine sales, particularly given the ravages to these businesses resulting from the coronavirus pandemic, says David Parker, president of the National Association of Wine Retailers (NAWR).
Parker, who is also CEO of Benchmark Wine Co. in Napa Valley, Calif., was hit with “an entirely unexpected bill, deep into five figures,” on wine he had purchased from Europe last fall that had already been shipped out to sea when the October tariffs went into effect. As a result, Parker, who sells to high-end restaurants and collectors, is not buying wine from Europe now—even wine not currently affected by the tariffs—because of the constant uncertainty over which ones will be taxed.
“The not-knowing is horrific,” Parker says. He’s calling on the USTR to make a definitive statement that wine and spirits will be “carouseled off” the list of products subject to tariff for two years. “If they don’t do that, they are doing just as much damage with this uncertainty,” he says.
After a USTR review of the levies in February, tariffs on agricultural products—including wine and spirits—were retained, although those on certain aircraft parts were raised to 15% from 10%.
Around this time, industry officials had expressed hope that trade negotiators from the U.S. and the E.U. would be able to sit down and work out differences in the central issue concerning a more-than-15-year dispute between Airbus, based in the Netherlands, and
Boeing,
based in the U.S. But the Covid-19 crisis interrupted that timeline.
“We certainly want them to get back to the table sooner rather than later,” says
ChristineLoCascio, chief of public policy for the Distilled Spirits Council of the United States (DISCUS).
Particularly now, with the industry reeling from Covid-19, the potential for several ongoing trade disputes to escalate further—dragging in the unrelated beverage alcohol industry—could be devastating.
“We understand these are long-standing issues, and there’s a desire to get these resolved, but unfortunately our sector has been caught in the middle,” LoCascio says.
In addition to the 180-day review of the USTR’s imposition of tariffs on EU products this August, the industry is also awaiting a separate ruling from the WTO on an aircraft case brought by the EU against the U.S. for providing subsidies to Boeing. That ruling could lead to tariffs on wine and spirits produced in the U.S., including vodka, rum, and brandy, according to DISCUS.
Also, two years ago, the EU imposed a 25% tariff on American whiskey imported to the EU in response to U.S. tariffs on EU steel and aluminum. That tariff has been devastating to U.S. producers, particularly craft distilleries, with exports falling by 33%, or US$300 million, since it went into effect, the DISCUS reported in June. The EU may double this tariff to 50% in the spring of 2021.
The argument put forward by DISCUS, as well other trade organizations in the U.S. and the EU, is that it’s time to return to having no tariffs at all between the trading partners. “Zero duties,” LoCascio says, were “beneficial to our industry for 20 years.”
Public comment on the tariff review is due Sunday, July 26. The USTR office is expected to release its decision on Aug. 12.
