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Industry Groups Speak Out Against New Proposed Tariffs On Imported Wine And Spirits, As U.S. Takes Aim At E.U., Mexico

May 31, 2019

Just days ago the U.S. reached new trade agreements with Canada and Mexico that were expected to ratchet down tariff tensions. But now, new proposals to impose tariffs on wine and spirits from the E.U.—and last night’s announcement that the U.S. will impose levies on all products from Mexico—have roiled the industry again.

On April 8, the U.S. Trade Representative (USTR) announced a preliminary list of E.U. products that could be targeted with tariffs moving forward, including brandy, liqueurs, cordials, wine, and non-alcoholic beer. Following the USTR’s draft list, the E.U. responded in kind, threatening tariffs on American wine, rum, vodka, and brandy (American whiskies are already under a 25% tariff in the E.U. as of last year). Then, last evening, the U.S. administration announced that it will impose a 5% tariff on all goods from Mexico on June 10, with the rate rising to up to 25% within the next few months, in an attempt to apply pressure to the Mexican government to stop migration across the southern border.

The Distilled Spirits Council of the United States, the Wine & Spirits Wholesalers of America (WSWA), the Wine Institute, the Kentucky Distillers’ Association, and the American Craft Spirits Association—along with other beverage alcohol trade groups, representing producers and importers—have filed objections with the USTR in a bid to avoid implementation of the tariffs on E.U. products, which stem from a dispute between the U.S. and E.U. over aircraft subsidies.

“American whiskey producers are already feeling the pain of retaliatory tariffs imposed by the E.U. The inclusion of spirits on the proposed U.S. retaliatory tariff list will only escalate the trade war and further harm U.S. distillers, farmers, and consumers,” Distilled Spirits Council president and CEO Chris Swonger told SND. “We urge the U.S. and the E.U. to come together and resolve these trade issues, which are unrelated to the spirits industry.”

Michelle Korsmo, CEO of WSWA, added, “When you look at this tariff in particular, it really affects consumers across every price point of each segment. Entry level, everyday products are going to be affected just as much as high-end imported products.”

According to an analysis conducted by the alcohol trade groups and submitted to the USTR, enacting a 10% tariff could cost the industry over 6,600 jobs and lead to higher prices and decreased availability. The group’s analysis concludes that a 10% tariff would increase prices by 6.3%, 5.5%, and 7.3% for Cognac, cordials, and imported wine, respectively, lowering sales by an estimated $1 billion. The analysis is repeated for 25% and 100% tariffs, which would result in estimated sales losses of $2.4 billion and $7 billion, respectively.

“The three-tier system gives consumers lots of choice. It gives consumers in so many locations access to all kinds of products,” says Korsmo. “With these tariffs, consumers may not have the access that they’ve had before, and even if they do, products will be more expensive.”

Currently, the E.U. is imposing a 25% tariff on American whiskies sent to the bloc, in retaliation for U.S. tariffs on steel and aluminum. In the second half of last year, following the implementation of the tariffs, American whiskey exports to the E.U.—which accounts for nearly 60% of U.S. exports—dropped by 13%.

According to Becky Harris, distiller at Virginia-based Catoctin Creek and a board member at the American Craft Spirits Association, “This trade war is costing small businesses market share and mind share in European markets.” For Catoctin Creek, she notes, “In 2017, with 11% of our sales going to the E.U., we were looking for sales to grow to 25% in 2018. After the E.U. imposed a 25% tariff on American whiskey, our E.U. sales that year plunged to only 1%.”

Meanwhile, last night’s announcement of new tariffs on Mexican products threatens both Tequila and the massive Mexican beer category in the U.S. The U.S. Tequila market was up 7% to 18.4 million cases last year, according to Impact Databank, and has been a major source of growth within spirits lately, expanding by more than 1.1 million cases annually over the past three years. In beer, Constellation’s Corona and Modelo franchises will be in the crosshairs, along with Heineken USA’s Tecate and Dos Equis brands. Constellation’s beer portfolio had shipment volume of nearly 300 million (2.25-gallon) cases in the fiscal year ended in February—dominated by Mexican imports—and sales of $5.2 billion. Morgan Stanley estimates that a 5% tariff on Mexican products could decrease Constellation’s bottom line by 4%.—Shane English

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