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U.S. Decision On E.U. Wine And Spirits Tariffs Could Be Imminent

February 14, 2020

Since December, when the U.S. Trade Representative (USTR) initially threatened tariffs as high as 100% on all E.U. wines as well as on spirits ranging from whiskies to Cognac to liqueurs, American importers and distributors have been holding their collective breath, waiting to see where the chips will fall. An answer could come as soon as today.

The USTR is expected to make an announcement after the market closes as to whether the drinks trade and consumers will see relief from the existing 25% levies on wines from France, Spain, and Germany as well as single malt whiskies from Scotland and Northern Ireland, or whether the tariffs will be extended much more broadly, further endangering business prospects.

“An increase in tariffs would result in wholesaler and importer job loss regardless of their size,” says Michael Bilello, senior vice president, communications and marketing at the Wine & Spirits Wholesalers of America (WSWA). “Increased costs will be passed on to the consumer, but at some point, should tariffs remain unchanged—or worse, be increased—products that no longer make business sense for wholesalers and importers to bring into the U.S. will go to other countries and may never return.”

If the U.S. follows through on its threat to impose tariffs across all E.U. wines, whiskies, Cognac, and liqueurs, prices will rise accordingly, according to a study by economists Dunham and Associates commissioned by the WSWA. Here are some findings based on four possible tariff scenarios:

•10% tariff: Scotch and Irish whisk(e)y prices would increase by 5.4%, and imported wine prices would rise by 7.2%.
•25% tariff: Scotch and Irish whisk(e)y prices would increase by 13.5%, and imported wine prices would rise by 18%.
•50% tariff: Scotch and Irish whisk(e)y prices would increase by 27%, and imported wine prices would rise by 36%.
•100% tariff: Scotch and Irish whisk(e)y prices would increase by 54%, and imported wine prices would rise by 72%.

The WSWA, Distilled Spirits Council, The Wine Institute, and other trade groups say the existing 25% tariffs on selected categories are already negatively impacting the U.S. business. In the month after the October 2019 implementation of the initial tariffs, French wines in the U.S. declined 18% by volume and 42% by value year-on-year. Importers, wholesalers, and retailers of all sizes are being harmed. For smaller players especially, Bilello tells SND, “sustained or increased tariffs would be catastrophic.”

Aside from disruptions across importer and wholesaler portfolios and the impact of price hikes or lack of availability of E.U. products on the consumer side, the drinks business potentially stands to lose a substantial number of jobs, with cuts numbering anywhere from 11,000 to nearly 80,000 industry-wide depending on how high the tariffs rise.—Shane English

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