Exporting wine to the U.S.: what the Trump Tax changes for European winemakers

Article

27 January 2019

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14 minutes of reading

As of October 18, 2019, the United States imposes 25% tariffs on still wines in bottles of 2 liters or less and with an alcohol content of 14% or less.
As of January 12, 2021 this tax is to be extended to all still wines, including bulk, as well as to all wine-based spirits, such as Cognac.

Following the authorization granted to the United States by the World Trade Organization to apply overtaxed customs duties, for aircraft and for industrial and agricultural products imported from the European Union, including French wine, new taxes came into force on October 18. Which wines are affected? What are the consequences for French winegrowers? Which wines are affected? What are the consequences for French winegrowers?

French wines concerned by the tax

A 12-page document now lists all the products (aircraft, wine, cheese, olive oil, etc.) and countries concerned by the Trump tax, which has been official since 18 October 2019. There are more than 150 of them.

Concerning French wines, the official information announces :

the transition from a 0% tax to a 25% tax
for French "still" wines (non-effervescent)
regardless of their degree of alcohol and their capacity ** (note that before January 12, this tax only concerned still wines with an alcohol content of less than 14% and packaged in containers of less than 2 liters).
for wine-based spirits, such as cognac or armagnac **

This development also applies to goods from Germany, Spain and the UK.

However, it spares sparkling wines (Champagne, Crémant...) and alcohols that are not made from grapes (Calvados, fine de Bretagne, Cointreau...).

What does this change for exporting winegrowers?

This tax has a direct impact on the winegrowers' turnover.

The system for exporting wine to the United States is a response to a rule introduced during prohibition in the 1930s. The "three tier system" imposes a golden rule: the producer is not allowed to sell directly to the consumer. hree players share the market: the producer, the importer or distributor, and the retailer. It is the retailer who can sell to the end customer.

A French producer must therefore necessarily go through an importer or a wholesale distributor who then sells to the retailer. Each player making a margin, a bottle sold for around 5 dollars by the French winegrower can see its price five to six times higher in the shop. The increase in the customs tax adds to this system and threatens the profitability of French winegrowers exporting to the United States.

What are the reactions to this tax?

Several French winegrowers have already received requests in connection with this tax change: wines above 14°C or packaging allowing to go beyond the 2-litre limit. Conditions that are not without consequences: shipping wines with degrees above 15 degrees to the United States implies changes in administrative category and the establishment of a new label approval (COLA).

Negotiations on the margins of the players in the three-thirds system and on the selling prices of wine are likely to take place from now on. The challenge for French winegrowers is to remain attractive and profitable.

Aid to compensate for the tax increase?

Discussions are underway to support the wine industry. European Commissioner Phil Hogan is said to have proposed to the French Minister of Agriculture Didier Guillaume to introduce flexibility into promotion operations co-financed by the European Union, in order to be able to change the targeted markets.

He would also have proposed increasing aid to finance the campaigns, in order to reduce their cost to operators.

The role of the US market in the export of French wine

The United States is the leading destination for French wine exports in value terms, with €1.7 billion in exports. These figures show a growth of 32% over the last 5 years, which can be attributed to the significant increase in exports of bottled still wine, particularly from Bordeaux to this market (+23% vs 2017 in value).

The origins of this tax?

The increase in the customs tax on French wines imported into the United States has its origins in a dispute lasting more than 15 years over public aid granted by the European Union to the aeronautics sector, estimated at 7.5 billion euros. The World Trade Organisation decided in May 2019 that Europe had illegally subsidised several Airbus models. In retaliation, the United States took action to recover $7.5 billion in damages.

On the other hand, the US President has long complained about the tariffs applied to Californian wine in France. In November 2018, he announced on Twitter that this had to stop.

Another tax to come?

In July 2019, France introduced a GAFA* tax that taxes digital giants up to 3% of their turnover generated in France. In response, the US authorities were planning to introduce a new tax on certain French products from January 2020, by increasing customs duties. Among the products concerned: many cheeses, yoghurts, cosmetics such as soap and make-up, handbags, but also sparkling wine. These surcharges were to reach 100% of the value of the goods. This announcement was made on 02 December 2019 and was expected to be implemented on 14 February 2020.

On January 20, Emmanuel Macron announced that following a telephone interview with Donal Trump, this customs increase would not take place:

Great discussion with @realDonaldTrump on digital tax. We will work together on a good agreement to avoid tariff escalation.
— Emmanuel Macron (@EmmanuelMacron) January 20, 2020