French drink manufacturers are bracing for losses as China said it would place a heavy trade duty on brandy exports from the European Union, potentially taking a gulp out of their sales in the coming years.
A tariff rate on EU brandy could go up to 34.9% for five years from 5 July.
The duty was announced after China’s Ministry of Commerce concluded an investigation into European brandy imports, determining that the products threatened its national brandy industry.
Cognac, which is heavily exported from France, was a product of concern, although major cognac makers like Pernod Ricard and Remy Cointreau will now be exempted.
China’s investigation ruled that the EU had engaged in spirit “dumping”, a practice where foreign goods are sold significantly below their normal price. The corrective tariff will be charged in addition to a normal customs duty.
Belgium-based trade group spiritsEUROPE, representing EU producers of spirit drinks, said in a statement that it “regrets today’s decision by the Chinese Ministry of Commerce to impose final anti-dumping duties averaging 32.2% on EU wine-based spirits, marc-based spirits, and brandies as of 5 July,” adding that “the measures will still pose a significant barrier to legitimate trade”.
The trade group also said that the EU spirits sector provided “substantial evidence over the last 18 months, clearly demonstrating the absence of any dumping practices on the Chinese market”.
“The decision originates from a spat around unfair competition and protectionism and it is bad news for European drinks companies who enjoy big sales to Asia,” said Dan Coatsworth, investment analyst at AJ Bell. “That explains why shares in Rémy Cointreau and Pernod Ricard were weak on the news as drinkers in China might think twice about buying their products if the price is now much higher.”
The news pulled down French spirits makers’ share prices, with Pernod Ricard slumping 1%, Remy Cointreau down 1.75%, and luxury giant LVMH, the parent company of Hennessy and Rémy Martin, losing 2.1% around 11 CEST in Europe.
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Closer to midday, share price losses moderated after news broke that China spared major cognac producers from the new duties, provided they sell at a minimum price.
Trade group spiritsEUROPE welcomed the partial relief, saying that “to safeguard their operations and maintain a stable presence in the Chinese market, several affected companies have entered into price undertakings (raising export prices) with MOFCOM (China’s Ministry of Commerce)”, adding that these will replace anti-dumping duties for these companies.
Story ContinuesThe group urged Beijing to expand this option to all European companies affected.
SpiritsEUROPE Director General Hervé Dumesny said “Beyond its direct impact on our sector, this decision risks fuelling trade tensions at a time when mutual cooperation is more important than ever.”
The decision on brandy comes after the EU decided to impose tariffs as high as 45% on Chinese-made electric vehicles last year.
China's imposition of duties on European brandy exports, coupled with exemptions for select products and producers showcases a nuanced approach towards long-term trade negotiations between the two economic giants.
The imposition of duties by China on European brandy exports, with added exemptions showing selective enforcement and nuance in trade policy.
