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European wine and spirits will face 15% US tariff from Aug 1: EU

EU Wine and Spirits Set to Face 15% US Tariff Starting August 1, Brussels Warns

BRUSSELS – In a move that underscores the escalating tensions in transatlantic trade relations, the European Union has announced that a range of its wine and spirits exports will be hit with a 15% tariff by the United States effective from August 1. This development, confirmed by EU officials, stems from long-standing disputes over subsidies in the aviation sector and could significantly impact European producers already grappling with global economic uncertainties.

The tariffs are part of a broader retaliatory action authorized by the World Trade Organization (WTO) in favor of the US, allowing Washington to impose duties on up to $7.5 billion worth of EU goods annually. This stems from a protracted legal battle over government subsidies provided to European aircraft manufacturer Airbus, which the WTO ruled gave the company an unfair advantage over its American rival, Boeing. In response, the US has targeted a variety of EU products, including wines from France, Spain, and Germany, as well as spirits like Scotch whisky from the UK (which, despite Brexit, remains affected due to ongoing trade alignments) and other liquors from across the bloc.

EU Trade Commissioner Phil Hogan expressed disappointment over the impending tariffs, stating in a press briefing that while the EU remains committed to resolving the dispute through dialogue, the US decision to proceed with these measures risks harming consumers and businesses on both sides of the Atlantic. "These tariffs are not just about airplanes; they affect everyday products that symbolize cultural heritage and economic vitality in Europe," Hogan remarked. He urged the incoming US administration—potentially under President Joe Biden, assuming the November elections go as polls suggest—to prioritize de-escalation and work towards a negotiated settlement.

The affected products include a wide array of wines, such as French Bordeaux and Burgundy varieties, Spanish Rioja, and German Rieslings, alongside spirits like cognac, armagnac, and various liqueurs. Notably, the tariffs do not apply uniformly; for instance, still wines under 14% alcohol by volume from certain countries face the 15% hike, while sparkling wines and higher-alcohol spirits might see different rates under the US Trade Representative's (USTR) framework. This selective targeting is designed to maximize pressure on EU economies without overly disrupting US supply chains, but industry experts warn it could lead to higher prices for American consumers and reduced market access for European exporters.

To understand the full scope, it's essential to delve into the historical context of this trade spat. The Airbus-Boeing rivalry dates back to 2004 when the US first lodged a complaint with the WTO, accusing the EU of providing illegal subsidies to Airbus in the form of low-interest loans and grants. The EU countered with its own claims against Boeing, alleging similar unfair advantages through US tax breaks and defense contracts. After years of litigation, the WTO sided with the US in 2019, authorizing the tariffs, while a parallel ruling in 2020 allowed the EU to impose countermeasures on $4 billion of US goods, including tariffs on American whiskey, motorcycles, and agricultural products.

This tit-for-tat has created a cycle of economic friction, with the wine and spirits sector becoming unwitting casualties. In Europe, the industry employs millions and contributes billions to GDP. France alone exports over €3 billion worth of wine to the US annually, making it the largest market outside the EU. The Comité Champagne, representing French champagne producers, has voiced concerns that the tariffs could erode market share, especially as the industry recovers from the COVID-19 pandemic's disruptions, which saw global sales plummet due to restaurant closures and reduced tourism.

Industry leaders are particularly worried about the timing. August 1 falls during the peak summer season for wine consumption in the US, a period when imports typically surge for outdoor events, barbecues, and hospitality sectors. "This is a body blow to an industry already on its knees," said Miles Beale, chief executive of the UK's Wine and Spirit Trade Association. "US tariffs on Scotch whisky have already cost our sector over £500 million in lost exports since they were first imposed in 2019. Extending this to more products will only deepen the pain."

From the US perspective, the tariffs are seen as a necessary enforcement of fair trade principles. The USTR has maintained that the measures are compliant with WTO rulings and are intended to compel the EU to eliminate the disputed subsidies. In a statement, USTR Robert Lighthizer emphasized that the US remains open to negotiations but will not hesitate to protect American interests. "We've been patient, but the EU's subsidies have cost US jobs and innovation in the aerospace sector," Lighthizer said. However, critics in the US, including importers and retailers, argue that these tariffs act as a tax on American businesses and consumers. The Distilled Spirits Council of the United States has lobbied against them, noting that they could lead to higher prices for popular European brands, potentially shifting demand to domestic alternatives or competitors from Australia and South America.

The economic implications extend beyond immediate revenue losses. Analysts at the European Commission estimate that the tariffs could shave off up to 0.1% of the EU's GDP in affected sectors, with ripple effects on supply chains, employment, and related industries like glass bottling and cork production. In rural areas of France and Spain, where vineyards are economic lifelines, small producers fear bankruptcy if US demand dries up. Moreover, the uncertainty could deter investments in sustainable farming practices, which many EU winemakers have adopted to combat climate change.

Looking ahead, there is cautious optimism for resolution. With the US presidential transition on the horizon, experts believe a Biden administration might adopt a more multilateral approach, potentially reviving talks through the WTO or bilateral channels. The EU has already signaled willingness to suspend its own countermeasures if the US reciprocates, proposing a "zero-for-zero" tariff deal on aircraft. However, if no agreement is reached, the tariffs could be renewed or expanded, further straining relations amid other global challenges like the pandemic recovery and supply chain disruptions.

This dispute also highlights broader issues in international trade. As globalization faces headwinds from protectionism, the Airbus-Boeing saga serves as a cautionary tale of how sector-specific grievances can spill over into unrelated industries. For consumers, it means potentially paying more for a glass of Chianti or a dram of single malt, while producers on both sides call for swift diplomatic intervention.

In the meantime, EU exporters are exploring mitigation strategies, such as diversifying markets to Asia and Latin America or absorbing some costs to maintain competitiveness. Yet, as August 1 approaches, the clock is ticking on a resolution that could prevent further damage to this vital transatlantic trade link. The coming months will test the resilience of diplomatic ties and the adaptability of industries caught in the crossfire of global trade wars.

Read the Full The Straits Times Article at:
[ https://www.straitstimes.com/world/europe/eu-wine-spirits-to-face-15-us-tariff-from-aug-1-eu-says ]