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Cognac tariff case goes to WTO
Brussels has escalated its trade war with Beijing by formally referring the provisional anti-dumping measures imposed by China on imports of EU brandy to the World Trade Organisation.
The measure largely affects Cognac, an industry that has been caught in the crossfire after the EU Commission imposed penalty tariffs on electric vehicles and components made in China, which it says are undermining European producers.
France’s trade ministry said last month it would work with the European Commission to challenge Beijing’s tariffs.
Cognac is an easy target for the Chinese. It is the leading Western spirit category imported to the People’s Republic where locally produced baijiu still takes nearly 95% of the market.
If the producers pass on the price rises triggered by the penalty tariffs, the change is unlikely to cause much angst among the Chinese middle classes but it will have maximum impact on a famous French sector.
China’s commerce ministry said it had received an EU consultation request and would handle the matter according to WTO rules.
“The provisional anti-dumping measures were implemented based on Chinese law, at the request of domestic industries, after a fair and impartial investigation, and are legitimate trade remedies fully in line with WTO rules,” the ministry said.
Glacial pace
As evidenced by Australia’s protest about Beijing’s penalty tariffs on wine which were lifted last year, the WTO process moves at a glacial pace and in many previous cases countries have ignored its eventual strictures.
French President Emmanuel Macron has called China’s attack on EU-produced brandy “pure retaliation”.
It is the second-largest export market for Cognac after the United States and the industry’s most profitable. French brandy shipments to China reached US$1.7 billion last year and made up 99% of China’s imports of the drink.
LVMH subsidiary Hennessy is contemplating avoiding the Chinese tariff penalties by shipping Cognac in bulk to the People’s Republic. But that has already triggered strikes in the Charente as Cognac workers fear permanent job losses if bottling is undertaken by Chinese contractors.
There is also a fear that the long-standing underlining of authenticity may be undermined by not completing the entire production process at the point of origin.
Price rises
Rémy Cointreau, whose Rémy Martin family leads the Chinese market for Cognac, says it will raise prices to protect its margins and upmarket cachet. It could, however, seek to reduce its advertising and marketing spends.
With the US Cognac market in dire straits as consumers downtrade and switch away from the category, the industry is in crisis.
Hennessy says its market has stabilised – largely, rivals allege, because of deep discounting – but Rémy has seen already depressed sales fall by a further 20% so far this year.
With Champagne volumes also under pressure, Rémy Cointreau’s first half financial results due on Thursday are expected to make bleak reading.
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