It’s ‘crunch week’ for China Cognac tariffs
If no deal is forthcoming by next Saturday 5 July it is likely that China will make permanent the 39% anti-dumping tariffs it has imposed on European brandies – 98% of which is Cognac – as part of a trade war with the European Union.
Trade sources in Cognac and Paris suggest that the spirit producers, led by LVMH (Hennessy), Pernod Ricard (Martell) and Remy Cointreau (Remy Martin) have agreed a tentative plan with Beijing for minimum prices on their shipments to China, which generates more than half of the industry’s revenues.
These range from 46 yuan (US$6.39) per litre for VS to 613 yuan (US$85) for premium XXO.
The Cognac industry claims it had lost €50m by the end of February because of being victimised by China, and that figure has probably doubled since then, especially as the previously lucrative Chinese travel retail market has effectively been closed to it.
Explicit link
The problem for the French distillers is that Beijing is explicitly linking any potential agreement regarding brandy tariffs to Brussels also softening its duty stance on China’s electric vehicle (EV) exports to Europe, which the Commission says are being dumped and has therefore hit with a 50% tariff.
The EU wants to replace its EV tariffs with minimum-price commitments such as those proposed for Cognac, a proposal German carmakers support as a way to avoid a trade war and keep vital components flowing while they beef up their own markets for electric vehicles.
As ever, however, China is using brinkmanship as a tactic. It knows it is punishing a symbolic European product while at the same time having only minimal effect on its own population.
While Cognac is the leading Western spirit category in China, luxury imported spirits account for only about 4% of the total market. So only a relative elite are affected and they have myriad alternatives to turn to.
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On the other hand, however, China has built up a commanding position in Europe’s market for electric vehicles, especially components, and thus holds a strong hand in negotiations as the EU drives to curb emissions and the consequent climate changes.
Hard to remove
If the target date of 5 July passes without a pact the duties will become permanent. Once formalised, the threatened permanent 39% tariffs on Cognac could be hard to remove as they would underline that no deal had been reached on vehicles.
But Beijing has a further negotiating tactic up its sleeve.
It could put even more pressure on Brussels by delaying a final decision until the EU-China summit takes place on 24–25 July
No deal then would be a disaster for Cognac; the Charentais, however, are eager for a settlement this week.
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