US 25% tariff on European wines; 100% "digital" tariff on French products called off for the moment

[AndrewH]

Thanks for floating this thread up, Mark!

Came by to mention that USTR has imposed tariffs on cosmetics and handbags, not wine, in retaliation for France's Digital Services tax, with tariffs stayed for 180 days.

https://www.politico.com/news/2020/07/1 ... str-356628

[Michel Abood]

There is now an easy to use portal to add comments against these self-punitive and ineffective tariffs, you can post either as trade or as consumer, please share this with all wine loving friends and family:

https://uswinetradealliance.org/endwinetariffs/

[Glen Gold]

There is now an easy to use portal to add comments against these self-punitive and ineffective tariffs, you can post either as trade or as consumer, please share this with all wine loving friends and family:

https://uswinetradealliance.org/endwinetariffs/

I wrote a letter via thise portal, but just used their language as a template to riff on - I've heard that the folks who have to read this stuff tend to skip over the ones that are identical -- if you do the same, be careful -- the "send" button at bottom is awfully easy to hit, and I did so before I was finished. I need to wait 24 hours before I can send an amended letter.

G

[David Glasser]

Letter sent. Thanks for the reminder and the link.

[D@vid Bu3ker]

Posted a comment early last week.

[Curtis Chen]

Letter sent. Thanks for the reminder and the link.

Yep, same here.

[Howard Cooper]

An extremely good synopsis of why wine tariffs harm Americans rather than the Europeans.

https://wineindustryadvisor.com/2020/07 ... cRFBP1TuQI

I don't like the tariffs and certainly not the Trump Administration, but a whole lot of the blame here has to go to the Europeans. They were found to be in violation of trade laws with their subsidies of Airbus. I think any administration would be protecting domestic industries against a blatant violation by the Europeans like this. The answer is for the Europeans to stop their illegal subsidies.

[D@ve D y r 0 f f]

An extremely good synopsis of why wine tariffs harm Americans rather than the Europeans.

https://wineindustryadvisor.com/2020/07 ... cRFBP1TuQI

I don't like the tariffs and certainly not the Trump Administration, but a whole lot of the blame here has to go to the Europeans. They were found to be in violation of trade laws with their subsidies of Airbus. I think any administration would be protecting domestic industries against a blatant violation by the Europeans like this.

I agree, which is why the focus here has to be on why WINE tariffs are the wrong ones. Focus on the harm to US businesses and how US importers, distributors, etc. are harmed much more by wine and liquor tariffs than they would be by tariffs on sweaters or handbags or perfume or cheese, etc. Just saying "I hate Trump" or "I hate tariffs" will accomplish nothing.

I'm working on my letter - a revised version of the one I sent in December and posted here then - and I will post it here when it's done.

[Mark Golodetz]

An extremely good synopsis of why wine tariffs harm Americans rather than the Europeans.

https://wineindustryadvisor.com/2020/07 ... cRFBP1TuQI

I don't like the tariffs and certainly not the Trump Administration, but a whole lot of the blame here has to go to the Europeans. They were found to be in violation of trade laws with their subsidies of Airbus. I think any administration would be protecting domestic industries against a blatant violation by the Europeans like this.

I agree, which is why the focus here has to be on why WINE tariffs are the wrong ones. Focus on the harm to US businesses and how US importers, distributors, etc. are harmed much more by wine and liquor tariffs than they would be by tariffs on sweaters or handbags or perfume or cheese, etc. Just saying "I hate Trump" or "I hate tariffs" will accomplish nothing.

I'm working on my letter - a revised version of the one I sent in December and posted here then - and I will post it here when it's done.

This is a definite plus 1. I cannot fathom why the wine trade and consumers suffer for the sins of Airbus. Not only does it make no sense but also the damage it does to an already one weakened industry is just nasty.

[D@ve D y r 0 f f]

My current draft. Feel free to borrow any or all as you see fit, but please remember that letters which are just duplicates aren't as impactful.



July 15, 2020
Hon. Robert Lighthizer
Office of the U.S. Trade Representative
600 17th Street NW
Washington, DC 20006

Re: Tariffs on EU wines

Dear Ambassador Lighthizer:

I am writing to ask you, as part of the current review, to drop all existing tariffs on European wines and liquors, currently in place as a retaliatory response to the enforcement of WTO rights involving civil aircraft (docket # USTR-2019-0003-2518). As I understand the process, you are currently considering whether to drop these tariffs, continue them at their existing level of 25%, or increase them to as much as 100%. I have appended a list of the product codes I believe are at issue to the end of this letter.

You have asked for comments on several issues, and as a consumer I would like to focus on one of those issues – “whether maintaining or imposing additional duties on specific products of one or more specific EU member states would cause disproportionate economic harm to US interests, including small or medium-size businesses and consumers.”
The tariffs on the listed products most certainly cause such disproportionate harm, to consumers but most significantly to small and medium-size US businesses. These tariffs have already sharply curtailed the importation of most European wines and liquors and cost American businesses losses far in excess of any lost revenue suffered by European wineries. Their continuation or increase will result in the bankruptcy or closure of numerous small and medium-size US businesses.

To understand and evaluate these harms, it is important to understand the impact of these (or any increased) tariffs on importation, and to understand the structure of the beverage alcohol industry in the United States.

SHORT-TERM IMPACT ON IMPORTATION

Given that the amount of the existing and potential increased tariffs are punitively high, and that they are by their nature designed to be temporary, though of indefinite duration (given that they are intended to be reduced or eliminated once corresponding actions are taken by various EU governments with regard to the Airbus subsidies), the result is that in the short-term importation of these beverages has dropped precipitously, and will only drop further if the tariffs are increased. In the example of a potential increase in the tariffs to 100%, a tariff which effectively doubles the cost to import these products will make them uneconomical to import. In addition, knowing that they are designed to be temporary, large buyers such as distributors, wine collectors, restaurants with extensive wine cellars, etc. will opt to simply stop buying over the short term, in the knowledge and hope that the tariffs will end and prices will then return to normal.

THE STRUCTURE OF THE INDUSTRY IN THE US

Under the terms of Amendment XXI to the US Constitution, which repealed prohibition, regulation of the distribution and sale of beverage alcohol was left to the States. As a result, the market for these beverages in the United States is unique in several respects compared to the markets for most consumer products. Most if not all States, for example, require that these products pass through a mandatory “three-tier” distribution system, and that companies in each tier be independent of one another. So, as a consumer, I can only buy these products from licensed retailers (whether for on-premise consumption, such as at a bar or restaurant, or for off-premise consumption, such as at a grocery or liquor store). Licensed retailers can only buy these products from licensed distributors (also referred to as wholesalers), and licensed distributors can only buy them from licensed manufacturers (for products of the USA) or importers. Moreover, a distributor (or the same owners) cannot own a retailer, and vice-versa, and neither can be owned by a manufacturer or importer or their owners. In addition, all of the licensing just described is conducted on a state-by-state basis.

As a result of this system of regulation, distribution costs add more to the final consumer price of beverage alcohol than to the final consumer price of any other major product category sold in the United States. This is important because the revenue created by these distribution costs is earned by American businesses. Put another way, revenues earned by American businesses in the distribution chain typically make up a larger percentage of the final consumer cost of a bottle of imported wine or liquor than of any other imported product. For example, a typical wine that costs an importer $10 to buy ($8) and ship across the Atlantic ($2) will sell for $25 at a liquor store or $50 at a restaurant. Every dollar of that final price after the first $10 that went to the European winery and the freight shipper goes to an American company, most frequently a small business.

As another result of the decentralized, state-by-state regulation of this industry, there are very few large national companies in this distribution chain. Certainly, there are some at each tier (major wholesalers, national restaurant chains, etc.), but there are thousands and thousands of small and specialized importers, distributors, retailers, bars, and restaurants, many serving only a single state or even a single neighborhood. Many of these are also specialized in the products they carry – a small grocer who specializes in Italian foods, wines, and liquors; a restaurant that specializes in French cuisine and wine, an importer that specializes in Spanish wines, or Scotch whisky, etc.

Finally, one must understand that most foreign wineries have existing and exclusive relationships with a single importer for the United States or some exclusive sales territory within the US, and those importers typically have an exclusive distributor within each state (some of which is mandated by the liquor laws in many of the states).

IMPACT ON AMERICAN BUSINESSES OF THE PROPOSED TARIFFS

Against this background, what is the likely result of a sudden increase in the tariff to the point that most of these products become uneconomical? Surely, some substitution will occur. The consumer that would otherwise buy a bottle of European wine might buy a bottle of American, Australian, or Chilean wine instead. Likewise for the general grocer or steakhouse choosing what to sell. But this substitution is, at best, imperfect. The wines of particular regions are unique. Taking away my ability as a consumer to buy a bottle of German riesling or French Burgundy but offering a wine from Chile or California is a substitute is like taking away my ability to buy pineapples but offering oranges as a substitute – yes, they may both be wine or fruit, and they may both be delicious, but they are not the same thing.

Other consumers will not substitute, and will choose not to buy at all until the tariffs are ended and their favorite European beverages are once more available. Where this happens, the harm will be borne disproportionately by American businesses. At typical markups in the industry, and given the industry structure previously discussed, when this tariff causes a bottle of European wine not to be sold, it will cost the European winery perhaps $8 in lost revenue on the hypothetical bottle of wine I mentioned earlier, while costing the transport and logistics companies that deliver the wine to the importer’s US warehouse perhaps $2. At the same time, it will cost the American businesses that import, distribute, and sell the wine at retail anywhere from $15 to $40 in lost gross margin (the revenue loss would, of course, be higher). The harm to American businesses could hardly be more disproportional – costing American businesses $15 to $40 in lost margin for every $8 in lost gross revenue to the European winery. Even if the winery is selling the wine at double its cost to produce, which is unlikely (so, $4 cost and $4 margin), comparing lost margin to loss margin means that American businesses lose $10 in margin for every $1 in margin lost by the European winery.

Most importantly, sales lost either to the consumer who substitutes or to the consumer who simply does not buy will hurt numerous American businesses so significantly as to drive them out of business entirely. Because of the fractured nature of the market, many small, specialized importers, distributors, and restaurants have a limited focus, often on the wines of a single country or region. An importer which sells only French, Italian, or European wines (or even if such wines are “only” half of their sales) will, quite simply, be out of business almost immediately if their prices double and (predictably) orders cease as consumers either stop buying or substitute wines from another country. Likewise for a small specialty distributor. And these companies cannot simply substitute and start importing Australian or Chilean wines, because a) they don’t have the expertise or relationships to do so, and b) the Australian and Chilean wines with a US market already have exclusive relationships with other importers or distributors. Nor can they simply start carrying wines from more American wineries, for the same reasons. I can’t emphasize how important this is – even if a consumer buys a bottle of Chilean wine instead of a bottle of European wine that is too expensive or no longer being imported, because of the tariff, that bottle of Chilean wine will likely pass through the hands of a different importer and a different distributor, even if the retailer or restaurant and the consumer switch to Chilean wine. Thus, any notion that consumer substitution will allow the American importers and distributors who focus on the European wine to replace lost sales is inaccurate.

Moreover, a specialty importer or distributor which suddenly finds a major portion of its product line too costly to sell simply has insufficient revenue to pay its rent and its employees, and folds. Each such incident represents not only a business failure, but it leaves salespeople, warehouse workers, truck drivers, and office staff unemployed, and leaves landlords, lenders, and other creditors unpaid. When this happens and the businesses are liquidated, they cannot simply “switch on” again in a few weeks, months, or years, when the trade disputes are settled and the tariffs are eliminated.
In addition, I am sure I do not have to tell you how hard the current pandemic has hit large segments of the industry. Restaurant and bar sales have plummeted, and likewise the wholesale sales of importers and distributors who depend on restaurant and bar sales as a significant part of their business. Now more than ever, these small American businesses need the relief that would come from rotating the existing wine and liquor tariffs on to other products rather than the additional harm that would come from continuing or expanding the existing tariffs.

SECONDARY IMPACTS ON US WINERIES

I also want to mention some clear secondary effects these tariffs are likely to have, especially if they are expanded or increased. The most obvious of these will be on small American wineries. These small wineries do not produce enough wine to be distributed by the few large, national distributors – those distributors focus on the largest handful of producers. Instead, thousands of small American wineries rely on boutique specialty distributors in each state to which they choose to distribute their wine. So, for example, a specialty distributor in a given state might carry wines from several small importers (each of whom specializes in certain countries or regions), as well as some small American wineries. If distributors like these go out of business, as they will if European wines are suddenly uneconomical to sell, those American wineries will lose their distribution in that state.

US WINERIES INCREASING PRODUCTION TO OFFSET THE DECREASE IN EUROPEAN IMPORTS

Finally, I should make clear that it is not feasible for US wineries to simply increase production enough to replace European wines in the US market, allowing consumers to simply buy US wines instead. First, of course, the wines, while neither “better” nor “worse” than the other, are not the same. Just as consumers with a clear preference for Napa Valley wines would not be happy being forced to switch to Bordeaux or Chianti, those who prefer the latter will not necessarily be satisfied with the option of switching to American wines. More importantly, though, wine production is a long-term investment. Vineyard land is expensive to acquire, develop, and plant; and newly planted vines take three years to produce a commercial crop. Even if they were to start today, US wineries could not supply enough wine to replace the lost European wine for three years, and doing that would require enormous risk, given the intended temporary nature of the tariffs. Few winery owners (or lenders or investors) are likely to gamble their capital on increased demand which is by design temporary, especially during the pandemic.

CONCLUSION

As you can see, the market for European wines and liquors in the United States is unique, as a result of the aftermath of our national experiment in prohibition. The unique aspects of this industry make American consumers and especially small and medium-size businesses – importers, distributors, retailers, bars, restaurants, and even American wineries – distinctly vulnerable to disproportionate harm from the proposed tariffs. Focusing our tariff response to the Airbus issues on other European products will allow the US to achieve its trade goals while avoiding this disproportionate and often permanent harm to the many small American businesses in this industry, and their employees, creditors, and customers. Therefore, I ask that the USTR remove the product categories listed below from the existing tariffs, and that you not add any other beverage alcohol categories as these cases move forward. I understand that the USTR is taking a “carousel” approach to try and persuade the EU to resolve the Airbus dispute, and I ask that at this time, the “carousel” be rotated on to other products where more of the harm can be focused on European companies rather than American consumers and small businesses. I thank you for your time taken to read this letter, and for your consideration of the issues I have raised.

Very truly yours,




Specific products relevant to this letter include at least:
• Wine, other than Tokay (not carbonated), not over 14% alcohol in containers not over 2 Liters (HTS subheading 2204.21.50)
• Liqueurs and Cordials (HTS subheading 2208.70.00)
• Single malt Irish and Scotch whiskies (HTS subheading 2208.30.30)
• Sparkling Wine, made from grapes (HTS subheading 2204.10.00)
• Effervescent grape wine, in containers holding 2 liters or less (HTS subheading 2204.21.20)
• Grape wine, other than "Marsala", not sparkling or effervescent, over 14% vol. alcohol, in containers holding 2 liters or less (HTS subheading 2204.21.80)
• Wine of fresh grapes of an alcoholic strength by volume <=14% in containers holding >10 liters (HTS subheadings 2204.22.60 and 2204.29.61)
• Wine of fresh grapes of an alcoholic strength by volume >14% in containers holding >10 liters (HTS subheadings 2204.22.80 and 2204.29.81)
• Grape brandy, excluding pisco and singani, in containers not over 4 liters, valued over $3.43/liter (HTS subheading 2208.20.40)
• Whiskies, other than Irish and Scotch whiskies (HTS subheading 2208.30.60)

[D@vid Bu3ker]

I don't like the tariffs and certainly not the Trump Administration, but a whole lot of the blame here has to go to the Europeans. They were found to be in violation of trade laws with their subsidies of Airbus. I think any administration would be protecting domestic industries against a blatant violation by the Europeans like this.

I agree, which is why the focus here has to be on why WINE tariffs are the wrong ones. Focus on the harm to US businesses and how US importers, distributors, etc. are harmed much more by wine and liquor tariffs than they would be by tariffs on sweaters or handbags or perfume or cheese, etc. Just saying "I hate Trump" or "I hate tariffs" will accomplish nothing.

I'm working on my letter - a revised version of the one I sent in December and posted here then - and I will post it here when it's done.

This is a definite plus 1. I cannot fathom why the wine trade and consumers suffer for the sins of Airbus. Not only does it make no sense but also the damage it does to an already one weakened industry is just nasty.

Hey guys-take a look at all the tax breaks and other government provided incentives Boeing gets. Two play that game. Airbus is not the only airframer living on the dole.

[Al Osterheld]

A reminder, Lyle Fass had a proposal (he testified in a Congressional hearing) to target the high margin Champagnes from LVMH, arguing that it was not going to put them out of business, would get more attention than spreading the pain over thousands of smaller producers, and might be more likely to induce a response from the French government.

https://www.wine-searcher.com/m/2020/01 ... iff-target

-Al

[D@ve D y r 0 f f]

I think for purposes of this letter, though obviously not for the larger discussion, it is irrelevant that Boeing also gets subsidies. The person we are trying to persuade is, after all, essentially an advocate for Boeing. So letters to him need, IMO, to toe the line of "Airbus is the bad guy here, and the only issue is what punishment is appropriate."

I also think that for purposes of this letter "the punishment should be limited to aircraft products" is not going to be persuasive. The USTR has already clearly decided that hitting the EU with tariffs on non-aircraft products is the way to go. I don't think anyone is going to change his mind on that.

Focusing your letter on wine, and on why wine in particular is a bad choice, is the way to go, IMO. I also think that the issue of disproportional harm to US businesses compared to the European wineries is the most persuasive of the reasons why wine in particular is a bad choice.

Just my opinion, of course.

[D@vid Bu3ker]

I am not suggesting to write a letter scolding Boeing, but the overall lack of knowledge about the entire trade dispute here is staggering.

[Mattstolz]

An extremely good synopsis of why wine tariffs harm Americans rather than the Europeans.

https://wineindustryadvisor.com/2020/07 ... cRFBP1TuQI

I don't like the tariffs and certainly not the Trump Administration, but a whole lot of the blame here has to go to the Europeans. They were found to be in violation of trade laws with their subsidies of Airbus. I think any administration would be protecting domestic industries against a blatant violation by the Europeans like this. The answer is for the Europeans to stop their illegal subsidies.

the US basically does the same thing with Boeing, we just are more subtle with it, then block the governing body from making any decisions.

[Howard Cooper]

An extremely good synopsis of why wine tariffs harm Americans rather than the Europeans.

https://wineindustryadvisor.com/2020/07 ... cRFBP1TuQI

I don't like the tariffs and certainly not the Trump Administration, but a whole lot of the blame here has to go to the Europeans. They were found to be in violation of trade laws with their subsidies of Airbus. I think any administration would be protecting domestic industries against a blatant violation by the Europeans like this. The answer is for the Europeans to stop their illegal subsidies.

the US basically does the same thing with Boeing, we just are more subtle with it, then block the governing body from making any decisions.

Then the Europeans should bring a case alleging that. At this point there is a judgment against the Europeans in a longstanding case started before Trump was President. Don’t expect Biden to ignore this decision as President, although he very well may be more successful in reaching a settlement.

[Mattstolz]

the US basically does the same thing with Boeing, we just are more subtle with it, then block the governing body from making any decisions.

Then the Europeans should bring a case alleging that. At this point there is a judgment against the Europeans in a longstanding case started before Trump was President. Don’t expect Biden to ignore this decision as President, although he very well may be more successful in reaching a settlement.

I was under the understanding that there IS such a case, but that the US has been steadily blocking appointees to the board that oversees these cases, to the point that they don't have enough members to even render decisions at this time.

[D@vid Bu3ker]

There is a case. It’s ongoing, and the US government is doing everything in its power to stop the case from being decided.

My goat, read the damn thread. We have been over this multiple times!!!

[Nola Palomar]

My current draft. Feel free to borrow any or all as you see fit, but please remember that letters which are just duplicates aren't as impactful.



July 15, 2020
Hon. Robert Lighthizer
Office of the U.S. Trade Representative
600 17th Street NW
Washington, DC 20006

Re: Tariffs on EU wines

Dear Ambassador Lighthizer:

I am writing to ask you, as part of the current review, to drop all existing tariffs on European wines and liquors, currently in place as a retaliatory response to the enforcement of WTO rights involving civil aircraft (docket # USTR-2019-0003-2518). As I understand the process, you are currently considering whether to drop these tariffs, continue them at their existing level of 25%, or increase them to as much as 100%. I have appended a list of the product codes I believe are at issue to the end of this letter.

You have asked for comments on several issues, and as a consumer I would like to focus on one of those issues – “whether maintaining or imposing additional duties on specific products of one or more specific EU member states would cause disproportionate economic harm to US interests, including small or medium-size businesses and consumers.”
The tariffs on the listed products most certainly cause such disproportionate harm, to consumers but most significantly to small and medium-size US businesses. These tariffs have already sharply curtailed the importation of most European wines and liquors and cost American businesses losses far in excess of any lost revenue suffered by European wineries. Their continuation or increase will result in the bankruptcy or closure of numerous small and medium-size US businesses.

To understand and evaluate these harms, it is important to understand the impact of these (or any increased) tariffs on importation, and to understand the structure of the beverage alcohol industry in the United States.

SHORT-TERM IMPACT ON IMPORTATION

Given that the amount of the existing and potential increased tariffs are punitively high, and that they are by their nature designed to be temporary, though of indefinite duration (given that they are intended to be reduced or eliminated once corresponding actions are taken by various EU governments with regard to the Airbus subsidies), the result is that in the short-term importation of these beverages has dropped precipitously, and will only drop further if the tariffs are increased. In the example of a potential increase in the tariffs to 100%, a tariff which effectively doubles the cost to import these products will make them uneconomical to import. In addition, knowing that they are designed to be temporary, large buyers such as distributors, wine collectors, restaurants with extensive wine cellars, etc. will opt to simply stop buying over the short term, in the knowledge and hope that the tariffs will end and prices will then return to normal.

THE STRUCTURE OF THE INDUSTRY IN THE US

Under the terms of Amendment XXI to the US Constitution, which repealed prohibition, regulation of the distribution and sale of beverage alcohol was left to the States. As a result, the market for these beverages in the United States is unique in several respects compared to the markets for most consumer products. Most if not all States, for example, require that these products pass through a mandatory “three-tier” distribution system, and that companies in each tier be independent of one another. So, as a consumer, I can only buy these products from licensed retailers (whether for on-premise consumption, such as at a bar or restaurant, or for off-premise consumption, such as at a grocery or liquor store). Licensed retailers can only buy these products from licensed distributors (also referred to as wholesalers), and licensed distributors can only buy them from licensed manufacturers (for products of the USA) or importers. Moreover, a distributor (or the same owners) cannot own a retailer, and vice-versa, and neither can be owned by a manufacturer or importer or their owners. In addition, all of the licensing just described is conducted on a state-by-state basis.

As a result of this system of regulation, distribution costs add more to the final consumer price of beverage alcohol than to the final consumer price of any other major product category sold in the United States. This is important because the revenue created by these distribution costs is earned by American businesses. Put another way, revenues earned by American businesses in the distribution chain typically make up a larger percentage of the final consumer cost of a bottle of imported wine or liquor than of any other imported product. For example, a typical wine that costs an importer $10 to buy ($8) and ship across the Atlantic ($2) will sell for $25 at a liquor store or $50 at a restaurant. Every dollar of that final price after the first $10 that went to the European winery and the freight shipper goes to an American company, most frequently a small business.

As another result of the decentralized, state-by-state regulation of this industry, there are very few large national companies in this distribution chain. Certainly, there are some at each tier (major wholesalers, national restaurant chains, etc.), but there are thousands and thousands of small and specialized importers, distributors, retailers, bars, and restaurants, many serving only a single state or even a single neighborhood. Many of these are also specialized in the products they carry – a small grocer who specializes in Italian foods, wines, and liquors; a restaurant that specializes in French cuisine and wine, an importer that specializes in Spanish wines, or Scotch whisky, etc.

Finally, one must understand that most foreign wineries have existing and exclusive relationships with a single importer for the United States or some exclusive sales territory within the US, and those importers typically have an exclusive distributor within each state (some of which is mandated by the liquor laws in many of the states).

IMPACT ON AMERICAN BUSINESSES OF THE PROPOSED TARIFFS

Against this background, what is the likely result of a sudden increase in the tariff to the point that most of these products become uneconomical? Surely, some substitution will occur. The consumer that would otherwise buy a bottle of European wine might buy a bottle of American, Australian, or Chilean wine instead. Likewise for the general grocer or steakhouse choosing what to sell. But this substitution is, at best, imperfect. The wines of particular regions are unique. Taking away my ability as a consumer to buy a bottle of German riesling or French Burgundy but offering a wine from Chile or California is a substitute is like taking away my ability to buy pineapples but offering oranges as a substitute – yes, they may both be wine or fruit, and they may both be delicious, but they are not the same thing.

Other consumers will not substitute, and will choose not to buy at all until the tariffs are ended and their favorite European beverages are once more available. Where this happens, the harm will be borne disproportionately by American businesses. At typical markups in the industry, and given the industry structure previously discussed, when this tariff causes a bottle of European wine not to be sold, it will cost the European winery perhaps $8 in lost revenue on the hypothetical bottle of wine I mentioned earlier, while costing the transport and logistics companies that deliver the wine to the importer’s US warehouse perhaps $2. At the same time, it will cost the American businesses that import, distribute, and sell the wine at retail anywhere from $15 to $40 in lost gross margin (the revenue loss would, of course, be higher). The harm to American businesses could hardly be more disproportional – costing American businesses $15 to $40 in lost margin for every $8 in lost gross revenue to the European winery. Even if the winery is selling the wine at double its cost to produce, which is unlikely (so, $4 cost and $4 margin), comparing lost margin to loss margin means that American businesses lose $10 in margin for every $1 in margin lost by the European winery.

Most importantly, sales lost either to the consumer who substitutes or to the consumer who simply does not buy will hurt numerous American businesses so significantly as to drive them out of business entirely. Because of the fractured nature of the market, many small, specialized importers, distributors, and restaurants have a limited focus, often on the wines of a single country or region. An importer which sells only French, Italian, or European wines (or even if such wines are “only” half of their sales) will, quite simply, be out of business almost immediately if their prices double and (predictably) orders cease as consumers either stop buying or substitute wines from another country. Likewise for a small specialty distributor. And these companies cannot simply substitute and start importing Australian or Chilean wines, because a) they don’t have the expertise or relationships to do so, and b) the Australian and Chilean wines with a US market already have exclusive relationships with other importers or distributors. Nor can they simply start carrying wines from more American wineries, for the same reasons. I can’t emphasize how important this is – even if a consumer buys a bottle of Chilean wine instead of a bottle of European wine that is too expensive or no longer being imported, because of the tariff, that bottle of Chilean wine will likely pass through the hands of a different importer and a different distributor, even if the retailer or restaurant and the consumer switch to Chilean wine. Thus, any notion that consumer substitution will allow the American importers and distributors who focus on the European wine to replace lost sales is inaccurate.

Moreover, a specialty importer or distributor which suddenly finds a major portion of its product line too costly to sell simply has insufficient revenue to pay its rent and its employees, and folds. Each such incident represents not only a business failure, but it leaves salespeople, warehouse workers, truck drivers, and office staff unemployed, and leaves landlords, lenders, and other creditors unpaid. When this happens and the businesses are liquidated, they cannot simply “switch on” again in a few weeks, months, or years, when the trade disputes are settled and the tariffs are eliminated.
In addition, I am sure I do not have to tell you how hard the current pandemic has hit large segments of the industry. Restaurant and bar sales have plummeted, and likewise the wholesale sales of importers and distributors who depend on restaurant and bar sales as a significant part of their business. Now more than ever, these small American businesses need the relief that would come from rotating the existing wine and liquor tariffs on to other products rather than the additional harm that would come from continuing or expanding the existing tariffs.

SECONDARY IMPACTS ON US WINERIES

I also want to mention some clear secondary effects these tariffs are likely to have, especially if they are expanded or increased. The most obvious of these will be on small American wineries. These small wineries do not produce enough wine to be distributed by the few large, national distributors – those distributors focus on the largest handful of producers. Instead, thousands of small American wineries rely on boutique specialty distributors in each state to which they choose to distribute their wine. So, for example, a specialty distributor in a given state might carry wines from several small importers (each of whom specializes in certain countries or regions), as well as some small American wineries. If distributors like these go out of business, as they will if European wines are suddenly uneconomical to sell, those American wineries will lose their distribution in that state.

US WINERIES INCREASING PRODUCTION TO OFFSET THE DECREASE IN EUROPEAN IMPORTS

Finally, I should make clear that it is not feasible for US wineries to simply increase production enough to replace European wines in the US market, allowing consumers to simply buy US wines instead. First, of course, the wines, while neither “better” nor “worse” than the other, are not the same. Just as consumers with a clear preference for Napa Valley wines would not be happy being forced to switch to Bordeaux or Chianti, those who prefer the latter will not necessarily be satisfied with the option of switching to American wines. More importantly, though, wine production is a long-term investment. Vineyard land is expensive to acquire, develop, and plant; and newly planted vines take three years to produce a commercial crop. Even if they were to start today, US wineries could not supply enough wine to replace the lost European wine for three years, and doing that would require enormous risk, given the intended temporary nature of the tariffs. Few winery owners (or lenders or investors) are likely to gamble their capital on increased demand which is by design temporary, especially during the pandemic.

CONCLUSION

As you can see, the market for European wines and liquors in the United States is unique, as a result of the aftermath of our national experiment in prohibition. The unique aspects of this industry make American consumers and especially small and medium-size businesses – importers, distributors, retailers, bars, restaurants, and even American wineries – distinctly vulnerable to disproportionate harm from the proposed tariffs. Focusing our tariff response to the Airbus issues on other European products will allow the US to achieve its trade goals while avoiding this disproportionate and often permanent harm to the many small American businesses in this industry, and their employees, creditors, and customers. Therefore, I ask that the USTR remove the product categories listed below from the existing tariffs, and that you not add any other beverage alcohol categories as these cases move forward. I understand that the USTR is taking a “carousel” approach to try and persuade the EU to resolve the Airbus dispute, and I ask that at this time, the “carousel” be rotated on to other products where more of the harm can be focused on European companies rather than American consumers and small businesses. I thank you for your time taken to read this letter, and for your consideration of the issues I have raised.

Very truly yours,




Specific products relevant to this letter include at least:
• Wine, other than Tokay (not carbonated), not over 14% alcohol in containers not over 2 Liters (HTS subheading 2204.21.50)
• Liqueurs and Cordials (HTS subheading 2208.70.00)
• Single malt Irish and Scotch whiskies (HTS subheading 2208.30.30)
• Sparkling Wine, made from grapes (HTS subheading 2204.10.00)
• Effervescent grape wine, in containers holding 2 liters or less (HTS subheading 2204.21.20)
• Grape wine, other than "Marsala", not sparkling or effervescent, over 14% vol. alcohol, in containers holding 2 liters or less (HTS subheading 2204.21.80)
• Wine of fresh grapes of an alcoholic strength by volume <=14% in containers holding >10 liters (HTS subheadings 2204.22.60 and 2204.29.61)
• Wine of fresh grapes of an alcoholic strength by volume >14% in containers holding >10 liters (HTS subheadings 2204.22.80 and 2204.29.81)
• Grape brandy, excluding pisco and singani, in containers not over 4 liters, valued over $3.43/liter (HTS subheading 2208.20.40)
• Whiskies, other than Irish and Scotch whiskies (HTS subheading 2208.30.60)

Please include Spanish Olive Oil in your list.

There is a case. It’s ongoing, and the US government is doing everything in its power to stop the case from being decided.

My goat, read the damn thread. We have been over this multiple times!!!

+1

[Dan Kravitz]

It's been mentioned many times, let me simplify it:

Airbus clearly receives illegal subsidies from the E.U.
Boeing clearly receives illegal subsidies from the U.S.

The U.S. case against Airbus got decided while there were enough judges to decide cases. Tariffs were imposed.
The European case against Boeing has not been decided, because there are not enough judges to issue a decision.
The reason that there are not enough judges to issue a decision is that the U.S. has blocked appointment of any more judges, regardless of merits or qualifications.

Both Boeing and Airbus will survive as arms respectively of the U.S. and the E.U. Air travel, thus demand for airplanes, will remain severely depressed for at least several years, perhaps a decade or more. Without government support, both would be bankrupt today. Except for military purposes, the world does not currently need any additional airplanes larger than small personal size, anywhere, for any purpose. Planes in China for domestic flights might possibly be an exception, but I think it unlikely.

Dan Kravitz

[John Morris]

I don't like the tariffs and certainly not the Trump Administration, but a whole lot of the blame here has to go to the Europeans. They were found to be in violation of trade laws with their subsidies of Airbus. I think any administration would be protecting domestic industries against a blatant violation by the Europeans like this.

I agree, which is why the focus here has to be on why WINE tariffs are the wrong ones. Focus on the harm to US businesses and how US importers, distributors, etc. are harmed much more by wine and liquor tariffs than they would be by tariffs on sweaters or handbags or perfume or cheese, etc. Just saying "I hate Trump" or "I hate tariffs" will accomplish nothing.

I'm working on my letter - a revised version of the one I sent in December and posted here then - and I will post it here when it's done.

This is a definite plus 1. I cannot fathom why the wine trade and consumers suffer for the sins of Airbus. Not only does it make no sense but also the damage it does to an already one weakened industry is just nasty.

Because tariffs are aimed at creating political pressure on the other side, stirring up agricultural interests and German machine goods makers, in our case. Same reason the EU targets motorcycles (Harley Davidson is headquartered in Wisconsin, a swing state) and bourbon (think Kentucky and Mitch McConnell).

[John Morris]

It's been mentioned many times, let me simplify it:

Airbus clearly receives illegal subsidies from the E.U.
Boeing clearly receives illegal subsidies from the U.S.

The U.S. case against Airbus got decided while there were enough judges to decide cases. Tariffs were imposed.
The European case against Boeing has not been decided, because there are not enough judges to issue a decision.
The reason that there are not enough judges to issue a decision is that the U.S. has blocked appointment of any more judges, regardless of merits or qualifications.

Both Boeing and Airbus will survive as arms respectively of the U.S. and the E.U. Air travel, thus demand for airplanes, will remain severely depressed for at least several years, perhaps a decade or more. Without government support, both would be bankrupt today. Except for military purposes, the world does not currently need any additional airplanes larger than small personal size, anywhere, for any purpose. Planes in China for domestic flights might possibly be an exception, but I think it unlikely.

Dan Kravitz

The case against Boeing is not of the same magnitude. The EU argued that Boeing’s civilian aircraft programs were indirectly subsidized by military contracts, but the WTO in the end rejected that. At this point, the only ruling against Boeing involves $9 billion of tax breaks provided by Washington state.
https://www.reuters.com/article/wto-air ... SL2N24G18K

By contrast, Airbus received massive government loans and other direct subsidies for decades, and Aérospatiale, the French founding consortium member, was state-owned.

[AndrewH]

The case against Boeing is not of the same magnitude. The EU argued that Boeing’s civilian aircraft programs were indirectly subsidized by military contracts, but the WTO in the end rejected that. At this point, the only ruling against Boeing involves $9 billion of tax breaks provided by Washington state.
https://www.reuters.com/article/wto-air ... SL2N24G18K

By contrast, Airbus received massive government loans and other direct subsidies for decades, and Aérospatiale, the French founding consortium member, was state-owned.

From that article, it appears the claim accepted by the WTO is for $18-21B in subsidies to Airbus, which is certainly of the same magnitude, although twice the size, of the alleged $9B in subsidies to Boeing. Did I miss something? The history of Airbus isn't really relevant to these particular claims.

[AndrewH]

My current draft. Feel free to borrow any or all as you see fit, but please remember that letters which are just duplicates aren't as impactful.

. . . .

As a result of this system of regulation, distribution costs add more to the final consumer price of beverage alcohol than to the final consumer price of any other major product category sold in the United States. This is important because the revenue created by these distribution costs is earned by American businesses. Put another way, revenues earned by American businesses in the distribution chain typically make up a larger percentage of the final consumer cost of a bottle of imported wine or liquor than of any other imported product.

. . . .

Well written letter, Dave.

There is, however, something of an irony that an industry (alcohol distribution) that generates a lot of its revenue because of an intentionally inefficient structure that is mandated and protected by state governments now sees its revenue substantially harmed because of more government intervention in markets. I realize the two aren't directly connected, but my sympathy for the small businesses that are being seriously harmed by these tariffs is tempered slightly by the fact that they (or at least some) rely on the maintenance of a system that is designed to ensure more distributions costs on products than any other major product category.

[D@ve D y r 0 f f]

Andrew, no question about it. In another fight, in another forum, I’d rail against the mandatory nature of the three-tier system and all the anti-competitive and anti-consumer effects it has. But (and ironically as you point out), those antiquated and anti-consumer laws mean that tariffs on beverage alcohol cause more harm to US businesses per dollar of harm caused to the underlying EU producer than tariffs on any other product of the EU, so they are an “advantage” to us in our fight to persuade the USTR to focus the punitive tariffs on other products.

[Robert M yers]

Just submitted my comments in opposition to the overall tariffs, as well as the potential increases.

We need many more people in your current mood state to tackle this one

[GregT]

So is this back?

I got a note from Woodland Hills today, July 16, asking for support against the tariffs. Do they know something that hasn't been published?

Annex A of the notice doesn't mention wine.

https://www.ustrademonitor.com/2020/07/ ... -proposed/

Here's the list of items:

https://ustr.gov/sites/default/files/en ... y_2020.pdf

[D@ve D y r 0 f f]

Greg,

I think I have this right but I'm no international trade expert. I welcome corrections from those in the know. The notice you linked to relates to a different dispute - the dispute with France over the Digital Services Tax. The USTR was considering targeting wine (at least Champagne, maybe others) in that dispute, but the comment period is closed and the announced decision excludes wine (for now). Even the tariff that was announced is suspended for six months to allow for negotiations.

The ongoing large aircraft dispute, however, remains. That is the dispute that led to the existing 25% tariff on many but not all EU wines. That tariff package comes up for review periodically, and it is up for such a review now. Options are to remove wine from the list and rotate to other product(s), keep the existing wine tariff program as is, or expand it by adding additional categories (for example, Italian wines or wines over 14% or sparkling wines) or by increasing it from 25% up to as much as 100%. The public comment period for that review is now open, and that is what WHWC is e-mailing you about, and that is what we are talking about upthread, where you can among other things find the link to submit your comment.

They have changed the format from before (so that they don't have to read all the letters, IMO) to allow for a bit of shorthand with some drop-down menus so you can specifically indicate that you are writing about wine and that you want the tariffs removed before getting to the final screen and uploading your letter.

[D@vid Bu3ker]

And for those who do not know, this is something that happens on a regular 6 month cadence. Section 301 tariffs are regularly reviewed.

[John Morris]

The case against Boeing is not of the same magnitude. The EU argued that Boeing’s civilian aircraft programs were indirectly subsidized by military contracts, but the WTO in the end rejected that. At this point, the only ruling against Boeing involves $9 billion of tax breaks provided by Washington state.
https://www.reuters.com/article/wto-air ... SL2N24G18K

By contrast, Airbus received massive government loans and other direct subsidies for decades, and Aérospatiale, the French founding consortium member, was state-owned.

From that article, it appears the claim accepted by the WTO is for $18-21B in subsidies to Airbus, which is certainly of the same magnitude, although twice the size, of the alleged $9B in subsidies to Boeing. Did I miss something? The history of Airbus isn't really relevant to these particular claims.

On order of magnitude, I think the amount of state tax breaks is still in dispute.

The state ownership is absolutely relevant, particularly if you know anything about French state-owned businesses and the ways that the French government has bent over backward to protect them historically. At the least, it was effectively a credit guarantee (a form of subsidy), because there was no way the government would ever let Aerospatiale default.

The history is relevant because the French, German and Spanish governments created Airbus because there was no European passenger plane maker. The subsidies to it were a major factor in forcing McDonnell-Douglas to sell out to Boeing in the late 1990s.

I hate these sort of battles, and big state and municipal tax breaks (which are never justified economically in terms of benefits to local economies), so I'm on the WTO's side there. But Airbus was just nationalism on a multinational EU scale. It was created where private capital in the US had produced three competitors (Lockheed was also a player through the 80s). So I think some retaliation was justified.

[GregT]

Thanks Dave.

[Mattstolz]

update. my response from my (unfortunately) senator Graham when I submitted my most recent letter against the new tariffs:

Dear Dr. Stolz:

Thank you for contacting me regarding tariffs on European goods. The Trump Administration and the French government are continuing negotiations on France's Digital Services Tax and have suspended increasing duties for the rest of 2020. Separately, as a result of a trade case against Airbus, the United States is enforcing additional tariffs on certain large civil aircraft and select European products.


it went on with a bunch of other Lady G hot air but I thought that was of interest.

[D@vid Bu3ker]

FWIW, pretty much all of the actions were pre-decided. My contact at the USTR said the comments are being ignored, as they had already decided what to do.

[Michael Bowden]

FWIW, pretty much all of the actions were pre-decided. My contact at the USTR said the comments are being ignored, as they had already decided what to do.

Once decided (or announced I guess) if there are changes will they take effect immediately or will there be a date they start (maybe 1 week, 1 month, 3 months, etc.. )?

[D@vid Bu3ker]

FWIW, pretty much all of the actions were pre-decided. My contact at the USTR said the comments are being ignored, as they had already decided what to do.

Once decided (or announced I guess) if there are changes will they take effect immediately or will there be a date they start (maybe 1 week, 1 month, 3 months, etc.. )?

Depends. Sometimes they give a grace period for goods in transit. Every once in a while they do a snap change. More often than not there is a short grace period.

[Peter Kleban]

So you're saying the 100% tariff on EU wines will happen, it's only a question of exactly when? Or did I miss something?

[D@vid Bu3ker]

So you're saying the 100% tariff on EU wines will happen, it's only a question of exactly when? Or did I miss something?

No. There are other products getting slapped, unless there is a last minute change of plans. This tariff fight was never just about wine. Lots of products involved.

[AndrewH]

Perhaps time for a reset?

There are two tariff actions in play:

1) The ongoing tariffs imposed in response to the WTO ruling that the EU unlawfully subsidized Airbus. Those were initially imposed last Fall, and are by law reevaluated every 180 days. Currently those tariffs include a 25% tariff on certain wines (from France, England, Germany, Spain). The current evaluation is whether to alter the product mix to which those tariffs apply, and to consider whether to increase, decrease, or keep the same percentage.

2) A potential tariff in response to France's proposed Digital Services tax. Originally that proposed 100% tariffs on Champagne, but has been revised to impose the tariff on handbags, makeup, and some other luxury (non-wine) goods. That tariff will not take effect until the end of the year, at the earliest, to allow for negotiation of a "global" resolution as to how to tax platforms like Google and allocate those taxes among countries.

[D@vid Bu3ker]

Another Section 301 investigation was recently launched, and is causing confusion. See below:

The U.S. Trade Representative is initiating investigations with respect to
Digital Services Taxes (DSTs) adopted or under consideration by Austria, Brazil, the
Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the
United Kingdom. The Office of the United States Trade Representative (USTR) is
seeking public comments in connection with these investigations.

To be assured of consideration, you must submit written comments by July 15,
2020.

https://ustr.gov/sites/default/files/assets/frn/FRN.pdf

Specific product codes are not yet listed, but we can guess what they might be.

[Mark Golodetz]

Perhaps time for a reset?

There are two tariff actions in play:

1) The ongoing tariffs imposed in response to the WTO ruling that the EU unlawfully subsidized Airbus. Those were initially imposed last Fall, and are by law reevaluated every 180 days. Currently those tariffs include a 25% tariff on certain wines (from France, England, Germany, Spain). The current evaluation is whether to alter the product mix to which those tariffs apply, and to consider whether to increase, decrease, or keep the same percentage.

2) A potential tariff in response to France's proposed Digital Services tax. Originally that proposed 100% tariffs on Champagne, but has been revised to impose the tariff on handbags, makeup, and some other luxury (non-wine) goods. That tariff will not take effect until the end of the year, at the earliest, to allow for negotiation of a "global" resolution as to how to tax platforms like Google and allocate those taxes among countries.

Thanks for the clarification. All very confusing. Do you have any update on Boeing, which was supposed to be a counterweight in the negotiations on the current tariffs , but because of Covid, no decisions have been taken.

[D@vid Bu3ker]

Perhaps time for a reset?

There are two tariff actions in play:

1) The ongoing tariffs imposed in response to the WTO ruling that the EU unlawfully subsidized Airbus. Those were initially imposed last Fall, and are by law reevaluated every 180 days. Currently those tariffs include a 25% tariff on certain wines (from France, England, Germany, Spain). The current evaluation is whether to alter the product mix to which those tariffs apply, and to consider whether to increase, decrease, or keep the same percentage.

2) A potential tariff in response to France's proposed Digital Services tax. Originally that proposed 100% tariffs on Champagne, but has been revised to impose the tariff on handbags, makeup, and some other luxury (non-wine) goods. That tariff will not take effect until the end of the year, at the earliest, to allow for negotiation of a "global" resolution as to how to tax platforms like Google and allocate those taxes among countries.

Thanks for the clarification. All very confusing. Do you have any update on Boeing, which was supposed to be a counterweight in the negotiations on the current tariffs , but because of Covid, no decisions have been taken.

This is the most recent development. Nothing since.

https://www.deccanherald.com/business/u ... 34469.html

[Mark Golodetz]

Thanks David. Even if they have now remedied, they were in violation. I assume that will have consequences.

[D@vid Bu3ker]

Thanks David. Even if they have now remedied, they were in violation. I assume that will have consequences.

Probably.

[David Glasser]

Thanks David. Even if they have now remedied, they were in violation. I assume that will have consequences.

Probably.

$230 million vs. $7.5 billion in subsidies.
How often are the consequences proportional to the offenses?

[AndrewH]

Thanks David. Even if they have now remedied, they were in violation. I assume that will have consequences.

Probably.

Is the Boeing case still on appeal to the WTO appeals panel, which doesn't have a quorum so can't issue a final ruling?

[D@vid Bu3ker]

Thanks David. Even if they have now remedied, they were in violation. I assume that will have consequences.

Probably.

Is the Boeing case still on appeal to the WTO appeals panel, which doesn't have a quorum so can't issue a final ruling?

The WTO has been working around the quorum issue. Of course the USG has already stated that they will not abide by any decision of the WTO in the case. Not that they have much choice, as the EU would be the ones who get to take action.

[D@vid Bu3ker]

Thanks David. Even if they have now remedied, they were in violation. I assume that will have consequences.

Probably.

$230 million vs. $7.5 billion in subsidies.
How often are the consequences proportional to the offenses?

The $230 million was just in 2018.

[D@ve D y r 0 f f]

The key on the Boeing side of things, as I understand it, is that no matter what happens it will NOT result in any offset or reduction of the "Airbus" tariffs imposed by the US. Rather, if a ruling goes against Boeing/the US and reaches finality, then the EU will be authorized by the ruling to put its own tariffs in place in some amount and on some amount of goods. The only hopes, as I understand things, to get rid of the US tariffs on EU wine arising out of the aircraft dispute are: 1) The USTR decides to change categories under his "carousel" approach during the current review or some future 180-day review, and he drops wine from the list; or 2) A negotiated resolution to the wider aircraft dispute that includes in its terms the elimination of the wine tariffs. So while there is perhaps some small hope that an anti-Boeing ruling there, and the resultant pressure, would further incentivize a negotiated resolution, it doesn't seem to me that the hope that the WTO might tag Boeing is reason for much optimism on US wine tariffs.

And even if either of these happens, there are other disputes (e.g., DST) that could still lead to wine tariffs being imposed.

Should the administration change in January, it seems to me that the likelihood of tariffs for other disputes may be reduced, but not so in the matter of the aircraft dispute, where the tariffs arise directly out of the WTO ruling.

[D@vid Bu3ker]

Any new administration might be more willing to take a collaborative approach with the EU. Screwing liquor stores to prop up an airplane company might not be such a priority.

[Michel Abood]

July 26 is the deadline to comment, so if you haven't already done so, please go to this link and voice your opposition:
https://uswinetradealliance.org/endwinetariffs/

Talk about punishing grapes for something oranges did.