Chinese Tariffs on Australian Wine!

Hi to all fellow Berserkers! and I come to you with a plea for help to pass on a message to the wine drinking world that this week’s stupidly high tariff impost on the Australian Wine Industry is plain wrong!

Last Friday (Australian time), the Chinese Government decided in its wisdom to apply a taxation tariff of between 107% & 200% on ALL Australian wines being imported.

This tariff, says China is for 4 big producers inc Treasury Wines (Penfolds, Wolf Blass, Wynn’s, Saltrams, Lindemans, 19 Crimes, etc), Casella Wines and others have been found to be “dumping” subsidised wines on the Chinese market. But we know a bit different -

Our Australian Government has recently led the world in asking for an impartial investigation into the way Covid-19 was handled when it was discovered first in Wuhan. Not an evil question to ask surely? and we feel this is the true cause behind these new impossible taxes.

I have many friends and acquaintances within these companies and within the Australian Wine Industry as a whole, and have clearly learned that these claims are NOT correct at all!

I ask on behalf of the many small and boutique producers of Australia that we adopt a new hashtag for the promotion of these smaller companies who will suffer largely as a result of these impossible tariffs.

We have decided on a small effort to raise global awareness through the use of our hashtag #cheerstoaustralianwine and would love to have those of you on social media to raise a glass of Aussie wine to show your support for us here.

I do hope that most are continuing to enjoy our wines and I am sure that the quality of Australian wines, as always shines through this trade war.

I tried to type a couple different responses to this but they were unfortunately more political in nature than should be stated in Wine Talk. I wish you all the best for your industry. I wish we could do more for you in the US. I know they are trying to spread the word here but it’s not like 20 years ago in terms of the interest in and exposure of Australia’s less well known and small producers.

Thanks for your comment Brent! yes… who thought politics go with wine!!

In order to stick it to the Chinese government, I will increase my purchasing of Aussie wines!

So sorry to hear this Andrew. I’ve read that China represents ~40% of your market. I knew China was emboldened but was surprised at how fast they have acted. I’ll open a Rosabrook Abattoir tonight.

Good morning Andrew,

As others have mentioned, this post is quite political, but I’ll try to stay as objective as possible. First off, I’d like to state that the most recent tariffs on all imported wines are unfair imo. That said this seems to be the ‘new standard’ from an international trade perspective. From how I see it China has been on the receiving end of trade tariffs from the US for the last, well, 4 ish years? And there wasn’t much they could do about those trade tariffs due to the power imbalance between them and the US. But, I think they rightly saw an opportunity (from their perspective) in how they deal with other countries in the region and around the world that aren’t the US. And I think trade with Australia is falling victim to that realisation.

Rolling back to the anti-dumping investigation that China announced mid-August, I gotta be honest with you, I think that investigation had merit. Much like the anti-dumping investigation into barley. I’ve had discussions with others here in Perth about this, specifically the fact that big retailers like Dan’s and First Choice stock the front of store with ‘loss leaders’ and have done so for years. These are wines that are domestically produced and given a marketing derived label that often changes year after year. They’re called loss leaders because the stores sell them at a loss to get you through the front door. The expectation is that you will buy other booze that’s profitable so the net result is a profit for the retailer. I suspect you’re already across this but I bring it up for the benefit of others who might not be in our market. I also suspect this methodology was being practiced by producers exporting bulk wine to China. Why wouldn’t they when it worked so well for them domestically? Expand market share initially at the expense of profit but corner yourself a chunk of market that you can then raise prices on once you have that market penetration.

For years people in the wine community in Australia, including myself, have lamented the ‘race to the bottom’ that these wines represent. They’re bad for producers, bad for consumers, etc. I could go more into the predatory practices the retailers get up to in this space that are bad for producers if you’d like. I must admit I found it a bit surprising that in the end it was China that decided to take these products on in August. I was pleased by the announcement as I thought it could be good for small producers in the long run from a profitability perspective.

I believe Australia’s world leading call for an impartial investigation into Covid-19 was seen as insulting to/in China. I’m not trying to pass judgement one way or the other on the merits of the call for an investigation, just pointing out that it was interpreted as insulting. I also think the Chinese have a limited appetite to being lectured to by western countries regarding human rights abuses and when evidence emerges that highlights we’re not so innocent (like the ADF investigation into the SAS murdering innocent Afghans) they leverage that. And they troll. The international community gets up in arms over it but I believe these actions are for the consumption of their domestic population more so than a legitimate complaint on the world stage.

Finally, whilst the taxation tariff China applies to all imported wine does appear very political, I’m constantly brought back to the fact that we, as Australians, have been applying a taxation tariff (the Wine Equalisation Tax) on ALL wine imported into Australia (excluding New Zealand) to the tune of ~50% since 2004. Now you might respond and say, ‘Wait a minute, WET is only 29%, not ~50%’. While that’s factually true, so is this “The taxable value of imported wine is the GST importation value. This is the customs value plus the costs of transport, insurance and duty (if any).” So WET isn’t just bottle price, it also includes shipping, insurance, etc in the calculated bottle cost. And that raises the total taxable dollar figure significantly.

And I’ve not even touched on the WET credits and producer rebates that apply when Australian wine is exported. But I think it’s safe to say the Australian federal government has been propping up domestic wine producers for over 15 years. So I find it a bit hard to get up in arms over these Chinese tariffs when we’ve had our own for so long.

I’ll continue to do my part to support domestic producers that I enjoy and appreciate. But I must admit that my long standing boycott of the likes of Dans and First Choice (Americans, think Total Wine but they also buy bulk juice and bottle house labels) will not change and I find myself sympathetic to some aspects of China’s complaints as I’ve held similar misgivings for years.

Cheers,

drew

The question is what domestic production the Chinese are trying to protect. Their home produced wines are objectively dreadful.

Andrew,

Thanks for your post. A couple of points:

I think the concept of Loss Leaders is pretty endemic to all retail, not just the wine industry. An educated consumer should see past it and realize they will get what they pay for. That logic works in any country. Shame on them if they don’t get it. I’d be interested in more info on the ‘dumping investigation’ you speak of.

While you were a bit more deft than I would have been in expressing your views, most of the rest of your post shades to the political aspect of the situation and I was concerned about putting such a post in Wine Talk.

Cheers!

How dare you insult the word dreadful!

I’m doing the best that I can:

From my understanding the wine dumping investigation was instigated off the back of Chinese producers being undercut from a price perspective by Australian imports. Which, if true, seems hard to believe. Even if you import bulk juice and bottle in China it’s hard for me to rationalise that Australia wine would be cheaper in China when compared to domestic production.

Here’s some background from China.

No worries Brent. The link above from the SCMP is a fairly good rundown. Here in Australia most of the reporting has been what I would describe as more emotional than factual.

And you’re right about the political aspect of my response. I tried to be as diplomatic as possible but this topic is inherently a geopolitical issue and you can’t objectively discuss it without including the political aspects.

Thank you. If I could get some good Australian wine locally I would. Sadly it’s been a trash market in these parts since 2010 or so.

Thank you all for a really balanced and well thought out discussion. I learned a lot and was very interesting to see both sides. I’m going to roll up my sleeves to learn more, but this was a great - and respectful - starting debate. Happy holidays!

1. The standard for dumping isn’t does it make the product cheaper than domestic producers, it’s whether it’s being sold below cost. Even if the product is above the price of domestic producers it could harm them from a trade perspective by reducing the price differential.

2. China has a history of using trade actions for reasons other than the narrow trade issue claimed.

This is like comparing mountains to molehills.

From my reading “Dumping occurs when a company exports a product at a price lower than the price it normally charges on its own home market.” But I take your point. I was just trying to highlight the curious situation that Australian imports were cheaper than domestically produced wine. That seemed strange to me and illogical from a high level perspective. Do you expect Australian budget wines to be cheaper in China when compared to domestically produced budget offerings?

So do most heavy hitters on the world stage. But taking the barley tariffs China instituted in Australia in November 2018 after a 18 month investigation into account I believe Australian barley producers were dumping on the Chinese market. I say this because logically if it was a unfair move Australia would have contested the ruling via via the WTO’s Dispute Settlement process. It’s been two years and that has not occurred. I also say this as I have a mate who works for DFAT in Canberra and his take was “they got caught with their hand in the cookie jar and knew they would have tariffs imposed.” Apparently aussie farmers sowed less significantly less barley in anticipation of these tariffs because they knew in advance they would lose.

I was speaking to a WA farmer about this exact subject on Sunday. Asked him if he was affected. Come to find out he was sitting on a significant barley crop when the tariff came in. Prices were down. So they held for a few months and waited until prices rose again and then sold. He didn’t seem particularly bothered by it.

Just because China has a history of using trade actions for other reasons doesn’t mean every time they do pull these levers it’s for nefarious purposes.

Agreed. But China’s playing the whataboutisms game to strengthen their domestic power base. At least that’s my reading of it.

WET is payable on all wine in Australia, imported or domestic, as is GST. The only difference is the 5% import duty.

Do importers get WET rebates or credits like exporters or domestic producers?

Andrew,
Loss leaders is a myth. Large retailers do not take a loss on certain items. The producers pay for the privelege of having their product promoted. In some instances the invoice price may suggest an unsustainably skinny margin for the retailer, but rebates ensure the retailer does not lose. They are in the business of maximising return per square foot and they are very adept at it.
I would be very surprised, in fact amazed if there has been any dumping into China. Until a few months ago demand for our wine was very strong with high grape prices and high bulk prices especially on the back of a meagre 2020 crop. This is politics, pure politics.
It is very much adversely effecting my little corner of the world - crayfish, timber, wine all major industries in our region. Next will be milk solids, beef etc. everything but iron ore, which they need. Australia is being made an example of to remind other trading partners of the need to toe the line.
It will be nigh on impossible for Australia to find new markets for the $1.3B Chinese exports. Expect some cheap Grange and 707 at a store near you.