Rod Byers: Wine wars
May 1, 2018
When it comes to tariffs, wine has always been a favorite choice. Whether it has been a despot, monarchy, or our own republic, taxing wine has always been an essential part of governmental financial planning.
Lately, trade talks, tariffs and even trade wars have been in the news. In the talks concerning NAFTA with Canada and Mexico, it didn't take long for wine to get in the conversation.
Although talk of trade wars with China started with aluminum and steel, once again, it wasn't long before wine was involved.
This is not new.
Going back to the time when America was still a colony governed by the British, and Portugal was a British ally, trade between the colonies and Portugese madeira was huge.
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In the second half of the 18th century, madeira was both Washington's, Jefferson's, and the rest of the country's preferred adult beverage. Madeira was used to toast the signing of the Declaration of Independence by the founding fathers.
Meanwhile, wines from France and Spain, both British enemies at the time, were heavily taxed.
In 1768, the colonists were infuriated when the British imposed a new wine tariff on them. Constitutional signatory John Hancock defied the new law.
The British seized his ship in the Boston harbor. In response a colonist mob stormed the docks and destroyed the English Harbor Master's ship.
That Boston Wine Party was a flashpoint leading to the 1770 Boston Massacre, credited as being the first blow in the revolutionary war.
Here's the thing. America wins the war but finds itself broke. It needs money. The newly formed government looks at a variety of options and decides to put a tariff on wine. Britain, and by extension Portugal, are now enemies. Madeira is heavily taxed.
In the meantime, France, because of help with the revolutionary war, had become an ally and the shipping lanes opened. French wine was given preferential treatment, and Madeira has been nothing but a footnote in American history ever since.
The war continues
Getting back to present time, wine wars still flourish. Last October the U.S. filed a complaint with the World Trade Organization against Canada accusing British Columbia of unfair restrictions on the sale of foreign wines.
In a law passed two years ago, grocery stores in British Columbia can only stock wines on their shelves that are actually made in British Columbia. They can sell other "foreign" wines but they must be in a separate "store-within-a-store" area.
The U.S. claimed discrimination and now are making it part of the larger NAFTA negotiations.
NAFTA has been very good for American wine, 90 percent of which comes from California. American wine sales in Canada have grown from $35 million in NAFTA's 1994 debut to over $500 million, making Canada the largest foreign buyer of U.S. wine in the world. American wine controls 14 percent of the Canadian market. Canadian wine is only 10 percent.
While NAFTA and the lessening of tariffs has increased American wine sales in Canada, it has not been reciprocal. When did you last see a bottle of wine from Canada on the shelf?
A complex three-tier distribution system as well as numerous licenses make it both expensive and difficult for Canada's mostly small, family-run wineries to navigate.
Under NAFTA, American wine sales in Mexico have increased 300 percent, from $7 million to $24 million, but you don't see a lot of Mexican wine on our shelves either.
Canada's economy is one twelfth the size of America's economy, which doesn't generate a lot of negotiating clout. Retaliation, in the form of increased tariffs, is one of the ways Canada can fight back.
In 2015, in response to new American "country of origin" rules on pork, Canada responded by imposing a tariff on American wine.
That is the story we are seeing play out with China.
China is one of the fastest growing wine markets in the world and does have a lot of clout. Last year China imported $197 million of American wine, a 450 percent increase over the last decade. Big and getter bigger, soon China will trail only the U.S. in total value of wine consumed, before eventually becoming the leader.
On April 2, China imposed an additional 15 percent tariff on American wines. That raised the total tax and tariff on imported American wines to 67 percent.
Contrast that with Chile and New Zealand, two high quality, export-motivated wine producing countries. While they do pay applicable taxes, their wines go tariff-free. Australia joins the duty-free club next year.
As a wine shopper, you know how that goes. You have a couple of favorite wines you like to buy. One goes up in price, the other goes down. Which one do you start buying less of?
If you think that doesn't matter, especially in an emerging market like China, try to think back to the last time you bought a bottle of madeira?
Foreign tariffs will hurt American wine sales abroad. At least one California winery is already claiming it lost a pre-existing sale to China because of the new tariff.
An increase in the cost of a California wine on a Chinese shelf because of tariffs doesn't really make much difference to us. Tariffs won't increase the cost of California wine here.
The trouble is, tariffs will increase the cost of everything else we buy.
Rod Byers, CWE, is a Certified Wine Educator and wine writer as well as a California State Certified Wine Judge. You can find information about him at http://www.pinehillwineworks.com and he can be reached at 530-802-7172.
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