Wine tariffs update: importers employ “mitigation” strategies to counteract fallout as threat to Italian wine grows

“Sorry, but wine tariffs are still a HUGE problem,” wrote leading American wine blogger Alder Yarrow on his blog Vinography last week.

And he’s right: even though French president Macron tweeted that he and Trump had an “excellent discussion” on trade in the days leading up to the World Economic Forum in Davos last month, there was no formal agreement announced nor has there been any confirmation by the U.S. Trade Representative that tariffs are officially off the table.

Regardless of progress that may (or may not) have been made toward ending the trade war between the U.S. and European Union, 25 percent tariffs on European wines and food products — including still wine from France and cheeses from Italy, among many other products — have been in place since October, 2019 and they continue to be active with no relief in sight.

(See background on the U.S.-European trade war and tariffs here.)

There are “rumors and hearsay” that further tariffs won’t be imposed, said Boston-based international trade lawyer Matthew Bock in a phone interview yesterday. “But there’s still a background threat of a 100 percent tariff on everything that was covered by the original Airbus tax. That has not gone away.”

And there is also a growing likelihood that the U.S. will impose new duties on Italian products.

According to a report published by the Wall Street Journal last month, “Italy and Britain will face U.S. tariffs if they proceed with a tax on digital companies such as Alphabet Inc.’s Google and Facebook Inc., U.S. Treasury Secretary Steven Mnuchin warned […] at an event on the sidelines of the World Economic Forum.”

Italy’s digital tax — the “web tax” as it called in Italian — went into effect at the beginning of 2020.

The “truce” with France, said Mnuchin, referring to talks with Macron, is just “the beginning of a solution.”

In the meantime, the U.S. wine trade continue to deal with the impact of active tariffs.

One of the ways that importers can counteract the fallout of the current duties is through “tariff mitigation,” said Bock whose firm Middleton Shrull & Bock is currently helping importers to navigate byzantine trade regulations.

Wines “are special because of their origin,” he said. “You can’t take a French [or Italian] wine and make it something else. So the only play left, at least from an importation stage tariff mitigation perspective, is to reduce the value as much as possible. And so that’s what we’ve been focused on with U.S. importers.”

The price of a bottle also includes professional services, he explained, like marketing support, sales support, licensing, and royalties, etc. They can be “disassociated from the bottle price” by realigning agreements with producers.

“All of that has been traditionally built into the price of a bottle,” he noted. But “a lot of that can be shaved off into separate agreements that are not related to per bottle import volume.”

Importers can achieve this by creating separate agreements for services. As a result, the value of the wine itself can be reduced significantly.

But U.S. wine trade members have to be extremely careful, he said, because U.S. customs officials can impose severe fines if they determine importers have acted improperly or negligently.

While rumors have circulated that the U.S. Trade Representative will make an announcement regarding tariffs by Monday, February 17, there’s no firm date for a decision or clarification. It’s likely that the 25 percent tariffs will remain in place at least until the U.S. presidential election in November, Bock said. But he’s cautiously optimistic that 100 percent tariffs won’t be imposed this year.

In other European wine tariff news…

European Commissioner for Economy Paolo Gentiloni, former Italian prime minister, has responded to a Change.org petition supporting Italian winemakers that was launched by Slow Food University professor of food and wine law Michele Fino (my colleague).

“Together with agriculture commissioner Janusz Wojciechowski,” he writes, “we will continue to carefully monitor the situation in an effort to evaluate the impact of the tariffs and determine whether or not it’s necessary to respond with proportionate measures” (translation mine).

*****

Piedmontese winery Cascina Iuli has launched “I am a farmer,” an EU-focused letter writing campaign, including emails for leading EU agriculture officials.

“We European farmers have 14 days,” writes American wine importer Summer Wolff (my friend) who is based in Italy, “to make as much noise as possible on this side of the pond to try and get the attention of the powers that be.”

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