The U.S. – E.U. Alcohol Trade Wars: A Welcome Pause
We have previously reported developments (here and here) in the trade disputes between the US and the EU. Both sides have levied billions of dollars against one another, focusing on alcohol imports and exports. What started as a World Trade Organization ruling against the EU on unfair government subsidies to EU aircraft industries has devolved into a standoff over tariffs on seemingly unrelated wine, cheese, and spirits.
American importers of most wines and whiskies from the EU were hit with an additional 25% tariff. In retaliation, the EU imposed 25% tariffs on American exports of whiskey, rum, vodka, brandy, and vermouth.
Now, after over a year of turmoil for alcohol importers, retailers, and distributors, the Office of the United States Trade Representative (“USTR”) has put out a joint statement with the European Union, whereby the US and EU have agreed to a four-month suspension of all tariffs arising from the aircraft dispute. The tariffs have been in place since 2019. Imports of Scotch whisky and French wines will, for the next four months, be free of an additional 25% levy. The suspension of tariffs went into effect on March 11, 2021.
We appreciate that the Biden administration has moved swiftly on this issue, even while occupied with Covid relief and other challenges. We attribute this to the advocacy of the hospitality industry, including many of our clients and the U.S. Wine Trade Alliance.
In contrast, such advocacy fell on deaf ears during the Trump administration. In fact, the outgoing Trump administration made an eleventh hour “parting shot”, adding new tariffs (and newly tariffed products, like Cognac) on December 30, 2020, and failed to include an exception for “goods on the water”, i.e., products already paid for and en route to the US.
Will Prices of Wine, Scotch and Other Alcohol Go Down?
It is unlikely that prices of alcohols from Europe will now decline. First, the marketplace and supply pipelines are currently working through inventory already imported under the tariffs regime. The costs of the tariffs will have to be recouped before importers and wholesalers can lower prices.
Second, while the tariffs will no longer apply (at least for four months), the cost of international transportation has skyrocketed as a result of the Covid pandemic. (Here is one illuminating report from the New York Times). For many importers, the benefits from suspension of tariffs will be immediately offset by the significant increase in international shipping costs.
Third, the value of the dollar has declined, while the value of the Euro has increased.
Fourth, the suspension of tariffs is, at the moment, only temporary. Price decreases followed by increases would further disturb the market. It may be better to wait and see what happens with the US-EU trade discussions before making price changes.
The suspension of tariffs is an encouraging development not only for improving fractured US-EU trade relations, but also to stimulate a sector of the economy – the hospitality industry – that has been disproportionately impacted by the pandemic and by the tariffs. What happens after four months remains to be seen, but the early bilateral engagement from the Biden administration is certainly promising and welcomed.