The US is the world’s most important importer of wine, purchasing about $18 billion in wine in 2019. So changes in the US market have outsize effects on countries that are the major exporters of wine. The US wine market has been hit by the double whammy of COVID-19 and wine tariffs imposed on French, Italian, and Spanish still wines under 14% alcohol. Now, in response to European Digital Services Taxesthe US is again considering raising tariffs from the current 25% (imposed in October 2019) to over 100% and expanding coverage to include bulk wine, fortified wine, and sparkling wine from the EU. If enacted, this will seriously raise prices to US consumers, force many small US importers and distributors out of business, and greatly reduce the variety of imported wines available to purchase by those who love good wine.
As noted in the 2020 Silicon Valley Bank’s annual report, the US wine industry was already in a state of transition prior to COVID-19 and the imposition of tariffs. Among the trends noticed in that report:
- Young consumers are buying less wine.
- Restaurants are selling less wine.
- Sales of inexpensive wines under $9/bottle are especially weak.
- The industry suffers from oversupply, mostly due to low demand.
- Direct to consumer (DTC) sales continue to grow.
- Well established brands are doing well.
These trends were reinforced by recent events. According to Wine Analytics, over the past year, US total wine sales are down; off premise sales are up; and direct to consumer shipments are up even more. The development of a COVID 19 vaccine will help raise restaurant wine sales. But a 100% tariff imposed on all EU wine would result in radical changes in the wine market. Prices of imported EU wine would almost double, leading to decreased imports and increased demand for US produced wine. Consumers would end up paying more for both imported and domestic wine, and total wine consumption could be expected to decline further. [Other wine importing countries (e.g. China) would benefit from lower prices of European wine exports as a result of reduced US demand.]
In addition, the composition of wine imports will shift dramatically with decreased imports from the EU and increased imports from the Antipodes, South America, South Africa and Eastern Europe. Small US importers could be expected to shift their attention away from France and Italy to countries not subject to the tariff.
History tells us that tariffs once imposed are difficult to remove. US producers, who would be harmed by increased imports, would lobby to retain the tariffs. Importers would shift their attention away from Europe and “discover” ultra-premium wines produced elsewhere and market those wines to their US clients. US demand is likely to permanently shift from European imports to those of other countries. And US producers are likely to respond by producing grape varieties and new wines that more resemble their European competitors. The long-term changes can’t all be anticipated, but they will be significant.
Hopefully, the US and the EU will come to some agreement on the Digital Services Tax, and the risk of additional tariffs will be avoided. But the imposition of tariffs last October suggests there is a real risk here.
What can you do? Written comments can be submitted to the Federal eRulewinemaking Portal http://www.regulations.gov. Follow the instructions for submitting comments in section IV. The docket number is USTR-2020-0022. For issues with on-line submissions, please contact the USTR Section 301 line at 202-395-5725.”