Cognac caught in prolonged EU-China trade spat
Eighteen months after China threatened steep tariffs on European brandy in retaliation for EU action on Chinese EVs, a resolution remains elusive. While negotiations continue, the Cognac sector suffers mounting losses and fading market dominance in China.
It is 18 months since Beijing threatened European brandy distillers – effectively Cognac – with retaliatory tariffs of 39% after Brussels said it would put a 50% tax on electric vehicles and components produced in China.
They, Brussels alleged, were being dumped to the detriment of Europe’s car makers.
Stalled talks and escalating losses
In the interim, there have been many protests and negotiations, but the talks have not resolved the trade war, while China examines allegations that European brandy is undercutting locally distilled rivals.
In 2023, China imported around US$1.7 billion worth of French brandy – almost entirely Cognac – and was the industry’s most important single market as measured by value and the second-largest by volume after the United States.
By February, the dispute had cost Cognac more than €50m in lost sales. Those losses have continued to grow because of a “deposit” scheme placed on the imports, but also because the lucrative travel retail market in China has effectively been shut off.
Political promises and delays
It has been more than a year since Presidents Macron and Xi Jinping agreed in a phone call to settle the matter quickly, but Beijing has repeatedly stalled.
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It was initially meant to make a final decision on the duties by January, but that deadline was extended to April and then again to July 5.
Diplomacy and deadlock
Talks to progress a settlement continued last week when the two countries’ trade ministers met in Paris during an OECD conference: technical talks were also held in Beijing.
“The two sides have reached consensus on resolving economic and trade issues through dialogue and consultation”, the Chinese foreign ministry said.
The wrangle, however, is with the EU, not just France, which has referred China to the World Trade Organisation for violating its rules.
And French trade minister Laurent Saint-Martin said after meeting his counterpart last week: “France will not compromise on … the protection of its industries, such as cognac.”
Uncertain outlook for recovery
Despite the obvious preening, the mood music has raised hopes of a settlement, industry sources told Reuters.
However, while Chinese officials signalled that they want to conclude the matter, one of the sources said, several sticking points remain.
Meanwhile, industry sources point out that even if the July 5 deadline is met, the market in China for Cognac will take a long while to regain its preeminence among Western spirits in the country while it restocks and weans consumers back onto its premium spirits.
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