Beijing to Hold Off on Brandy Tariffs Amid EU Trade Tensions

By Casey Hall, Alessandro Parodi and Emma Rumney

SHANGHAI (Reuters) – Beijing announced on Thursday that it would not impose provisional tariffs on brandy imported from the European Union, despite findings that it has been sold in China below market prices. This decision provides both sides with some breathing room amid tense trade negotiations.

The Chinese commerce ministry stated that European distillers were selling brandy at dumping margins of 30.6% to 39%, which has negatively impacted the domestic industry. They clarified, “Provisional anti-dumping measures will not be taken in this case for the time being,” while leaving the door open for future actions.

Earlier, the ministry indicated the probe was expected to conclude before January 5, 2025, though it could be extended under special circumstances.

China has been engaging with the EU’s 27 member states, urging them to reject the European Commission’s proposal for additional duties up to 36.3% on Chinese-made electric vehicles (EVs) during an upcoming vote in October. Observers suggest that abstaining from brandy tariffs might bolster China’s bargaining position.

“This looks like a negotiation tactic from China,” commented Barclays analyst Laurence Whyatt, expecting a connection between EU tariffs on Chinese EVs and potential Chinese actions regarding EU brandy imports.

An EU Commission spokesperson stated that this decision would not affect their stance on EV duties, emphasizing that the two investigations are unrelated. The Commission expressed its intent to follow the brandy investigation closely, asserting that the merits of the findings are “questionable.”

French Target

France has been identified as the likely target of China’s brandy investigations due to its support for tariffs on Chinese EVs, accounting for 99% of China’s brandy imports last year. French exports of dairy products under investigation totalled approximately 179 million euros, making up 35% of the EU total, as per Eurostat data.

The Bureau National Interprofessionnel du Cognac (BNIC), which represents French cognac producers, noted that while the provisional decision alleviated immediate concerns, it did not fully eliminate fears of future tariffs. Imposition of duties would significantly impact cognac exports to China, which represent a quarter of the sector’s exports.

“An entire sector would thus become the collateral victim of a conflict beyond its control,” BNIC stated, urging France and the EU to negotiate against the application of these duties.

Spirits Rally

Following the announcement, shares of French spirit manufacturers surged by about 8%, although gains diminished as investors absorbed the statement. If tariffs were enacted, they could reach 30.6% on Martell (Pernod Ricard), 39% on Hennessy (LVMH), and 38.1% on Rémy Martin (part of Rémy Cointreau), based on the dumping margins planned by China’s Commerce Ministry. Analysts had feared potential tariffs could reach as high as 50%.

At 1400 GMT, Pernod’s shares rose 2.7%, Rémy was up 3.67%, LVMH increased by 1.2%, and Campari gained 1.04%. Pernod CEO Alexandre Ricard commented that the company would remain cautious regarding China since the tariff decision seems temporary. Rémy indicated its intention to continue cooperating and investing in China while assessing strategies to mitigate negative impacts.

Citi analysts predict that retail prices in China for Pernod and Rémy could increase by around 16% and 20% respectively, potentially leading to a 13% and 16% drop in sales, adversely affecting their earnings per share (EPS) by approximately 2% and 8%.

The anti-dumping probe on EU brandy began in January, with cognac makers asserting that it is more linked to a broader trade dispute than the liquor market itself.

In addition to the brandy inquiry, China has initiated anti-subsidy investigations into EU dairy and pork products. The recent dairy investigation commenced just a day after Brussels issued its revised tariff plan for Chinese-made EVs.

The Spanish government, which previously backed the EU’s EV probe, chose not to comment on these recent developments.

($1 = 0.9011 euros)