The Possiblity Of French Wine Tariffs Hits Close To Home

On February 5, a group of over 50 wine trade professionals — organized by sommelier and Wainscott Main Wine & Spirits founder Chimene Macnaughton, in conjunction with the 5,200-member Facebook group U.S. Wine Trade Alliance — assembled at New York City’s Sud de France on 5th Avenue for a meeting to address the nascent wine tariffs directed toward French wine. The well-attended event featured wine industry bigwigs, like Paul Grieco, owner of Manhattan’s Terroir; Robert Bohr, esteemed wine director and partner in New York’s Charlie Bird; Jeff Zacharia, president of the iconic retailer Zachy’s Fine Wine; and Raj Vaidya, longtime Head Sommelier for Daniel Boulud’s restaurant, Daniel.

The goal of the meeting and of the larger mission, Macnaughton said, should be to increase awareness about wine tariffs enacted by the United States on European wine, broaden involvement, and draw the connection between the tariffs and the loss of American jobs. The problem, she said, “is completely abstract for the average consumer.”

Part-time Southampton resident and wine importer and distributor Harmon Skurnik of Skurnik Wines led off the morning’s discussion with a warning about how to proceed. “We need to resist the urge to become political,” he said. “We should be apolitical. We need support on both sides of the aisle. We need to come together and join forces and be brothers-in-arms in this issue as we fight the most serious existential threat of our lifetimes.”

The agreement reached a few years ago between French President Emmanuel Macron and American President Donald Trump did not, Skurnik said, settle the matter of wine tariffs. Daniel Posner, owner of Grapes The Wine Company and president of the National Association of Wine Retailers, offered a detailed history for a more comprehensive understanding of tariffs and their importance. The dispute, Posner said, goes back to 2004, when the United States went to the World Trade Organization (WTO) and alleged that the European Union (EU) was giving illegal subsidies to Airbus, a European aircraft manufacturer — a set of improprieties that purportedly extended back 40 years.

A panel was formed to investigate the subsidies. Six years later, that panel concluded that the EU had committed 300 such infractions. In 2011, following an appeal, the European Union agreed to comply — but the United States believed that the EU was continuing to subsidize Airbus illegally. After another investigation, which ended in 2016, a panel discovered that the EU was still not in full compliance with the initial decision. As a result, the United States Trade Representative (USTR) announced that the United States would be seeking a tariff of $11 billion from goods coming into the United States.

Hearings were held regarding these tariffs in May. The wine industry sent one person to testify, and his testimony focused on exempting non-alcoholic beer from tariff. A lack of awareness from the wine industry meant that hearings were not as well attended as they could have been.

“We failed ourselves,” Posner said. “We had opportunities last year.”

The result was a December decision by the USTR that $7 billion of the $11 billion in tariffs could be collected by the United States.

They released a list of goods that could be tariffed, and that list included wine, at 25 percent. A luxury tax — 100 percent tariff on all wine — has currently not been enforced, and the handshake agreement between Macron and Trump ensured that Champagne would not be taxed — for right now, at least. The United States has agreed to revisit the tariffs every four months. But nothing is certain, Posner noted.

“The USTR does not have to change the tax… there’s no regulation oversight on any of this,” he said. “This is not going to go away. This is not a two-week problem.”

Harry Root, owner of Grassroots Wine, a South Carolina-based distributor, has spent the past several months in Washington, D.C. working to exempt wine from these tariffs.

“Wine is ineffective against our adversaries, and it does disproportionate damage to U.S. business,” he said.

The United States is responsible for importing only 15 percent of the total wine production in the European Union. It is the Chinese market — which has grown 88 percent in the past four years — that is most critical to European wine. As a result, if Americans stop importing European wine, it will not impact the European Union to any appreciable degree. The American economy, Root argued, will suffer far greater losses, however.

“The wine affected in the Airbus case has an estimated retail value of $16.8 billion,” he said. As a result of the tariff, “the U.S. market saw a reduction in imports from the EU to $35 million,” which, he said, would have sold for an estimated $160 million, all now a loss to American businesses.

Further, Root argued, the wine imported from the European Union is more than just a commercial commodity.

“These wines are irreplaceable,” he said. Beyond fine wines, Root discussed Prosecco. “There are no non-EU options for sparkling wine at those price points,” he said of the Italian sparkler, indicating that the market would suffer incalculable losses from items that simply can’t be reproduced anywhere else.

“There’s not a glut of high-quality American wine,” he added. With the price of land in the United States and the time it takes to make a vineyard productive — three years at least — an increase in demand for American wine will mean that prices will rise. “Our slogan becomes: More expensive and more boring,” he quipped.

American industry members — Gallo and the Oregon Wine Association are two notable ones — have come out against the tariffs, too, recognizing that an inability to import wines from the European Union will affect American distributors, many of whom will be forced out of business.

“[The tariffs] do critical damage to distribution outlets that are relied on for 80 percent of their sales,” Root said of Gallo and others.

The morning’s final speaker, before the floor was opened for questions, was Benjamin Aneff, managing partner at Tribeca Wine Merchants. Aneff acknowledged the breadth of the industry, a clarion call to come together as one.

“We are so fragmented,” he said. “We have 400,000 employees. We have 47,000 individual wine retailers. We are overwhelmingly small business, and that comes with both strength and weakness.”

Aneff also looked to the elephant in the room, the fact that the tariffs had escaped the notice of industry members until the window of opportunity to attend hearings and fight back had already closed. “This doesn’t get by us again, without a doubt,” he said.