US wine industry warns against imposing Trump tariffs on French wine

Bottles of French wine are displayed for sale in a liquor store in Virginia on Dec 3, 2019. PHOTO: AFP

WASHINGTON - American importers have begged the Trump administration not to go ahead with its threatened tariffs of up to 100 per cent on US$2.4 billion (S$3.3 billion) of French goods including wine, cheeses and cosmetics.

The proposed tariffs are in retaliation for France's new digital services tax that Washington says targets American tech giants.

The transatlantic dispute is the latest in a series of trade squabbles where the Trump administration has wielded tariff threats as a negotiation tactic, and is at risk of escalation just as America's preliminary trade deal with China appears to be sewn up.

The European Union has promised to stand behind Paris, which has vowed to retaliate against the proposed American tariffs.

But the United States and France on Tuesday (Jan 7) also agreed to give themselves two weeks to find a compromise, before US Treasury Secretary Steven Mnuchin and French Finance Minister Bruno Le Maire meet at the World Economic Forum at the end of the month.

US wine importers warned that the tariffs would devastate the country's almost US$70 billion wine industry - a third of which is imported wines - affecting businesses from the restaurants they supplied to warehouses, trucking companies and even domestic wineries.

Mr Timothy Gagnon of Selection Masscale, a California-based wine import business with 15 employees, was one of several dozen industry insiders who testified at a US Trade Representative (USTR) hearing in Washington on Tuesday and Wednesday, asking for their products to be exempt from the tariffs.

Said Mr Gagnon: "Have you ever travelled hundreds of miles to beg a panel to not destroy everything that you've worked to build?

"To ask them not to put the livelihoods of employees who rely on you, industry peers across the country, to not put their livelihoods in jeopardy.

"That's what everybody that's spoken over the past two days has done."

He and others noted that the US wine industry was already reeling from the 25 per cent tariffs on certain French, Spanish and German wines imposed two months ago as part of a separate but ongoing trade dispute over European subsidies to large aircraft makers.

The new tariffs would cover more categories, including sparkling wines.

Thin profit margins also means that wine importers and restaurants cannot afford to absorb the cost of the tariff and must raise prices, they said.

Mr Michael Daniels of Vintage 59, a small wine import business, said: "Any increased tariff burden levied on wines or spirits from the EU, whether 1 per cent or 100 per cent, will force our customers to choose different products, and will result in losses for our firm.

"We offer really good health insurance... prior to the first round of tariffs, we were even considering offering dental.

"Any significant sales losses, even during a short period, will require layoffs. Any extended period of losses could lead to our full-scale collapse," he added.

Wine executives also feared that the tariffs would result in European wine exporters permanently taking their business elsewhere.

Mr Gagnon asked: "Why would these producers ever consider working with a country that decides that trade wars are a sound negotiating tactic?

"How will they re-enter the market when these tariffs destroy the entire logistical system we and other importers have worked for years to put in place?

"They can't and they won't."

The French digital tax, passed in July last year, imposes a 3 per cent tax on revenue generated by digital services and affects firms with global revenues above €750 million (S$1.12 billion) and French revenues of above €25 million.

A USTR investigation concluded that the tax discriminated against American companies, and the Trump administration last month threatened retaliatory tariffs against French goods.

But France said it has been grappling with how to tax tech giants which do business within its borders, and other European countries are mulling similar taxes.

Mr Gary Hufbauer, Peterson Institute for International Economics senior fellow and trade expert, wrote in a Tuesday commentary on the tax: "The thresholds and definitions of 'taxable services' ensure that US firms are the primary target."

Singapore's tax on overseas digital services suppliers, which went into effect on Jan 1, has a lower threshold and affects firms that sell more than $100,000 of digital services to Singapore consumers in a year and have a global turnover of over $1 million.

In Washington, tech giants represented by the Computer and Communications Industry Association urged the US to respond strongly to the tax, arguing that the tariffs were being used in appropriately limited circumstances and in an aptly targeted manner.

Vintage 59's Mr Daniels countered on Wednesday, saying: "While I respect that France's digital services tax and Airbus subsidies may broadly be discriminatory to US firms, the proposed tariffs and those that have already been imposed are misguided."

Calling for the tariffs to be removed, he said: "To do otherwise would be to subvert the enormous strength of the USTR's office to the will of a handful of large corporate interests - a subversion that would come squarely at the expense of small and medium-sized businesses like ours."

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