Wires

U.S. wine industry fears 'Armageddon of costs' from tariffs on French imports

Andrea Shalal

WASHINGTON, Jan 7 (Reuters) - U.S. consumers, companies and workers will pay the biggest price for proposed 100% tariffs on French Champagne and other sparkling wines, cheese, porcelain, enamel cookware and handbags, witnesses told the U.S. government on Tuesday.

The U.S. Trade Representative's office last month proposed punitive duties on $2.4 billion in imports from France of sparkling wines and other goods after concluding that a new French digital services tax would harm U.S. companies.

Those tariffs would come on top of 25% tariffs already imposed on a wide range of European imports, including Airbus jets, European cheeses, wines and other products in a dispute with the European Union over aircraft subsidies. Washington last month said it could raise those tariffs to 100% and subject additional EU products to the tariffs unless a settlement was reached.

President Donald Trump views tariffs as his best tool in disputes with countries such as France and China and insists they will pay the cost of such duties, but economists say tariffs are borne mainly by importers and ultimately, consumers.

Ben Aneff, managing director of Tribeca Wine Merchants, a retail wine store in New York, said the existing and threatened tariffs posed the "the greatest threat to the wine industry since Prohibition," the U.S. ban on the sale and import of alcoholic beverages that lasted from 1920 to 1933.

"The domino effect of unintended consequences from the proposed tariffs would be catastrophic for tens of thousands of American businesses," Aneff told U.S. government officials at a hearing hosted by USTR on the French tariff issue.

The Wine & Spirits Wholesalers of America estimates that 100% tariffs on French sparkling wines alone would trim overall U.S. wine sales by nearly 2%, resulting in the loss of 17,000 jobs and a cost to the U.S. economy of $2 billion.

Wine experts say consumers have strong loyalty to specific products, such as Champagne from France, and will not readily adopt substitutes.

Overall, the tariffs on European wines were expected to cost some $10 billion in lost revenue and 78,000 job losses, hitting the nation's 47,000 wine retailers and more than 6,500 importers and distributors disproportionately hard, Aneff said.

He said his business in downtown Manhattan had survived the 9/11 terror attacks, the 2007-2008 global financial crisis and Hurricane Sandy, but its fate would truly be in jeopardy if the tariffs were put in place. He said U.S. businesses and consumers would bear the brunt of the tariff costs, while potentially losing valuable allocations of wine harvests to China, a big and growing market.

Bill Tomaszewski, general counsel for San Francisco-based Wine.com, the largest U.S. online wine retailer, told Reuters that while producers, retailers and importers have been absorbing the 25% tariffs that took effect in October, that would not be possible with 100% tariffs.

"We're not going to be able to do it forever," he said. "Once it hits 100% ... that's when the American consumer is going to feel the effect of it."

Witnesses urged Washington to reach a deal with Brussels on aircraft subsidies and to work out global taxation rules with France and other countries under the auspices of the Organization for Economic Cooperation and Development.

"A lot of smaller importers are facing an Armageddon of increased costs. They don't have the cash flow to manage those increased taxes," Robert Tobiassen, president of the National Association of Beverage Importers, told Reuters.

David Waldenberg, president of BNP Distributing, said lower revenues would result in the loss of some $100 million in state, local and excise taxes collected on alcohol sales.

The United Sates is the largest export market for French wine. The 25% tariff applies to shipments worth $1 billion in 2018, while sparkling wine sales totaled $720 million, witnesses told the hearing.

The tariffs would also hit imports of enamel cast iron cookware manufactured in France by Le Creuset, which employs over 900 people in the United States, a company official, Faye Gooding, told the hearing.

She said the tariff posed a huge risk to the rural area of South Carolina where Le Creuset's U.S. operations have been based for three decades. "It would truly make this company unsustainable," she said. (Reporting by Andrea Shalal Editing by Leslie Adler)