China-EU Trade Spat II: The Wine Wars
Image Credit: Wikicommons

China-EU Trade Spat II: The Wine Wars


Given the strong national-level political pressure emanating from various European capitals (especially Berlin) and the slightly threatening rumblings from Beijing in no small part driving them, it was always going to be difficult for EU Trade Commissioner De Gucht to impose punitive tariffs on Chinese photo-voltaic  (PV) cells (“solar panels” in more common parlance). Indeed, recent events include both a step back on the part of the EU, and “turning of the screws” style escalation from China. Both developments deserve a bit of attention.

First, the European Union’s “temporary reprieve” on the duties has not been an outright delay of their imposition, but rather the introduction of a much lower 11.8% duty for the first two months, a time period that has now become another effective deadline for the two sides to reach a negotiated settlement. Many European national governments had publically opposed the duties, and the compromise reflects this reality quite neatly. The most significant opponents of the proposed anti-dumping duties on China were Germany and the United Kingdom, whilst both France and Italy gave their support to De Gucht.

Ever the savvy negotiator, China’s Ministry of Commerce responded with lukewarm welcome to the EU’s olive branch, but then in the same statement announced that it was beginning an investigation into dumping of European wine into Chinese markets.

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One doesn’t have to be an expert in trade analysis or wine to notice that both France and Italy, supporters of the EU tariff on Chinese solar panels, perform very strongly in the area of wine exports, and that China is the fastest growing wine market in the world. The announcement of the Chinese investigation sounds fairly weak, but investigations and provisional duties can go on for a long time before matters are resolved, either bilaterally or at the World Trade Organisation (WTO).     

If China was hoping to bring France and Italy to heel, then the move is almost certainly going to backfire. France branded the move “inappropriate and reprehensible” and its President Francois Hollande seems set to push for EU solidarity on the issue. Even those states that opposed the original duty proposal on Chinese solar panels will probably be miffed at such blatant “divide-and-conquer” escalation by the Chinese side. We should not, however, presume that this will result in a tough unified line from the EU, given the bloc’s recent return to the promotion of narrower national interests over European wellbeing.

Chinese consumers have apparently fallen in love with French wine, so although the party may be cracking down on extravagant banquets amongst its officials, it is not clear how popular any increase in price will be, nor is it certain that elasticity of demand for French wine in China will really shift consumers to other choices.

Listed Chinese winemakers jumped on China’s stock boards at the news of the investigation, but given how difficult it may be for China to gather sufficient evidence into the alleged EU dumping (selling below cost) of wine into Chinese markets, investor optimism may be premature at best, and at worst, missing the bigger picture.  

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