Open Letter Regarding Newly Proposed Tariff Actions on European Wine
December 17, 2019
Open Letter Regarding Newly Proposed Tariff Actions
As some of you are likely already aware, a first round of tariffs has already gone through on certain European wines as a result of the WTO ruling against the business practices of the EU regarding Airbus. This tariff increased the tax on non-sparkling wines from France, Spain, Germany, and the United Kingdom that are equal to or below 14% alcohol to 25% ad valorem, or an increase of roughly 1500%. This tariff also included a massive list of additional items such as whiskey, clothing, a wide array of agricultural products, and much more.
Recently, two additional tariff actions have been proposed by the US Trade Representative that may take effect as soon as the middle of January and could include 100% ad valorem increases on ALL EUROPEAN WINES. While the previously implemented tariff is already beginning to have an effect on pricing of the affected products around the country, the newly proposed tariffs will likely have a much greater impact and could be crippling to all levels of the wine industry, along with a large number of other important sectors of our economy.
You can find details on the newly proposed tariffs at the bottom of this letter.
It is worth noting that the tariffs are not paid by the producers or the European governments, but are instead paid by the importer when the product arrives at US Customs, after which the price increases are passed on to retailers and restaurants and finally to the consumer. Thus, the tariffs are in practice being solely levied against American companies and consumers, and not against any of the parties responsible for the transgressions that have created the impetus for these actions.
We don’t have to tell you how devastating these tariffs would be. Essentially doubling the price of every bottle of wine from Europe will likely create a de-facto ‘prohibition’ on those products and cause a crippling affect throughout our industry. As we all know, these products are not so simply replaceable with domestic wines or wines from other countries which won’t be affected. To begin with, wine is a cultural product and certain styles and regions cannot be replicated. Additionally, wine is not like most other products where producers who are not subject to the tariffs can simply produce more. There is a finite amount available.
Certainly, our business will be greatly affected by this, but importers and distributors will not be the only ones who will suffer as a result. We feel it necessary to again mention that wine is not the only product subject to these actions. Food products, liquor, beer, clothing, industrial goods, and many more items from most of the EU will be hit.
The effect on American small businesses will be vast and crippling. By increasing prices on alcohol and food products, many restaurants and retailers will suffer greatly. Increases on consumer goods will punish small retailers. If the first tariff was a difficult pill for those in these industries, the newly proposed tariffs are nothing short of a poison pill that will lead to downsizing, lay-offs, reduced pay, and the loss of benefits.
From the viewpoint of the American economy, these tariffs are at best short-sighted in their goals and at worst have the potential to be the beginning of a drastic economic downturn. Higher unemployment and lower consumer spending are the pitfalls of an economy and are the two most clear results of this trade dispute.
While the USTR may claim this will raise revenue in the form of increased tariffs, that only works if people continue to purchase the products. We have spoken to many of our partners in the industry and the consensus is clearly that sales will decrease. Equally important is the tax revenue generated by the sales of these good domestically, which fund not just the Federal Government but our local and state governments as well. As you can see, the economic implications here can be vast and create problems for more than just companies like Cutting Edge or small wine shops.
With the knowledge that these proposed actions could be so devastating, the question becomes what can we all do to prevent them from being implemented? There is an avenue provided by the USTR for American businesses and consumers where it invites written comments to be submitted for review before a decision is made. We STRONGLY encourage all of you to submit written testimony in opposition to the tariffs.
For our part, we will be submitting written testimony of our own and are working with trade organizations to lobby the government on our behalf. We have attempted to contact our elected officials, which has so far yielded returns only in form-letter responses if we receive any response at all. Clearly, more people are needed to speak up and make this important!
You can reach out to your elected Representatives as well as the Office of the US Trade Representative to voice complaints and concerns.
HOW TO SUBMIT WRITTEN TESTIMONY TO THE USTR
To submit written testimony in regards to proposed USTR Action on French Sparkling Wines as a result of the French Digital Services Tax, visit www.regulations.gov and search for USTR-2019-0009. Written testimony must be delivered by Monday, January 6 to be considered.
To submit written testimony in regards to the USTR Action regarding the potential tariff increases on ALL European wines as a result of the WTO ruling against the EU and Airbus, visit www.regulations.gov and search for USTR-2019-0003. Written testimony must be submitted by Monday, January 13 to be considered.
When submitting written testimony to the USTR it is important to note that these comments will be on the public record, so we have been advised that being factual about the impact this would have on your business is the best possible way to make the argument successful. It is important to note the type of your business and number of employees, the significance of the affected products to your company, and the economic impact that you would anticipate if the tariff is imposed, both in profitability and potential downsizing needs as a result. If you are submitting as an individual who works for a business that will affected, noting the potential loss of income and benefits is important. If you are a consumer who buys wine or affected goods, noting the change in your ability to purchase these products and therefore the loss of revenue for small business is important.
For any who submit testimony, it is important to note that by creating job loss and stifling the sales of products will ultimately lead to lower tax revenue for local and state governments as well as the and the Federal Government.
To contact your elected officials, you can visit www.usa.gov/elected-officials to find contact information.
While we are not a political organization, we hope you agree this is not a political issue but rather an economic issue that could be devastating to all. Cutting Edge, our team, and our suppliers and import partners strongly urge you to use all possible avenues to help fight against this. Tell your employees and peers in the industry to take action and urge anyone you can think of who will be affected to speak out as well.
Truly, it seems our only hope is for the USTR to be made aware of the potentially crippling affect these actions could have for our industry, on our businesses, in the lives of our employees, and subsequently on our economy as a whole. No matter your political beliefs, these actions will certainly have serious repercussions for all of us.
DETAILS OF THE PROPOSED TARIFFS
The first proposed tariff is a new 100% ad valorem import tax on all French sparkling wines, which comes as a response to the French Digital Services Tax. This tax also includes 100% ad valorem tariffs on other French products like cheese, cosmetics, and clothing accessories. The Digital Services Tax, which is effectively a tax on large digital services companies like Amazon, Google, and Facebook, is set for 3% and only affects the largest companies in that sector and it is important to note that it applies to companies from all over the world, not just those based in the United States. Most of the affected companies have already levied a 3% increase in their services to offset this cost within France.
The second and more profound proposed tariff is essentially a broadening by the US Trade Office of the original tariffs levied by the US in response the WTO ruling regarding the EU and Airbus. The claim, from the office of US Trade Rep Robert Lighthizer, is that Airbus and the EU have not corrected the behavior that led to the ruling and as such should be penalized at a higher level. The proposed additional tariffs are broadly defined, but allows the potential for both increasing the existing tariff from 25% ad valorem to up to 100% ad valorem and adding additional products. This could include ALL European Wines and Spirits, as well as a laundry list of other agricultural and textile related goods sold in small retailers around the country. As with the first tariff, it penalizes the offending Civil Aviation less than producers and companies who have NO AFFILITION with aviation on any level.
More importantly, it conveniently does not mention that the WTO is still yet to rule on charges by the European Union against the United States and Boeing. It is possibly, and even likely, that this ruling will be larger than the original ruling against Airbus.
*ad valorem taxes mean a tax on the value of the product being importer: essentially, if a product costs an importer $10 to bring into the United States, a 100% ad valorem tax would be $10, raising the total cost of the product to $20, or doubling the price.
Our hope is that this letter cause you to speak out, not just on behalf of how this will affect our business, but on how it will affect your own business and the potential affects it could have on your life.
It is only by working together that we will be able to stop these harmful actions before they are enacted,