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Trade War Has Ups and Downs for Wineries.

U.S. wineries took one step forward and one step back in recent weeks in relation to trade barriers with two of their biggest export markets. The Trump administration won a small but symbolic victory for U.S. wineries against a trade barrier in the No. 1 export market, Canada, but triggered another setback for wineries selling to the No. 5 export market, China.

Meanwhile, the administration's trade dispute with China has put kinks in the pipeline for vendors who serve the wine industry, notably relating to equipment made with imported steel. Nearly half of vendors who responded to a Wines & Vines survey said new U.S. trade policies have already affected their businesses negatively or soon could.

Canada loosens

The good news for U.S. wineries came from a new trade agreement reached among the U.S., Mexico and Canada that when ratified will replace the Clinton-era North American Free Trade Agreement. The deal (abbreviated as the USMCA) announced Sept. 30 by the Trump administration includes a provision to open grocery stores in British Columbia to U.S. wine sales for the first time.

The deal includes a Nov. 1, 2019, deadline for British Columbia to open grocery store shelves to wines from California and around the world, something current practice effectively limits to B.C. wines.

"This agreement represents real progress toward improved market access for U.S. wines in Canada," said Robert Koch, president and CEO of the California Wine Institute in a statement the morning after the agreement was reached. "In settling the U.S. WTO case, Canada has finally acknowledged that it must live up to its WTO obligations and that blatantly discriminatory policies cannot be tolerated."

The B.C. Wine Institute clearly wasn't as excited about the agreement as its California counterpart. The B.C. trade organization maintained that it hadn't lost a trade challenge and noted the deal upholds the exclusive licenses that allow B.C. to limit grocery store wine sales to local product.

Miles Prodan, president and CEO of the B.C. Wine Institute, told Wines & Vines that while sales at the 29 grocery stores licensed to sell wine have benefitted the local industry, the stores would be far less significant to U.S. producers, which already have access to nearly 1,100 retail outlets in the province.

China tightens

Chinese authorities raised the tariff on U.S. wine imports by 10% effective Sept. 24 in retaliation for the latest round of U.S. tariff increases on Chinese goods. Including a 15% tariff boost in April 2018, the total tax and tariff on U.S. wines entering China will be 79%. The tariff is levied on the price importers pay the wineries.

China is the fifth largest export market for U.S. wines when considering the European Union as one market. China received 1.6 million cases worth $79 million in 2017, according to Department of Commerce data analyzed by Gomberg Fredrikson & Associates. The value of those exports has increased by 449% from a low base since 2007 but dipped from 2016 to 2017. Volume peaked in 2013 with 2 million cases.

"We spent a lot of time and energy--a lot of blood sweat and tears--trying to build that market to create a connection with California as a place and California as a wine producing region," said Linsey Gallagher, vice president of international marketing at Wine Institute. Speaking at the recent Wine Industry Financial Symposium in Napa, Calif., she said, "Having a tariff structure of nearly 80% makes it increasingly challenging when competitors to U.S. wine industry do not face the same challenges."

Steel costs rise

Companies that sell to the wine industry have been keeping score on the trade wars, too. Those that use steel to make wine tanks, kegs and other equipment have had to adjust to steel price increases that were triggered by the Trump administration's two sets of tariffs on Chinese steel.

The All American Keg Co. in Pottstown, Pa., produces beer and wine kegs from American-made steel. CEO Paul Czachor said the first set of tariffs raised the price of flat steel from China, enabling U.S. steel manufacturers to raise their prices, too.

"We're not smart enough to state if that tariff was the right move to make or not," Czachor told Wines & Vines. "However, those tariffs did increase the price of domestic steel, aided by the good economy and other factors. So, our raw materials went up, therefore the price of our kegs went up."

The second set of steel tariffs also added a 10% fee on imported, finished kegs from China, he said, and will go up again to 25% as of Jan. 1. "It will bring relief for us for sure."

A company on the distribution end of the keg business, Napa, Calif.,-based Free Flow Wines, has felt the tariff effect, too, but not in the most obvious place. COO Rich Bouwer said the tariff on imported flat steel did not significantly affect the price of kegs that Free Flow buys, which are manufactured in Germany. But the tariff did increase the price of stainless steel tanks that Free Flow needed to buy for its new facility under construction in Sonoma, Calif. "We had to dial it back to fewer tanks," he said.

Please Note: Illustration(s) are not available due to copyright restrictions.

Caption: Rising steel prices are affecting the cost of tanks.
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Title Annotation:TOP STORY
Comment:Trade War Has Ups and Downs for Wineries.(TOP STORY)
Author:Gordon, Jim; Mitham, Peter
Publication:Wines & Vines
Geographic Code:1U9CA
Date:Nov 1, 2018
Words:904
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