China implements penalties on European brandy as retaliatory measure
Preliminarily, an examination has indicated that the exportation of brandy from the EU poses a significant threat to China's own brandy sector, according to China's Commerce Ministry. The ministry hinted at further actions, as its investigation into EU pork products continues, promising to make unbiased decisions at the probe's conclusion.
In addition, the ministry is contemplating raising tariffs on large-engine vehicle imports, a move that would impact Germany's automakers the most, considering their $1.2 billion exports of vehicles with engines of 2.5 liters or more to China last year.
Beginning October 11, importers of EU brandy will be required to provide security deposits, largely equating to 34.8% to 39.0% of the import value, as announced by the ministry.
China appears to be targeting France, with its high brandy imports and support for tariffs on Chinese EVs, as evidenced by the 99% share of China's brandy imports it held last year, reaching $1.7 billion. French brands like Hennessy and Remy Martin saw security deposit rates of 39.0% and 38.1%, respectively.
The deposits, intended to elevate the initial cost of importing brandy from the EU, leave unanswered the question of how and when importers can recover their deposits. The Chinese commerce ministry has provided no clarification.
Market turbulence
Shares in Pernod Ricard plunged 2.9%, Remy Cointreau fell 5%, and LVMH, owner of Hennessy, dropped 4% following the announcement.
Companies that cooperated in the Chinese investigation faced security deposit rates of 34.8%. Martell's rate was the lowest, at 30.6%.
The French cognac trade body, the Bureau National Interprofessionnel du Cognac (BNIC), Pernod Ricard, and Remy Cointreau did not immediately respond to a request for comment.
The punitive measures came in response to the EU's decision to impose tariffs on Chinese EVs by the end of October. Preceding the vote, in late August, China had temporarily halted its planned anti-dumping measures on EU brandy, seemingly as a gesture of goodwill, despite determining that EU brandy was sold in China at under-market prices.
Up until January 5, 2025, the Commerce Ministry had previously stated that its probe would conclude, though it could potentially be extended.
China's Commerce Ministry had previously declared that European distillers had been selling brandy in its vast consumer market with a dumping margin ranging from 30.6% to 39%, causing damage to its domestic industry.
In the EU's decision to implement tariffs on Chinese EVs, the bloc established tariff rates ranging from 7.8% for Tesla to 35.3% for SAIC and other manufacturers deemed non-cooperative with the EU's anti-subsidy investigation. These levies build upon the EU's standard 10% car import duty.
The European Commission has expressed its willingness to continue discussing alternatives, even after tariffs are imposed.
The business impact of these measures is significant, as German automakers might face increased costs due to potential tariffs on large-engine vehicle imports. Additionally, the brandy industry in Europe, particularly French brands like Hennessy and Remy Martin, is grappling with the new security deposit requirements from China.
