China Temporarily Refrains from Anti-Dumping Measures on EU Brandy, Reports Reuters

By Casey Hall, Alessandro Parodi, and Emma Rumney

Beijing announced on Thursday that it would refrain from imposing provisional tariffs on brandy imported from the European Union, despite detecting that it had been sold in China at prices significantly lower than market value. This decision provides some breathing space for both parties amid ongoing trade negotiations.

China’s commerce ministry stated it had identified a dumping margin of between 30.6% and 39% for European distillers selling brandy in China, impacting the domestic industry. However, the ministry indicated that no provisional anti-dumping measures would be applied at this stage, while leaving the door open for potential future actions.

The ministry previously suggested that the investigation would conclude before January 5, 2025, but acknowledged that it could be extended under specific conditions.

In the backdrop, China has been urging the EU’s 27 member states to reject a proposal from the European Commission that would impose additional tariffs of up to 36.3% on Chinese electric vehicles in a vote scheduled for October. The decision to hold off on tariffs for brandy could bolster China’s position in these negotiations.

Barclays analyst Laurence Whyatt interpreted this as a possible negotiation maneuver by China, suggesting that there is likely to be a connection between any EU tariffs on Chinese electric vehicles and China’s actions regarding brandy imports from the EU.

An EU Commission spokesperson maintained that this situation would not affect its stance on electric vehicle duties, characterizing the two investigations as "separate tracks" and affirming the Commission’s commitment to ensuring compliance with WTO rules.

French Vulnerability

France appeared to be the primary focus of China’s investigation into brandy, particularly due to its support of tariffs on Chinese electric vehicles. The country accounted for nearly all of China’s brandy imports last year.

French dairy product exports to China, which are also under investigation, reached 179 million euros last year, representing about 35% of the EU’s total exports of such goods.

The Bureau National Interprofessionnel du Cognac (BNIC), which represents French cognac makers, expressed that China’s provisional decision did not alleviate concerns regarding potential future tariffs. They warned that such duties would have a significant adverse impact on cognac exports, which constitute a substantial portion of their business.

The BNIC noted, "An entire sector would thus become a collateral victim of a conflict beyond its control," urging France and the EU to engage in immediate negotiations to avoid these duties.

Stock Market Reactions

Following the announcement, shares of French spirit producers surged approximately 8%, though some gains were later lost as investors reassessed the situation. If implemented, brands like Martell, owned by Pernod Ricard, could face tariffs of 30.6%, Hennessy, owned by LVMH, 39%, and Rémy Martin, a part of Rémy Cointreau, 38.1%, based on a list of dumping margins published by China’s Commerce Ministry. These figures were seen as more favorable than the 50% that some investors had feared.

Following the announcement, Pernod’s shares rose by 2.7%, Rémy was up 3.67%, LVMH gained 1.2%, and Italy’s Campari saw an increase of 1.04%.

Pernod’s CEO mentioned a cautious approach towards China, noting that the decision appears to apply only temporarily. Rémy pledged to cooperate with authorities and continue investing in China while evaluating options to mitigate any adverse effects of Beijing’s final decision. LVMH indicated that the BNIC was representing its interests in this matter.

Citi analysts projected that if tariffs were enforced, retail prices for Pernod and Rémy would likely rise by approximately 16% and 20%, respectively, which could lead to a 13% and 16% reduction in their sales in China, consequently harming their earnings per share.

Beijing’s anti-dumping inquiry into EU brandy commenced in January, with cognac makers contending that the investigation is rooted in broader trade tensions rather than solely the liquor sector.

In addition to the brandy probe, China has also launched anti-subsidy investigations concerning dairy and pork products imported from the EU, with the dairy investigation announced shortly after the EU outlined its revised tariff framework for Chinese electric vehicles.

The Spanish government, which had backed the EU’s electric vehicle investigation in a preliminary vote, opted not to comment on the recent developments.