China penalizes European brandy in tit-for-tat response

China’s commerce ministry said preliminary findings of an investigation had determined that dumping of brandy from the EU threatens “substantial damage” to its own brandy sector.

France’s trade ministry said the temporary Chinese measures were “incomprehensible” and violated free trade, and that it would work with the European Commission to challenge the move at the World Trade Organization.

In a sign of rising trade tensions, China’s ministry added in another statement that an ongoing anti-dumping and anti-subsidy investigation into EU pork products would make “objective and fair” decisions when it concludes.

It also said that it was considering a hike in tariffs on imports of large-engine vehicles, which would hit German producers hardest. German exports of vehicles with engines of 2.5 liters or larger to China reached $1.2 billion last year.

France was seen as the target of Beijing’s brandy probe due to its support of tariffs on China-made EVs. French brandy shipments to China reached $1.7 billion last year and accounted for 99% of the country’s imports of the spirit.

As of October 11, importers of brandy originating in the EU will have to put down security deposits mostly ranging from 34.8% to 39.0% of the import value, the ministry said.

“This announcement clearly shows that China is determined to tax us in response to European decisions on Chinese electric vehicles,” French cognac producers group BNIC said in an email.

French President Emmanuel Macron said last week that China’s brandy probe was “pure retaliation,” while EV tariffs were needed to preserve a level playing field.

Hennessy and Remy Martin were among the brands hardest-hit by the measures, with importers having to pay security deposits of 39.0% and 38.1%, respectively.

The deposits would make it more costly upfront to import brandy from the EU. However, they could be returned if a deal is eventually reached before definitive tariffs are imposed.

Shares tumble

Shares tumble

Shares in Pernod Ricard were down 4.2% at 4:39 a.m. ET, while Remy Cointreau’s dropped 8.7% and shares in LVMH, owner of Hennessy, fell 4.9%.

Companies that cooperated with China’s investigation were hit with security deposit rates of 34.8%, with that imposed on Martell the lowest at 30.6%.

Pernod Ricard, Remy Cointreau and LVMH did not immediately respond to requests for comment.

The brandy measures follow a vote by the EU to adopt tariffs on China-made EVs by the end of October.

Earlier this year, China suspended its planned anti-dumping measures on EU brandy, in an apparent goodwill gesture, despite determining that it had been sold in China at below-market prices.

At the time, the commerce ministry said its probe would end before January 5, 2025, but that it could be extended.

China’s commerce ministry previously said it had found that European distillers had been selling brandy in its 1.4 billion-strong consumer market at a dumping margin in the range of 30.6% to 39% and that its domestic industry had been damaged.

In the EU’s decision to impose tariffs on China-made EVs, the bloc set tariff rates on top of the 10% car import duty ranging from 7.8% for Tesla (TSLA) to 35.3% for SAIC and other producers deemed not to have cooperated with its investigation.

The European Commission has said it is willing to continue negotiating an alternative, even after tariffs are imposed.

-CNN