China Slaps Provisional Tariffs on EU Brandy Imports, Hurting Drinks Stocks — Update

By Andrea Figueras

China said it would impose provisional tariffs on brandy imports from the European Union, deepening tensions between the two trading powers and sending shares in European distillers sharply lower.

The move reverses China's previous stance just days after the European Union decided to impose duties on China-made electric vehicles and marks the latest tit-for-tat in a trade relationship that has become increasingly confrontational.

The Chinese commerce ministry said Tuesday that the tariffs would range from 30.6% to 39.0% and take effect on Friday, a U-turn on its decision in August to temporarily hold back the measures despite saying it found evidence of dumping.

In a separate statement Tuesday, the ministry also said it is continuing to look at raising import duties on large-engine gasoline vehicles from the EU, many of which are made in Germany. China is a major market for many European carmakers, several of which have come out publicly against the EV tariffs.

The ministry's announcements come after EU member states voted Friday to impose tariffs of up to 45% on EVs made in China for the next five years, in a move aimed at protecting European carmakers amid rising competition with their Chinese counterparts.

China's plans for brandy tariffs hurt shares in European distillers, which have been under pressure this year as the industry navigates a demand slowdown.

Shares in Remy Cointreau--maker of Remy Martin cognac--fell as much as 9%, while French peer Pernod Ricard--which houses Martell liquor--dropped more than 4%. Luxury conglomerate LVMH--home to Hennessy cognac--shed nearly 7% and later recovered. Meanwhile, British spirits group Diageo and Italian Aperol maker Davide Campari-Milano traded down more than 1%.

The threat of levies has been a source of concern for investors in European liquor makers since the Chinese government launched an antidumping investigation in January. Analysts consider Remy Cointreau and Pernod Ricard as particularly exposed, given that brandy accounts for a larger share of their sales compared with peers Diageo or Campari.

The European spirits sector is a collateral victim of a broader trade conflict, as China's decision is a reaction to the EU's vote on EV tariffs, industry association spiritsEurope said.

China is a major destination for European spirits and the decision means exporters will face a significant financial burden when selling to the country, the industry group said. The association called on the European Commission--the EU's executive arm--to make efforts to find a negotiated solution with Chinese authorities, it added.

An industry body that represents France's cognac industry, known as BNIC, separately said the impact of the tariffs would be catastrophic.

News of the tariffs comes at a time liquor makers are trying to boost sales in China after a boom during the pandemic ended, with demand weakening amid a sluggish property market and subdued consumer sentiment.

"The measure puts a lot of pressure on the cognac industry," Stifel consumer analyst Cedric Lecasble said. "In the current economic context, Chinese consumers are more careful with their spending and prefer to save money," he said.

--Editors in Singapore contributed to this article.

Write to Andrea Figueras at andrea.figueras@wsj.com

(END) Dow Jones Newswires

October 08, 2024 10:00 ET (14:00 GMT)

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