$10 Wine Would Cost $40-plus Under COOL

Bipartisan bill seeks to avoid retaliatory tariffs threatening U.S. wine industry

by Peter Mitham
A bipartisan bill introduced in the U.S. House of Representatives was written to defuse tariffs that could drive U.S. wine prices above $40 per bottle in Canada.
Washington, D.C.—The wine industry is backing federal legislation aimed at avoiding tariffs on wine exports to Canada and Mexico, two of the country’s biggest trading partners under the North American Free Trade Agreement, as a dispute over Country of Origin Labeling (COOL) heats up.

An appellate body of the World Trade Organization ruled Monday that COOL requirements originally adopted in 2002 discriminate against imported meat and could potentially cause inaccurate labeling. Some distribution channels are exempt from COOL requirements, leading the WTO to the conclusion that COOL was not applied equally and prevented general market access for imported meats. It also imposed undue record-keeping burdens on purveyors of meat bound for the U.S. market.

While COOL was effectively a non-tariff or technical barrier to trade, Canada contends that COOL impacts trade in meat worth more than $1 billion annually—Canada’s pork producers have estimated the damage to their sector alone at approximately $3 billion since 2009. Now, Canada is poised to lash back with a tariff barrier, and rretaliatory tariffs could amount to $2 billion. (See “Wine Industry Faces Retaliatory Tariffs.”) 

The scene is now set for retaliatory tariffs targeting everything from widgets to wine. Being a country of polite tipplers, Canada will first ask the WTO’s permission to impose tariffs. These could take effect as early as this summer, a scenario that has struck fear into the U.S. wine industry.

How much are we talking?
The tariff would be a stunning 100%, according to the nationwide trade association WineAmerica, which stated, “A wine with a $10 import value would be hit with a $10 tariff, doubling the cost of the wine sent into the country.” Add to that the markups which vary from province to province—in British Columbia, it’s 89%—and a bottle of wine that’s $10 bottle at the border costs the retailer approximately $37.80 ($10 + $10 + $18.70)—not including further markups by the retailer and applicable sales taxes.

To combat the tariff, U.S. Reps. Mike Conaway of Texas and Jim Costa of California are sponsoring H.R. 2393, a bipartisan bill designed to defuse the dispute and ensure wines keep flowing north through the summer patio season and on toward Thanksgiving. The legislation has 66 additional cosponsors.

The bill seeks to repeal COOL requirements for beef, chicken, and pork, and it has the backing of both WineAmerica and California’s Wine Institute.

The bill wouldn’t eliminate COOL requirements for lamb, goats, venison, fish and shellfish, fruits and vegetables, ginseng and various nuts.

“Retaliation by Canada and Mexico would do hundreds of millions of dollars in damage to U.S. wine exports and is simply unacceptable,” said Bobby Koch, president and CEO of Wine Institute in a statement when the WTO announced its final decision. “In Canada, it has taken decades to build the market for U.S. wine, and it could be irreparably harmed in an instant if Congress does not act.”

The effect
According to the Wine Institute, the U.S. exports more than $500 million of wine to Canada and Mexico annually. Canada is the single largest export market for U.S. wine, which enjoys the largest share of Canada’s palate. U.S. wines only recently edged out competitors from France and Italy for Canadians’ favor.

“Any disruption caused by new retaliatory tariffs would result in a significant loss of market share that would take years to recover,” observed a statement from the Wine Institute.

California, which is the largest producer of U.S. fine wines, isn’t alone in its concern.

View from above
Based on what she’s read, Alison Sokol Blosser, co-president and CEO of Sokol Blosser Winery in Dundee, Ore., believes tariffs on U.S. wine entering Canada could easily double the shelf price of her offerings.

“It would be a double-whammy, as the American dollar also has strengthened against the Canadian dollar, so the combination of the two would be tough on us and all American wine,” she told Wines & Vines.

“Exports are an important part of our sales efforts, and anything we can do to make our wines more competitive in international markets will only help us and our industry.”

The uncertainty creates a dilemma for importers in Canada, too, who have to decide whether or not to continue stocking U.S. product if the dispute worsens.

“My Canadian distributor will either have to stock up now to hold them over until something gets settled, or will likely not be ordering product in the interim, which of course would hurt our momentum in Canada,” said Marty Clubb, owner and managing winemaker at L’Ecole No. 41 in Lowden, Wash.

While he expects the proposed legislation to pass in due course, Clubb shook his head at the need for a crisis to prompt lawmakers to act. “In typical fashion these days, it seems like there has to be a crisis in order to get something done,” he said.

Posted on 05.21.2015 - 09:06:58 PST
As a Napa Valley producer, we have spent 30 years building our brands in the Canadian market. This tariff would not only hurt our sales, but undo more than a quarter century of brand building of Duckhorn Wine Company brands. This hard work and the work of all US brands has made wine from the USA the number one wine of choice for Canadians. It could largely be undone if Congress does not act!
Pete Przybylinski