** Contains full version of CMS-A comment. Comment posted to regulations.gov was limited to 5,000 characters and therefore abbreviated. **
January 6, 2020
Ambassador Robert Lighthizer
U.S. Trade Representative
Office of the U.S. Trade Representative
600 17th Street NW
Washington, DC 20508
The Court of Master Sommeliers, Americas sets the global standard of excellence for beverage service within the hospitality industry with integrity, exemplary knowledge, and humility. Our members are owners or employees of the full spectrum of U.S.-based businesses, most of them small or medium-size, that would be disproportionately harmed by the imposition of duties of up to 100% on wines, spirits and related products originating from European Union member states. All tiers of the beverage supply chain including winemakers, distillers, importers, distributors, retail owners, restaurateurs, bar owners, hospitality industry employees and consumers will be negatively impacted if the proposed tariffs are imposed. Many of our members are in daily contact with American consumers who would also be disproportionately harmed by the proposed duties. We are writing on behalf of our membership to submit formal opposition to docket number USTR-2019-0003, Enforcement of U.S. WTO Rights in Large Civil Aircraft Dispute.
Since October 18, a 25% duty has been imposed on most wine from France, Germany, Spain and the United Kingdom. These tariffs have already had a negative impact on wine sales and consumer choice. Raising those duties to 100% and adding new 100% duties on beverage products from other E.U. member states would imperil numerous U.S. businesses that rely on the sale and distribution of those products. An unintended consequence of such duties could be the loss of thousands of U.S. jobs in the beverage trade and hospitality industries. According to the Bureau of Labor Statistics, more than 350,000 Americans are employed by businesses in the wholesale or retail sale of beer, wine and distilled beverages, and millions more work in the hospitality industry.
The targeted wine, spirits and food from E.U. countries have no relationship to the Large Civil Aircraft dispute. These products, and the businesses who distribute and sell them, are being used as pawns in the negotiations without regard for the negative impact the tariffs would have on them. The additional duties of up to 100% on the targeted products would have a detrimental effect on our industry, causing a disproportionate economic harm to U.S. interests, including many small or medium-size businesses and consumers.
Impact on Importers & Distributors
In 2018 the U.S. imported $6.5 billion in wine, including $2.2 billion from France (up 39% from 2014) and $2.1 billion from Italy (up 17% from 2014). The U.S. was the world’s largest importer, accounting for 17% of all global wine imports. The continued growth of wine imports has been predicated by a growing number of smaller importers and distributors that have specialized in the wines and spirits of a specific country. Many importers and distributors of wine and spirits do not have the luxury of shifting their business model or supply chain to other countries’ wineries and distilleries, and thus they would disproportionately bear the brunt of the proposed duties.
Each region’s wines rely on their climates, soils and environments to create their unique characteristics and flavor profiles that cannot be replicated anywhere else. Because there are no substitutes for the wines and spirits of a particular regions and countries of the world, the proposed duties will have two principal negative and potentially long-lasting consequences for the American beverage industry:
1) The U.S.-imposed tariffs will increase prices so dramatically that U.S. consumers, restaurants and retailers will not be able to afford the goods. Fundamentally, the under $20 retail wine business is what keeps importers and distributors in business. European wines at that price point would virtually disappear overnight if the proposed duties were imposed. Unlike many other agricultural products, wines from one region of the world cannot simply be substituted for wines from another. American businesses specializing in European wines will be forced to make risky decisions about when and how much wine they may purchase, knowing that they may not be able to sell it profitably because their customers (retail and wholesale) will not want or be able to pay the dramatically higher prices. The many importers and distributors specializing in wines and spirits from the E.U. will be priced out of business (or unable to have access to those wines anymore) resulting in the closure of many distributors and import companies and in turn a loss of jobs.
2) Americans will have significantly less access to wine and spirits. The global market for wine and spirits has grown substantially in recent years, and there has never been more demand as there is now. It is a sellers’ market. Imposing 100% duties on European wines and spirits will only hurt their sales to the U.S., not their sales globally. E.U. producers will be harmed significantly less than the businesses in the U.S. that import and distribute those beverages. E.U. producers will find buyers for their high-demand goods in markets outside of the U.S. Even after the tariffs are lifted, there will be less European product available for American purchase because these limited production items will now be committed to other markets. This scarcity coupled with global demand will drive prices higher in the long term.
In the U.S., importers are the first in a three-tier system of suppliers and distributors that delivers wines and spirits to the consumer. Any price shocks or supply disruptions faced by importers will necessarily pass all the way through the supply chain, increasing costs at every point.
Impact on Restaurants and Bars
Most restaurants in the U.S. operate at thin – typically 5% to 7% – margins, and they are already facing significant headwinds from rising real estate costs, labor shortages, rising wage rates and changes in consumer behavior. Alcohol sales are one of the highest contributors to industry profits. The proposed tariffs threaten the livelihood of these small businesses and their employees. According to the National Restaurant Association, the restaurant industry employs 15.3 million people. It is the largest employer of females and minorities in management positions and generated an estimated $863 billion in revenue in 2019. The proposed duties will effectively double the cost of many restaurants’ beverage offerings, and it is likely that consumers will purchase fewer beverages because of higher costs. Higher beverage costs may also cause consumers to dine out less often as a result. Many entrepreneurial American small business owners will be forced out of business.
The three largest producers of wine in the world are France, Italy and Spain. They are also three of the most popular international cuisines for American diners. Internationally themed restaurants in the U.S. rely on the food and beverages from those countries to execute their menu and beverage programs, which creates a unique and authentic dining experience for their guests. A neighborhood restaurant with a concept centered around those beverages and cuisines cannot afford to pay higher prices for those ingredients and pass them on to their consumers. Due to the uniqueness and specific sense of place these ingredients contribute to a restaurant, it is impossible to find alternative affordable sources. Any attempt to do so would decimate the authenticity they rely on for their competitive advantage and to meet their guests’ expectations.
Impact on Consumers
Consumers will see significantly higher prices. A bottle of pinot noir from France that cost consumers $13 in early October currently costs around $17 because of the 25% duties that were imposed that month. The proposed tariffs would result in that bottle costing nearly $27. Consumers will be left with the difficult choice to pay substantially more for their favorite wines, purchase inferior wines to avoid paying higher prices or, more likely, either abstain or purchase with much less frequency.
Impact on Retailers
The U.S. market relies on a three-tier system for the distribution of alcohol around the country. Higher prices at any point in the distribution system increase prices at every downstream point. Retailers will have already paid substantially higher prices for their product before it goes on their shelves, where consumers are likely to leave it in favor of other lower-priced alternatives. The proposed 100% duties would force retailers to take chances on acquiring inventories that they may not be able to sell. Retailers who specialize in European products would be in particular jeopardy.
Impact on Governments
In 2018, the wine and spirits industry contributed more than $10 billion in alcohol tax revenues to federal, state and local governments. If retailers, restaurants and consumers curb spending on wine and spirits in the face of substantially higher prices, then tax revenues would also decrease, potentially reducing state and especially local governments’ abilities to provide services to their communities.
Impact on American Winemakers and Distillers
According to the Wine Institute, U.S. wine exports totaled nearly $1.5 billion in 2018. There is rising interest in American wine around the world and many untapped markets for producers to grow their businesses. The E.U. is the largest export market for U.S. wineries, accounting for nearly $500 million in exports. While some producers may see incremental growth in sales within the U.S., they will also face two looming risks on the international wine and spirits market as well:
1) Retaliation through additional tariffs imposed on U.S. wine and spirits, which would increase costs to E.U. importers and customers and lead to a reduction of American exports to the E.U.
2) Heightened competition from European winemakers and distillers who are selling their products in new and emerging global markets because they are not able to sell them profitably in the U.S.
Either outcome would result in a significant reduction in the ability of U.S. winemakers and distillers to reach markets abroad.
On behalf of our membership and all hospitality and beverage professionals in the U.S., we strongly believe that imposition of these proposed tariffs will have serious unintended consequences on our industry, its employees and the American consumer. It could take years for the beverage distribution and hospitality industries to recover from even a brief imposition of the proposed duties. Many U.S. businesses deriving a significant share of their income from the sale and distribution of European wines and spirits would face daunting challenges. Smaller importers, wholesalers and retailers may be forced out of business. Thousands of jobs could be lost. American consumers would have fewer choices and be forced to pay higher prices.
For the foregoing reasons, expanding presently applied import duties or imposing new duties on European wine, spirits and related products is not an appropriate means to enforce the U.S. WTO rights in the Large Civil Aircraft dispute. Wines, spirits and related products listed in Annex I should be removed from the list of products subjected to the currently imposed 25% duties to prevent further harm to U.S. businesses and consumers. The Court of Master Sommeliers, Americas urges the U.S. Trade Representative to seek an alternative method of settling this matter that will not cause far-reaching and irreparable harm to the hospitality industry and the millions of people who rely on it for their living.