Wine Institute's International Trade Policy Department works to eliminate trade barriers and grow U.S. wine exports globally. While the U.S. government, with Wine Institute's support, has successfully eliminated many trade barriers, numerous obstacles remain and new challenges continuously arise that impede growth and threaten existing markets. At issue is how to keep U.S. wines price-competitive when faced with, preferential tariffs, taxes and subsidies given to non-U.S. wines and burdensome non-tariff barriers such as unreasonable government standards, testing and certification requirements.
Wine Institute works closely with the U.S. Congress, the Office of the U.S. Trade Representative (USTR), Department of Commerce, Department of Agriculture including the Foreign Agricultural Service (FAS), the Treasury Department's Alcohol and Tobacco Tax and Trade Bureau (TTB), Department of State, Environmental Protection Agency and Food and Drug Administration on tariff and trade barrier reduction, free trade agreements and other negotiations.
Wine Institute and the U.S. government play a lead role in multilateral groups such as the World Wine Trade Group and the Asia-Pacific Economic Cooperation (APEC) Wine Regulatory Forum which help to remove trade barriers, open new markets and increase sales in both developed and emerging markets. Wine Institute also actively participates in FIVS, the international alcoholic beverage federation, which also works to remove barriers and promote open trade. Wine Institute international priorities include the Trans-Pacific Partnership and U.S.-EU Transatlantic Trade and Investment Partnership (TTIP) negotiations, the Annual TTB/Wine Institute Technical Forum and International Wine Technical Summit, protecting intellectual property rights, legitimate terms of geographic significance and common food names, seeking more harmonized standards, simplifying export certificates and responding to technical, sanitary and phytosanitary barriers proposed by other countries.
Global Trade Barriers
Trade barriers are government laws, regulations, policies or practices that restrict both the imports from and exports to other countries. Examples include tariffs, preferential taxes, domestic and export subsidies, embargoes, standards, conformance testing and certification, import quotas, unnecessary sanitary and phytosanitary restrictions, warehousing requirements, customs clearance, distribution services and domestic licensing, among others. The WTO reports an increasing amount of trade barriers introduced by G-20 economies. Of the 1,244 restrictive measures recorded since 2008, only 282 have been removed and in 2014 the number of restrictive measures in place has increased by 12%. Given the continuing uncertainties in the global economy, the WTO stresses the need for countries to show restraint in imposing new measures and to eliminate more of the existing measures.
The following are descriptions and examples of trade barriers that most restrict the U.S. wine industry's ability to increase exports:
High tariff rates constitute the single most restrictive barrier to U.S. wine exports. According to the WTO, the average simple-applied import tariff including all preferential rates for all goods worldwide is 9.5%; without including the preferential rates the average is 39%. Virtually all U.S. wine exports to the major markets, other than Canada, face tariffs that are double or triple those rates. For example, the EU import tariff ad valorem equivalent (AVE) is approximately 32% , Japan’s AVE is 22.5% and Switzerland’s AVE is 90% on red wine and 106% on white. By comparison, the U.S. import tariff AVE is 1.4%.
Over the last 30 years of multilateral wine negotiations through the General Agreement on Tariff and Trade (now the WTO), the U.S. import tariff for wine shrank from 31.5 cents (10% AVE at the time) to 6.3 cents per liter (AVE 1.4%). Unfortunately, other countries’ wine tariffs only slightly decreased, if at all. For several emerging markets those rates are still high with China at 14%, Russia at 20%, Brazil at 27%, Vietnam at 50% and India at 150%.
Wine Institute takes the position that trading partners must first reduce their tariff rates for all wine products (e.g., HTS Codes 2204, 2205 and 2206) to the current U.S. tariff levels before the U.S. further reduces its rates. This policy is based on decades of international trade negotiations that have materially aided the wine industries of other countries and harmed the U.S. industry. The U.S., which has some of the lowest wine tariffs of any major wine producing country, lowered its wine tariffs to a very low rate in the Uruguay Round while other countries maintained much higher tariff rates. This disparity in tariffs has directly resulted in a significant loss of U.S. market share and a negative balance of trade for U.S. wineries that continues to increase.
While some of the most trade distorting wine subsidies, such as the EU's export refunds, are ostensibly being phased out, significant direct payments to grape growers and winemakers persist. These subsidies are intended to encourage, support and finance European winemakers giving them an unreasonable competitive advantage in the global marketplace. To wit, one of the support measures being used by the EU specifically states the intention "is to increase the competitiveness of wine producers." The programs are significantly trade distorting since they remove much of the risk of doing business for EU producers. Together with high tariffs on U.S. wines, EU and member state wine subsidies to its industry ensure the exact opposite of a "level playing field."
For 2014, total subsidies, including promotion, specifically allocated to the European Union wine sector amounted to approximately $1.41 (€1.2) billion. For wine promotion the EU allocated $259 (€227) million in 2014. Virtually every country producing grape wine in any significant quantity maintains more robust programs supporting its wine grape growers and winemakers than that of the United States. These programs include grape growing and production subsidies, export subsidies and export promotion.
Geographical Indications (GIs)
Geographical indications, as defined in the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, identify a good as originating in the territory of a member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin. While reasonable rules to protect terms of geographic significance have important benefits, the EU's GI system claiming exclusive use of semi-generic, descriptive and other common names has significantly expanded into a scheme that establishes inappropriate GIs, restricts competition and consumer choice and confiscates private property rights for the benefit of a limited number of EU producers.
For example, winemakers using “Prosecco,” an internationally recognized grape varietal, have in other countries seen the EU recently establish a "Prosecco" GI and then unilaterally attempt to force non-EU winemakers to use a different and unfamiliar name for wine made from the prosecco grape.
Wine Institute continues to advocate for the protection of legitimate place names, recognizing the need for accurate representation of the origins of wines in all of the world’s markets. The U.S. has one of the most rigorous regulatory systems in the world for protecting terms of geographic significance for all wine producers, assuring high standards for the growing U.S. wine market. The greatest beneficiaries of this policy have been EU wine producers, which received protection in the 2006 Agreement between the United States and the European Community on Trade in Wine of more than 1,000 European GIs on labels sold in the U.S., in addition to the substantial list already protected under U.S. law.
Preferential Market Access
Market access is the ability of foreign firms to compete in a country's consumer market for given products. It reflects both the extent of formal trade barriers (tariffs and non-tariff obstacles) and the government's willingness to tolerate unimpeded foreign competition with domestic firms. As a result of the stalled WTO Doha Round of multilateral trade negotiations, export-driven countries are pursuing more bilateral or regional preferential FTAs. The WTO's Preferential (Free) Trade Agreement database identifies 265 such agreements.
FTAs today contain much more than tariffs, including services, investment, intellectual property rights and changes to behind the border measures. These agreements are double-edged swords: while they can be used to negotiate tariff and non-tariff barrier reduction to gain market access for U.S. producers, they can also be employed by other countries to create competitive advantages for their exports against U.S. goods and services. This development in trade policy has resulted in a veritable race to negotiate FTAs. Countries that do not actively pursue trade agreements are left on the outside of a market while those who have negotiated successful deals enjoy preferential access.
The EU and U.S. are currently negotiating TTIP, which could include areas of importance for wine such as tariff reductions and regulatory coherence. Wine Institute supports U.S. government efforts in seeking a fair outcome that recognizes 1) the existing U.S. and the EU wine agreement, 2) the EU's trade distorting wine subsidies, and 3) the asymmetrical U.S./EU trade balance favoring EU wine exports.
Incompatible Wine Composition Standards
Testing and Certification Requirements – Canada, Russia, China, South Korea, Brazil, Colombia, Malaysia, Vietnam, the EU and other authorities require testing of compounds in wine and mandate the certification of each shipment, resulting in unnecessary costs to winemakers. Often the wine composition rules differ from U.S. rules making it difficult for U.S. exporters to comply. Restrictions on processing aids, additives, and pesticide residues can be as burdensome as tariffs since they can embargo imports at any price. In working with U.S. authorities, we seek more regulatory coherence and, if at all possible, agreements for mutual acceptance of a country's regulatory scheme.
Miscellaneous Non-Tariff Barriers (NTB)
Restrictive Government Monopolies – Canada, Finland, Norway and Sweden maintain state or provincial monopolies that restrict the import and sale of U.S. wine. Many are designed to collect revenues for the government in addition to tax revenue, protect domestic wine industries and/or control alcohol consumption.
Import Licensing and Port of Entry for Customs Clearance – Governments, including the U.S., can require import licensing. Problems arise regarding the criteria and ability to obtain those licenses. Indonesia is a recent example where import licenses are granted to a specific group of individuals that meet a long list of requirements.
Wine Labels – Labeling requirements are of growing concern because of the inconsistency in standards between countries. From varying health-warning labels to ingredient labels, producing a label unique to that country adds significant additional cost without adding any real value to the consumer or to the government’s enforcement ability. Wine producers accept science-based health warnings but proposals such as those in Thailand, Kenya and Russia that require warnings to cover a large percent of the label surface become unduly burdensome and trade restrictive.
Other NTBs include antiquated customs procedures, import quotas, bribery and corruption, product classifications, foreign currency controls, intellectual property laws, excessively elaborate or inadequate infrastructure and protection of local non-wine beverage alcohol producers.
Following the 1994 North American Free Trade Agreement (NAFTA) with Mexico and Canada, the U.S. entered into the 2004 Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), a plurilateral/regional agreement with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. This agreement provides greater access to Latin American markets that were previously restricted. In 2006, the U.S. successfully negotiated agreements with South Korea, Panama, Peru and Colombia.
The U.S.-South Korea FTA (KORUS) is especially significant as its economic impact is equivalent to 70% of all the other U.S. FTAs combined. Congress approved the KORUS, Panama and Colombia agreements, which are now in force. The U.S. received immediate duty-free access for wine in South Korea. If finalized, TPP could offer significant benefits to U.S. wine exports particularly by improving the Japan, Vietnam and Malaysia markets through initiatives to protect the use of wine production descriptors and to establish a more coherent regulatory environment.
World Wine Trade Group
WWTG is an official assembly of government and industry representatives from Argentina, Australia, Canada, Chile, Georgia, New Zealand, South Africa and the U.S. The WWTG has achieved two hallmark agreements: the 2001 Mutual Acceptance Agreement (MAA) on Oenological Practices, whereby signatories agreed to recognize the winemaking practices of the other parties, and the 2007 Agreement on the Requirements for Wine Labeling. In addition:
- The 2011 Memorandum of Understanding (MOU) on Certification Requirements states that while the parties hope to eliminate all certification requirements, and if certificates are necessary they should follow the Codex Alimentarius Guidelines for Design, Production, Issuance and Use of Generic Official Certificates;
- In 2013, the group adopted a Protocol to the 2007 World Wine Trade Group Agreement on Requirements for Wine Labeling Concerning Alcohol Tolerance, Vintage, Variety, and Wine Regions, which requires participant countries to allow imports from the other signatory countries provided the wine labels meet minimum standards relating to alcohol tolerance, variety, vintage and wine region and the exporting country’s laws; and
- In 2014, WWTG governments approved the groundbreaking "Tbilisi Statement" of international principles for nations to use when establishing wine regulations. The "Statement on Analytical Methodology and Regulatory Limits" encompasses eleven science-based regulatory principles to help remove unnecessary obstacles in the international wine trade. These principles are a major step forward in bringing regulatory coherence in international wine trade.
These far-reaching WWTG agreements support a more trade-facilitating regulatory environment, helping to reduce the complexities and costs of wine trade between the parties. The WWTG's efforts to expand these concepts to other markets are achieving considerable success, particularly in the APEC region. From developing strategies to assist in moving the WTO Doha negotiations towards a positive conclusion, to developing alliances for the removal of trade barriers in promising markets, there is much to be done by the WWTG in the coming years.
U.S. – EU Agreements Affecting Trade in Wine
In 2006, the U.S. and EU signed the "Agreement between the United States and the European Community on Trade in Wine," a bilateral accord that now remains in the "management" stage, with a variety of trade issues being discussed by parties. Since the agreement, the EU has maintained or created certain restrictions that increase costs or otherwise affect the ability of U.S. wine to compete in the EU.
For example, the EU requires a certification document (the VI-1) for all wine imported from the U.S. even though the EU recognizes U.S. winemaking practices under the 2006 agreement. The U.S. does not require a similar certification for EU wine. In addition, the EU restricts the ability of U.S. producers to use common wine descriptors (EU "traditional terms") such as "chateau," "clos," "tawny" and "ruby" on U.S. wine sold in the EU. Notably, the 2006 wine agreement allowed those terms to be used on U.S. wine sold in the EU until 2009. However, in 2009 the EU declined to extend approval.
In 2010, Wine Institute and WineAmerica petitioned the EU for approval of 13 traditional terms in accordance with the EU's internal procedures. To date, only two terms – "cream" and "classic" – have been approved for use on U.S wine. Remaining unapproved terms such as "chateau" are approved in the European market on wines from at least seven other non-EU countries.
While the EU expects the U.S. to comply with the 2006 wine agreement, the EU has ignored its own obligations. The 2006 agreement requires each party to notify the other party of changes to its approved winemaking practices and the other party has the right to request consultations and object to recognizing the changes. However, the EU continues to adopt new winemaking practices without prior notification to the U.S.
For example, in 2012 the U.S. and EU entered into an organic equivalency arrangement, which requires each party to notify the other party and consult before implementing any changes to its organic certification standards and procedures. Nevertheless, the EU subsequently developed a new standard for organic wine without prior notification to the U.S. As a result, the EU now prohibits the well-established category "wine made with organic grapes" and U.S. wineries may no longer export those wines to the EU.
Asia-Pacific Economic Cooperation
The Asia-Pacific Economic Cooperation (APEC) is an important Pacific Rim economic forum made up of 21 economies which supports sustainable economic growth and prosperity. APEC wine consumption more than doubled from 1990 to 2012 and wine production flourishes in many of the economies as well. While the value of APEC wine trade has more than tripled, increasing from $7 billion in 2000 to $23 billion in 2012, the number and significance of unnecessary non-tariff barriers continue to grow, costing governments and businesses -- primarily small and medium-sized enterprises [SMEs] -- a reported $1 billion a year. A significant portion of these costs is attributed to unnecessary testing and the requirement of multiple and overlapping paper export certificates for imports into developing economies.
APEC offers a particularly good opportunity for Pacific Rim regulators to address trade barriers through the Wine Regulatory Forum (WRF), which Wine Institute and the U.S. government have worked to develop to help APEC economies implement sound, science-based regulations. Since 2011, the WRF has held four international conferences bringing together regulators and stakeholders to discuss specific options to improve regulatory coherence and cooperation. The WRF, which acknowledges that wine is a low risk food product and that testing requirements should be risk-based, fit for purpose, and kept to a minimum so as to facilitate trade, now has four active working groups to:
- Reduce and eventually eliminate unnecessary export certificates;
- Ensure transparency of export certificate, pesticide, labeling, and winemaking requirements;
- Strengthen wine laboratory testing capabilities; and
- Harmonize pesticide maximum residue limits (MRLs)
In 2014, APEC Ministers recognized the WRF work in a joint statement detailing new actions for deepening the Asia-Pacific partnership to navigate the changing regional and global landscape and boost economic recovery. The Ministers declared in part, "To increase wine production, to expand trade, and to create jobs in the region, we commit to eliminating unnecessary export certification for wine by 2018 and instruct officials to advance this work."
The WRF's focus on eliminating burdensome and duplicative regulations will significantly help reduce the costs of cross-border wine trade, stimulate demand and increase U.S. exports to this important region.
The Codex Alimentarius Commission (Codex), established in 1963 by the Food and Agriculture Organization (FAO) and the World Health Organization (WHO), develops harmonized international food standards, guidelines and codes of practice to protect the health of the consumers and ensure fair practices in the food trade. Standards created serve as a template for countries to use when developing food regulations. Work is consensus based and supported by scientific evidence. The Codex Committee for Food Additives (CCFA) has an electronic working group to approve food additives that, while commonly used in winemaking, are not currently on the approved CCFA standard. Several countries, including Malaysia and Vietnam, are adopting the CCFA standard, which is a positive development for food exports. However, for wine it could create trade barriers since it is nearly impossible to make wine using Codex's few currently approved additives. In response, the U.S. and other governments are working to expand the list of Codex approved additives.
In addition, the Codex Committee on Food Labeling (CCFL) is reviewing "date marking" provisions in the "General Standard for the Labeling of Prepackaged Foods." Wine Institute supports the current version of the date marking chapter, which exempts alcoholic beverages above 10% alcohol by volume from carrying, for example a "best before" date statement. Given the inherently stable nature of wine, it makes good scientific sense to maintain this exemption.
The Role of the U.S. Congress
Passage of the 1984 Wine Equity Act launched Wine Institute's international trade policy efforts to reduce foreign barriers and the Act remains the U.S. Administration's statement of policy and direction concerning international wine trade. Congressional action is vital to that program. Congress, including the Congressional Wine Caucus, continues to monitor and work with the Administration and industry by addressing wine issues in hearings and legislation, writing letters of support to key Administration officials and by raising issues with foreign officials. Congress’ ongoing support, including approval of Trade Promotion (“fast track”) Authority and future FTAs, is essential to the growth and continued success of U.S. wine sales overseas.
The USDA Market Access Program is a program of critical importance to U.S. winemakers. MAP uses funds appropriated by Congress and matched by wineries to encourage the development, maintenance and expansion of commercial agricultural export markets, stimulate and increase interest of small companies in exporting, open new markets, counter unfair foreign competition and increase commercial sales of U.S. agricultural products. MAP significantly assists U.S. vintners to compete globally.
1WTO Statistics Database, Tariff Profiles, Summary Tables. http://stat.wto.org/TariffProfile/WSDBtariffPFExport.aspx?Language=E&Country=E28,JP,CH,US
2WTO Tariff Download Facility. http://tariffdata.wto.org/
3Exchange rate as of February 25, 2015. €1 to $1.14