China Escalates Australia Trade Dispute With Wine Tariffs

By Stuart Condie

SYDNEY--China imposed anti-dumping tariffs on Australian wine, escalating a monthslong trade dispute and forcing local vintners to seek other markets for millions of bottles during a pandemic.

China's Ministry of Commerce said the temporary duties of 107.1% to 212.1% will take effect Saturday. They follow an investigation begun in August that concluded Australian exporters dumped cheap wine into the Chinese market, hurting the domestic wine industry. Australia's government rejected these preliminary findings.

The idea that Australia subsidizes its wine industry to be able to sell below cost on international markets is wrong, said Simon Birmingham, Australia's trade minister, calling the findings "erroneous in fact and in substance."

Mr. Birmingham said the wine tariffs continue a campaign of economic pressure this year that has included restrictions on imports of Australian beef, barley and coal. Australia drew China's anger in April when it sought support from European leaders to investigate whether Beijing's early response to the coronavirus contributed to the pandemic.

This pressure on an important U.S. ally has brought a response from senior officials in the Trump administration. They are seeking new hard-line measures against Beijing, including the creation of an informal alliance of Western nations to jointly retaliate when China uses its trading power to coerce countries, administration officials say.

For Australia's wine industry, already hit this year by drought and wildfires, the tariffs are a major blow. By value, China buys more than 42% of Australia's annual wine exports, leading the world.

Neither absorbing the cost of the tariffs nor passing them on to customers is an attractive strategy, and it is a difficult time to find new markets, as major wine-importing nations such as the U.K. and the U.S. tighten restrictions in response to rising daily coronavirus case counts.

Wine bottles already would have been labeled for the Chinese market, said Mark O'Callaghan, managing director of Australian industry adviser and appraiser Wine Network Consulting. Also, Australian consumers generally buy wine in bottles with screw caps, while the Chinese prefer corks.

"We're not talking about iron ore or coal here, where you can redirect a ship to a different destination by doing a deal with someone else," Mr. O'Callaghan said.

Shares of Australian producer Treasury Wine Estates Ltd.--one of the world's largest listed winemakers, competing with the likes of Constellation Brands Inc. and family-owned E&J Gallo Winery of the U.S.--fell 11% Friday. Treasury Wine had already this month paused a spinoff of its luxury Penfolds brand, partly because of the anti-dumping investigation.

Some winemakers and consultants said the tariff dispute illustrated the dangers of dependence on China, which imported the equivalent of almost 173 million bottles of Australian wine in the 12 months through September.

"We've always been concerned the Chinese market is likely to suffer these risks, so we haven't chosen to pursue for that very reason," said Peter Fogarty, of Fogarty Wine Group, whose family run vineyards in several Australian states.

Trade frictions between Australia and China aren't new, though they have worsened this year. The two countries have previously sparred over issues such as China's alleged interference in Australian politics and Australia's barring China's Huawei Technologies Co. from involvement in its rollout of 5G telecommunications infrastructure.

In the past, Mr. O'Callaghan said, China disrupted Australian wine imports by less-direct means, such as limiting wines' manganese content or delaying shipments over grammatical errors in paperwork.

Lee McLean, general manager of government relations at Wine Australia, said most exporters would find it extremely difficult to pay the tariffs. He said it has been only two weeks since producers submitted detailed responses to the Chinese investigation.

"It was a surprise in terms of the magnitude of the tariff and it's also surprising in the respect that we don't think there's a case to answer," he said.

Still, it could have been worse for the industry, Mr. O'Callaghan said. Had China imposed tariffs during the northern-hemisphere summer, then any wine not stored in refrigerated units at customs risked being heat-spoiled and impossible to resell.

Grace Zhu in Beijing contributed to this article.

(END) Dow Jones Newswires

11-27-20 0536ET