Australian wine faces duties of up 218.5 per cent as China says subsidies caused ‘substantial damage’ to domestic industry

Australian wine now faces total temporary duties of up to 218.5 per cent after the Chinese Ministry of Commerce imposed temporary countervailing duties on Australian wine on top of provisional anti-dumping duties announced two weeks ago.

On Thursday, the ministry said it would impose countervailing or anti-subsidy duties ranging from 6.3 to 6.4 per cent on Australian wine exporters, saying that subsidised Australian wines have hurt China’s domestic wine industry.

“There is a causal relationship between the subsidies and the substantial damage to the local industry,” the ministry said.

In August, the commerce ministry initiated a paired anti-dumping and countervailing investigation into Australian wine at the request of the China Alcoholic Drinks Association, on behalf of the domestic industry.

The anti-dumping investigation determines whether Australian wine exporters have sold wine in China at prices cheaper than those in the domestic Australian market, while the countervailing investigation looks at how exporters managed to grab a share of the Chinese wine market through price cutting enabled by subsidies offered by the Australian government.

Major wine companies such as the owner of Penfolds label, Treasury Wine Estates, and Casella Wines, known for another well-known label in China and Asia, Yellow Tail along with 22 other named winemakers will face specific countervailing duties of 6.3 per cent, while others not named will face a tax of 6.4 per cent.

The taxes will be collected as deposits until the final countervailing investigation is completed by August next year, although it could be concluded earlier. Under World Trade Organization rules, these duties can be held for as long as nine months.

If the final duties are lower, China’s commerce ministry will need to refund the difference to the wine exporters. The final duties would replace the provisional duties.

Like the anti-dumping duties, the countervailing duties will be imposed on wine sold in containers of two litres and less.

The political clash between the two countries continues to escalate after nearly eight months of conflict.

Aside from trade actions that include these wine duties, China has also imposed other trade-prohibitive actions on Australian products such as suspensions on beef exports, curbs of cotton and coal shipments and unofficial bans on copper, sugar, lobsters and log timber.

The two countries also have no plans to follow through on an agreed-upon five-year review of their historic free-trade deal, the China-Australia Free Trade Agreement (ChAfta), which had paved the way for two-way trade between them worth nearly A$240 billion (US$178.7 billion) this year.

In the countervailing decision, the Chinese commerce ministry highlighted several programmes as having enabled the Australian wine industry to produce cheaper wine, including the A$50 million (US$36.06 million) “Export and Regional Wine Support Package” aimed at marketing campaigns in China and the US. The ministry said there was evidence that the grant was directed at increasing market share in China.

Australian winemakers, in particular private label manufacturers, have argued that they were never in receipt of any direct subsidies – defined as direct or indirect cash payments to manufacturers to support production.

In an earlier investigation by the South China Morning Post, they said excessively discounted wines in China could be due to fake or counterfeit Australian wines or those administered directly by Chinese retailers themselves.

They also say it is impossible to dump cheap wine, given that the average cost of Australian wines shipped to China is US$7 a litre, whereas costs in other wine-exporting nations such as Spain and Chile go as low as US$2 a litre, in line with data from the China Association of Imports and Exports of Wine & Spirits.

The Australian wine industry body, Australian Grape and Wine, said the ministry’s allegation that Australian grape growers and winemakers received subsidies demonstrates a fundamental misunderstanding of its sector.

“Australian grape growers and winemakers have been competitive in China because of their efficiency and the quality of the product. We don’t understand how Australia is being accused of benefiting from subsidies, while other wine-producing nations enjoy significant government subsidies and continue to export to China,” said Tony Battaglene, CEO of Australian Grape and Wine. “The OECD [Organization for Economic Cooperation and Development] ranks Australia as the second least subsidised agriculture sector in the world.

“We are not dumping wine in China, and as the OECD points out, our producers are not subsidised in any way that would harm the Chinese wine sector.”

Battaglene said the industry would be refuting the Chinese commerce ministry’s findings, adding that the anti-dumping and countervailing duties imposed on Australian wine would effectively make the Chinese market unviable to Australian wine businesses.