Cognac Industry Has One Week Left to Avoid Devastating China Tariffs, Reports Say

(Photo: Hennessy)

Leading cognac makers including Hennessy, Martell and Remy Martin have reportedly reached a deal with Chinese authorities to avert a debilitating tariff on brandy imports. However, the plan may only take effect if the European Union softens its stance on Chinese electric vehicles — a tie-up of billion-dollar proportions that the cognac industry has little to no direct influence over.

If an agreement isn’t reached by July 5, China will likely make permanent a tariff that has already cost the spirits sector hundreds of millions in sales.

On Friday, Reuters reported that a coalition of French cognac makers has agreed on a tentative plan with Beijing to set a minimum import price for European brandy. The deal would take the form of a sliding scale ranging from $6.39 to $85 based on the liquor’s age statement.

It comes on the heels of a long-simmering trade dispute that’s placed cognac directly in its crosshairs. Last October, the E.U. imposed tariffs of up to 45.3% on Chinese electric vehicles, citing artificially low subsidies and unfair trade balances. China immediately responded with tariffs ranging from 30% to 40% on European brandy.

Though the tariffs didn’t mention France by name, the intentions were clear as day. Cognac makes up over 98% of European brandy shipped to China, amounting to $1.7 billion in sales in 2023 alone.

The tariff reportedly cost the cognac industry over $58 million by the end of February. According to the Bureau National Interprofessionnel du Cognac, monthly cognac exports to China have dipped by as much as 70%, all while share prices for Remy Cointreau, Pernod Ricard and LVMH have slumped by double digits. The downturn has proven particularly devastating at a time when spirits consumption is reaching record lows.

A minimum import price on cognac imports could prove the perfect antidote to the industry’s woes. According to anonymous sources interviewed by Reuters, the plan would be costlier for smaller producers, but “still well below current levels.” Several cognac companies are said to have signed off on the pricing scheme, to which officials in Beijing have reportedly been receptive.

But the plan may be dead on arrival. China has explicitly linked its brandy tariff to Europe’s ongoing electric vehicle duties. If the E.U. doesn’t soften those duties by the upcoming deadline on July 5, China’s brandy tariff is slated to go into permanent effect.

Whether or not negotiations will bear positive results is yet to be seen. China’s commerce ministry recently said that electric vehicles talks have entered “final stages,” adding that both sides have taken a “big step forward in the right direction of a proper resolution.” Meanwhile, European officials have remained relatively tight-lipped. French trade minister Laurent Saint-Martin recently told cognac producers that negotiations are “on the right track” but didn’t disclose specifics.