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China's anti-dumping measures hit French brandy

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Cognac producers fear industry sacrificed for Europe car

sector

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EU-China tariff dispute is double-whammy for EV dealership

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Cognac

By Sybille de La Hamaide

COGNAC, France, Oct 11 (Reuters) - In this grape-growing

region of western France, where brandy producers are fretting

over the fallout from a trade dispute between the European Union

and China, Christophe Bouetard is more worried than most.

Bouetard runs the MG Motor dealership in Cognac, making his

living off selling Chinese-made electric vehicles (EVs) that

will soon face hefty EU tariffs of 45%. But many of his

customers work in the local brandy trade, which China is now

targeting with retaliatory anti-dumping measures.

Bouetard, 56, described the double hit he faces as tricky.

Chinese-made EVs account for roughly half of his sales.

"We're caught in a vice, between the Cognac region and the

image of our Chinese vehicles, which are now in conflict because

of these European tariffs," he said.

A gloom hangs over Cognac, a small town that has given its

name to France's most famous brandy.

The sector was on a decade-long tear until soaring inflation

thumped foreign sales. Cognac exports fell over a fifth in 2023,

and this year's harvest was already threatened by disease and

poor weather before Beijing announced its provisional

tit-for-tat measures against the region's top tipple.

France was seen as the target of Beijing's brandy probe due

to its support of tariffs on Chinese-made EVs. French brandy

shipments to China reached 1.7 billion euros ($1.85 billion)

last year, bringing revenue of 1 billion euros to Cognac

producers.

France's trade ministry has said Beijing's brandy measures

violate free trade. The European Commission plans to challenge

the move at the World Trade Organization.

"It is not a question of engaging in a trade war with China,

with which we have significant trade, but of re-establishing the

conditions for fair competition," Trade Minister Sophie Primas

told Reuters.

FRANCE'S LUXURY SECTOR FEELS THE HEAT

But despite the fighting words from Paris, many cognac

producers fear the industry will be sacrificed by Brussels and

the French government to ring-fence Europe's much larger car

industry from cheap Chinese-made EVs.

One senior Cognac official, speaking on condition of

anonymity, told Reuters the sector doubted definitive tariffs

could be avoided. In meetings with senior government officials

from the president and prime minister's offices, they had failed

to hint at any potential solution, he said.

Beijing's brandy measures have rippled across France's

luxury sector, which is already struggling with weaker Chinese

demand. Shares of LVMH, Remy Cointreau and

Pernod Ricard, which market the high-end Hennessy,

Remy Martin and Martell cognac respectively, fell sharply on

Tuesday after Beijing announced the measures.

Former French Prime Minister Jean-Pierre Raffarin was France's

special representative to China until 2022, and still represents

President Emmanuel Macron in China for some events. He doubted

China, which also has an ongoing anti-dumping and anti-subsidy

investigation into EU pork products, would target French luxury

products next.

"Luxury is a sector in which the determining factor is often

the Chinese clientele itself," he said.

Nonetheless, Marc Fesneau, France's former agriculture

minister, said it was clear China was aiming at France.

"This is a European measure that only has consequences for a

single sector: cognac," he told Reuters. "Cognac is France, so

we can see China's diplomatic game."

TOUGH NEW MEASURES

From Friday, importers of brandy originating in the European

Union will have to put down security deposits from 34.8% to

39.0% of the import value, according to temporary measures

announced by China's commerce ministry this week.

Should those measures become permanent, the additional

duties would lead to a slump in exports to China, cognac's

second-largest market after the United States, France's Bureau

National Interprofessionnel du Cognac trade body said.

Emmanuel Painturaud, who owns the 90-year-old Painturaud

Frères Cognac house with his three brothers, said Beijing's

response was particularly worrying as Chinese consumers tend to

buy the oldest and most expensive cognacs.

"Wine makers feel like they're being held hostage, with some

vindictive moves by the Chinese government," he told Reuters in

his cellar, lined with wooden barrels full of cognac.

Nearly all of Cognac's output is exported. Historically,

wine was distilled so that it would take less room on ships.

From Cognac, those ships whisked it down the Charentes river to

faraway destinations, including China, where it has been sold

for over 250 years, producers said.

Anthony Brun, the chairman of the general union of Cognac

winegrowers UGVC, told Reuters that the outlook for the industry

had been bleak even before China announced its measures.

"If, on top of that, we add the loss of our second market,

the consequences will be catastrophic," he said.

Bouetard, the MG dealer, was trying to stay optimistic, despite

the fact that his sales had already fallen more than a quarter

since France began rolling back incentives to buy EVs, and

particularly those from China.

He said MG could lean more heavily on its hybrid vehicles to

avoid tariffs, and expected Chinese carmakers to build factories

in Europe to sidestep punitive measures. But he admitted next

year could be tough.

If the 45% tariffs become a permanent reality, he said,

"we're going to have to find solutions."

($1 = 0.9166 euros)

(Additonal reporting by Lucien Libert, Elizabeth Pineau,

Florence Loève and Michel Rose;

Editing by Gabriel Stargardter and Emelia Sithole-Matarise)