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Tariff lag a concern for wine in FTA deal

WHILE the Western Australian wine industry has given in-principle support to the Australia-United States Free Trade Agreement announced last week, concern remains over the long implementation times for tariff removal.

Also of concern are current wine labelling and distribution rules for Australian wine imported into the US, and the impact of Australia’s Wine Equalisation Tax on small to medium wine producers.

At stake is the livelihood of these wine producers, many who require an immediate short-term increase in export markets to remain commercially viable.

Former Wine Industry Association of Western Australia president and Leeuwin Estate chairman, Denis Horgan, said the retention of, and possible improvement in, market access was a major positive of the AUSFTA – more so than the immediate effects of tariff removal.

Mr Horgan said small and medium wineries in Australia were being priced out of the domestic market due to the Wine Equalisation Tax, which resulted in them paying, on average, two and a half times as much tax per litre as the 20 major wine producers.

He said the 20 major producers accounted for 95 per cent of Australia’s wine production and dominated domestic wine sales, requiring small and medium producers  to place greater reliance on overseas markets.

“In the case of WA, we must increase our export approximately five times in the next five years if we are to absorb the increase in grape production from the large expansion in plantings that have occurred in recent years, and for producers to remain financially viable,” Mr Horgan said.

Wine Association of WA CEO Sarah Dent said the US was the largest market in value terms for Australian and Western Australian wine producers.

“In the past 12 months the US has taken over from the UK as the largest market for WA premium wine in terms of value,” she said.

Ms Dent said tariff reduction, improved wine labelling and distribution were the three key areas of the AUSFTA that would benefit the WA wine industry.

While the industry was waiting for more details concerning the impact of the AUSFTA, any easing of restrictions would benefit local producers.

Ms Dent said while the full details of the AUSFTA were not yet known, she understood that US wine tariffs would be eliminated after 11 years.

“Obviously we were pushing for immediate tariff removal and will be looking for more detail in the coming days. This [the AUSFTA] brings us into line with [the] Chile-US FTA that caused the reduction of tariff over 12 years,” she said

Ms Dent said labelling was another area of concern. Under the current system, only one region can be quoted on Australian wine labels entering the US, compared with a blend of three regions under Australian domestic legislation. Australian wine producers must wear the cost and inconvenience of relabelling wines destined for the US to conform to their import rules.

Distribution laws in America were also restrictive and required resolution, she said.

While expressing the Australian wine industry’s general support for the AUSFTA, Winemakers Federation of Australia (WFA) chief executive Stephen Strachan claimed Australia’s wine industry was the highest taxed major producer in the world.

“Many winemakers cannot currently afford to exploit export opportunities,” Mr Strachan said.

Most of the benefits emerging from the AUSFTA would be realised when US wine tariffs were eliminated after 11 years, he said.

 “Most of the benefits will accrue at the end of this period, although for some products, such as bulk wine, tariff reductions should begin to flow through in the form of lower costs once that agreement comes into force,” Mr Strachan told WA Business News.

According to information provided by the WFA, tariffs into the US are around $US0.06 cents a litre for bottled wine, $US0.20 cents a litre for sparkling wine and $US0.14 cents a litre for bulk wine. Bottled wine accounts for around two thirds of Australia’s wine industry exports to the US.

“The US is our largest and fastest growing market, with exports running at almost $870 million in the last 12 months,” Mr Strachan said.

“The full benefit of the tariff reductions in 11 years will represent cost savings of around $US30 million per annum to the Australian industry, however there will be some immediate, but minor, benefits from the agreement through reduced costs for Australian producers with the removal of Australian tariffs on inputs.

“Importantly, the free trade agreement will ensure that the Australian wine industry does not fall behind the liberalisation achieved by its major competitors South Africa and Chile in their deals with the US.”

 

“The full benefit of the tariff reductions in 11 years will represent cost savings of around $US30 million per annum to the Australian industry.”

-         Stephen Strachan

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