China's Ministry of Commerce recently announced it will impose anti-dumping deposits on brandy imports from the European Union (EU), starting from October 11, 2024.
This marks a significant development in trade relations between China and the EU, following a preliminary ruling in August that found EU brandy was being sold at unfairly low prices in the Chinese market. The deposits, ranging from 30.6% to 39.0%, are aimed at protecting domestic producers and ensuring fair competition.
This is China's first major action since the August ruling, with the Ministry of Commerce (MOFCOM) specifying that the deposit rates will vary depending on the brandy producers. For instance, Martell, one of the top French brandy brands, received a deposit rate of 30.9%, while Hennessy and Rémy Martin were hit with higher rates of 39.0% and 38.1%, respectively. Other companies that cooperated with the investigation will be subject to a rate of 34.8%, while EU companies that did not cooperate will face the maximum deposit rate of 39.0%.
Additional Costs for Importers
Importers of EU brandy must not only pay the anti-dumping deposit but also face other financial obligations, including a 13% value-added tax (VAT) and a 20% consumption tax, plus RMB 0.912 (EUR 0.12) per liter. This means that the final cost for a bottle of brandy priced at RMB 100 (EUR 12.91) could amount to an additional RMB 55 (EUR 7.10) in deposits alone, significantly increasing the overall cost for Chinese importers and potentially driving up retail prices. The Ministry of Commerce has provided a detailed formula to calculate these costs (explained further below), which will help importers understand the financial impact of the new deposit system.
The Scope of the Anti-Dumping Measures
It is important to clarify that these anti-dumping deposits apply only to EU brandy bottled in containers of less than 200 liters. Larger containers of 200 liters or more are not affected by this ruling, which limits the scope of the investigation. The anti-dumping deposit is considered an interim measure, in line with China's Anti-Dumping Regulations, specifically Articles 28 and 29, which allow such deposits following a preliminary ruling. This practice is not new, as China imposed similar measures on Australian wine in 2020.
Reactions from the Market
The imposition of these deposits has been met with a mixed response from Chinese importers. Some merchants, facing a challenging economic environment, have expressed that the new measures may have minimal impact on their businesses due to their current stock levels. Others believe that, compared to Australian wine, the dumping margin for EU brandy is less severe, allowing them to continue selling lower-priced brandy despite the deposit. This sentiment may soften the blow of the deposit imposition, especially in a market that has seen shrinking demand for brandy.
Market Impact
According to data from Chinese customs, brandy imports to China have already been in decline. Between January and August 2024, the country imported 21.85 million liters of brandy, valued at USD 798 million (EUR 728 million). This represents a year-on-year decrease of 20.75% in volume and 21.84% in value, reflecting broader trends in the Chinese spirits market. Given this contraction, the new anti-dumping measures may exacerbate existing challenges for EU brandy exporters trying to penetrate the Chinese market.
Calculating the Deposit
The Ministry of Commerce has provided a formula to calculate the anti-dumping deposit:
- Deposit amount = (customs-assessed dutiable value × deposit rate) × (1 + VAT rate on imports) ÷ (1 – consumption tax rate on imports)
For example, for a bottle of brandy valued at RMB 100 (EUR 12.91) from "other EU companies" (which face the maximum deposit rate of 39.0%), the deposit would amount to approximately RMB 55 (EUR 7.10).
Source: Wino-Joy