Chinese customs duties: the cognac industry escapes the worst but remains under pressure

Temporary relief. The main French cognac producers (Hennessy, Rémy Martin, Martell) have avoided the worst. They will not be affected by customs tariffs of up to 34.9% imposed by China on imports of European brandies, starting July 5. The verdict came Friday morning, more than a year after Beijing launched an anti-dumping investigation against European producers of these spirits made from wine, mainly French houses. It was launched in retaliation for the European Union's investigation into Chinese subsidies for electric vehicles .

After weeks of tough negotiations between Chinese authorities and the cognac industry, supported by the French government, a solution has been found to avoid these prohibitive customs tariffs, imposed temporarily while the investigation continues. Instead, producers will have to increase the prices of bottles shipped to the Middle Kingdom. This "minimum price" regime, from which some companies will not be able to benefit, has been defined on a case-by-case basis. The rate could range between 12% and 16% of the current selling price.

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Chinese authorities have warned that these new prices must be implemented as of Saturday. Otherwise, customs duties will take over. " It's a temporary lesser evil," says Gabriel Picard, president of the Federation of Wine and Spirits Exporters (FEVS). He insists: " This minimum price regime solution is intermediate and temporary. It is in no way an acknowledgment of anti-dumping practices. Cognac has never been the issue. We call on the French government and the European Commission to continue negotiations with China. "

With this solution, the outlook is nevertheless brightening for the industry after months of storms. The stakes are crucial: Asia—particularly China—represents the leading cognac export market, along with the United States. " Although the terms of this agreement remain less advantageous than those in effect before the investigation was opened, they offer a significantly more favorable outcome, or at the very least, a significantly less penalizing alternative than the application of definitive anti-dumping duties ," said Rémy Cointreau, owner of Rémy Martin, in a press release. It also indicated that, as a result, the group " will update its annual objectives when it publishes its first quarter results on July 25. " For its part, Pernod Ricard " welcomes the closure of the Chinese investigation " and " remains committed to ensuring long-term sustainable growth in China, one of our four key markets ."

Nothing was a foregone conclusion. While the dispute between China and the European Union over electric vehicles is far from resolved, Beijing could also have decided to once again hold the cognac industry hostage by imposing the maximum tariffs. Launched in January 2024, the Chinese anti-dumping investigation has already caused significant harm to the brandy sector. Exports to China have fallen by 60%, and the industry claims to have lost €50 million per month. The blow was fatal last fall: brandy importers were forced to pay a deposit as a guarantee on all bottles shipped to the Middle Kingdom, the amount of which amounted to approximately 35% of the price. The Chinese authorities agreed to return this deposit as part of the agreement.

However, the industry is walking on eggshells. The matter is far from over. At this stage, Chinese authorities remain silent on the reopening of the duty-free market, which is key to the brandy trade. " No information has been given on the reopening of the duty-free market, from which cognac has been excluded since December 2024 and which traditionally represents nearly 20% of its sales in China ," laments the National Interprofessional Cognac Bureau (BNIC). However, no one is fooled. The issue is above all political and diplomatic. Will Beijing continue to loosen its grip or use the duty-free issue as negotiating leverage with the Europeans to win the case regarding Chinese electric vehicles? And this, just a few weeks before the EU-China summit scheduled for July 24 and 25.

Another concern: " Among the companies that cooperated with the Chinese authorities, some were not selected to benefit from the minimum price regime ," insists Gabriel Picard of the FEVS. This means that these cognac and Armagnac producers, who nevertheless sought to cooperate, will be subject to very high customs duties. As will those who did not participate in the negotiations and are classified by the Chinese authorities as " non-cooperating companies ." " The agreement concerns 96% of the cognac players ," specifies a knowledgeable observer of the sector.