China has imposed taxes on European brandy imports, a move France said was retaliation for the EU’s recent announcement of hefty tariffs on Chinese electric cars.
The European Commission said it would challenge China’s taxation at the World Trade Organization (WTO), calling it an “abusive” trade defense measure.
But China said the move was an “anti-dumping” measure aimed at protecting its domestic producers.
French brandy producers said the tariffs would hit big brands such as Hennessy and Rémy Martin and would be “catastrophic” for the industry.
Brandy’s shares fell after the news was announced.
China announces new restrictions on European brandy just days after EU countries approved it High tariffs on Chinese-made electric cars.
China’s Commerce Ministry said brandy imports could cause “significant harm” to its own producers. Importers must pay a “deposit” for European brandy.
China is also considering new tariffs on other EU imports such as cars, pork and dairy products.
The company said EU tariffs on its electric vehicles violated global trade rules.
French Trade Minister Sophie Primas said the brandy tax “appears to be a retaliatory measure” after the EU decided to increase tariffs on Chinese electric cars.
She said such retaliation was “unacceptable” and “completely contrary” to international trade rules, adding that France would work with the EU to take action at the WTO.
France accounts for 99% of the brandy exported to China, and French cognac lobby group BNIC said the move would be “catastrophic” for the industry.
“The French authorities cannot abandon us and leave us alone to deal with Chinese retaliation that has nothing to do with us,” BNIC said. “Taxes must be suspended before it is too late,” he added.
Shares of companies selling spirits were hit hard after China’s announcement.
Shares of LVMH, the luxury goods company that produces Hennessy, fell more than 3%, and Remy Cointreau, which produces Remy Martin, fell more than 8%.
Analysts at Jefferies estimate the tariffs could lead to a 20% price increase for consumers, which could lead to a drop in volume and supplier sales by a fifth.
Shares of the German automaker, which may also be hit by China’s tariffs, also fell.
Volkswagen, Porsche, Mercedes-Benz and BMW all fell after the news.
