June 14, 2013

For Now, China Is All Talk On Luxury Tariffs In EU Trade Spat

Chocolate, Wine, And Cars Caught In Crossfire 

A vineyard in France's Bordeaux region. (Comité Régional de Tourisme d'Aquitaine Cité Mondiale)

A vineyard in France’s Bordeaux region. (Comité Régional de Tourisme d’Aquitaine
Cité Mondiale)

What started with solar panels has moved into the luxury sphere this week in the China-European Union trade scuffle as the two engage in a tit-for-tat game of accusations against one another for various alleged violations. After the EU imposed tariffs on Chinese solar panels, China has been lashing back with complaints of its own, and the main focus is on luxury goods from Europe. However, the statements and threats coming from China’s end have been nebulous, demonstrating that at the current moment, the looming trade war is not having tangible effects on luxury. Listed below are the details of each European luxury product being dragged into the scuffle, all of which seem to be victims of heavy rhetoric rather than punitive action.

Belgian Chocolate 
This week, Chinese authorities announced that they had destroyed an “unspecified amount” of Belgian chocolate on the grounds that it contained “toxic substances.” The Belgian media pointed out that China did something similar in 2008 during another time of trade tensions, causing a fair amount of skepticism regarding the uncanny timing of the two scandals. “They are picking products for which China is an important market and that is good bargaining, to attack where it hurts, and it is very symbolic,” said André Sapir, a senior fellow at a Brussels-based think tank to The Independent.

Wine 
The first luxury product to come under fire, European wine became a part of the controversy when China launched a trade inquiry into EU wine exports on grounds of dumping suspicions.  China also threatened on June 5 to set tariffs on EU wine imports, which is making Europe’s winemakers some of the most nervous European luxury purveyors to be named in the dispute. However, tariffs would also have a detrimental effect on the many Chinese companies and individuals that have been buying European wineries, especially in France’s Bordeaux region, where “at least 40 Bordeaux estates are now in Chinese hands,” according to Bloomberg. As France’s third largest wine export market, China wields a great deal of leverage when it comes to this threat, and in response, France’s president has requested a meeting of the EU member states to discuss “solidarity” on trade negotiations with China.

Luxury Cars 
China has also threatened to impose tariffs on imported luxury cars in response to the trade dispute, according to an unnamed senior European Commission official. The anonymous source believes that the threat is not credible, telling Financial Times, “I can’t believe China is seriously considering to escalate the trade dispute over luxury cars… Cars are not like wine. It hits Germany more than anybody else and China knows that the Germans are their best friends in Brussels.” Meanwhile, the European Car Industry Association (ACEA) reported that Chinese authorities received a complaint “from an unknown person or persons” over subsidies of cars imported from the EU with engines of two or more liters. However, car companies don’t seem to be overly concerned. On Wednesday, Daimler’s CEO stated that he does not see the quarrel escalating to the point where cars would be taxed.

Considering the fact that the EU has gone ahead with its solar panel tariffs, China may be seriously mulling a retaliatory response.  Taxing luxury goods is much more politically expedient than doing so on basic necessities, which is why officials have consistently proposed domestic taxes on luxury goods even prior to the solar panel incident. As the government works to boost domestic industries, tariffs may be under serious consideration as a way to favor local luxury brands that have had difficulty competing with international companies in the country.

However, it is likely that these threats are all bluster, as taxes on luxury goods in China are already quite high, and the main effect of an increase would be to drive even more luxury shoppers to continue making purchases outside the country. In addition, recent history has shown what appears to be a growing official reluctance to actually impose officially proposed taxes. A recent official has even stated that luxury taxes could decrease in the future, with a reassignment of some luxury goods to a lower-taxed “basic necessities” category.

For now, the hope, according to an anonymous Chinese source speaking to Reuters, is to find an “amicable solution” within the next few months.

Business & Finance / Features / Policy
Tag: belgian chocolate, china, china luxury, chinese... , More
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