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As trade talks progress between Washington and Beijing over U.S. tariffs on Chinese imports and floated retaliatory tariffs, California Wine Country is cautiously watching as their wines may soon become much more expensive for consumers there.

After the Trump administration decided to increase tariffs on steel imported from China by 15 percent, that country’s Commerce Ministry on March 23 said it would put tariffs on 128 U.S. products, suggesting 15 percent on agricultural products such as wine, fruit and nuts and 25 percent on pork.

“Most of us and our counterparts in California, Oregon and Washington are looking to China for growth,” said Russell Joy, president of Sonoma County Vintners and vice president of California operations for Ste. Michell Wine Estates, which owns Stag’s Leap Wine Cellars and Conn Creek Winery in Napa Valley and Patz & Hall in Sonoma.

China is one of the fastest-growing wine markets in the world and soon will be second only to the U.S. in value, according to the Wine Institute. U.S. wine exports to “greater China,” which includes Taiwan, were $210 million, up 10 percent last year and 450 percent in the past decade, the San Francisco-based industry advocacy group reported. Total U.S. wine exports last year were $1.53 billion, 97 percent of which come from California.

“Chinese retaliation against U.S. wine would put our producers at a significant disadvantage in one of the most important markets in the world at a critical time,” said Bobby Koch, Wine Institute CEO, in a statement. “As a result of free trade agreements, a number of our foreign competitors will soon have tariff free access to the Chinese market. This, combined with additional punitive tariffs on California wine, could result in lost market share for years to come.”

Joy pointed to the impact a new tariff would have on the price of U.S. wine to consumers in China. “For under 14 percent alcohol wines, it is a 42.8 percent VAT for Hong Kong, and if you add 15 percent to that, it would be pretty significant,” he said.

Wines imported into China get not only tariffs added to the price but also value-added taxes (VAT) and consumption taxes, varying by city and product type.

“China is the second-most-valuable wine market after the U.S.A.,” said Vivien Gray, head of international sales for Silver Oak Cellars and Twomey Cellars and a member of the international committees of the Wine Institute, Napa Valley Vintners and Sonoma County Vintners, the latter of which she serves as chairwoman. “It’s a very important market, but it’s still market that in some ways is in its infancy. The U.S. is the sixth-largest importer (of wine) into China, but if we had a free trade, it would be much higher. We don’t have free trade like Australia and Chile.”

The China-Australia Free Trade Agreement took effect in December 2015, and the previous wine tariffs of 14 percent to 20 percent are set to be totally eliminated this year. The pact with Chile went into effect in October 2006, with a 10-year phase-in period.

Two-thirds of imported wine in China is consumed on premises, according to the Australian Trade and Investment Commission. Beyond white-tablecloth establishments, that includes banquet halls, hotels, VIP clubs and company bars.

Napa Valley has been getting awareness for its wines in China from trips Napa Valley Vintners has been making with local winery figures for years, Gay said. Sonoma County Vintners has organized some trips, but both counties have been destinations for groups of sommeliers and trade buyers from various Asian markets organized by the Wine Institute and other organizations.

“Napa has become a brand name in China, but when you say ‘Napa,’ many Chinese associate it with ‘California,’” Gay said. That’s a challenge for mid-level trade figures there, versus the top level of wine experts in key markets, she said.

Whatever the outcome of the possible trade battle between China and the U.S., Napa and Sonoma wines would still have a marketing opportunity, according to Gay.

“They would be very expensive, but compared to the Bordeauxs and Burgundys of the world, they are not so expensive,” she said. “Chinese are used to paying high prices for French wines.”

So the marketing strategy needs to be education on the quality proposition of Napa and Sonoma wines, and how they stack up to fine wines from the Old World, Gay said.

“There was a period that people looked to China as an answer for all their wine (sales) problems, if they had any, but they quickly realized that the markets are so different,” Gay said. “The private channels are so large that you may not know where the wines are going. Each of the provinces in China is almost a country in itself, because it’s so large.”

Standards for maintaining the quality of wine in transit from port dock to table vary from agent to agent, more so than in the U.S.

“The caveat of exporting to China is that your agents have to be savvy enough to not let wine sit on the dock and heat up or freeze when sent into the hinterland,” Gay said.

Jeff Quackenbush (jquackenbush@busjrnl.com, 707-521-4256) covers the wine business and commercial construction and real estate.