The TransPacific Partnership agreement will have almost no impact on the overall U.S. economy. But it will have significant benefits for U.S. wine and spirits producers.
That’s the gist of a new report by the International Trade Commission.
“The overall impact of the TPP Agreement would be small as a percentage of the overall size of the U.S. economy,” the ITC said.
How small? U.S. real Gross Domestic Product would grow just 0.15% by 2032. Real income just 0.23%. Employment just 0.07%.
The trade agreement would narrow the trade deficit, the report finds. “Exports to TPP partners will grow faster than overall U.S. imports” from the same countries, the report says.
Bev/Al Tariff Reductions
But when it comes to alcohol beverages, the report finds positive benefits to U.S. producers.
Alcohol beverage exports to TPP partners totaled 1.75 billion in 2015, the ITC says. Imports from TPP partners totaled 5.73 billion.
The TPP Agreement would eliminate tariffs on alcoholic beverages in new markets where the United States does not have an Free Trade Agreement. Japan would eliminate all tariffs on wine products in 11 years or less.
For bottled and semi-bulk wine, Japan currently charges a minimum duty of 67 yen 60 cents) per liter for product with a value of 447 yen ($3.97) per liter or less, or a 15% ad valorem tariff up to a maximum tariff of 125 ($1.11) yen per liter.
Japan will cut both the minimum duty and the 15% ad valorem duty by one-third as soon as the agreement enters into force, and then phase out the minimum duty in six years and the ad valorem duty in eight years.
Japan’s 45 yen (40 cents) per liter tariff on bulk wine will be eliminated immediately at entry into force, and the 182 yen ($1.62) per liter tariff on sparkling wine will be reduced by one-third at entry into force and eliminated in eight years. Japanese tariffs on beer and most spirits are already zero, but the remaining tariffs on products such as sake will be eliminated in 11 years or less.
Malaysia, Vietnam, and New Zealand will also eliminate all existing tariffs on wine, spirits, and beer. In Malaysia, tariffs on wine, spirits, and beer will be eliminated in 16 years.
Tariffs on wine, spirits, and beer in Vietnam are currently prohibitive, ranging from 35% on beer to 59% on wine. Vietnam will eliminate all tariffs on alcoholic beverages in 12 years.
New Zealand will also eliminate a 5% tariff on U.S. liqueurs, vodka, gin, and wine at entry into force.
Other Benefits
Outside of tariff reductions, other provisions in TPP would provide additional benefits for the U.S. alcoholic beverage sector. The “Wine and Distilled Spirits” annex to the TBT chapter sets parameters for labeling and certification requirements that would create transparency, regulatory coherence, and certainty for U.S. exporters.
Provisions in the annex would, among others, eliminate most certificate requirements, ensure that the size of samples taken by customs to assess conformity is the minimum necessary, streamline labeling content including declarations of alcohol content, and make sure that descriptive (traditional) winemaking terms are not prohibited on labels.
In addition to the immediate resolution of certain TBT issues, the annex establishes a framework for the region and any additional countries interested in joining TPP in the future. This is especially valuable for the U.S. wine and spirits sectors because TBT issues currently restrict trade in many other important export markets outside of the TPP region.
Recognition of Bourbon, Tennessee Whiskey
In addition to this annex, TPP would also provide distinctive product recognition for “bourbon” and “Tennessee whiskey ” through bilateral letter exchanges with Japan, Malaysia, Vietnam, and New Zealand. As a result, these countries will prohibit the sale of bourbon and Tennessee whiskey if it has not been produced in the United States and in accordance with U.S. regulations.
Tariff reductions granted by new FTA partner countries under TPP would significantly benefit U.S. exporters, primarily by allowing them to compete on even terms with other TPP countries that already have preferential access.
Elimination of Japanese tariffs on wine is of particular importance because Chile and Australia, both large wine exporters, already receive preferential tariff treatment in Japan due to trade agreements that are already in place.
Through these agreements, Japanese tariffs on wine from both Chile and Australia have already been reduced to 4.6% and 11.3%, respectively, compared to the 15% tariff that U.S. bottled wine faces.
Chilean wine will enter Japan duty -free in 2019; Australian wine, in 2022. Reduced tariffs through TPP would allow U.S. exporters to regain lost market share.
Similarly, wine exports from New Zealand, Australia, and Chile also already receive preferential tariff treatment in Vietnam, a country with a trade-restrictive tariff on wine.
The elimination of high tariffs on spirits in Vietnam is also expected to boost exports by lowering prices in a growing but cost-conscious market.
Certain provisions in the wine and spirits annex would eliminate labeling and certification requirements that currently restrict trade, such as certificates for production processes and raw materials and restrictions on affixing supplementary labels at the port of entry.
In addition, by increasing the transparency and regulatory coherence of labeling requirements throughout the TPP countries, this annex is likely to reduce costs and risk for U.S. producers and allow increased U.S. exports over time, the report finds.