Beijing said on Thursday it would not impose provisional tariffs on brandy imported from the European Union despite finding it had been sold in China below market prices, giving both sides room to breathe in tense trade talks.
China's commerce ministry said in a statement it had found that European distillers had been selling brandy in its 1.4 billion-strong consumer market at a dumping margin in the range of 30.6% to 39% and that its domestic industry had been damaged.
'Under Special Circumstances'
'Provisional anti-dumping measures will not be taken in this case for the time being,' the ministry said, leaving open the possibility Beijing may act in the future.
Previously, the ministry had said the probe was expected to end before January 5, 2025, but that it could be extended 'under special circumstances.'
'Negotiation Tactic'
China has been canvassing the bloc's 27 member states to reject the European Commission's proposal to adopt additional duties of up to 36.3% on Chinese-made electric vehicles in an October vote, and the decision not to impose tariffs on brandy could be seen as helpful to its case.
"This looks like a negotiation tactic from China," Barclays analyst Laurence Whyatt said, expecting to see a link between EU tariffs on Chinese EVs and Chinese action on EU brandy imports.
"Can they persuade the EU to roll back some of the measures that have been imposed?"
'Separate Tracks'
An EU Commission spokesperson said the development would not influence its decision on EV duties, describing the two investigations as "separate tracks".
In a statement, the EU executive said it was following the investigation 'very closely' while its detailed assessment showed the merits of the investigation were 'questionable.'
'The Commission will therefore follow the investigation carefully to ensure WTO rules are being followed ... and will not hesitate to take all necessary actions to defend EU exporters,' the statement said.
Brandy Probe
France was seen as the target of Beijing's brandy probe due to its support of tariffs on China-made EVs. It also accounted for 99% of China's brandy imports last year.
French exports to China of dairy products that Beijing is investigating totalled €179 million last year, about 35% of the EU's total, according to Eurostat.
French cognac association Bureau National Interprofessionnel du Cognac (BNIC) said China's provisional decision did not put its concerns about eventual tariffs to rest.
'Heavy Impact'
Duties if imposed would 'heavily impact' cognac exports to China, which accounts for a quarter of its exports, it said.
'An entire sector would thus become the collateral victim of a conflict beyond its control ... We expect France and the European Union to immediately negotiate for the non-application and abandonment of these duties,' the statement added.
French Spirit Makers
Shares in French spirit makers jumped about 8% after the announcement, though later pared gains as the market digested the full statement.
If implemented, imports of Martell, which is owned by Pernod Ricard, could incur import tariffs of 30.6%, Hennessey, owned by LVMH, 39% and Remy Martin which is part of Remy Cointreau 38.1%, based on a list of dumping margins per firm published by China's Commerce Ministry.
That is better than the 50% feared by investors, according to Citi analysts.
Prudence
At 1400 GMT, Pernod traded 2.7% higher, Remy was up 3.67%, LVMH was up 1.2% and Italy's Campari was 1.04% higher.
Pernod chief executive Alexandre Ricard said the company would remain prudent on China given the tariff decision appeared to only apply "for now," but did not elaborate further.
Increased Prices
Remy Cointreau did not immediately comment, while LVMH said BNIC was representing it in this case.
Citi analysts estimated that Chinese retail prices for Pernod and Remy would increase by about 16% and 20% and cut their Chinese sales by 13% and 16% respectively, if the tariffs were imposed.
That would hurt their earnings per share (EPS) by about 2% and 8%.
Brandy Probe
Beijing announced its anti-dumping probe on EU brandy in January. Cognac makers have maintained that the probe is linked to a broader trade row rather than the liquor market.
As well as the brandy probe, Beijing has opened anti-subsidy investigations into dairy and pork products from the EU.
Dairy Probe
The dairy probe was launched last week, the day after Brussels published its revised tariff plan for Chinese-made EVs.
The Spanish government, which had supported the EU EV probe in a preliminary vote in July, declined to comment on Thursday.
