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US Tariffs Again Aim At The Top Luxury Brands In Europe.

2019/9/18 17:24:00 6


According to Bloomberg reported on September 16th, the US president has targeted the latest European tariff targets for some of the top luxury brands in Europe.

Last Friday, the World Trade Organization (WTO) expert group said that the United States could legally impose tariffs on a series of European exports in retaliation for Europe's illegal subsidies to Airbus.

European Union sources said the WTO expert group is expected to publish a report by the end of this month, allowing the us to impose new tariffs on European exports worth 5 billion -70 billion a year. But the threat is actually $11 billion.

According to Bloomberg, the US may soon respond to WTO's green light.

From the "subsidy war"

In fact, the reason why the United States imposed tariffs on the European Union is very "old-fashioned". It is the "aircraft subsidy war" between the US and Europe.

In 1992, the United States and Europe signed a bilateral aircraft subsidy agreement. The agreement allows the European Union to subsidize 1/3's R & D expenditure for new European civil aircraft, while the US government can provide support to its Boeing companies in research and development.

Later, due to the rapid growth of Airbus shipments and even more than Boeing touched the US's "nerves", in October 2004, the United States announced its withdrawal from the bilateral aircraft subsidy agreement and filed a lawsuit against WTO, saying that the British, French, German and Spanish governments had provided export subsidies to the important models such as Airbus A380 and WTO, which were prohibited by the agreement on countervailing measures.

WTO ruled in 2011 that one year after the EU illegally subsidized Airbus, it also ruled that the Boeing company's billions of dollars subsidies were also illegal subsidies, and asked the United States to stop this measure. The European Union also filed a lawsuit against WTO, accusing the United States of failing to comply with the order.

In March 28th, WTO made a final ruling on the 15 year Airbus and Boeing's "subsidy war" and decided that the United States would provide subsidies to Boeing in the form of "tax relief" in Washington state.

According to the current WTO expert group, the United States can also impose tariffs on a series of European exports on the grounds of retaliation against Europe's illegal subsidies to Airbus.

LVMH is doomed.

At present, the US intends to impose additional tariffs on goods exported to Europe to US $25 billion, and some commodity tariffs may be as high as 100%. Besides the most expensive products, European exports of aircraft and parts, the most prominent ones are some of Europe's top luxury brands.

The United States has always been one of the preferred markets for luxury goods companies such as LVMH. In 2018, American shoppers bought LVMH products worth 11 billion 200 million euros (US $12 billion 400 million), accounting for 1/4 of their global sales.

Embarrassment is that in July this year, LVMH chief financial officer Jean-Jacques Guiony also said in a conference call, "companies are very sensitive to tariffs and trade barriers", and now the "tariff rod" has been "facing the city".

Bloomberg believes that US tariffs will have an impact on LVMH's two product lines: one is LVMH's wine and spirits such as Tang Pei, Lennon, champagne, Moet&Chandon and Hennessy, and the other is leather products like Donna Karan, Givenchy, Kenzo and Louis Vuitton.

But by contrast, European beverage producers will be even more miserable. Since April this year, the company has threatened to impose new tariffs on wine, liquor and other alcoholic beverages in the European Union.

The reason is that in addition to the "aircraft subsidy war", the French government has also been considering tariffs on French wines and other commodities because France has imposed a "digital tax" on the US technology giants such as Amazon, Facebook and Alphabet.

Most EU wine producers are uneasy about the uncertainty. Especially for the whiskey producers who are affected by the "no agreement to remove Europe", the arrival of the new tariff is undoubtedly "adding insult to injury". According to ITC, the European Union exported $2 billion 100 million worth of Irish and whisky to the United States in 2018.

But France's famous wine maker Remy Cointreau SA chief financial officer Luca Marotta's attitude is more tough. He said that the new tariff would increase the cost of the enterprise, which would certainly be passed on to the American consumers. He also stressed in his telephone conference in July 17th, "I want to reiterate that if tariffs are imposed, we will raise the price immediately."

   Future negotiations are more difficult

However, the injured side is more than the EU side.

The EU also imposed a 25% tariff on whiskey and Bourbon in July of the same year as a result of the tariff imposed on EU steel and aluminum in March 2018. It threatened to impose further penalties on the $12 billion worth of whiskey and other US exports.

In response, Lisa Hawkins, a spokesman for the distilled liquor Association, strongly opposed the addition of distilled products to the proposed "revenge list" by the government. "Now US companies, from farmers to suppliers to retailers, have been negatively affected by retaliatory tariffs, and additional tariffs will only cause further harm."

According to the Chris Swonger, chief executive of the association, "according to the tariff level imposed by the United States on spirits and wine in the European Union, we estimate that tariffs may also have a negative impact on US businesses, leading to an increase in the number of unemployed Americans from 11200 to 78600."

Then, is there really no solution to the trade frictions between the EU and the US?

Bloomberg pointed out that the EU now has two ways to avoid this new tariff, or to end illegal subsidies to Airbus, or to reach a settlement agreement with the United States.

But the problem is that although the US trade representative lettse and the current EU Trade Commissioner Cecilia Malms and Trom have welcomed the idea of reconciliation, negotiations for a real solution are still nowhere to be found.

Malm Strom will retire as EU Trade Commissioner in November 1st this year, and the position of the successor Phil Hogan (Ireland's current EU Commissioner for Agricultural Affairs) is more stubborn, advocating a more tough attitude towards the US and Europe, so future negotiations can be even more difficult.

In September 10th, Phil Hogan said in an interview with RTE, "we will do everything we can to make Mr. Wang see that his approach is wrong."

Source: Zhao Lu, international financial Journal

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