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Hi, I'm Dermot Nolan, and I became a Master of Wine (MW) in 1997, and resigned from the Institute of Masters of Wine in 2023 after being an MW for exactly 26 years. I opened a wine shop in Dún Laoghaire, Ireland, called The Wine Library, which closed in 2018, and this is my personal wine blog. I will do my utmost to be fair and responsible in my posts – please read my Who Pays article in re the ethics of wine trips and writing. I have worked in wine education, retail, and consultancy since 1990. I was a Director of the Institute of Masters of Wine (IMW) from 2008 to 2014 and was also a member of the Events Committee, founder of the Trips Committee, and member of the Governance Committee. Having had problems with potentially libellous comments from unidentifiable posters, I now require that if you post a comment, you must identify yourself properly or it won't be published. Please note that I do not review products or services on request so kindly don't ask. I value my independence and I believe my readers (few that they may be) do so also.

Friday, February 16, 2018

Ignorance is bliss

There is an old joke which defines an economist as someone who finds something which works in practice and then spends their life trying to prove it will work in theory. This definition could be used for those who predict wonderful/appalling outcomes for Brexit – we won’t really know the effects until well after March 2019.

However, there are a few things which we can certainly posit with some degree of certainty and one of those is that, whatever transition deal is made between the UK and the EU it is likely to cause the cost of wine to rise rather than fall. Why?
Let’s first see what currently applies to wines imported within the EU, for example from France to the UK. The producer sells the wine at a set price, to which is then added the cost of shipping and insuring the wine, excise duty, VAT, the wholesaler’s margin and the retailer’s margin.

Now, what about wine coming from outside the EU known as Third Country wine? Here, the costs are similar but with one additional cost, the Common Customs Tariff or CCT, which is a variable rate tax depending on the alcohol content – typically about €0.10 for wines less or equal to 13% and about €0.12 for wines up to 15%. Now, if a bottle of wine costs €1.00 ex-cellars this is a big enough tax, but if it costs €5.00 then it’s not so big.

All well and good but what will happen after March 2019? First off, the only thing we know for certain is that there will be a transition period – how long we don’t yet know nor do we actually know what this phrase means. We can presume that this means EU CCT etc. will apply for this period for wines imported from the UK. And there’s the rub – huge amounts of wine sold in Ireland originate in the UK. Wines in Tesco might seem the obvious example but many well-known brands ship in bulk to the UK for bottling there and then distribution into the rest of the EU. While the UK is still in the EU this is a sensible cost-effective way of distributing the wine but how will this work after Brexit?

The initial response from people in the trade (Wines of South Africa (WOSA), The Australian Wine and Grape Authority for example) is that wines from their countries will lose the CCT charge and thereby become cheaper. However, this is by no means clear as the wine will have to be imported under some new trade deal, which cannot be made until after March 2019 – deals like this tend to take at least 2 to 3 years to conclude so it is possible that from the end of the transition period onward wine imports will fall under World Trade Organisation (WTO) rules which tends to work on a tariff of 32% of the product value! That’s a massive amount larger than the current €0.10 or so!

So, wine exported from Australia to the UK for bottling could attract a tariff of 32 % of value to get into the UK, then CCT to get from the UK to Ireland so we could well find that a lot of wines currently selling in Ireland will get prohibitively expensive. For example, at least two Irish supermarkets sell a Chilean wine which, while it has different names and labels, is the exact same wine bottled and labelled in the UK. In both cases these wines sell for less than €10 so the potential price hikes post-Brexit will make these difficult to sell.

Interestingly, WOSA thinks this will all be fine as they believe their wines will become cheaper due to not paying CCT. Me, I think they’re mad – CCT is such a small tax in comparison to WTO rates – and their competitors are not the French, the Germans and other Europeans but rather other Third Countries such as Chile whose wines will also lose the CCT charge going into the UK. Given that some 71% of South African wine is sold in bulk, and that a lot of that goes to the UK, it is clear that they have not really considered that the EU will no longer be a competitive market for UK-bottled and EU distributed wine post-Brexit as the cost of selling into Germany, Benelux etc. will be too high.

In fact, it seems to me that in the colonial countries there is an attitude of the UK being the centre of the world simply because that’s where the exports go, without the full knowledge of where those exports end up – in many cases in the rest of the EU.

Like I say, and especially with regard to Brexit, ignorance is bliss!

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