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?
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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