California wineries drawn into trade fight between U.S., Canada and Mexico

The U.S. wine industry is furiously lobbying Congress to pass legislation before it leaves for the year to avert a trade war with Canada and Mexico, which would likely target California wines for higher tariffs.

The stakes for the local wine industry grew this week when the World Trade Organization granted the two countries the ability to place more than $1 billion in retaliatory tariffs on U.S. products. The two countries are set to release the list of targeted products on Dec. 18, and wine is likely to be on the list, said Tom LaFaille, vice president of the Wine Institute, the main trade group for California wineries.

“We know they are going to target our wines. It’s a very visible product,” LaFaille said.

The tariffs are in response to U.S. rules requiring labeling on certain meat products to identify their country of origin. The WTO found earlier this year that the new labels placed a “disproportionate burden” on foreign farmers.

The House passed legislation in June to repeal the regulation, but it has languished in the Senate. The recent WTO action has forced the issue as lawmakers are looking to attach repeal language to a year-end spending bill, LaFaille said.

Rep. Mike Thompson, D-St. Helena, has spoken with House leadership on the need for repeal, said spokesman Austin Vevurka. California’s two Democratic senators also have pressed the case.

“Our nation’s rural communities, farmers and businesses simply cannot afford to suffer retaliatory tariffs,” U.S. Sens. Dianne Feinstein and Barbara Boxer wrote in a Dec. 1 letter to Senate leaders.

The dispute likely would have significant ramifications for the North Coast wine industry. Canada has become the largest single market for American wine, 90 percent of which is produced in California. In 2014, the retail value of U.S. wine shipped to Canada was about $487 million, up 7 percent from 2013, according to the Wine Institute. About $24 million in American wine was shipped to Mexico last year.

“Retaliation by Canada and Mexico would set our wine exports back decades and cost billions of dollars in lost sales over time,” said Robert P. Koch, president and CEO of the Wine Institute.

American vintners have found it difficult to penetrate the Canadian market, even though the two countries are part of the North American Free Trade Agreement. One dispute occurred last year when the province of British Columbia decided to allow its grocery stores to sell wine, but only products produced in the province.

“We don’t have access to the grocery stores at all,” LaFaille said. “It’s a complete violation of NAFTA.”

The Wine Institute has raised the issue with the office of the U.S. Trade Representative, which on June 15 issued a statement saying it was “deeply troubled by recent changes” in the British Columbia law. The next day, it raised the issue with Canadian officials in a meeting on agricultural issues.

In addition, Canada has allowed its provincial liquor control boards considerable latitude to levy markups on alcohol products that come into the country, making imports much more expensive.

“It’s a tough market,” LaFaille said. “But our brands do well in Canada.”

Steve Goldfarb, owner of Anomaly Vineyards in St. Helena, said the cost to ship wine to Canada directly to a customer will double the retail price of his wines, making them unaffordable for many Canadians who visit his winery.

Anomaly Vineyards, which produces 1,200 cases annually, is too small to receive sufficient attention from Canadian distributors. That leaves direct-to-consumer sales as the only option.

“We have Canadians who want to buy our wine,” Goldfarb said. “It’s just so much more expensive.”

You can reach Staff Writer Bill Swindell at 521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.