California wine industry expected to benefit from Trans-Pacific Partnership

The North Coast wine industry likely stands to benefit from a trade pact that was reached early Monday by the United States and 11 other Pacific Rim countries writing new commerce rules for nearly 40 percent of the world’s gross domestic product.

The pact, known as the Trans-Pacific Partnership, eventually would end more than 18,000 tariffs that the participating countries have placed on U.S. exports, including autos, machinery, technology, consumer goods, chemicals and agricultural products as varied as avocados from California and wheat, pork and beef from the Plains states.

The agreement now goes to Congress, which must ratify the pact before it takes effect.

Most notably, local vintners could see lower tariffs from Japan, the third-largest export market for American wines last year at $88 million, according to the Wine Institute, which represents California producers.

Without the pact, American wine producers would be at a disadvantage in Japan, which previously struck trade deals with rivals Australia and Chile. Japan’s agreement with Chile will end tariffs in 2019, while its deal with Australia eliminates a 15 percent tariff on bottled Australian wine over the next seven years, said Tom LaFaille, vice president and international trade counsel for the Wine Institute. All three countries are part of the new trade agreement reached Monday, as well as New Zealand, another large wine-producing country.

“We make the best wines in the world and we really need to compete on a level playing field,” LaFaille said.

American negotiators have not released details of the massive agreement, including the size and pace of the tariff rollbacks on U.S. products. But Canada publicly noted that Japanese tariffs on wine, sparkling wine and icewine made in Canada will be eliminated over 10 years.

“We’re cautiously optimistic that the tariff phaseout period will be beneficial to California wine exports,” LaFaille said.

American wine producers are hopeful the trade pact will lead to great exports to Japan, much like the jump in sales that occurred in South Korea following a 2012 free trade agreement. Over the past three years, U.S. wine and beer exports to South Korea have increased from $18 million to $30 million.

The Japanese market should be ripe for American wines, which have gained market share around the world over the past two decades as their reputation for quality has grown, led by brands from Napa and Sonoma.

Since the end of the 1990s, U.S. wine exports have increased by more than 50 percent in volume, while over the same period, French wine exports have fallen almost 20 percent in volume, said Damien Wilson, Hamel Family Faculty Chair in Wine Business at Sonoma State University.

As exports have grown, American vintners also have been able to sell higher-priced wines overseas. The average price of U.S. wine at $5.42 per liter has almost reached parity with that of France at $5.46 per liter, Wilson said.

In addition to seeking a reduction in tariffs, the U.S. wine industry had argued for other items as well during the trade negotiations. It wanted to streamline cross-border transactions and create additional protections for label-of-origin standards, which have been a big concern with foreign competitors who occasionally mislabel wines from California or Napa that are produced in other areas, LaFaille said.

Vintners also argued for protections that would give them a right to use traditional terms as part of a winery’s marketing as long as they didn’t convey a specific place. The issue has been a source of concern after the French raised objections over American use of words such as “chateau” and “clos.”

“They tried to do that in Korea, but fortunately we addressed that with the U.S.-Korea agreement,” LaFaille said.

The Obama administration highlighted the benefits for the North Bay when U.S. Trade Representative Michael Froman visited the area in March and toured Amy’s Kitchen, which was expecting to export about $15 million in products to 25 countries this year.

The wine industry will likely be the major local beneficiary of the deal, though others are keeping notice. Marcus Benedetti, CEO of Clover Stornetta Farms, a major dairy processor in Petaluma, said his business does very little in exports given dairy is a very perishable product. But it does a small sliver as some of its organic milk is air-freighted by a third party out of San Francisco International Airport and then sold in four Asian countries for up to $14 a quart. One of those countries, Malaysia, is signatory to the pact.

“Our industry in California has not done a lot in emerging markets,” Benedetti said.