The Secret Loophole Boosting American Wine Sales in China

American wines are quietly expanding their market in China despite heavy tariffs, thanks to a little-known tax reprieve that allows importers and wineries to slash punitive tariffs by nearly half. This strategic advantage has led to a surge in American wine imports, defying the odds posed by the U.S.-China trade war.

According to the latest Chinese customs data, the import volume and value of American bottled wine (in containers of 2 liters or less) increased significantly in June, up 186.04% and 390.48% respectively compared to the same period last year. This trend is not isolated; in April, the import volume and value of American wine also saw a year-on-year increase of 94.19% and 136.93%.

The U.S.-China trade war, which began in 2018, led to a 54% tariff on American wine entering China. Combined with consumption and value-added taxes, a bottle of American wine is levied with a tax rate of about 93.35% upon clearance, far higher than the previous 14% import tariff rate and 43% total tax rate. Consequently, after 2019, American wines, including those from Napa Valley, began to gradually reduce their presence in the Chinese market.

However, unlike Australian wine, which almost completely disappeared after being subjected to up to 218% punitive tariffs, American wine hasn’t lost much of its footing.

Why 29%?

A source from a long-established large wine importer in Shanghai who wished to remain anonymous told Vino Joy News that by applying for a tax reprieve, the tariff on American wine can be reduced from the existing 54% to 29%, bringing the comprehensive tax rate down to 61.97%, making the tax burden of American wine more acceptable. This importer has been using this tax rate to import American wines and represents a leading American wine brand for mainland China.

Shanghai Fuga Wines Co., Ltd., one of China’s top 50 wine importers specializing in boxed wines, also imports American wines via this special channel. The company imports the popular boxed wine brand Franzia for China. General Manager Tao Xin stated that after such clearance, their boxed wine incurs a comprehensive tax rate of around 70%, lower than 93.35%. (Note: the tariff for wine in 2L-10L packaging is slightly higher than that for wine in containers of 2L or less.)

Upon investigation, Vino Joy News found that the Chinese customs website indeed lists two tax rates for American wines: 29% and 54%.

The 29% tariff stems from China’s termination of the most-favored-nation (MFN) treatment for products including wine in April 2018 in response to U.S. Section 232 measures on steel and aluminum products. This added a 15% additional tariff to the existing 14% import tariff, totaling 29%.

The 54% tariff results from China’s retaliatory tariffs on U.S. Section 301 measures, with three increments of 10%, 25%, and 10%, totaling 45%. In 2020, as the U.S. reduced some tariffs on Chinese products, China correspondingly reduced 5%, making it 40%. Combined with the 14% existing import tariff, the total amounted to 54%.

How to Apply for Lower Tariffs

So, the big question is how to apply for the lower 29% tariff.

According to a post by an international trade company, if a company applies for a market-based procurement exclusion number, customs will impose a 29% tariff on the wine instead of 54%.

According to the Chinese Ministry of Finance, in 2020, China implemented market-based procurement exclusions for U.S. tariffed goods. Eligible imported goods purchased from the U.S. under market and commercial principles are exempt from additional tariffs imposed due to the trade war for a certain period. Companies can fill out procurement plans on the ministry website at gszx.mof.gov.cn, then submit exclusion applications to receive designated exclusion numbers.

However, Vino Joy News did not find wine listed on the exclusion list published by the Ministry of Finance. When we called the ministry to inquire about wine tariffs, the customer service representative said they were unclear about the specific tariff on wine but advised applying for exclusion. When asked if products not listed on the exclusion list could be excluded, they suggested trying to apply regardless.

The aforementioned leading wine importer in Shanghai told Vino Joy News that if wineries or merchants are daunted by the complicated application process, there are agencies that could help apply for exclusion, and all American wine imports could apply.

We encourage anyone who’s interested in establishing a foothold in China to apply for tariff reprieve through the aforementioned website.