Pride and protection

27 June, 2018

Protectionism. It's a word that has been beyond the pale in the mainstream discussion of politics and economics of the past 30 years.

The consensus has been that free trade won the argument – along with liberal democracy – when the Berlin Wall came down and we reached, in the words of American political scientist Francis Fukuyama, “the end of history” circa 1992.

The chaotic arrival of Trump and his MAGA philosophy (if it’s possible to dignify Trump’s random thought-burps with such a word) in the Oval Office last year have changed all that. As I write, the Trump administration has just announced the imposition of tariffs of 25% on steel imports and 10% on aluminium, throwing out, according to the Financial Times, “decades of orthodoxy and what had became an American mantra about the pitfalls of protectionism”.

Whether these populist policies will help arrest the seemingly terminal decline of American steel is a question, you’ll be pleased to read, that is well beyond the scope of this article. But, Trump’s move – along with the implications of Britain’s exit from the EU and the recent signing, by 11 Pacific nations, including Australia, Japan and Chile (but not, thanks to Trump, the US) ,of the trade deal formerly known as Trans-Pacific Partnership – has got me thinking about how protectionism and its opposite play out in the wine world.

The attractions of tariff-free trade are obvious for a country that produces far more than its domestic market can possibly consume, such as Australia. Between them, Australian wine exporters paid more than €40m in import duty in the UK alone, according to Australian government figures, while sales to China have more than doubled since a free trade agreement between the two nations reduced tariffs from 20% to 3% in 2015. No wonder the Winemakers’ Federation of Australia was licking its lips at the prospect of tariffs going from 15% to zero in an established market such as Japan – and from a remarkable 59% to zero in Vietnam – over the next decade thanks to the TPP.

Chilean wine has also benefited enormously from tariff-free access to the EU since a comprehensive FTA came into effect in 2003, a period during which its market share in the EU has far outstripped that of tariff-laden neighbour Argentina, despite the latter’s Malbec-inspired boom.

Of course, when it comes to the EU, the trading playing field is never entirely level. Although they may be unevenly distributed across the 27 (post-Brexit) nations, EU subsidies amount to a powerful form of state aid when viewed by producers from outside the bloc. According to a 2016 study published in the Journal of Wine Economics, EU subsidies amounted to €700 per hectare, or 15 euro cents per bottle, in 2011 and 2012. In a market where the average bottle price is only just nudging €7, that’s quite a competitive advantage.

In other ways, however, the EU shows how the argument between protectionists and free-trade purists can sometimes seem overplayed, if not irrelevant, when it comes to wine. Certainly, there’s no tariff–barrier keeping the wines of Chianti off the shelves of Bordeaux’s supermarkets, or Rioja off restaurant lists in Naples. In the wine-producing regions of southern Europe, there’s a different form of protectionism going on, one that no amount of free-trade philosophy can get around: it’s called regional pride.





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Dominic Roskrow

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