China’s dumping probe into EU brandy seen as nothing more than low-impact warning shot

By hitting the EU with an antidumping investigation against its brandy exports, China made clear that it’s ready for a fight. But because of its small magnitude, the warning shot is unlikely to prompt the EU to soften its stance against Chinese trade practices that are harming critical European industries.

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10 January 2024
By Joanna Sopinska

China has made it clear that it is ready to confront Brussels over its decision to target Chinese trade practices that hurt EU industry by hitting the bloc with an antidumping investigation against its brandy exports.

But because of its small magnitude, the warning shot is unlikely to prompt the EU to soften its stance.

China’s Commerce Ministry last week opened an investigation into imports of certain brandy products from the EU, after receiving a complaint from the China Alcoholic Drinks Association about unfairly priced imports from the bloc.

The move is widely seen as retaliation for the EU countervailing probe into imports of Chinese battery electric vehicles, which the bloc opened in October 2023. Trade experts were then warning that by going after the Chinese EV subsidies, the bloc is exposing itself to a punitive response from Beijing.

They pointed to France as the most likely target, after the French government had openly lobbied the European Commission to take action against unfairly subsidized Chinese imports.

“The investigation almost certainly responds to the EU's probes into China's EV and other clean-tech products, as well as French lobbying of the commission to that end,” David Kleimann, a trade expert at think tank Bruegel, told MLex. Paris is also understood to be seeking an EU probe into imports of cheap Chinese solar panels, which hinder the growth of EU production.

By choosing cognac and brandy — spirits that are almost exclusively made in France — China decided to strike Paris with a very precise blow, and send a clear signal to other hawkish EU governments that they might be next in line for retaliation.

The EU exported spirits worth 875 million euros ($960 million) to China in 2022, according to lobby group SpiritsEurope. Almost 90 percent of those exports were grape-based spirits such as brandy and cognac, and almost all of them were made in France.

The retaliation, which is seen as part of China’s divide-and-rule tactic, hasn’t surprised trade experts. “On cognac and brandy, my comment is: ‘plus ça change, plus c’est la même chose,’ Bernard O’Connor for O’Connor & Company European Lawyers told MLex, referring to the old saying “the more things change, the more they stay the same.”

Over the past 10 years, China has increasingly used punitive duties as a tool of retaliation or economic coercion. In 2020, it imposed hefty countervailing and dumping duties on imports of Australian barley, after the government requested an international investigation into China’s involvement in the Covid-19 outbreak. The probe against brandy has been the first since the 2019 Chinese investigation targeting EU imports.

Low-impact move

For many trade experts, China’s probe looks like a symbolic gesture, rather than a serious declaration of war.

“What's interesting to note is that this case is a rather small one [in terms of its economic impact]. It will not really hurt French exports overall, nor Chinese consumers,” Victor Crochet, a lawyer for Van Bael & Bellis, told MLex.

“The brandy probe should be considered more as a low-impact warning shot to deter further investigations that are being considered in Brussels at the moment, rather than a full-blown retaliatory response," Kleimann agrees.

Crochet also argues that China might want to escalate later on, by opening a more impactful case against the EU. The brandy probe “seems targeted at giving a political message to the EU that a bigger case could be coming. In my opinion, a larger case — such as on imports of table wine — could be coming later this year as the situation develops.”

O’Connor disagrees, suggesting that China’s move doesn’t herald escalation. “I do not believe that China is seeking to start, or escalate, a trade war. This is a signal, not a declaration of war, as China’s action remains, even if at a stretch, within the confines of normal trade-defense investigations.”

EU ready to push back

There is a feeling in Brussels that if China nevertheless decides to go for a trade war, the EU won’t cave in. It’s understood that the commission has the backing of the largest EU countries — including Germany, France, Italy, Spain and Poland — to stay its course.

“I do not think this case will deter the EU from opening new trade-defense investigations, or that it can change its approach to the EVs case,” Crochet said.

There has been growing pressure on the EU to protect sectors critical for the bloc's green transition from unfairly priced Chinese imports that undercut domestic production. The EV probe shows that the EU is ready to act decisively, despite a threat of retaliation from Beijing.

“At a political level, the EU seems determined to go down that road for the time being, and until the pressure from domestic industries is strong enough, the EU will not change course,” Crochet said.

One could ask if Beijing has any appetite for escalation. “China is dealing with weak domestic economic performance and the imminent threat of another Trump presidency. These are factors to be considered when deciding to wage a trade war with the EU,” Kleimann said.

The coming months will show whether the warning shot fired by China would lead to escalation, which in turn could put the EU’s unity to the test and its resolve to stand up to its biggest trading partner.

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