Remy, Pernod Get Breathing Room as China Lays Ground for Duties

Sabah Meddings
·3-min read

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Remy Cointreau SA and Pernod Ricard SA got a temporary boost to their shares after China said it won’t immediately impose duties on brandy from the European Union, but Beijing signaled that stiff penalties may lie ahead for the sector.

Chinese authorities began an anti-dumping investigation into brandy makers after the EU started looking into electric vehicle subsidies. Although China said it found evidence of dumping in a preliminary probe, it stopped short of levying duties, a sign Beijing sees room for negotiations with the EU over various trade issues spanning multiple industries.

Remy, Pernod and other premium spirits makers have been grappling with sluggish demand in China and the US after the pandemic-era boom fizzled — a slowdown that has dragged on longer than some producers anticipated.

Pernod, which published full-year earnings Thursday, said its outlook for the current quarter remains soft, but that it sees a pickup later on and expects to return to growth this fiscal year. No matter what happens with regard to the probe, “China remains a long-term very important opportunity for us,” Chief Executive Officer Alexandre Ricard said in an interview.

“Obviously we are disappointed,” he said. “We still fundamentally believe we are not dumping our Cognac in China. That being said, we continue to fully cooperate with the authorities.”

Shares of Pernod, which produces Martell Cognac, and Remy, the maker of Remy Martin, gave up ground in the afternoon after rising as much as 12.3% and 9.7%, respectively, earlier in the day.

China’s commerce ministry, in its report on the probe Thursday, said the dumping of brandy from the EU has helped increase its market share in China to more than 50%, hurting domestic producers. Such practices have also kept inventories at elevated levels, damaging the domestic industry, it said.

Extended Probe

Although Remy, Pernod and other producers sidestepped duties for now, that doesn’t mean they’re out of the woods. Similar probes typically take a year or more, so China could still put measures into effect at a later date.

If the brandy duties, averaging 34.8%, go into effect, they’d “constitute an unjustified market access barrier,” according to Ulrich Adam, director-general of lobby group SpiritsEurope.

Meanwhile, the EU has pushed ahead with plans to impose tariffs on Chinese EVs. The bloc is set to publish a final regulation on those levies by Oct. 30 unless the two sides reach a negotiated solution. China has threatened to retaliate with duties of its own on a range of sectors, also including pork and cars with large engines.

“Our sector seems to be a collateral victim of a broader trade conflict, which will limit the access of Chinese consumers to products they greatly value and appreciate, if not resolved as a matter of priority,” Adam said in a statement.

The European Commission said the merits of China’s probe are questionable and that the bloc’s Cognac exports are in line with all World Trade Organization rules.

“The commission will therefore follow the investigation carefully to ensure WTO rules are being followed, examining in detail the basis of these measures and will not hesitate to take all necessary actions to defend EU exporters,” spokesperson Olof Gill said in an emailed statement.

--With assistance from Dong Lyu and Jorge Valero.

(Updates with SpiritsEurope comment)

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