French Cognac Producers Favor Price Commitments Over Hefty Tariffs in China Trade Deal

• Why Are Cognac Makers Choosing Price Controls Over Tariffs?
• How Did the Cognac Trade War Develop?
• What Does This Mean for Cognac Pricing?
• Who Wins and Loses in This Trade Compromise?
• How Are Markets Reacting to the Cognac Deal?
• What's Next for EU-China Trade Relations?
• Frequently Asked Questions

In a landmark trade development, major French cognac houses have struck a deal with Chinese authorities to implement minimum import prices rather than face potentially crippling anti-dumping tariffs. The agreement comes after months of tense negotiations and a 70% plunge in cognac exports to China since the tariff dispute began. While smaller producers face challenges, industry giants like Hennessy and Rémy Martin secured exemptions by committing to undisclosed price floors. This complex arrangement reflects the delicate balance in EU-China trade relations, particularly amid ongoing disputes over electric vehicles and rare earth minerals.

Why Are Cognac Makers Choosing Price Controls Over Tariffs?

The Chinese Ministry of Commerce's anti-dumping investigation, launched in January 2024 as what many saw as retaliation for EU tariffs on Chinese EVs, resulted in a surprising compromise. Rather than imposing blanket tariffs ranging up to 25%, authorities offered producers an alternative: commit to minimum selling prices in China. For major brands like LVMH-owned Hennessy and Pernod Ricard's Martell, this represented "a substantially less punitive alternative," as Rémy Cointreau stated. The deal allows these producers to avoid tariffs completely if they maintain prices above secret thresholds. Smaller producers in France's Charente region, however, continue struggling with cash Flow issues from earlier provisional tariffs that required millions in security deposits. Industry group BNIC called the price agreement "less unfavorable" than outright tariffs but still worse than pre-investigation conditions.

How Did the Cognac Trade War Develop?

The roots of the dispute trace back to the EU's steep tariffs on Chinese electric vehicles, prompting Beijing to target one of France's most symbolic exports. Monthly cognac shipments to China - normally worth $3 billion annually - plummeted up to 70% after provisional tariffs took effect in October 2024. "We found ourselves caught in a broader trade conflict," admitted a Pernod Ricard executive. The investigation's timing coincided with Chinese Foreign Minister Wang Yi's European tour preparing for this month's EU-China summit, where trade issues top the agenda. Interestingly, the final tariff rates (ranging from 5-25% based on brandy type and origin) won't apply to major producers complying with price commitments - a concession reportedly linked to progress in the parallel EV tariff negotiations.

What Does This Mean for Cognac Pricing?

While exact minimum prices remain undisclosed, industry analysts suggest consumers might see modest price increases for certain cognac labels. Retailers may absorb some hikes to protect margins, but distillers view the deal as crucial for maintaining profitability. "Even small increases can help safeguard producer earnings in this volatile market," noted a BTCC market analyst. TradingView data shows French spirits stocks reacted mixedly: Rémy Cointreau shares rose 0.54% on the news, while LVMH dipped 1.5%. The agreement also releases millions in tied-up working capital from provisional tariff deposits - a key demand from French negotiators. However, an EU spokesperson criticized the arrangement as "unfair and unjustified," reflecting ongoing tensions.

Who Wins and Loses in This Trade Compromise?

The clear winners appear to be major cognac conglomerates who avoided worst-case tariff scenarios. Rémy Cointreau praised the deal for supporting "certain investment strengthening in China," while Pernod Ricard acknowledged higher costs but noted they're preferable to permanent tariffs. Smaller producers face tougher conditions, particularly family-owned vineyards in Charente struggling with the 70% export drop. Meanwhile, Chinese authorities gain leverage in broader trade talks while appearing flexible to foreign businesses. The BNIC continues pushing French and EU officials to negotiate complete tariff removal. As one industry source anonymously revealed: "Neither side wanted things spiraling out of control. They wanted a solution." This delicate compromise may set precedents for resolving other EU-China trade disputes.

How Are Markets Reacting to the Cognac Deal?

Financial markets showed cautious optimism. After initial volatility, Rémy Cointreau stabilized with a 0.54% gain, while Pernod Ricard recovered from early losses to close just 0.3% down. LVMH's broader portfolio limited its 1.5% decline. However, CoinGlass data reveals European spirits companies face headwinds in the U.S. market, where inflation continues dampening demand for premium liquors. Former President Trump's threats of EU import tariffs add another LAYER of uncertainty. Industry watchers suggest the price commitment deal might gradually boost some brands' premium positioning, though it's too early to predict shelf price impacts. As one London-based analyst quipped: "At least they're still arguing about the price of cognac - that beats not selling it at all."

What's Next for EU-China Trade Relations?

This cognac agreement arrives as both blocs prepare for high-stakes talks on electric vehicles and critical minerals. The deal's structure - linking tariff relief to price commitments - could model solutions for other sectors. However, fundamental tensions remain. As the BTCC team observes, "The cognac case shows both sides' willingness to find face-saving compromises, but Core disagreements on subsidies and market access persist." With China's cognac imports still down dramatically and French producers accepting lower margins, the long-term trade balance remains uncertain. One thing's clear: in global trade wars, even 300-year-old luxury alcohol brands must adapt to new realities.

Frequently Asked Questions

What triggered China's cognac tariff investigation?

China launched its anti-dumping probe in January 2024, widely seen as retaliation for EU tariffs on Chinese electric vehicles. The investigation lasted over a year before resulting in the new price commitment system.

How much have cognac exports to China fallen?

According to BNIC data, monthly cognac exports to China dropped by up to 70% after provisional tariffs were imposed in October 2024, representing billions in lost trade for French producers.

Which cognac brands are exempt from tariffs?

Major producers like Hennessy (LVMH), Martell (Pernod Ricard), Courvoisier, and Rémy Martin can avoid tariffs entirely by maintaining sales above undisclosed minimum price thresholds in China.

Will cognac become more expensive in China?

Industry sources suggest modest price increases may occur for some brands, though it's unclear how much will be absorbed by retailers versus passed to consumers.

How did cognac company stocks react?

Markets showed mixed reactions: Rémy Cointreau shares ROSE 0.54%, Pernod Ricard fell 0.3%, and LVMH declined 1.5% following the announcement.