On August 29, the Ministry of Commerce issued the 35th announcement of the year, revealing the preliminary determination of the anti-dumping investigation on imported cognacs from the European Union (EU). The determination found that imported cognacs originating from the EU were being dumped, and the domestic cognac industry was under a threat of substantial injury, with a causal link between the dumping and the threat of substantial injury. The dumping margins identified in the preliminary determination range from 30.6% to 39.0%.

The announcement also stated that no provisional anti-dumping measures will be taken in this case for the time being.

Upon reviewing the relevant attachments to the announcement, the First Financial Daily reporter found that the sampled companies involved include Martell & Co. (30.6%), Hennessy & Co. (39.0%), and E. Rémy Martin & Co. (38.1%).

The announcement further stated that all interested parties may submit written comments to the investigating authority within 10 days from the date of publication of this announcement.

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Zhao Yongsheng, a researcher at the Institute of National Openness to the Outside World, University of International Business and Economics, and a doctoral supervisor at the Sorbonne University in Paris, told the First Financial Daily reporter that the companies involved in this round are mainly French enterprises within the EU member states. For instance, cognac must be a grape brandy distilled in the Cognac region of France, which is exclusive to France.

Existence of Dumping in Preliminary Determination

According to the provisions of the Anti-Dumping Regulations of the People's Republic of China (hereinafter referred to as the "Anti-Dumping Regulations"), on January 5, 2024, the Ministry of Commerce (hereinafter referred to as the "investigating authority") issued the 1st announcement of 2024, deciding to conduct an anti-dumping investigation on distilled spirits (hereinafter referred to as "the investigated products" or "the relevant cognacs") made from distilled wine imported from the EU in containers of less than 200 liters.

The investigating authority conducted an investigation into whether the investigated products were being dumped and the extent of the dumping, whether the investigated products caused injury to the domestic industry and the degree of injury, as well as the causal link between the dumping and the injury.

Based on the results of the investigation and in accordance with Article 24 of the Anti-Dumping Regulations, the investigating authority made a preliminary determination. The investigating authority preliminarily determined that the imported relevant cognacs originating from the EU were being dumped, and the domestic cognac industry was under a threat of substantial injury, with a causal link between the dumping and the threat of substantial injury.

As mentioned earlier, the dumping margins determined in the preliminary determination vary from 30.6% to 39.0%. In addition to the three sampled companies mentioned above, the dumping margins for other companies that cooperated with the investigation are 34.8%, and for other EU companies, it is 39.0%.Furthermore, according to the First Financial Daily reporter's review of the document "Preliminary Determination of the Ministry of Commerce of the People's Republic of China on the Anti-dumping Investigation of Certain Brandies Imported from the European Union" (hereinafter referred to as "Provisional Determination"), during the period of injury investigation, the import volume of dumped products has consistently accounted for more than 97.5% of the total import volume of related brandies in China, with the European Union being the most important source of China's import of related brandies. From January to September 2023, the import volume of dumped products increased by 22.79% year-on-year, significantly higher than the 10.71% growth in domestic demand for related brandies during the same period.

The "Provisional Determination" document indicates that the dumped products have maintained an overall increasing trend in their share of the Chinese domestic market, exceeding 50% by the end of the injury investigation period, with a cumulative increase of 8.78 percentage points from the beginning of the period.

At the same time, the market share of domestic industry's similar products has significantly decreased during the injury investigation period. In the Chinese market for related brandies, dumped imported products are the main competitors of domestic industry's similar products.

The survey shows a zero-sum relationship between the two. The data above indicates that the import volume of dumped products has been increasing during the injury investigation period, and has grown substantially by the end of the investigation, suggesting that the dumping imports are likely to continue to increase substantially.

China is the second-largest export market for the French cognac industry after the United States, according to data from the French Cognac Management Institute BNIC.

Following the announcement, Ulrich Adam, Secretary General of the European Spirits Association, stated that if tariffs are imposed, it would adversely affect the EU's exports of wine and almond-based spirits to China, which account for the vast majority (about 90%) of the EU's direct spirits exports to China. "The only glimmer of hope at this stage is not to impose provisional tariffs," he said.

Remy Cointreau, the company that produces "Rémy Martin" and "Louis XIII" cognacs, issued a statement following the announcement, in which it stated that the decision is referred to as a "preliminary" decision and does not come with "provisional measures," meaning that the final tariffs announced after the investigation may differ from those just announced, or may not be applicable.

The statement said that at this stage, it is necessary to wait for the final decision of the Ministry of Commerce to assess the potential future impact, and to continue to cooperate with Chinese authorities until the investigation is concluded. Meanwhile, the group is also continuing to evaluate various options and opportunities for development to mitigate the negative impact of the Ministry of Commerce's final decision.

"China has been a long-term trading partner for the 'Louis XIII' and 'Rémy Martin' brands, and for decades, the 'Louis XIII' and 'Rémy Martin' brands have enjoyed high visibility and reputation in China. Therefore, the group will continue to invest in China in preparation for future development," the statement said.Zhao Yongsheng told the First Financial reporter that the characteristics of this brandy case are as follows: First, there are more French companies involved in the investigated enterprises. According to media reports, more than 99% of European imported brandy comes from France; second, the overall amount involved in the brandy investigation is relatively small compared to other industries, and brandy, especially cognac, is a high-priced and "niche" product with a relatively narrow audience in China.

At the regular press conference in January, in response to the question "More than 99% of European imported brandy comes from France, why is this investigation aimed at France?", the spokesperson for the Ministry of Commerce, Shu Juting, emphasized that the case was initiated due to an application from the domestic industry in China.

Shu Juting stated that in this case, the scope of the investigation applied for by the domestic industry is the relevant brandy imported from the EU. As the investigating authority, after receiving the application submitted by the domestic industry, the Ministry of Commerce conducted a legal review of the materials and evidence submitted by the applicant, and believed that the application met the conditions for initiating an anti-dumping investigation, deciding to launch the investigation.