China has imposed taxes on imports of European brandy, a move that France says is retaliation for recent significant tariffs announced by the EU on Chinese electric vehicles.
The European Commission said it would challenge the Chinese tax at the World Trade Organization (WTO), calling it an “abuse” of trade defense measures.
But China said it was an “anti-dumping” measure intended to protect its domestic producers.
French brandy producers said the duties, which would hit big brands like Hennessy and Remy Martin, would be “catastrophic” for the industry.
Shares of brandy companies fell after the announcement.
China announced new restrictions on European brandy just days after EU countries approved high tariffs on Chinese-made electric vehicles.
China's Ministry of Commerce said brandy imports threaten to “cause substantial damage” to its own producers. Importers will have to pay “security deposits” for European brandy.
China is also considering new tariffs on other EU imports, including cars, pork and dairy products.
He said EU tariffs on its electric vehicles were a violation of global trade rules.
French Trade Minister Sophie Primas said the brandy tax “appears to be a retaliatory measure” after the European Union's decision to increase tariffs on Chinese electric cars.
She said this type of retaliation would be “unacceptable” and constitute a “total contradiction” with international trade rules, adding that France would work with the European Union to take action at the WTO.
France accounts for 99% of brandy exported to China, and French cognac lobby group BNIC said the move would be “catastrophic” for the industry.
“The French authorities cannot abandon us and leave us alone in the face of Chinese reprisals which have nothing to do with us,” the BNIC said, adding that the taxes “must be suspended before it is too late.” .
Shares of companies that sell spirits were hit hard after the Chinese announcement.
Luxury company LVMH, which produces Hennessy, fell more than 3%, while Rémy Cointreau, which makes Rémy Martin, fell more than 8%.
Jefferies analysts estimate the tariffs could result in a 20% price increase for consumers, which would likely cause volumes and supplier sales to fall by a fifth.
Shares of German automakers, which could also be hit by Chinese tariffs, also fell.
Volkswagen, Porsche, Mercedes-Benz and BMW were all down after the announcement.
