Abstract
Economic analysis of import tariffs in the wine markets of China and the Republic of Korea
Summary
The Australian wine grape industry has expanded significantly over the past two decades, with wine grape production growing, on average, by 8 per cent a year (ABS 2011). Between 1990–91 and 2010–11 the volume and gross value of wine production tripled. The industry’s development was largely driven by a steadily increasing demand for Australian wine in export markets. By 2010–11, Australia exported wine to 123 countries and held a 7 per cent share of the global wine trade (UN Comtrade 2012; Wine Australia 2011). Wine exports in 2010–11 were 727 million litres, with an estimated value of $2 billion — around 6 per cent of the total value of Australia’s agricultural exports (ABARES 2011).
Over the past five years, global competition for imported wine has increased significantly. This has placed downward pressure on the price of both wine and wine grapes. Looking ahead, it is expected the Australian wine industry will continue to face strong competition in both the domestic and traditional export markets. However, while demand in Australia’s traditional wine markets is not expected to increase significantly in the foreseeable future, in new and emerging markets, such as China and the Republic of Korea, the prospects could be different.
The value of Australian wine exports to China grew by 58 per cent a year, on average, between 2001–02 and 2010–11. For the Republic of Korea, a much smaller market, the value of Australian wine exports increased more than five-fold between 2001–02 and its peak in
2007–08, when it climbed from $3 million to $16 million (in constant 2010–11 dollars). Following the global financial crisis, total Korean wine imports from all countries fell significantly, although Australia maintained its market share in value terms. Australia’s export growth to these markets has been achieved despite an applied import tariff on Australian wine by both countries.
While Australian wine remains subject to import tariffs by China and the Republic of Korea, China has negotiated a free trade agreement (FTA) with Chile and New Zealand. This has resulted in a negotiated phase-out of the tariffs on wine imported from these countries. Under their respective FTAs, a zero tariff rate has been applied to New Zealand wine imports as of
1 January 2012 and will be applied to Chilean wine imports as of 1 January 2015. The existing FTA between the Republic of Korea and Chile, which was signed in 2005, now applies a zero tariff rate to wine imports from Chile. Exports of wine from Chile and New Zealand to both China and the Republic of Korea have increased markedly since the FTAs were negotiated.
In this analysis, estimates of the benefit to the Australian wine sector of a similar FTA arrangement with China and the Republic of Korea are presented. In the case of China, it is estimated that if the applied tariffs on imported Australian wine were reduced to zero, the total value of Australian wine imports by China would increase by between $13 million and
$32 million compared with the base year. For the Republic of Korea, it is estimated that a
similar tariff cut would increase the total value of imported Australian wine in that market by between $630 000 and $1 million relative to the base year.