Wines & Vines / March 1996
By Larry Luxner
WASHINGTON -- Bringing Chile into the North American Free Trade Agreement could spell disaster for the U.S. wine industry, say lobbyists who oppose any further reductions of U.S. tariffs on Chilean wines as part of Chile's accession to NAFTA.
Bob Kalik, president of the Washington-based American Vintners Assocation, warns that a free-trade agreement which includes Chile but lacks protection for domestic growers would cause a "crisis" because of the added competition from South America.
"There isn't going to be one additional drop of American wine sold in Chile as a result of the free trade agreement," said Kalik, whose organization represents 450 wineries in 38 states, or close to 50% by volume of all wine produced in the United States.
"It's not just a bottled-wine issue, it's a vineyard issue. It will have a strong effect on bulk importations as well as grape importations," he said in an interview here. Kalik added that "there's an unequal phase-in of the NAFTA provisions as they pertain to wine. Chile and Mexico have a free-trade agreement that gives Chile a more favorable entry into Mexico than the U.S. has. We have called for a correction to the problems the wine industry has with Mexico before any agreement with Chile is negotiated."
In a letter last year to the U.S. Trade Representative's Office, the Wine Institute -- based in San Francisco -- argued that "including wine in a free-trade agreement with Chile would be highly asymmetrical in Chile's favor. Given the dynamics, the United States wine industry would bear the extreme adverse consequences, while Chilean wine producers would enjoy the benefits."
Between 1981 and 1992, Chile's wine exports grew 17-fold. Its exports now stand at more than $120 million annually, with about 25% of that going to the United States. According to Roger Turner of the U.S. Commerce Department, Chile exported $40.6 million worth of wine to the United States in 1994 -- up from $34.0 million in 1993. And from 1991 to 1993, Chile's wine-grape acreage increased from 146,000 to 173,000 acres. California wine-grape acreage, on the other hand, comes to around 415,000 acres.
Lobbyists also point out that the price of land in Chile's grape-growing regions is a fraction of similar land in the United States. According to industry statistics, the average acre of vineyard in California's prime wine region sells for between $25,000 and $40,000, while a comparable acre in Chile costs betweeen $750 and $4,000.
Finally, labor costs in Chile are vastly lower than in the United States ($8 a day with no benefits in Chile, compared to $8-16 an hour with benefits in California), as are production costs. And Chilean vintners don't have to content with phylloxera and Pierce's Disease, as do their California counterparts.
Bob Hartzell, president of the California Wine Grape Growers Association, said that for all these reasons, wine shouldn't be included any free-trade agreement with Chile.
"There are absolutely no opportunities for the American wine industry in Chile," said Hartzell in a phone interview from Sacramento. "Frankly, the administration can do all the negotiating it wants, but we didn't find any strong feeling among members of Congress to give the president fast-track authority."
Yet for the time being, Hartzell may not have much to worry about. Chile is extremely unlikely to join NAFTA in 1996 -- despite a last-ditch lobbying effort by two Washington law firms and the Chilean-American Chamber of Commerce. In fact, Latin America's strongest economy is unlikely to see any progress toward NAFTA membership until 1997, long after U.S. elections are over. That's because the Chilean government won't negotiate until Clinton receives fast-track authority from Congress to do so, and many lawmakers from both parties question the wisdom of extending NAFTA benefits to other countries following Mexico's peso collapse.
Chilean President Eduardo Frei, who's been pushing hard for NAFTA member-ship, says he's disappointed, but that "the delay represents an internal political dispute in the United States, within which the Chilean government does not play any role." Tired of waiting for Washington to get its act together, Chile has decided to forge its own free-trade agreement with Canada -- without U.S. participation.
Says Hartzell: "We get the strong attitude that until NAFTA -- particularly the situation with Mexico -- works itself into a smoother operation, there seems to be resistance to expanding NAFTA."
Yet Hartzell says his members are still angry that the administration "has not kept its promise to enter into negotiations with Mexico to honor tariff reductions under NAFTA at the same rate that Mexico had previously agreed to with Chile. I don't know why we're even considering a free-trade agreement in Chile when we have such a mess in Mexico."
According to John De Luca, president of the Wine Institute, the Mexican tariff on Chilean wines dropped to zero on Jan. 1, 1996, but Mexico's tariffs on U.S. wines won't reach zero until 2004. Furthermore, GATT calls for a 36% decrease over the next six years on tariffs of all foreign wine into the United States, beginning immediately, but no corresponding reductions for U.S. wines entering Europe until 1997.
"We have already been burned badly with NAFTA, and we're deeply disappointed with GATT," he complained. "Our tariffs are already the lowest in the world. NAFTA was designed to be a fair-trade agreement between three nations, but right at the start, there's an inequity. Chile has a special relationship with Mexico, and that is unacceptable to us."
The current duty on Chilean wine comes to about 7 cents a bottle, according to Kalik, meaning that if Chilean wine were allowed to enter duty-free, it would enjoy even more of a price advantage vis-a-vis U.S. wine than it has now.
California's efforts to exempt wine from the current U.S.-Chile trade talks do have a precedent. In 1993, lobbyists representing the U.S. Commonwealth of Puerto Rico successfully kept canned tuna off the list of Mexican products that could enter the United States duty-free under NAFTA. The exemption, which doesn't permit duty-free Mexican tuna imports until 2009, may have saved as many as 5,000 cannery jobs in Puerto Rico.
The business of winemaking, however, is much bigger.
"Our estimates show that over 600,000 jobs depend upon the U.S. wine industry," De Luca said, adding that 90% of those jobs are in California. "The time has come for the U.S. wine industry to stop being the sacrificial lamb of international trade negotiations."