Wine Trade and the Economics of Import Duty and Excise Tax Drawbacks

• Agricultural Economics Workshop

Date and Location

Wednesday, June 1, 2016, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

In 2003, the United States has changed import duty and excise tax policy for table
wine allowing for wine produced in the United States to be used as matching eligible
exports for "substitution" drawback purposes. The implementation of the new wine
drawback regulation has been controversial largely because imports that are matched
with commercially interchangeable exports of wine effectively pay only one percent of
the excise tax in the United States. These imports compete in the U.S. market with wine
produced in the United States that pay the entire excise tax. This paper examines the
effects of this new trade policy on the U.S. wine trade. We show that the degree to which
the excise tax and duty drawback stimulates imports or exports depends on the relative
volume of accumulated imports of commercially interchangeable wine not yet claimed by
eligible exports at the time of importing compared to the expectations of future exports
of commercially substitutable wine. The wine drawback policy has at times mostly
benefited imports and at times mostly benefited exports. It has subsidized wine trade
both in and out of the United States at the U.S. tax payers' expense. This anti-local
policy subsidizes trade relative to domestic consumption of domestically produced wine,
with complex consequences within the wine industry. Results from our conceptual model
and econometric estimation show that the wine drawback policy contributed significantly
to growth in both wine imports and exports, especially for bulk wine.