2014 expectations for Beverage Alcohol Imports

2014 expectations for Beverage Alcohol Imports

Late in 2013 I was interviewed by Emily Pennington of Wine and Spirits Daily.  We discussed the import arena and how 2014 might bring changes to beverage alcohol import businesses.  Here is her report

                          Bill Earle

December, 2013

NABI'S Bill Earle Discusses Hot Importer Topics

There are an estimated 1,200-1,500 operational alcoholic beverage importers in the US, many of whom are represented by the National Association of Beverage Importers (NABI). NABI is run by president Bill Earle, a veteran of the Bureau of Alcohol, Tobacco and Firearms (ATF), where he served as assistant director and chief financial officer for seven years. In the fourth part of our trade organization series, WSD sat down with Bill to discuss the issues most relevant to beverage importers going into 2014.

THE FUTURE OF ALCOHOL REGULATION: Like many of the trade organizations we interviewed, NABI was affected by the government shutdown. Whereas many of the other trade representatives talked about the short-term effects of the shutdown, Bill is focusing on the long term implications. "The government shutdown just pointed out to me, and I think the people in our industry, that we're dealing with a shrinking government no matter what," he says. "If these guys aren't here or aren't doing what we are expecting them to do as partners, how are we going to be successful?"

He believes since alcohol is such a huge contributor to the federal treasury that the government will continue to put resources toward the TTB. "But we are worried that in the environment in which we operate, where we need the government to be responsive, they may not be able to be responsive and that includes approving labels, processing formulas and putting out certifications for us, whether its imports or exports."

He wonders if the regulatory structure might have to change in the future. Perhaps there will need to be more public-private partnerships. Bill believes the private sector actually has more expertise in government relations right now than the government sector does because these companies hire talented and well-versed employees to track regulation constantly.

"Maybe we need to explore the option of taking advantage of that. How do we work together with government to give them the reassurance that everything is being done legally and according to the requirements of the laws and regulations? It may not be a federal employee who is doing that. Maybe it is somebody who's doing it in the private sector but occasionally is audited by the federal government or double-checked. I think there is room to explore that."

PROMINENT BARRIERS TO MARKET: Some of the issues that will get the most attention from NABI going forward are ones that disadvantage importers. For example, he noted that Congress has approved a small producer tax exemption for beer and wine, but small foreign producers are not allowed that same break. "The cost of goods is disparate and we view that as a non-tariff trade barrier, so we'd like to see that dropped."

Bill also pointed to a "phenomenon" in US Customs and Border Protection laws that eases the cost of goods on domestic wineries, but not foreign wineries. Essentially, US Customs provides a credit for every gallon a winery exports, allowing them to import 99% of one gallon of wine free of excise tax. For the non-mathematicians out there, they only pay 1% excise tax on wine imports. The program is primarily used for bulk wine.

"The idea that customs had when they applied what they call substitution drawbacks is if that wine produced domestically is not being consumed, you shouldn't have a tax on it," he says. "But what they didn't calculate was that this product never was taxed in the first place. When it is made for export, it is made in bond and it never paid the excise tax. You have some huge companies who are reaping the benefits of what I would categorize as a mistake by Customs."

"My wine importers who are importing bulk... are competing against the domestic wine makers with the lower cost of goods compared to their cost of goods."

NY "AT REST" LEGISLATION: You may recall New York legislators have more than once looked into the idea of requiring all distributors to warehouse wine in New York at least one day before being sold in the state (see WSD 04-08-2013). Bill says he thinks the discussion over this at-rest legislation h as cooled a bit. He added that New York State Liquor Authority chairman Dennis Rosen said the legislature would probably be considering it in the future, but they would not want to do any harm to the small producers in the state. "I think the reason you may not be hearing much about it is people are counting to ten and taking a deep breath before they go into this whole thing."

"It just so happens that right on the border with New York State you've got a warehouse: the Western Transfer in North Bergen, New Jersey, which is the source of a lot of product that is coming into New York state. If there was a required at-rest rule in New York state, I think a lot of that business would stop. I don't think it would necessarily be generated in an at-rest environment by wholesalers in New York state. They might just lose that business."

RUM COVER-OVER: Bill is particularly tuned in to the Rum cover-over saga because it was part of his job at the ATF and many of NABI's members are rum importers from Caribbean Islands outside of Puerto Rico and the US Virgin Islands. Last year the legislature renewed the subsidy for the next two years, so there likely won't be much legislation on the issue this year (see WSD 01-03-2013).

You may also recall the Caribbean Community leaders (CARICOM) has threatened multiple times to go to the World Trade Organization (WTO) to settle the matter (see WSD 08-21-2012 ). "I don't really see a case that WTO would take up vis-a-vis the Virgin Islands-Puerto Rico split. I think that is entirely a US piece of business. I think for the rest of the Caribbean, I think you have an issue there."

FURTHERING TRADE RELATIONS: To further trade relations NABI is also focusing on two big trade agreements underway right now: the Transatlantic Trade and investment Partnership with EU and the Transpacific Partnership with all of the Asian Pacific Rim countries, save China."Obviously, the goal here is to open up the toll gates at the borders so that an equal amount of US product goes out and a partner nation product comes in."

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