French winegrowers pin hopes on South Korea trade deal

Frustrated by barriers to a strategic Asian market, French wine producers are betting on a new EU-South Korean free trade deal to claw back the massive market share they have lost in the past decade.

With French wine consumption declining and traditional markets such as Germany and Britain in trouble, emerging markets are vital to France's winemakers but bring challenges of their own.

Back in 1999 French wine, led by Bordeaux, dominated South Korea's burgeoning imported wine market with 46 percent of trade volume. Rival Chilean producers had a mere two percent.

But 10 years on, the tables have turned, with France's market share at a meagre 16 percent while Chile's has soared to 23 percent, making the Latin American producer South Korea's largest supplier by volume.

While French wine sales are booming among China's wine-loving middle classes, France has lost its lead in South Korea - even as wine imports grew 350 percent from 1999 to 2009.

The reason? Chile in 2003 had the foresight to ink a free trade pact with Seoul, one of the first with the Asian tiger, lowering tariffs on Chilean wine exported to Korea by 15 percent.

"We've been suffering in Korea since the Chileans got their trade agreement," said Allan Sichel, president of Bordeaux's wine merchant union, a region that accounts for over half the value of French wine exports to Korea.

"Back then the EU was not yet contemplating FTAs with Asian partners," EU Commission trade spokesman John Clancy told AFP.

Tariffs are not the only difficulty French winemakers face in South Korea. Their Chilean counterparts have also suffered less from the global financial crisis and a falling won, the South Korean currency.

But last month the European Union struck a sweeping Free Trade Agreement (FTA) with Seoul, expected to become effective next July after ratification by the Seoul and European parliaments.

Wine from both France and Chile is still subject to a liquor tax and other levies, but the deal would eliminate the 15 percent customs duty on imported European wine and put French producers on a level playing field with Chile.

With the South Korean retail market for wine currently worth two billion dollars and predicted to grow 32 percent in volume over the next five years, according to Euromonitor International (EI), French winegrowers are impatient for the deal.

French wine exports to South Korea were worth 26.2 million dollars in 2009, down from a high of 47 million in 2007, according to French customs figures provided by the Medoc Wine Council.

EU-South Korea trade was worth around 54 billion euros (75 billion dollars) in 2009, according to the European Commission.

The EU predicts the trade pact will double two-way trade and "provide a real boost to jobs and growth in Europe at this critical time" - with the wine sector one of the first to benefit.

Under the deal, the tariff for wines will be lifted as soon as the pact takes effect.

The EU has also obtained a high level of protection against fraudulent use of France's wine geography indicators such as Bordeaux, Medoc, and Champagne.

To be ratified, however, the FTA has first to overcome strong opposition from European carmakers, most recently Italian carmakers.

But the signs are encouraging. Benoit Stenne, deputy managing director of the French federation of wine and spirit exporters, says that French lawmakers have been alerted to "the necessity of a positive vote".

In the meantime, the prospect of a deal has actually made a bad situation worse - as South Korean importers of French wine hold back on orders in anticipation of the tariff rebates.

"Consumers are waiting for European wine and the European wine exporters are waiting for the FTA, but for the importers - it just gives them a headache," said Jun-Gyu Burm, marketing executive at Lotte Asahi Liquor Company in Seoul.

"Unfortunately, South Korea is in complete stagnation," Jean Pierre Rousseau, managing director of wine merchant Diva Bordeaux, told AFP.

With the double effect of the anticipated EU-Korea FTA and the won now rising against the euro, European wines are on course to regain ground, according to Philippe Dambrine, head of the Medoc Wine Council in southwestern France.

But exporters remain cautious. "It won't happen overnight," said Stenne.

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