This government trade policy is a double-edged sword
By Jeff Siegel
Stuart Spencer, a winemaker and the executive director of the Lodi Winegrape Commission, is hardly an investigative journalist, the kind of person who spends his time ferreting out secrets and filing Freedom of Information Act requests.
Nevertheless, as the U.S. wine industry stands on the brink of an unparalleled tariff environment with the coming of the Trump Administration in January, Spencer’s reporting has highlighted just how complicated the wine trade situation already is — and how much more complex it could become next year.
This summer, he wrote extensively about something called a wine duty drawback, a federal program that is designed to boost U.S. wine exports but seems to have also allowed some of the biggest wine producers in the U.S. to import cheap foreign bulk wine and to get almost all of the excise taxes and duties paid on the imported wine refunded.
All told, these companies were refunded $204.7 million between 2018 and 2024, and their imports of bulk wine tallied some 325 million gallons between 2016 and 2022. Spencer’s research also found what seemed to be a correlation between the amount of bulk wine imported and the grape glut facing California growers over the past couple of years. That is, the duty drawback imports were being used instead of similarly priced California grapes.
It’s a discovery unlike anything he has experienced before.
“I had always sort of known about the wine duty drawback,” says Spencer, “but I didn’t fully understand what was going on. I was surprised to find out the extent to which it was being used. I just didn’t realize how much bulk wine was being imported. I really took a trip down the rabbit hole.”
Incentivizing exports or…
Duty drawbacks are not a common part of federal trade policy, says attorney Camille Edwards, an associate with Torres Trade Law in Dallas, Texas, but they do exist for a variety of industries, including petroleum products, jet engines, steel and textiles. In this, she says, they aren’t often controversial and are usually considered “typically pretty straightforward.”
The difference here, she says, “is that wine is so unique that it’s easier to see the effects of a duty drawback.”
The goal of duty drawback programs is to boost exports, which would seem to be something that the U.S. wine industry needs. It exports very little wine — just 8% of total wine production in 2023, according to figures from the Wine Institute trade group, and one of its biggest customers is Norway, which has fewer people than Los Angeles.
Typically, if a winery imports 1 million gallons of Chardonnay and exports 1 million gallons of California white wine, it can claim a drawback, or refund, of up to 99% of the duties and alcohol excise taxes paid on the imported Chardonnay.
In fact, says Robert P. Koch, president and CEO of the Wine Institute, that’s the reason for the wine duty drawback, which started in 2003.
“Duty drawback has been incentivizing California wine exports for more than 20 years,” he said in a statement. “The U.S. is the largest wine market in the world and has always imported far more wine than it exports. Given this trade environment, drawback serves as a compelling incentive for California wineries to expand their global exports, which benefits our local communities and working families, and enhances California wine’s international reputation.”
Big players benefit
Nevertheless, U.S. wine exports seem to be going in the opposite direction, despite the duty drawback. In 2003, exports accounted for 16% of production, and in 2010 and 2015, it was 15% (again according to Wine Institute figures).
And, according to federal statistics, the biggest beneficiaries of the wine duty drawback between 2016 and 2022 were Bronco Wine, Constellation Brands, Delicato Family Wines, The Wine Group, Gallo and Treasury Wine Estates, among the largest U.S. producers. In 2022, the most recent year for statistics, California’s largest wineries totaled 95% of bulk exports and 79% of bulk imports.
“This is a story that needs to be told,” says Spencer. “It’s contributing to an unhealthy grape market. It leaves farmers in rural communities holding the bag.”
No action planned
But will anything change in January with the new administration and its tariff-first trade policy? Spencer points out that even a 25% tariff on duty drawback bulk imports, which has been floated as one Trump Administration trade tactic, will amount to just pennies per gallon. That would hardly be a deterrent to bringing in the wine. Hence, the entire wine duty drawback program needs to end, he says.
However, as controversial as the program might be, a spokesman for the WineAmerica trade group says wine duty drawback is not on its agenda. There are too many other pressing issues — most importantly, to try to prevent a wine trade war with the European Union if there are new tariffs, as well as working toward a resolution of the 25% tariff on some European wine that was part of the Boeing-Airbus dispute during the first Trump Administration. That levy was temporarily lifted in 2021, but is scheduled to resume in 2026.
So despite what some feel is a program that doesn’t benefit the entire wine business, wine duty drawbacks look to be around a while longer.
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Jeff Siegel
Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including “The Wine Curmudgeon’s Guide to Cheap Wine.”
