Chile FTA gives wine lovers no joy

As friends and co-workers gather to celebrate annual year-end parties, levels of wine consumption are expected to soar this winter.

But despite the lowering of tariffs on Chilean wine two years ago, after the two sides signed a free trade agreement in 2004, prices remain surprisingly high.

Civic group Consumers Korea found that Montes Alpha Cabernet Sauvignon, which 25 years ago ranked as Chile’s first premium wine, is more expensive in Korea than in any of the other 17 countries it surveyed.

Prior to the removal of tariffs, the wine, one of the most popular foreign brands in Korea, cost 10,200 won to import and sold at local department stores as recently as 2008 for 35,900 won.

The trade deal eliminated a 15 percent tariff, meaning that from 2009 the same bottle cost only 8,400 won to import. Yet the civic group found that local stores are still selling it for an average of 44,000 won a bottle.

The same wine goes for 43,800 won in Taiwan, 32,429 won in the Philippines, 26,418 won in the United States and 22,196 won in Germany.

Another Chilean wine, 1865, costs less than 10,000 won a bottle to import but sells at department store here for 47,000 won.

This means none of the benefits of the FTA are being transferred to consumers, at least in this product category, which has sparked debate as to how this is possible.

And the finger is being firmly pointed at distributors for allegedly raising their prices. Under Korean law, importers are not permitted to sell or distribute imported goods, but have to rely on distributors and retailers.

“Price-wise, Chilean wine is one of the most distorted products in the local wine market,” said a wine importer, on request of anonymity.

“Companies turn a profit of 30 to 40 percent when they sell French, Italian or American wine, but this rise to more than 50 percent for Chilean wine,” he said, adding that the huge demand for certain brands gives distributors and retailers “no incentive to lower their prices.”

Some importers have responded by setting up separate distribution or retail companies, while the Ministry of Strategy and Finance announced yesterday it will reform the law on imported alcohol from January.

Under the proposed revision, importers of wine or other alcoholic beverage will no longer have to sell their products through retailers, but can so themselves upon receipt of a special permit from the tax office.

By cutting out the middleman, or complex distribution networks, the companies are likely to be able to offer consumers significant discounts.

“[The new legislation] will not only reduce the complicated distribution process, but will also stimulate competition among distributors,” said a Finance Ministry official. “We hope this will cause wine prices to drop.”

This marks a significant change in tack for the government, which earlier defended the move to ban importers from selling wine by claiming that it would ramp up transparency in the sector.

Market experts believe the policy was changed as trade has become more transparent in recent years due to in part to a greater reliance on credit cards and cash receipts.

By Lee Ho-jeong, Choe Sun-uk [ojlee82@joongang.co.kr]