Schumer Declares Victory in Battle to Save NYS Wine Industry-Departments of Treasury and Homeland Security Proposal Would Have Severely Damaged Competitiveness of NYS Wine Exports

Press Release

Today, U.S. Senator Charles E. Schumer announced that the Treasury Department and the Department of Homeland Security have withdrawn the October 15, 2009 proposals by the Bureau of Customs and Border Protection (CBP) and the Alcohol and Tobacco Tax and Trade Bureau (TTB) that would have significantly affected New York's thriving wine industry. The CBP and TTB proposed changes would have repealed a program that currently provides a rebate for wineries that export NYS wine. Under the program, any federal tax or duty that an American winery pays on wine imported from another country is refunded when that same entity exports American-made wine of roughly the same value. Current duties and taxes on wine imports total approximately $1.30 per gallon. Under the existing drawback program, the American winery gets a refund of these taxes and duties if they export a similarly-valued bottle of NYS-made wine. The refund is a significant incentive for companies to export wine, and allows them to price those bottles more competitively, boosting sales and revenue for NYS wineries. This incentive program is known as "substitution drawback" because vineyards and distributors are "substituting" a US-produced bottle of wine for an imported bottle of wine.

The CBP and TTB proposed eliminating this program. Schumer said the proposals would have greatly hurt New York wineries, an important source of economic activity in many parts of upstate and on Long Island. In November, Schumer asked Treasury and DHS, the federal parent agencies of CBP and TTB, to withdraw these proposals and they have now agreed.

"New York's wonderful wine producers can pop the cork because we have succeeded in protecting the valuable substitution drawback provision to promote exports of our world-class New York wine. Exporting New York State wines not only generates millions of dollars each year, but also attracts tourists and creates jobs across New York, which, during these tough economic times, is essential," Schumer said. "Over the past decade, the wine industry in New York has profited greatly from the substitution drawback program. Preserving these measures will ensure the continued economic growth of the industry and level the playing field for U.S. businesses who want to grow their exports. That is why I fought so hard for Treasury and DHS to withdraw these proposals and maintain the current drawback program."

The value of U.S. wine exports has doubled in the past 10 years, exceeding $1 billion in 2008, in large part due to the drawback program. Also, between 2002 and 2006, the U.S. wine industry expanded exports at a rate surpassed only by Australia and Chile.

New York State is the third largest producer of wine (by volume) in the country, with over 200 million bottles produced annually, 255 wineries statewide, $508 million in sales, and 17,000 employees. According to the NY Wine & Grape Foundation, the New York wine, grape and grape juice industries contributed over $3.76 billion in economic benefits to the economy of New York State in 2008. Exports of NYS wine have grown exponentially -- over 240 percent -- in the past decade. The value of exports is expected to top $45 million in 2009. The dramatic increase in exports is due in large part to the availability of the drawback program, which allows refunds of federal taxes paid on imports when comparable merchandise is exported.

The U.S. drawback program dates back to the late 18th century. The rationale for drawback has always been to encourage American commerce and manufacturing. It permits the American manufacturer to compete in foreign markets without the handicap of including in its costs, and consequently in its sales price, the duty paid on imported merchandise. In 2004, Congress overturned an earlier federal court ruling that would have limited the types of taxes or fees eligible for drawback. Congress amended the drawback provision at issue to make clear that the law allows for drawback of any duty, tax or fee imposed under federal law.

In October, CBP and TTB proposed limiting drawback eligibility; however they failed to articulate any overriding need to revisit the interpretation of the drawback law, let alone any compelling legal basis for doing so. The purpose of drawback is to put U.S. exporters on an equal footing with overseas competitors, and the program is vital to U.S. businesses seeking to maintain and grow their exports, particularly in these difficult economic times. CBP and TTB offered no viable justification for attempting to reinterpret the current statutory drawback scheme.

Schumer noted that eliminating the program would have significantly undermined the health of an industry that injects billions of dollars into the U.S. economy and employs tens of thousands of American workers.

In November and again in January, Schumer, along with 9 other Senators from the top wine-producing states, wrote to Treasury Secretary Timothy Geithner and Secretary of Homeland Security Janet Napolitano to encourage them to withdraw the CBP and TTB proposed regulations and retain the current drawback program. Schumer warned that the­­ continued success and growth of the U.S. wine industry and U.S. wine exports is directly tied to the drawback program and that eliminating eligibility for refunds of duties and taxes on exports would restrict the industry's economic potential in New York and across the country. Senators Dianne Feinstein, Barbara Boxer, Maria Cantwell, Patty Murray, Ron Wyden, Debbie Stabenow, Mary Landrieu, Kirsten Gillibrand, Robert Menendez, and Jeff Merkley signed on to the letters.

Schumer added, "This is a victory not only for the New York wine industry, but the entire state."

Source