May 17, 2018 / 2:27 AM / in 3 months

Australia-China rift spills into customs delays for Treasury Wine exports

SYDNEY (Reuters) - Australia’s Treasury Wine Estates Ltd (TWE.AX), the world’s biggest listed winemaker, said it faced delays getting some products through Chinese customs, sending its shares tumbling amid fears it may be affected by a diplomatic dispute.

Bottles of Penfolds Grange wine and other varieties, made by Australian wine maker Penfolds and owned by Australia's Treasury Wine Estates, sit on shelves for sale at a winery located in the Hunter Valley, north of Sydney, Australia, February 14, 2018. Picture taken February 14, 2018. REUTERS/David Gray

Treasury Wine disclosed the issue as Australian Trade Minister Steve Ciobo began a China visit aimed at repairing ties with his country’s largest trading partner after a recent souring in relations.

The company said in a market filing it was asking Chinese authorities about unspecified “new and additional verification requirements” for Australian-made wine since last month. The Chinese measures appeared to apply only to Australian products.

China’s customs department did not immediately respond to a faxed request for comment.

The delays, which some called the first casualty of Australia’s diplomatic rift with China, are a worrying sign for the firm which has until recently benefited from an insatiable thirst for wine among China’s growing middle class.

The owners of the Penfolds, Wolf Blass and Rosemount labels reported sales volumes to China jumped 60 percent in the half year to December and it wants to make China its biggest export market this year.

Nervous investors pushed Treasury Wine shares down as much as 12 percent, their biggest fall since 2014. It finished the day down 6.2 percent, compared to a 0.2 percent decline in the broader market.

Ciobo, speaking to reporters in Shanghai at the start of a three-day visit, said a diplomatic team had been “mobilized” to sort out the customs delays.

In Australia, Treasury Wine CEO Michael Clarke declined to speculate on the reason for the change, which he said had been in place for six weeks.

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“I do believe that this will be a short term getting-used-to process for us and other players in Australia,” he told an investor conference call.

DIPLOMATIC FALLOUT

The customs delay comes during what Australian Prime Minister Malcolm Turnbull has called a “low ebb” in relations with China, where Australia sends A$93 billion (51.6 billion pounds) a year of exports from steel products to infant formula.

Overall Australian wine exports to China grew by nearly two thirds in 2017, according to government data, making the wine industry one of the biggest beneficiaries of a 2015 free trade agreement between the countries.

Those trade ties began to fray in April when a regular Australian trade show in China was suspended after the mainland denied visas to Australian government officials, according to Australian media.

The move was widely interpreted as a response to tough rhetoric from Turnbull who had proposed new laws requiring foreign political lobbyists to register, a measure he said was targeted at China.

“Until now it has been a diplomatic spat, we haven’t seen it play out beyond the diplomatic and political realm,” said Nick Bisley, an expert on international relations at Melbourne’s La Trobe University.

“Now it is imposing regulatory barriers without contravening the free trade agreement. We are going to see more of this and this will be the worst the relationship has been since diplomatic relations began.”

Australia’s rift with China is unfolding against the backdrop of a much larger trade dispute between Beijing and Washington that has fanned worries of a full-blown trade war that could weigh on the global economy.

The United States and China will resume trade talks on Thursday over tens of billions of dollars in tit-for-tat tariffs.

Additional reporting by Chris Thomas in BENGALURU; Editing by Michael Perry and Darren Schuettler

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