By Dominique Patton and Elizabeth Pineau

PARIS/RIO DE JANEIRO (Reuters) – Hennessy staff extended a strike on Wednesday over its plans to bottle cognac in China to circumvent import tariffs, after French President Emmanuel Macron urged his Chinese counterpart Xi Jinping to lift the duties.

Hennessy, owned by luxury group LVMH, is exploring options to deal with Chinese antidumping measures imposed last month, including shipping cognac in bulk for bottling in China.

Beijing slapped deposits of between 30% and 40% on imports of EU brandy, hitting French firms including Hennessy, Pernod Ricard and Remy Cointreau, days after the 27-state bloc voted for tariffs on Chinese-made EVs.

Macron urged Xi to drop the tariffs at the G20 meeting in Brazil, telling reporters on Tuesday that China’s targeting of cognac came as a surprise.

France refuses to lift its support for EV tariffs to reduce pressure on its cognac sector, say Elysee officials and industry members. Paris says the two issues are unrelated and that Beijing’s measures on cognac were political and retaliatory.

China is the second-largest export market for cognac after the United States and the industry’s most profitable, accounting for $1.7 billion in exports last year.

On a visit to Shanghai earlier this month, junior trade minister Sophie Primas reminded her Chinese counterpart that Xi Jinping had himself promised Macron during a state visit earlier this year that there would be no tariffs on French brandy, said a government source briefed on the meeting.

SPIRITED DIPLOMACY

Speaking to reporters after meeting Xi, Macron said the Chinese president had agreed to work transparently on the issue and that his prime minister, Michel Barnier, would travel to China early next year.

“We have initiated a process and I am hopeful that we can come out of it on top, that is to say, by returning to normal,” Macron said.

Chinese measures have already caused order cancellations and deferred orders, said Florent Morillon, president of the Bureau National Interprofessionnel du Cognac (BNIC), who welcomed the intensified diplomatic push.

China’s measures do not apply to bulk shipments, which currently accounts for just 2 to 3% of volumes, said Morillon, as traditionally cognac is produced and bottled entirely in its home region.

Unions representing the sector are worried other producers could also move bottling operations to China.

Remy has said it has no such plans, while Pernod Ricard declined to comment.

The unions plan to lobby the BNIC to include bottling activity inside the scope of a ’controlled designation of origin’ (AOC) label to protect the local workforce, said Mathieu Devers, a Hennessy technician and secretary of the company’s employee representative committee.

Blocking bulk cognac shipments was also under consideration, said Devers.

Trade unions were also discussing expanding the industrial action across the Cognac region, potentially impacting other producers, said Frederic Merceron of the Force Ouvrière union.

(Reporting by Alban Kacher, Dominique Patton, Elizabeth Pineau; Additional reporting by Emma Rumney and and Michel Rose; Editing by Richard Lough and Alexander Smith)