India blocked a World Trade Organization (WTO) investigation of its import duties on American wine and spirits on Monday, temporarily delaying a US complaint over allegations that Indian rules discriminate against products such as Napa Valley wine and Jack Daniel’s whiskey.
The Geneva-based trade referee is already reviewing a European legal challenge of wine and liquor restrictions in a number of Indian states. A second investigative panel to examine Washington’s arguments will almost certainly be established at a meeting later this month of WTO’s dispute settlement body.
“The layers of customs duties India applies to US products, in particular to wine and distilled spirits, are not in line with its WTO commitments,” US trade representative, Susan Schwab, said last month in announcing plans to seek litigation. “We must ensure a level playing field for US products around the world.”
India’s basic import duties on wine are 100%, while the tariff on spirits is 150%, both within WTO limits. However, various surcharges take the tariffs up to levels reaching as high as 550%, depending on the state government.
The state of Tamil Nadu goes further still, shutting out foreign alcohol and allowing shops to sell only Indian-made spirits and wines.
The US, the European Union and Japan, by contrast, allow nearly all spirits to enter their markets duty-free. China tacks on only a 10% charge on foreign liquor.
Under WTO rules, a second request for a formal investigation is automatically approved. A case can result in punitive sanctions being authorized, but panels take many months, and sometimes years, to reach a decision.
India is one of the largest markets for alcohol in the world and has huge potential for growth.
The US said wine sales in India through special duty-free rules, such as at airports and luxury hotels, grew by 350% between 2000 and 2005. The growth was 200% for American liquors.
But high import duties imposed on the vast majority of American wines and spirits means total exports remain low, the US says. The Distilled Spirits Council of the US estimates that all foreign liquors together account for less than 1% of the Indian market.
The 27-nation EU, in making its complaint, said India bought $31.3 million (Rs125.2 crore) worth of European spirits in 2004—from French cognac to Finnish vodka—and $5.4 million worth of Bordeaux, Chianti, Rioja and other European wines. That compares with global European spirits exports, amounting to $6.7 billion and wine exports of $6.1 billion each year.
It is unclear if the US and the EU will seek to become co-complainants by combining their separate WTO cases.