With the government buckling under lobbying from the domestic industry and not reducing the import tariffs on imported liquor, the European Union (EU), which had been asking for this, will likely drag India to the World Trade Organization (WTO) to settle the issue.
The specifics of the dispute concern an additional customs duty on imported liquor that was introduced by the government in 2001 to ensure that domestic liquor and wine makers , who pay duties at the state level, weren’t rendered uncompetitive.
The duty ranges from 25% to 150% on foreign whisky and 20% to 75% on wine, and comes on top of a basic import duty of 100% on wine and 150% on spirits. The EU believes this duty violates the concept of national treatment which means that there is no discrimination with domestic firms and foreign ones.
“The commission is still analysing the 2007-08 Union Budget announced yesterday (28 February). If, as it now appears, the Budget contains nothing to solve the dispute over India’s additional duties on wines and spirits, this would be a disappointment. In that case, the commission would have to reflect on and consult member states on possible next steps. Those could involve the European Commission requesting the establishment of a WTO dispute settlement panel,” Peter Power, spokesperson for the EU trade commissioner Peter Mandelson, told Mint. Mariann Fischer Boel, the EU Commissioner for Agriculture and Rural Development who is visiting New Delhi next week, is also expected to raise the issue.
Vijay Rekhi, president of United Spirits, said in the European Union, scotch and Indian whisky are not treated as like products, as per the definition of the Scotch Whisky Manufacturers Association (SWA).
“Therefore (for foreign wine and whisky makers) to expect national treatment in India is unrealistic. The government has taken cognizance of this view and has acted in its best judgement,” he told Mint.
The ministries of commerce and finance had discussed the issue before the Budget. A senior government official, who did not wish to be identified, said the decision to scrap the additional customs duty was dropped following hectic lobbying by the domestic liquor industry. However, officials at the finance ministry say the duty can be withdrawn anytime and that it is on hold only because the commerce ministry hasn’t been able to persuade the states to decide on the duty they will levy on imported liquor; states currently do not levy excise and other duties on imported liquor since this attracts a special additional customs duty already.
The EU had agreed to a two-phased change in the duty structure for wines and spirits. “In the first stage, they merely wanted the additional duty component to go. They are prepared to give more time to the states to introduce a uniform tax structure since some states like Tamil Nadu at present do not allow any foreign liquor into the state,” an official pointed out.
Of the total liquor imported by India, nearly 80% is whisky. According to the International Wines and Spirits Record, a market research firm, in 2005-06, foreign whisky accounted for a tenth of the 5,80,000 cases of whisky consumed in India.