Don’t let non-tariff barriers hobble India’s trade talks
India’s defence canteen ban on imported liquor with GI tags is an example of a faulty approach to self-reliance
Market access for products, including those which have a geographical indication (GI) tag, is going to be a key issue in India’s trade negotiations with the EU, US, UK and Australia. In May 2021, India and the EU decided to launch parallel negotiations on market-access issues, investment and GI. While our trading partners are comfortable giving market access to GI products from India, Indian policies on import restrictions, access to GI products and government procurement need a review.
Take the example of alcoholic beverages. India has not only imposed high tariffs, but in October 2020, a sudden ban was imposed on procurement of imported liquor, including GI products, by the Canteen Stores Department (CSD) under the Ministry of Defence (MoD). However, the paramilitary forces of India under the Ministry of Home Affairs continue to procure such beverages for their canteens. The MoD order of discontinuation under the ambit of ‘Atmanirbhar Bharat’ ignores the fact that GI products have a specific geographical origin and possess qualities or reputations that are due to that origin and cannot be ‘Made in India’. Given that 75% of all liquor in India is procured and sold through government channels (Centre and states), this ban has alerted trading partners on possible bans through this route.
Wines, spirits and cheese are among the key GI products of the UK and EU. Brands like Johnnie Walker, Chivas Regal, Glenfiddich, Glenlivet, Glenmorangie and Teachers have GI under Scotch Whisky, while Jameson has GI for Irish Whisky. Sparkling wines from Champagne, France, sold by brands like Dom Perignon and Bollinger are GI products. This tag is associated with certain requirements. For example, the GI requirements for Scotch Whisky states that this is a distilled spirit that must be made in Scotland from cereals, water and yeast; must be matured in oak casks for at least 3 years. It should have an alcohol strength by volume of at least 40% and must comply with The Scotch Whisky Regulations 2009 (Citation 2009, No. 2890; SWR), which is a statutory instrument that regulates the production, labelling, advertising and packaging of Scotch Whisky. While these requirements support the global fame of several brands, some Indian companies consider this a non-tariff barrier for their entry to the EU and UK. A pan-India survey conducted by me and my team found that the quality of India-made whisky is good. Some, like Amrut Distilleries, are exporting their whisky brands to various countries, including the UK. However, manufacturers are not able to scale up and are struggling to adhere to the three-year ageing period condition as it leads to evaporation of spirits, given the climatic conditions in India. In Scotland, over 95% of the product is retained after a three-year maturation process, while in India it reduces to 65%. Further, higher logistics and storage costs can turn manufacturing a non-viable proposition. Excise departments in some states demand duty on such wastages. The UK and EU have allowed the import of ‘un-aged‘ Indian whisky, but it is known as ‘Spirit Drink’ or ‘Indian Spirits’ and cannot even be called ‘Indian whisky’ (other products like Brazilian cachaca are also sold as ‘Spirit Drink’). Instead of requesting state excise departments to revisit their wastage policies, some industry representatives have been lobbying with the Indian Department of Commerce to push for removal of the maturation condition in the UK.
In India, we have about 4.7 million CSD card holders. Imported alcoholic beverages account for less than 1% of the consumption of most defence personnel. Yet, during the survey, they opined that a CSD ban imported liquor deprives them of their choice of ‘tipple’ and access to better-quality brands, and they do not have a “level playing field” vis-a-vis those attached to paramilitary forces.
Around 100,000 cases are imported per annum, and prior to the restriction, CSD revenues from GI-tagged and other ‘Bottled in Origin’ (BIO) alcoholic beverage sales were around ₹130 crore. The restriction has led to a loss of customs duty and levies of around ₹65 crore. Before the ban, the estimated subsidy given by states to BIO alcoholic-spirit purchases through the CSD was around ₹8.5 crore. While some survey participants said that policies should not lead to revenue losses during a pandemic situation, others argued that the ban shows that tariffs in this sector are not important from a revenue-earning perspective and can thus be reduced to zero.
Any trade agreement should ensure a predictable trade environment. As India starts negotiations with its key export markets, we must also be prepared for removing barriers to imports. Regulatory certainty is a key component of modern trade agreements and India’s trading partners will seek regulatory certainty and policy consistency. Our domestic policy, therefore, should complement our trade policy. The government, exporters and manufacturers should work towards meeting importing-country standards. At the same time, India has the potential to have more GI products in alcoholic beverages, which should be explored. To protect domestic manufacturers, India may impose a minimum threshold level for imported BIO alcoholic beverages, which will also ensure that only high-priced and high-quality produce is imported. A carefully-planned trade negotiation with supportive domestic policies will help enhance India’s exports, and this will, in itself, align with the objective of Atmanirbhar Bharat: that is, making India “a bigger and more important part of the global economy”.
Arpita Mukherjee is professor, Indian Council for Research on International Economic Relations. These are the author’s personal views.
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First Published:14 Sep 2021, 11:11 PM IST
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