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EU Files Complaint against India with WTO

The EU has again filed the imminent complaint against India at the WTO claiming that it still keeps European wine and spirits out of its market due to discriminatory high taxes.

Indian government waived off the additional Customs Duty on foreign wine and spirits imports in July 2007 after the earlier complaint by EU and US to WTO but it also increased the basic duty to the current 150% as allowed under the negotiated WTO deal. EU had withdrawn the case while USA continued but lost.

What the earlier case did not consider were the additional excise duties of up to 200% by states like Maharashtra and Goa. Tamilnadu is alleged to have restrictive retail practices making it impossible to sell imported wines outside the five-star hotels.

Anticipating the complaint, the government has been pressurising Maharashtra to design a policy of no discrimination against imported wines. This even resulted in recent suspension of business in Maharashtra for ten weeks, now limping back to normalcy.

Countering EU's allegations, legal experts say that Maharashtra levies excise duty on wine coming from other states as well. 'The move to exempt wine produced in Maharashtra from excise duty is for the benefit of local grape farmers,' said an expert on international trade laws according to a report in Business Standard.

Legal experts say that during the next two months, India will have consultations on the issue with the EU at WTO. "This time around, India has a strong case. The issue is likely to be resolved during the consultations," said the expert.

José-Ramón Fernandez, secretary-general of the Comité Européen des Entreprises Vins, a body representing European wine producers, said their members were asking only for a level playing field.

Welcoming the EU move, Jamie Fortescue, director-general of the European Spirits Organisation, said their members were disappointed that trade barriers have emerged at the state level.

Although EU is fighting for both wines and spirits, the members' stakes are much higher for the spirit trade. India consumed about 139 million cases (9-liter) of spirits which included 78 million cases of whisky alone; but less than a million were imported. Only 220,000 cases of wine- a majority being from the EU nations were imported in total. 

Under WTO procedures, both sides have 60 days to settle the issue mutually. Otherwise, Brussels can ask for the creation of a dispute panel. India and the US, which has pushed ahead with a case against unjustified duties on wine and spirits imports, have appealed against the WTO panel report released in June. The findings were mainly in India's favour. The result of the appeal should be forthcoming within a couple of months.

The case could fall flat on the face of EU if Maharashtra increases the excise duty on out-of state wines from the current 150% to 200%. The out-of state wineries, which means virtually Karnataka based Grover Vineyards, are already paying 150% of the manufacturing costs. Additionally, they have to work within the 4X rule-which in layman's parlance means that if the manufacturing cost declared is X, the MRP cannot be more than 4X.

The same policy has been now applied for foreign wines, after adjusting the custom duty element. This puts the imported wines under so much pressure in terms of margin that it might not be a sustainable practice for future. 

A talk with Kapil Grover proved inconclusive as he did not think that their winery has been issued with a notice increasing the special fee (as the additional excise duty is referred to in Mighty Maharashtra, to hide under a legal cover) to 200%, which he thinks will be most unfortunate as they are already in an extremely disadvantaged state..

Section 147 allowing states to form their sales and excise policy independently is a roadblock for even the federal government. With the change of government in Karnataka, even the policy that has been announced there under the wine park scheme has been shelved aside for a while. With the elections taking place within the  next year, it seems unlikely that the government will be in a position to exert enough influence on a state like Maharashtra.

Mr. Sharat Pawar, the federal agriculture minister belonging to another political part which is part of the political alliance holds the key. He and his family are big grape growers of Maharashtra and the business interests perhaps need to be protected strongly. With imported spirits being also an issue where another powerful personality Vijay Mallya is in the center-stage, it will be an interesting case to watch.

Subhash Arora

September 26, 2008

 

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