The European Commission representing 29-nation EU has formally asked WTO to set up a dispute settlement panel on duties imposed by India on import of wine and spirits on Monday, bringing it closer to the possible lowering of duties. The Indian wine market will now come under the scrutiny of WTO.
This panel is the second step in the WTO dispute mechanism, undertaken after formal WTO consultations. The panel process normally lasts a year with a provision for an appeal by both sides, that may take another 6 months. Ruling of the appellate body is final and legally binding.
If India is found to violate WTO rules on import duties, it will have to either follow the ruling or face retaliatory measures against Indian exports by EU.
EU wine and spirits producers have raised concerns about duties on such imports. India has taken the view that rules, unfairly do not allow import of Indian whisky to the EU which refuses to accept it since it is made from molasses and not grain.
At present, the government levies a basic customs duty of 100% on wines. Along with the additional customs duties (ACD), the taxes range between 177% and 264%, being higher for cheaper wines coasting under $25 a case. They are set to go up by about 3% from April 1, due to additional education cess announced in the recent budget. The current law also permits the government to levy countervailing duty in lieu of excise duty on local products for creating a level-playing field.
For wines and spirits, only the state governments are authorised to levy excise duty. Since states cannot impose countervailing duty on imports, the Centre has levied the ACD to ensure that local products are not at a disadvantage. The EU and USA have raised an objection to this portion of duties.
'We had been told that India is reconsidering its tariff structures in line with WTO but nothing has happened in the current budget. Our hand was forced,' said an EU official. The budget announced on February 28 was totally quite on this front.
The Commission said it had asked that the panel request be placed on the agenda of the WTO's Dispute Settlement Body meeting on April 11.
In the meantime, government has announced that it is taking steps to pass a legislation that will authorise states to charge only the same rate of excise duty on imported wines as Indian wines. This is acceptable within WTO agreement. Since excise duty is much lower in most states for Indian wines, the same rate will be significantly beneficial for imported wines after the new act is enforced.