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WTO Delegation Arrives in India

A senior delegation from the World Trade Organisation is arriving in Delhi today to discuss with the central government the pending issues of inequitable duties and restricted entry for imported wines and spirits in Maharashtra, TN and Kerala. 

After the US won its appeal against India, WTO has been quite active and keen that the government exercises its powers and streamline the systems in Kerala too. Director General of WTO, Pascal Lamy had earlier visiting India in August this year to  hold discussions with the government and industry with no success.

The Indian government is keen on its part to show its willingness to co-operate with the WTO as it does not want to risk any roadblocks in its export which is currently attributed to about 7000 different products. The delegation is here for 4 days and will hold talks with various Excise Commissioners, and State Ministers from the disputed states. 

Reliable sources have confirmed that Excise Commissioners, State Excise Ministers  and related officials have been summoned to the capital by the central government for meetings with the government and the WTO delegation.

As reported in the Breaking News story- first to be published in India last week, delWine had reported that Tamil Nadu was the first such state to have buckled under the government pressure and allowed the imported wines and spirits to be sold in retail. A source in Chennai has confirmed that wine and whisky of western origins have already landed and will be available for Retail starting today, as reported.

Following are excerpts from the complaint filed by the EU on September 22nd   against Maharashtra (Tamil Nadu, Kerala and Goa have been also listed similarly) :  

The "special fee" imposed by Maharashtra  is inconsistent with India's obligations under Article III:2 of the GATT 1994, because it subjects imported BIO bottled wines and spirits to internal taxes that are in excess of internal taxes applied on domestic like products.

It further complains that the excise duty exemption for domestic wine is inconsistent with Article 3.1(b) and 3.2 of the Agreement on Subsidies and Countervailing Measures, because the remittance of the whole excise duty in respect of the wine manufactured from the grapes produced within the State of Maharashtra and without using alcohol or without blending of any other wine is a subsidy contingent upon the use of domestic over imported goods in accordance to Article 3.1(b) of the SCM Agreement and as such, is prohibited by virtue of Article 3.2 of the SCM Agreement.

The "excise duty" exemption is also inconsistent with Article III:4 of the GATT 1994, by failing to accord, to products of the territory of the European Communities imported into the territory of India, treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.

The European Communities consider that these measures also nullify or impair the benefits accruing to the European Communities under the GATT 1994.

The cursory look makes it quite clear that Maharashtra is obviously violating the code by charging the out-of-state wines a special fee of only 150% while the imported wines are subjected to 200% duties. It is also curious that the State had first imposed the duty of 150% on imported wines in July 2007, but for inexplicable reasons increased it further to 200% in November, 2007 when the hapless importers went knocking at the doors of the state excise commissioner to reduce and make it more reasonable.

Maharashtra must obviously increase this fee for all domestic companies from out-of states to meet the WTO clause. This would basically hit the Karnataka based Grover Vineyards- the only winery worth its Cabernet & Shiraz from out-of- state. Perplexed by the anomaly, delWine has been regularly in touch with Kapil Grover who confirmed again last week that there was status quo and they have been paying 150% excise duty.

Of course, it is no status quo in Karnataka where the government has recently imposed a Rs. 225 a bottle excise duty on the out-of state wines which basically includes the whole of Maharashtra which finds itself shut off from the expanding and lucrative Karnataka wine market. Reliable sources say that Karnataka is prepared to increase the excise duty on such wines to Rs. 400 a liter, the moment Maharashtra imposes a 200% duty.

WTO would have none of this. They would like nothing beyond 150%, the agreed outer limit in the GATT 1994 agreement. It might resort to penalties or take punitive actions which could hurt the Indian exports. Anti-dumping duties on wines from Maharashtra might be an obvious choice. It could also look for cases of specific products being manufactured in Maharashtra and specify cases fit for imposing balancing duties on such exports from India.

Not an easy problem to resolve, this is one case where the Indian government is clearly on the side of WTO. Whether the two together can find a solution to a problem which has its genesis in the Indian Constitution was drafted by the founding fathers giving the States the upper hand, is too early to tell.

Subhash Arora

November 10, 2008

 

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