International BusinessEU may drag India to WTO over state duties on foreign liquor
Maharashtra, Karnataka, Andhra Pradesh and Tamil Nadu in focus.
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The European Union will drag India to the World Trade Organization (WTO), if four states identified by the economic bloc does not rationalise its duty structure on imported alcohol.
The trade body has alleged that Maharashtra, Karnataka, Andhra Pradesh and Tamil Nadu have imposed duties on liquor exported by it, which are not compatible to national treatment — a critical WTO norm which ensures that goods traded by countries are treated fairly. According to rough estimates available with the commission, the states under consideration account for more than half of the liquor consumed in India.
According to national treatment principle, a country has to treat imported products on a par with those produced domestically.
According to the commission, the four states impose duties on wines and spirits exported by its members to India, which is higher than the duties charged on the same products produced within the country. The commission believes that due to these taxes, the total incidence of duty on some imported brands could be as high as 800 per cent.
Significantly, Tamil Nadu government procures foreign liquor through the state-owned Tamil Nadu State Marketing Corporation (Tasmac), which is also responsible for retail sales. It is not clear if this violates national treatment principle, which the commission has alleged.
Today, members of the commission had parleys with state and central government officials on the issue. This was part of the consolations process, which a WTO member carries out before appealing in the WTO against discriminatory trade practices.
“This is the last consultation. If things are not satisfactory, we will appeal to set up a trade dispute panel at WTO on the issue,” said Jean-Francois Brakeland, Head, Legal Aspects of Trade Policy, European Commission. “All we want is non discrimination against European wines and spirits.”
The final discussion on the matter is likely to take place between Indian Commerce Minister Anand Sharma and European Commission Trade Commissioner European Union Catherine Ashton.
Experts suggest that some of the duties charged by states on foreign liquor could be complaint to WTO norms. For example, the EU has objected to the “special fee” imposed by Maharashtra on imported wines as it exempts excise duties on locally-produced wines. Experts point out that the state charges duties on liquor coming from other states and, hence, is not discriminating against foreign wines and spirits.
The commission members also met Delhi government representatives, but the discussion was outside the purview of the consultations launched with the other states.
If European Commission drags India to the WTO, and gets a favourable verdict, the economic bloc can impose sanctions on Indian goods by charging very high duties. In the past, the commission has been known to target states within countries which follow discriminatory trade practices. It can do this by imposing additional duties on products of a country, which are produced mostly in a state with discriminatory trade practices.
Though the development comes under the backdrop of international move against protectionism, the Commission has been taking up the issue of high incidence of duties on foreign liquor in India since 1998.
India has been progressively liberalising its liquor imports to accommodate the concerns of the European Union. This included scraping of additional import duty by India in July 2007. As a result, the Commission did not take its complaint forward in the WTO and a trade dispute panel set up to deal with the matter lapsed.
Subsequently, the European Commission alleged that many Indian states started imposing additional duties on imported liquor. In August 2008, the commission launched the consultation process over the issue with India again.
According to figures available with the Commission, during 2007, India imported Euro 52 million worth spirits, out of Euro 6.4 billion exported by its members. In the same year, India imported wines worth Euro 8 million, out of Euro 6.2 billion exported by the European Commission member states.