The Hindu Business Line : Spirited battle over tariffs

A spirited brawl is on between India, on the one side, and the US and the European Union (EU), on the other, over what the rich world alleges as a major market-access barrier by India because of its high Customs tariff on wines and distilled spirits.

On Tuesday, Washington dragged New Delhi to the World Trade Organisation's dispute settlement consultation, arguing that while India's basic import duties on wines and spirits, at 100 per cent and 150 per cent, are within WTO rules, some Union and State-level taxes could push tariffs above 500 per cent.

The latest US complaint precedes the EU's request on the analogous anomaly when it approached the WTO in November 2006.

Coincidentally, with the US gripe, the EU Agriculture Commissioner, Ms Mariann Fischer Boel, who was in New Delhi, also said that the EU has sought a cut in India's import duties on wines and spirits to make trade between the two regions more balanced.

With improved living standards in India, thanks to three continuous years of 8.3 per cent average growth, wine sales too are frothing and the spirit market is growing at a blistering 25 per cent a year, with France leading the league of suppliers.

But, according to the Edinburgh-based Scotch Whiskey Association, India accounts for barely one per cent of its market compared to China, which last year received shipments worth £46 million and the US (£370 million).

Consultations are the preliminary step in a WTO dispute. Under WTO rules, parties that do not resolve an issue through consultations might take it to a WTO dispute settlement panel.

The US Trade Representative (USTR), Ms Susan C. Shwab, said in a statement: "With its fast-growing middle class, India could be an important export market for American wines and distilled spirits if not for these layers of duties."

Whittling down tariffs

Under the combined pressure of the trade majors, the Commerce and Industry Minister, Mr Kamal Nath, hinted at whittling down tariffs on imported spirits, but the domestic liquor industry has cautioned that if the additional duties on wines and spirits were removed, cheap whiskey could flood the Indian market.

The domestic industry points out that the price of premium Scotch in Scotland is also kept low artificially because of heavy farm subsidy on grains.

For once, the Indian liquor industry has urged the authorities to use this opportunity to zero-in on the large farm subsidy doled out by the rich countries before they demand steep cuts in India's Customs tariff on beverages.

In fact, the Indian industry wants the Government to get around the EU's obsession of whiskey as being made from molasses not as whiskey since it is not grain-based, a point to which Mr Kamal Nath drew the attention of Ms Boel.

Amid all these demands, India is in for exciting times with foreign companies pushing their premium beverages.