The Hindu Business Line : Bottle battles

With the US application for consultations under the dispute settlement procedure of the World Trade Organisation made on March 6, the stage is set for a battle royal between Washington and Brussels, on the one hand, and New Delhi, on the other, on the vexatious issue of India's high import duties on wines and spirits. Under the WTO dispute settlement rules, if New Delhi does not respond within 30 days of the receipt of a consultation request, the country making the demand can straightaway apply for the setting up of a dispute settlement panel. What this means is that Brussels (which made its consultations request last November) can take this step anytime, which probably is also what Washington has in mind if New Delhi does not respond to its request by the first week of April.

Clearly, if separate dispute settlement panels are set up on the subject by mid-April, it is more than likely that (going by Article 9.1 of the Understanding of Rules and Procedures Governing the Settlement of Disputes) one consolidated panel will be established to probe the complaints of both Washington and Brussels. This will increase the importance of the subject manifold in the eyes of the international community, which will not be liked by New Delhi because of its intrinsically weak position in the case. In simple terms, while the WTO-sanctioned bound import duty rates on wines and spirits is 150 per cent, the effective rates imposed on such imports from the US and the EU range between 150 and 550 per cent. Admittedly, the final duty on the imports is the net result of Central and State levies, but this cannot be an effective defence because what matters is the effective Customs duty rate which, in this case, is far in excess of the bound rate. Further, neither can New Delhi argue that the inordinately high import duties involve an item which (under Article 4.10 of the Understanding) merit "special attention to the particular problems and interests of developing member countries."

Given that the Indian wines and spirits market offers a great potential for American and European exporters, it is to be expected that no quarter will be given by these countries to prise open the protected Indian market for their products. Since the arguments for protection are weak (imports account for a minuscule portion of a profitable domestic market), it is perhaps not surprising that the Commerce Minister has begun making conciliatory noises about reducing the duty-level involved. The WTO rules (Article 4.5 of the Understanding) allow mutual negotiations leading to a "satisfactory adjustment of the matter", which is what New Delhi should pursue actively to avoid a dispute that could get messy beyond control.