The Hindu Business Line : The whine about spirits

By scrapping the additional Customs duty on wines, spirits and beer, New Delhi has attempted to head off the impending problems at the World Trade Organisation’s dispute resolution panels which are due to hear complaints by the EU and the US. The burden of the complaints is that the ‘integrated’ duties (that is, basic Customs duty plus additional duty) add up to more than the WTO bound rates for these products. The issue is so simple and transparent that New Delhi has thought it prudent to rectify the situation in record time (the US asked for consultations on March 6; the EU registering its complaint on November 20 last year).

But, of course, this is not the end of the matter. One, both the EU and the US will be in no hurry to withdraw their complaints although, since July 3 when the additional imposts were withdrawn, the ground cited for their action no longer exists. As the EU has made clear, Brussels will “continue to monitor the situation” to make sure that “no new discriminations appear at the State level.” Presumably, this will also be the US position, especially as New Delhi has let it be known that the States will be asked to consider imposing taxes on imported (‘bottled in origin’) liquor so as to ensure that Indian liquor is not discriminated against in view of the high taxes the latter bear at the State level. This step is being seen by New Delhi to be consistent with WTO rules on ‘national treatment’ (Article III of GATT 1994), which allows a member-country to impose taxes on imported products after they enter the domestic market but on a par with the levy on similar items produced domestically. In fact, given that some State levies on liquor items are exorbitantly high, imported liquor could well be priced higher than when subject to additional Customs duties. On revenue grounds, as Commerce Ministry officials have indicated, the proceeds from the State taxes may be much higher than from the additional Custom levy that fetched some Rs 60 crore annually.

Foreign liquor manufacturers are aware of all this, as also that — since the revenue proceeds are so minimal — the main purpose of the extra Customs impost was to protect the domestic liquor industry. Herein lies the problem for New Delhi because Article III(a) and (b) of GATT does not allow imposition of taxes under the ‘national treatment’ stipulation if the objective is to “afford protection to domestic production.” Both the EU and the US have cited violations of these provisions, among others, in their complaints to the WTO. They are expected to press their case hard on these grounds once the States begin to levy taxes on their wine and spirit exports.

More Stories on : Editorial | Breweries | Excise and Customs

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
The whine about spirits

To work smartly and efficiently

Environment: Time is running out

Dialogue resolves relational issues

From Ooty with a song

Why they should stay with the Air Force

Globalisation worked silently for millennia without a name

Reservation in private industries

Export-led growth