EU Requests WTO Consultations On Indian Wine And Spirits Taxes

by Ulrika Lomas, for LawAndTax-News.com, Brussels

23 September 2008

on Monday the European Union requested World Trade Organisation consultations with India on its domestic tax regime for spirits and wines.

These new consultations will seek clarifications from India on the way tax legislation and other measures on market access for wine and spirits are applied in states such as Goa, Maharashtra and Tamil Nadu. These states are among India's largest markets for wines and spirits.

The custom tariff for imported bottled wines and spirits at the Indian border is already as high as 150%. Discriminatory internal taxation in some Indian states adds further to this burden for importers.

For example, Maharashtra imposes a special fee on imported wines and exempts locally-produced wines and spirits from excise duty. Goa adds an import and 'label-recording' fee to the cost of imported wines and spirits.

In both cases, internal taxes are applied only to imported wines and spirits, or at a much higher rate for imports than domestic goods - this is a breach of the WTO's national treatment principle, which requires that WTO members treat imports and domestic goods the same, says the EU.

According to the EU, despite recent amendments to legislation, there are no clear indications that the restrictive retail and wholesale practices in Tamil Nadu have ceased. A special fee also appears to be being imposed on imported wines and spirits only.

As part of its 2007 Market Access Strategy the European Commission has focussed new resources on removing unfair barriers to trade in key growing markets such as India.

In 2007, EU pressure and a WTO case led to the elimination of the discriminatory federal Additional Duty on wine and spirits in India. This removed the excessive duty burden that India had imposed on imports of spirits and wine, which rose as high as 550% for spirits and up to 264% for wines.

The request for consultations formally initiates a dispute under the WTO dispute settlement rules. Bilateral consultations give the WTO members, in this case the EU and India, the opportunity to discuss the matter and to find a satisfactory solution without resorting to litigation. If these consultations fail to reach a satisfactory solution within 60 days after the receipt of the request for consultations, the complaining party may request the establishment of a panel.

The Indian market for spirits is one of the largest in the world, amounting in 2007 to about 130 million nine-litre cases. The corresponding figure for wine is 1.5 million nine-litre cases.

In 2007, EU exports of spirits to India amounted to about EUR57mn out of a total EUR7bn exported to more than 150 countries. EU exports of wine to India amounted to about EUR11mn out of a total EUR6bn in the same year.

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