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US Claims Victory In Dispute Over Indian Alcohol Duties

by Mary Swire, for, Hong Kong

03 November 2008

A long-running altercation between India and the United States over the rate of tax levied on Indian imports of alcohol has been settled after intervention from the World Trade Organization (WTO).

The dispute arose in September 2007 when the US accused India of deliberately increasing the excise duty on imports of alcohol to levels that exceeded the levels agreed under WTO rules.

India currently uses a complicated method of taxation on imports of foreign alcohol, with the rate of tax depending largely on which state the alcohol is imported to. The basic rate stands at 150%, but certain states impose greater surcharges than others, meaning that some imports can end up being subject to a colossal 550% levy.

The Appellate Body's ruling reversed an earlier WTO panel decision, which had found that any import charge offsetting an internal tax need only “serve the same function” as the internal tax and need not be equivalent in amount to that internal tax. In reversing the panel, the Appellate Body agreed with the United States that any import charges aimed at offsetting internal taxes cannot result in a higher amount being charged on imports than on similar domestic products.

“This is an important decision for all WTO Members, particularly at a time when they are negotiating tariff commitments,” said US Trade Representative Susan Schwab. “The Appellate Body reversed a deeply flawed panel report and reaffirmed a fundamental WTO rule that Members cannot impose duties on imports that exceed their tariff commitments.”

However, the US remains concerned about whether measures put in place by India have eliminated its "abusive" use of additional tariffs given "India’s refusal to produce information to support its claims that the duties merely offset internal state-level taxes."

"We continue to closely monitor the effect of both actions," the USTR said.

The European Union has also sought clarification from the WTO over duties and taxes on imported alcohol.

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