The World Trade Organization appeals panel has issued a ruling in the U.S – India dispute over tariffs on American wine and spirits. The ruling however is inclusive. It gives the Indian government an opportunity to walk away from the allegations while still providing the U.S with fodder for a new case. Shiv Singh reports.
It’s an 83-page verdict that struck down many of the findings from the February ruling and also faulted the Indian government for failing to justify the controversial import tariffs. On the flip side, it also said that the U.S failed to produce evidence that the Indian government was breaking international trade rules. The net result is a win for the Indian government.
Import duties on foreign wine and spirits reach 150 percent which are within the WTO limits. But the state government surcharges take those charges up to 550 percent in some cases depending on the State with Tamil Nadu being the harshest on foreign alcohol. The EU restarted a separate WTO complaint. Brussels and Washington say the tariffs prevent their products from breaking into the market.
The Distilled Spirits Council of the United States estimates that India’s spirits market was worth $16.2 billion in 2006, making it one of the biggest in the world, but imports account for less than 1 percent of that. Needless to say, importers from around the world are keen to break into the Indian market.
However, this isn’t just a legal issue. Consumers lose out with the high import tariffs. Foreign wines cost a fortune when they shouldn’t and they hamper the overall growth of the Indian wine market. The current taxation structure put in place by the central government is in sharp contrast to the position taken by Hong Kong. Their removed all taxation completely so that Hong Kong would become a trading hub for fine wine.
Back in September as a response to an European Union complaint, the Indian government agreed to drop additional duties but instead raised the basic wine and spirit duty. The reality is that two very strong forces keep the taxes high across India. The first is the revenue factor with States reluctant to give up a precious revenue source. The other is a protectionism mentality within certain parts of the Indian government.
Sommelier India believes that high taxation makes wine more inaccessible and hurts the growth of the overall industry. We do however understand the State revenue pressures and the desire to protect local industry. But doing those two things mustn’t suffocate the market as a whole or conflict with any international agreements. The Guardian and the Associated Press first covered this story.
For more on the taxation issue, read these other Sommelier India articles.
– Shiv Singh