INDIA BUSINESS WORLD - APRIL 2007
The Month that was ...

INDIA GETS READY TO REDUCE IMPORT DUTY ON LIQUOR

REFUSING to give India more time to reduce its import duties on wines and spirits to WTO committed level, the European Union has asked WTO to rule on the legality of the high duties. India - which has started work on creating conditions which could lead to a duty reduction - is hopeful that by the time WTO panel comes out with its ruling, it will be in a position to carry out reduction proposed by the panel.

India had indicated to the EU that it would reduce import duties on liquor in the Union Budget announced last month after the EU initiated consultations with India at the WTO on the high duties. However, when India failed to carry out its promise in the Budget, the EU threatened to establish a dispute settlement panel to sort out the issue. Although, India recently started working on a legislation to enable states to impose excise on imported liquor following which the additional duties on imports could be removed, the EU was, apparently, not convinced. The official sources said that strong lobbying by domestic liquor producers has been preventing the government from taking an immediate decision on duty reduction. The aggregate duty level in India resulting from the application of the basic customs duty, the additional duty and the extra additional duty ranges from 177.33% to 264% for imported wines and from 252.22% to 550% for imported spirits. The committed levels of duty at the WTO by India are 100% for wines and 150% for spirits.

Sources, however, added that once the WTO panel comes out with its decision, India will have no option but to implement it. India has enough time to put its house in order as it normally takes about 10 months for a panel to give its ruling. The country losing the case is also given some time to implement the ruling. If the country still doesn't comply with the ruling, the complainant is allowed to impose retaliatory duties on its exports.

While India will be prepared to remove the additional duties on liquor, it plans to allow states to impose excise duties at the levels imposed on domestic liquor.

"As long as states charge the same level of excise from both foreign and domestic producers of liquor, it will be WTO compliant as it will not breach the clause of national treatment," an official said.