EU renews spat with India over wine tax

The European Union launched new dispute proceedings against India at the World Trade Organisation on Monday over taxes and restrictions on European wine and spirits imposed by three Indian states.

Brussels suspended a WTO case last year against discriminatory federal-level duties on wine and spirit imports after the Indian government removed them. But the European Commission says Goa, Maharashtra and Tamil Nadu, among India¡¯s biggest markets for wines and spirits, continue to apply tax and other measures that unfairly penalise imports.

Welcoming the EU move, Jamie Fortescue, director-general of the European Spirits Organisation, said India had made significant progress in opening its market to European wines and spirits. ¡°It is therefore disappointing that trade barriers have now emerged at the state level.¡±

Jos¨¦-Ram¨®n Fern¨¢ndez, secretary-general of the Comit¨¦ Europ¨¦en des Entreprises Vins, which speaks for European wine producers, said his members were simply asking for a level playing field. According to industry figures, the Indian market for spirits is among the world¡¯s largest, amounting to about 130m nine-litre cases in 2007. EU exports of spirits to India, such as Scotch whisky and French cog­nac, were a meagre €57m ($82m, £45m) out of total exports of €7bn to more than 150 countries last year. There is also a growing Indian market for wine, but EU wine exports to India were worth only €11m last year, out of total exports of €6bn.

India imposes customs duties of up to 150 per cent on bottled wines and spirits at the border. These are supposed to be equivalent to the excise duties paid by domestic producers.

But the EU says Maharashtra is imposing a special fee on imported wines and exempting local producers of wines and spirits from excise duty. Goa and Tamil Nadu are charging extra import fees while Tamil Nadu continues to operate restrictions on the sale of imports.

The spat puts Indian tycoon Vijay Mallya in a difficult spot. Mr Mallya last year paid £595m (€754m, $1.09bn) for Whyte & Mackay, the UK-based Scotch whisky producer, but he has warned his new counterparts of Indian domestic political sensitivities. Until last year, India collected ¡°additional duties¡± of 150-550 per cent on top of basic ­customs duties.

Under WTO procedures, the two sides have 60 days to try to settle the issue by mutual agreement, failing which Brussels can ask for creation of a dispute panel.

India and the US, which has pushed ahead with a case against federal-level duties on wine and spirits imports, unlike the EU, have both appealed against a WTO panel report released in June finding largely in India¡¯s favour. The appeal verdict is due later this year.