The European Union today said it plans to approach the World Trade Organisation's dispute settlement body against trade barriers maintained by India on imported wines and spirits. It served a notice to the Indian government in this regard.
The development is worrying for New Delhi as this could be followed soon by a formal notice by the EU to India to begin consultations.
According to WTO procedures, a country approaching the dispute settlement body holds consultations with the country concerned before requesting a dispute panel be set up.
EU's intention to approach the WTO comes less than a week after the European Commission formally sent its investigation report to India on trade barriers on imported wines and spirits.
The report shows clear violation of WTO provisions and recommends WTO consultations unless India abolishes the additional duty on wines and spirits.
The EU has pointed out that India imposes an additional duty on all imported wines and spirits.
In addition, excise duties and taxes are applied exclusively or at higher rates to imported wines than to domestic products by certain states. Besides, there are restrictions on import and sale applied by certain states, it has said.
The commerce ministry had made a presentation to the empowered committee of state finance ministers last month, in which it proposed countervailing duty could be lifted in lieu of the states agreeing to impose a duty equal to excise on domestic liquor. The states had in turn sought information on the legal implications of the move.
CVD has been imposed on imported liquor to neutralise the excise duty on domestic liquor. The tax is an average of the various levels of excise duties imposed by different states. Over and above this, states impose excise duty on their local liquor and CVD on liquor manufactured by other states.
"The finance ministry has already indicated it is willing to withdraw CVD on imported wines and spirits. However, now the ball is in the court of state governments since they would be required to amend their sales tax acts," a commerce ministry official said.
States, at present, extend different treatments to imported wines. Maharashtra, for instance, does not impose any duty on domestic wines while the duty on imported wine is 28 per cent. Tamil Nadu, on the other hand, does not allow retail sale of imported wines.
The EU investigation was initiated in September 2005 and conducted under the Trade Barriers Regulation, which allows European companies to file complaints with the EC against other WTO members, in case they encounter WTO-illegal trade barriers.
