India in the WTO

See Gupta, Surupa. "The Institutional Basis of India?s Defensive Position on Agricultural Trade Policy" Paper presented at the annual meeting of the International Studies Association 48th Annual Convention, Hilton Chicago, CHICAGO, IL, USA, Feb 28, 2007 <Not Available>. 2009-02-04 http://www.allacademic.com/meta/p181265_index.html

Here is the abstract:

This paper analyzes trade policymaking in India in the context of the ongoing negotiations on trade in agriculture at the WTO. During the past decade, the overall direction of India’s trade policy has become more liberal. However, India’s position on liberalization of trade in agriculture at multilateral trade negotiations is dominated by its defensive/protectionist interests expressed in terms of a focus on livelihood security rather than its aggressive/liberal interests in gaining market access. This presents a puzzle for existing trade theory which would expect India’s farm trade policy to be more liberal, given that about 80% of India’s farm prices are globally competitive. This paper adopts an institutional perspective, and argues that the policy is ultimately a product of the existing domestic agricultural policies and the new consultative trade policy-making apparatus. Reform of existing policies has proved difficult and the Ministry of Agriculture resists liberalization because it sees itself primarily as a protector of farmers’ interests. At the same time, the government has changed the institutions for making trade policy since 1998, giving the protectionist Ministry of Agriculture greater voice in decisions at the expense of the Ministry of Commerce and Industry. The former has often vetoed more liberal positions advocated by the Commerce Ministry. The Parliament, unlike in the west, plays a minor role in setting the tone of the policy since its ratification is not required. Moreover, although in India’s federal system state governments could have used their power to shape policy, they have not organized politically to press for liberalization, instead supporting the protectionist views espoused by the agriculture ministry.This paper also shows that conventional institution-based explanations of trade policy, mainly based on the US and West European experience, need to be modified when being applied to developing countries like India. For example, institutional theories suggest an association between democracies and liberal trade policies, but this case shows that democracies can sometimes be more protectionist. Discussions of the role of bureaucracies focus on the relation between bureaucratic autonomy and trade liberalization. However, some relevant bureaucracies are not autonomous, and some autonomous bureaucracies may not support liberalization. This research suggests that bureaucracies should not be treated as unitary actors.

The Financial Express reports on the ongoing scrutiny by the EU and the US of Indian taxes on imported alcohol. The US is planning to appeal against the WTO panel decision that went in India’s favour on a technical point of burden of proof. The EU has also stated that it might still challenge the tariff structure for imported alcohol in India before the WTO dispute settlement mechanism.

Alleging that Maharashtra and Goa, in particular, maintained high duties on wine and spirits from Europe, the EU had threatened once again to take India to the WTO. The EU has been pressing for national treatment to its wine and spirits companies in India as per the WTO rules.

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Recently, the US had also indicated that it would appeal against the setback it suffered at WTO as a WTO panel held that the US had failed to establish that India’s additional duty on alcoholic liquor was inconsistent with WTO rules. The EU and US are expected to take a final stand on the issue by this month-end.

The Indian Government seems keen to resolve this dispute. The report suggests that on the Central government’s urging, two Indian States (Maharahtra and Goa) are reviewing their duty regimes to ensure national treatment to imported alcohol.

In what could be the last lap in resolving the ongoing dispute between the European Union (EU) and India on the latter’s relatively high tariffs on foreign liquor, the Centre has called an important meeting with the representatives of the European wines and spirits industry to find out the details regarding, “discrimination” they are allegedly facing in several states.

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The Centre now wants to know from the European liquor companies if they are facing discrimination in different states regarding the slab system of duties or in the manner of collection of such levies, or if it is even in norms regarding licensing, vending, labelling warehousing or transportation.

The Indian Government is also considering a proposal for a nation-wide uniform tax structure for liqour to replace the existing differential duty structures in Indian States (as many as 30 different structures).

Meanwhile, the Indian Wine Academy has an interesting post highlighting two issues that wine importers face in Maharashtra,

The first issue concerns Maharashtra’s regulations on labelling:

They insist that the bottle labeling be uniform for both the Indian and foreign wines. This means that the labels must have all such information as MRP or the name of importer etc on the bottle original label itself. Currently the stickers are being pasted mostly by the importers, especially the smaller ones who have to cater to many markets but with different requirements.

The bigger importers may find it at least doable because of the bigger quantities of a label for Maharashtra and the staff at hand. After all, it means getting the bottles without back labels, getting them printed in India and sticking them on before offering to excise department for removal. But small importers who may import 5-10 cases of a particular labels may find it cumbersome to administer.

The second issue concerns pricing for sales of imported wines in Maharashtra:

The issue of MRP itself is far from being resolved. The department wants them to declare the basic manufacturing cost (say x), pay 200% duty (2x) and charge MRP of (4x+ customs duty of 150%), implying that the importer/ distributor must limit all expenses and his profit margins to x. This is not feasible for the imported wines, all importers say in agony. A case in point might be 4% SAD which has to be paid first; it is then refundable but not the easiest task to get refunded-would that be a cost or receivable with limited certainty?

The Indian Wine Academy also writes that the state of Karnataka is all set to increase its duties on imported wines.

Karnataka had been liberal so far as the sale of foreign wines is concerned with the excise duties of up to Rs. 70 a bottle including VAT/Sales Tax. This compares favourably with Rs. 150 +VAT in Delhi and 200%+VAT in Maharashtra. However, it had not been as pro-active as Maharashtra for the state produced wines.

The recently announced policy of Rs. 300 per bulk liter would mean an increase in excise duty of Rs.225 a bottle for the imported as well as out-of-state (read Maharashtra) and the customer will have to pay about Rs.280 extra.

Note that the Karnataka measure targets not only imported but also wines produced in other Indian states.

Well, the saga continues as urban upwardly-mobile Indians turn to wine as their drink of choice and as the wine production industry in India grows.

The Business Standard reports that the Kerala state government has expressed its displeasure at India’s offer to reduce tariffs on crude and refined palm oil, tea, coffee and pepper in FTA negotiations with ASEAN. The political economy of trade policy in India is increasingly seeing contests between divergent federal interests. Note however, that the Kerala response indicates a wllingness to adjust to increased competition and the intention of the state to seek Central assistance in efforts to ward off any negative impact.

Kerala’s Finance Minister TM Thomas Isaac said the move might benefit the country as a whole but one should not lose sight of the regional perspective. “The body blow would be huge. The farm sector is likely to be hit hard,” he said.

“Such a situation calls for a mechanism on the part of the Centre to ensure that farmers in different regions, including Kerala, are not made to suffer,” Isaac said, adding the state would oppose any proposal that puts pressure on the farmers.

He said Kerala’s plantations were seeing low output and diminishing stocks. “The Centre should see to it that the replantation of these crops is prioritised. Unless the produce from our farm sector is made competitive, things are not expected to change,” he added.

Meanwhile, CP John, former Planning Board member and senior leader of the Communist Marxist Party (CMP), which is a United Democratic Front (UDF) ally, reacted strongly. “This is going to be worse than the WTO agreement,” he said.

“What would be good for the North-Eastern states or Maharasthra would be bad for Kerala. Such agreements will bring in more regional imbalances,” he said.

He suggested massive replantation till 2018, the year the duty cuts could come into force. “We could also try switching over to organic farming in case of tea, coffee and pepper,” he added.

Meanwhile, Jojan of the Spices Exporters Association ruled out any impact of any reduction in tariffs. “The deadline is far off and we do not need to be wary of things that will happen after that,” he said.

See http://www.business-standard.com/economy/storypage.php?leftnm=lmnu2&subLeft=1&autono=305209&tab=r

http://www.telegraphindia.com/1071121/asp/business/story_8573536.asp

The Telegraph reports:

Mumbai, Nov. 20: Imported wines will cost more in Maharashtra but the prices of premium whisky will head lower.That is the upshot of the latest rate tweak by the Maharashtra government, which has raised the duty on wines from 150 per cent to 200 per cent. But that is not all: the state government has said the duty on wines will either be 200 per cent of the assessable value or Rs 200 per bulk litre, whichever is higher. “The minimum duty of Rs 200 per litre will effectively stop the import of cheap table wines into the state,” said an industry source. “This is the first time that something so drastic is happening with wines. We just have to wait and see how the connoisseurs of wine react,” said Viveka Rawal of SV Distributors, a prominent wine importer. Back in May, the Centre had scrapped the 150 per cent additional customs duty on wines and spirits after the European Union (EU) hauled India to the WTO dispute settlement body for violating the ground rules of world trade. The EU action was prompted by a cacophony of protests by wine makers and scotch whisky manufacturers who were furious over India’s practice of slapping a basic customs duty of 100 per cent on wines and 150 per cent on spirits, and topping it with an additional duty on bottled spirits of up to 150 per cent and on bottled wines of 20 to 75 per cent. When the Centre scrapped the additional customs duty, states such as Maharashtra virtually nullifed the benefit by raising their own duty rates on wines and spirits. At that time, Maharashtra had imposed a 200 per cent duty on spirits and 150 per cent on wines. After persistent lobbying by liquor industry, Maharashtra has now replaced the flat 200 per cent duty on spirits with a four-slab structure. In the first slab, duty will be levied at 200 per cent or Rs 300 per bulk litre, whichever is higher, on spirits with an assessable value of Rs 1,000 per case of 9 bulk litres. The other slabs are 150 per cent (for spirits with an assessable value of Rs 1,000 to Rs 2,000 per case), 100 per cent (Rs 2,000 to Rs 5,000) and 75 per cent (for those valued at above Rs 5,000). “The prices of spirits will go down. But the prices of premium and mid-priced wines will shoot,” said Satyam Sabla of Juben Wines, a prominent liquor store in Juhu. “It’s sad to see the Maharashtra government behaving the way it has. There are just too many lobbies at work. A duty change in four months is uncalled for,” said Sabla. Rawal said the luxury hotels in the city would have to rearrange their wine lists because premium wines would become unaffordable. “I see a situation where the hotels will cut down their wine lists,” she added. Mumbai accounts for 40 per cent of India’s wine consumption. A top-end wine that costs Rs 10,000 a bottle will now cost Rs 30,000 with the 200 per cent duty. “It will be completely unaffordable. We have to wait and see how the customers react,” she said, adding that it won’t be long before wine importers gather forces and lobby the state government to reduce the duties.” 

It should be interesting to see how this will play out. A case study of the interaction between India’s federal institutions and the World Trade Organization?