Notice of initiation of an examination procedure concerning obstacles to trade within the meaning of Council Regulation (EC) No 3286/94, consisting of measures imposed and practices followed by India affecting trade in wines and spirits
Date: 2005-09-17
Institutions: European Commission
Subjects: India, alcoholic beverage, common commercial policy, tariff barrier, trade restriction, wine

C 228/6

EN

Official Journal of the European Union

17.9.2005

Notice of initiation of an examination procedure concerning obstacles to trade within the meaning
of Council Regulation (EC) No 3286/94, consisting of measures imposed and practices followed by
India affecting trade in wines and spirits

(2005/C 228/03)

On 20 July 2005, the Commission received a complaint under
Article 4 of Council Regulation (EC) No 3286/94 (1) (herein-
after ‘the Regulation’).

3. Subject

The complaint focuses on three separate aspects of India's legal
regime for imported wines and spirits:

1. The complainants

The complaint was lodged jointly by CEEV (Comité européen
des enterprises vins) and CEPS (Confédération européenne des
producteurs de spiritueux).

(a) Additional Duty

CEPS is the representative body in the EU for producers of
spirit drinks. Its membership comprises 38 national associa-
tions representing the industry in 21 EU Member States. CEEV
is the representative body in the EU for the national trade asso-
ciations of the EC Member States that represent the industry
and/or trade in wines, aromatised wines, sparkling wines,
liqueur wines and other vine products.
Its membership
comprises 12 national associations plus Switzerland.

The CEEV and CEPS are associations acting on behalf of one or
more Community enterprises within the meaning of Articles
4(1) and 2(6) of the Regulation.

2. The product

The EU products affected by the Indian measures at issue are
wines, vermouths, aromatised wines and spirits classified under
HS headings 2204, 2205, 2206 and 2208. They include still
and sparkling wines, vermouths and other fortified wines such
as port and sherry, and spirit drinks distilled from raw materials
of agricultural origin such as brandies and wine spirits,
whiskies, gin, vodka, rum and liqueurs.

However, the examination which the Commission is initiating
may also cover other products, particularly those which inter-
ested parties making themselves known within the time limits
mentioned below (see Section 8), can show are affected by the
alleged practices.

(1) Council Regulation (EC) No 3286/94 of 22 December 1994 laying
down Community procedures in the field of the common commer-
cial policy in order to ensure the exercise of the Community's rights
under international trade rules, in particular those established under
the auspices of the World Trade Organisation (WTO) (OJ L 349,
31.12.1994, p. 71). Regulation last amended by Regulation (EC No
356/95 (OJ L 41, 23.02.1995, p. 3).

Under Indian law, jurisdiction to levy excise tax on alco-
holic beverages lies with the 26 Indian State Governments.
Excise tax is, in principle, levied only on products which
have undergone a manufacturing process in India. Conse-
quently, excise taxes are, in principle, not levied on imports
of bottled wines and spirits. Only domestic production and
bulk imports bottled in India are taxed (at rates that vary
significantly among the 26 Indian State Governments).

In this context, on 1 April 2001, by means of Notification
No 37/2001 under Section 3 of the Customs Tariff Act,
India introduced a federal Additional Duty on imported
wines and spirits to compensate for excise duties paid or
payable at State level on domestically produced products.
In accordance with Section 3 of the Customs Act, the
federal AD should be ‘equal’ to the excise duty levied on
domestic products. The Additional Duty is charged on an
ad valorem basis at distinct rates. Pursuant to Customs Noti-
fication No 32/2003 of 1 March 2003, the current rates of
the Additional Duty applicable to imported wine are at the
three levels of 75 %, 50 % and 20 % (depending on the
value of the imports) and to imported spirits at the four
levels of 150 %, 100 %, 50 % and 25 % (again, depending
on the value of the imports).

(b) State excise duties and taxes

As explained, Indian states do not have jurisdiction to levy
excise duty on imported bottled wines
and spirits.
However,
the complainants allege that several states do
nonetheless apply excise taxes or similar taxes — under
different names and at varying levels — to the sale of
imported wine and spirits. According to the complainants,
some of these (excise and other) taxes are moreover applied
only to imported products or applied at higher levels to
imported products than to domestic products.

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(c) State import restrictions

indirect taxes applied at State level to domestic wines and
spirits.

The complainants maintain that seven Indian states have a
policy of de facto prohibition on importation of wines and
spirits.

(b) State excise duties and taxes

4. Allegations of obstacles to trade

The complainants consider that the measures and practices
described in Section 3 constitute obstacles to trade within the
meaning of Article 2(1) of the Regulation.

(a) Additional Duty (AD)

The complainants contend, first, that the federal Additional
Duty must be regarded as an import duty (or other duty
and charge) which violates India's obligations under Article
II of GATT 1994 read in conjunction with its tariff sche-
dule. In this context, the complaint explains that India's
WTO tariff bindings commit India to a maximum rate of
duties and charges on wines and spirits of 150 %. All
imported wines are spirits are subject to a Basic Customs
Duty of 150 % (for spirits) and 100 % (for wines). The
federal Additional Duty is applied in addition to these rates.
Thus,
in so far as the federal Additional Duty is to be
regarded as an import duty (or other duty or charge), the
total duty rate exceeds for all spirits and all wines (except
the most expensive ones (1)) the bound duty rate of 150 %.
Moreover, the complaints argue that the federal Additional
Duty is not to be regarded as ‘equivalent to an internal tax’
within the meaning of Article II.2(a) and cannot therefore
be justified under that provision.

The complainants contend that, although Indian states do
not have jurisdiction to levy excise duty on imported
bottled wines and spirits, some States do nonetheless apply
either excise taxes or similar taxes — under different names
and at varying levels — to the sale of imported wine and
spirits. Thus, it is argued that at least thirteen Indian States
apply either excise duties or other taxes which could be
considered as alternative means of collecting revenue from
imported products as they are not entitled to levy excise
duties. According to the complainants, some of
these
(excise and other) taxes are either applied only to imported
products or applied at higher levels to imported products
than to domestic products contrary to Article III.2 of GATT
1994.

(c) State import restrictions

The complainants maintain that seven Indian states have a
policy of de facto prohibition of importation of wines and
spirits, contrary to Articles III.4 or XI.1 of GATT 1994.

the factual

In light of
information available and the
evidence submitted, the Commission is satisfied that the
complaint contains sufficient prima facie evidence of the
existence of obstacles to trade within the meaning of
Article 2(1) of the Regulation.

The complainants contend, secondly, and in the alternative
to
the federal Additional Duty accords treatment
that
imported wines and spirits that is clearly less favourable
(or 'directly competitive or
than that accorded to 'like'
substitutable') products of national origin,
in breach of
Article III.2 of GATT 1994. In this regard, the complainants
argue that while imported spirits are not, in general, subject
to State excise taxes, the rate of the federal AD substantially
exceeds the level of excise duty applied on the sale of
domestic spirits in most Indian states. According to the
imported wines and spirits also subject to
complainants,
excess taxation if a comparison is made of, on the one
hand, the rate of the federal AD plus other indirect taxes
applied at State level on the sale of imported wines and
spirits and, on the other, the sum of excise duty and other

(1) I.e., wines imported at cif prices above USD 100 per case (12
bottles) to which the lowest rate of (20 % ad valorem) AD is applic-
able.

5. Allegation of adverse trade effects

Consumption of branded western–style spirit drinks in India in
2004 was estimated by the International Wine & Spirits Record
(IWSR) at 87 million nine litre cases, making it one of the
largest spirits markets in the world. this estimate includes some
550 000 cases of
the remainder (99,4 %)
comprising domestically produced ‘Indian Made Foreign Liquor’
(IMFL). In 2004, the EU exported spirits with a value of some
EUR 23 211 000 to India.

imported spirits,

The Indian wine market has been growing steadily, albeit
it was estimated at
slowly, over the last decade.
667 000 nine litre cases, of which 96 000 or 14 % were
imported. In 2004, the EU exported wines with a value of
some EUR 4 167 000 to India.

In 2004,

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the practices subject

to the
The complainants claim that
complaint
impede meaningful access to the Indian market,
place imported wines and spirits at a competitive disadvantage
compared to domestically produces goods, and have prevented
a natural growth in the consumption of imported wines and
spirits in India.

In this regard, the complainants point out that following the
elimination of Federal quantitative restrictions on importation
in 2001 and their replacement with the measures set out in
this complaint, the volume of spirits imports fell by some 60
— 70 % during the period April to August 2001, as compared
to the same period in the previous year, because goods destined
for the tourist trade became subject to a fiscal burden which
effectively priced them out of the market. The complainants
also point out that when certain tax concessions were subse-
quently granted for goods sold in certain classes of hotels and
restaurants, the volume of wines and spirits imported increased
substantially. This suggests that the tax measures subject of this
complaint are preventing EU wines and spirits from achieving
increased penetration of the Indian domestic market.

The complainants also refer to figures on the typical market
penetration achieved by imported spirits in other developing
countries broadly similar to India, which suggest
the
barriers to trade confronting the EU spirits industry in India are
particularly problematic.

that

The Commission considers that the complaint contains suffi-
cient prima facie evidence of adverse trade effects, within the
meaning of Article 2(4) of the Regulation.

6. Community interest

The EU spirits industry, as represented by CEPS, exports each
year goods estimated at a value in excess of EUR 5 billion to
over 150 countries. The spirits sector directly employs about
50 000 people and indirectly a further 250 000. EU wine
exports to third countries are valued at EUR 4,5 billion repre-
senting 12,5 billion hectolitres (hl) by volume.

The Commission considers it essential to ensure a level playing
field in third country markets for our export industries, particu-
larly with regard to internal taxes. Tariff protection should not

be replaced with other protectionist barriers in breach of inter-
national commitments. This is especially important in the case
of alcoholic beverages, as they typically bear a high tax burden
through the combination of excise duties and value-added
taxes.

In view of the above, it is considered to be in the Community's
interest to initiate an examination procedure

7. Procedure

Having decided, after due consultation of
the Advisory
Committee established by the Regulation, that there is sufficient
evidence to justify initiating an examination procedure for the
purpose of considering the legal and factual
issues involved,
and that this is in the interest of the Community, the Commis-
sion has commenced an examination in accordance with
Article 8 of the Regulation.

Interested parties may make themselves known and make
known their views in writing on specific issues raised by the
complaint, providing supporting evidence.

Furthermore, the Commission will hear the parties who so
request
in writing when they make themselves known,
provided that they are primarily concerned by the result of the
procedure.

This notice is published in accordance with Article 8(1)(a) of
the Regulation.

8. Time limit

Any information relating to the matter and any request for a
hearing should reach the Commission not later than 30 days
following the date of publication of this notice and should be
sent in writing to:
European Commission
Directorate-General for Trade
Mr. Jean-François Brakeland, Unit F.2
CHAR 9/74
B-1049 Brussels
Fax (32-2) 299 32 64