Among many other areas of disagreements, wine was an important sector in which there had been strong disagreements, not as much in the extent but the threshold of wines under which there would not be any impact on the Indian wine producing segment. After the FTA is reviewed and ratified by Indian Parliament and those of 27 constituents of the EU in a year’s time, the import duties would be reduced from the current 150% to 20% for the super-premium wines costing 0ver $20 and to 30% for the medium quality wines.  A few clarifications are still being sought and will be shared in another Article in the next issue of delWine.

Resolution with similar Previous FTAs

It’s still not clear how the EU-FTA Treaty will resolve the issues with earlier Treaties. Most of such earlier Agreements have clauses which allow benefits extended to the later Agreements will become available to the earlier treaties.. For instance, the Agreement with Australia reportedly had allowed for reduction of customs duties only on wines costing US$5. The Australians apparently thought the threshold cut off was at A$5 (US$ 5) and a significant number of exporters had expressed disappointment because of this confusion. The current Treaty has surprisingly reduced the threshold to $2.91 (2.5 euros)-almost by 40%.

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No graded reduction: There also does not seem to be a graded reduction. A bottle costing more than $2.91 –say $3.0 will be entitled to a 50% duty reduction when the treaty comes into force; pricing it at less than say $2.5 will mean no reduction. The producers will gladly price at @3.0 or even @3.30 thus over- invoicing, helping the importers even get income-tax savings on the amount over invoiced resulting in higher costs and less profits in the importer’s books.

Also Read: European Union maybe over optimistic about FTA with India

Mother of All Deals is how Ursula Von der Leyen, President of the European Commission, describes the deal. Perhaps, the focus now shifts to the Father of All Deals when Pápa Trump (Pope Trump in Italian) coaxes the Indian PM Modi who describes this FTA as historic-perhaps because of the 19 years for it to come to fruition.

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First initiated in 2007 it was a regular affair to see the talks take off and keep them in the news and both sides (in all honesty, EU was always more excited and optimistic after each round, 16 of which took place in 2007-2013 when Congress Party was the ruler. Later when BJP took over, these were led by Piyush Goyal, our creditable Commerce Minister. The Final Stage of negotiations went on till 2013 when Subhash Arora had strongly suggested at a Conference in Italy attended by one of the Ministers of EU Parliament in 2013 that unless it was ‘finally signed’ soon, it would be postponed for a long time as the elections were slated in 2014 and there might be a change in the government and the new government might not be as interested and in any cast the discussions would have to be started afresh.

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Longest Time to fructify

Talks for the agreement had started in 2007 and stalled for eight years in 2013 after several parleys since the general elections were taking place in 2014. They resumed in 2021 when the Modi Government agreed to start all over again. In 2022 a similar Treaty was signed with Australia according to which the duties on premium Australian wines were decreased in steps over the next 10 years.

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Both the EU and India felt that with stable or growing economies there was a need to come together and face the brunt of the current onslaught by the US. “We both stand to lose from a world of spheres of influence and isolationism, and stand to gain from a world of cooperation and working together and there is an opportunity for Europe and India to reimagine their partnership,” says Von der Leyen.

Also Read: European Union keen on FTA with India despite Protectionist Policies

Grand Finale

Undoubtedly, the cooling of relations between the US and India as well as the EU and continued growth in the Indian economy, warranted a fast track approach to signing the Treaty. Both EU and India can help each other’s economy; EU with its 27 constituents and more In the pipeline, with India as world’s largest populated country and slated to become the third largest economy in a couple of years,  it was obvious that finally the Treaty will see the light of the day. In fact, the moment one heard that she was invited along with the Portuguese Antonio Costa, President of the European Commission to be the Chief Guests at the Indian Republic Day Parade, it was clear that the FTA would be finally signed during their visit. In fact, it was announced that it would be announced by the end of the month.

Also Read: Import Duties on Wines from Chile ruled out in Proposed FTA

Slowdown in sales for Indian wines The Indian industry had put a spoke in the ongoing discussions for many years because they wanted the protection against the fall in prices of imported wines making a dent into domestic wine sales. With the threshold of cut-off being lowered, there was more threat perceived to Indian wines. There could be a danger for the industry which has been otherwise predicting an increase in sales as high as 15%. They have a year to sort out this problem and for once the wine industry needs to unite to find a common solution.

Also Read : Sliver of Hope for Lower Import Duties on EU Wines

Increased foreign interest: My telephone is busier and emails have increased phenomenally from the foreign producers, a vast majority believing the taxes will be reduced from ‘tomorrow’. This is not true. The Treaty has to be ratified by the Parliaments of all the stakeholder countries. It would take a year before the Treaty will come into force and taxes will come down.

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There is always a danger that the greedy States with liberal free giveaways to their voters with marginal incomes will find sadistic pleasures by increasing the ‘Sin Tax’ on cigarettes and alcohol.  Cigarettes were already brought in the Net tighter last month and alcohol is always at the bottom of the fruit tree, ready and ripe to be plucked, Rather than improving the efficiency, they could increase the excise duty though I believe there is less chance this time. More states are now governed by the same party (BJP Alliance) and aligning the two would be easier.

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The small fear of traders pocketing the windfall in profits is miniscule due to competition and many adjoining States watching over their shoulders to remain competitive. There is also the problem of ever increasing expenses due to the grease money.

Also Read : Fine Wines from EU may get Cheaper Next Year

The FTA has surely made heads turn and we shall see a lot of interest and excitement in the Indian market. Who knows, this might prove to be the game changer. After all, a drop in duties from 150% to 20% from super premium wine and 30% for the medium priced wines ($20 cut-off for the reduction), there is a good scope of price reduction and with the Indian consumer upping the thirst for higher quality wines as they climb the premiumisation tree and like to drink better quality wines, the golden period may start, the over-hyped screaming and shouting about the harmful effects of alcohol in the wines notwithstanding.

Also Read : EU to Hold Talks with Indian Government

Subhash Arora