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Delhi Wine Club
South Africa over-optimistic about Wine Duties

Posted: Monday, 24 January 2011 09:56

South Africa over-optimistic about Wine Duties

Negotiators from India and the Southern African Customs Union (SACU) are finalizing request lists of products to benefit from lower trade tariffs from the Preferential Agreement between the two countries, but S. Africa is being over-ambitious in hoping that our government would relax the import duties on their wines-a part of their wish list.

A preferential agreement between South Africa and India is likely to lead to trade between the two countries soaring even further than the $10-billion expected this year.  An agreement would also lead to increased trade between South Africa, largest member of SACU and India.

The lengthy negotiations for a preferential trade agreement (PTA) were given new impetus following a state visit by President Jacob Zuma to India in June. At present, Indian exporters pay lower tariffs than their South African counterparts. While 50% of India's exports to S. Africa are subject to tariffs of less than 10%, 55% of SA exports to India are taxed at more than 20%, according to the report by Times Live.

Vikram Doraiswami, India's consul-general in South Africa, reportedly says, " India’s idea is not to have an excessively ambitious list" of products benefiting from lower tolls, but to begin at a level that all parties found comfortable to set the ball rolling with an initial agreement.”

Though the details of this list are still a secret, South Africa is likely to ask for improved access for its wine and agricultural products including fruits, while Indian exporters will want improved access for pharmaceuticals, vehicles and jewellery.

Countries like Chile, Italy and France etc are all pushing for more favourable tax structure for export of wines and spirits. At the current duties of virtually 160% (the basic official duty is 150%), they are unable to make a penetration and despite a huge market demand and potential are unable to do so because of these duties and the producers are getting disillusioned and frustrated. Till date, no country has apparently been able to get any concessions on the export of wines to India.

One of the major problems is that the wines and spirits are lumped together in the same category of liquor. For various reasons, the government does not want to rock this boat, despite the consumption in India of 500 million cases of hard liquor, beer and wine which continues to be a miniscule portion. Unless the government can take a bold stand that wine is an agricultural product different from liquor, it will continue to treat it as pariah too. An active and behind-the-door lobbying by the Indian producers against tax concessions is also another significant factor.

Trade between SA and India has increased significantly in recent years. Doraiswami said it was expected that the target of $10-billion in bilateral trade would be reached early this year, rather than the originally forecasted 2012. The two countries hope to reach trade of $15-billion by 2014.

The Indian government is capable of playing its cards diplomatically for years and decades and in the end regret adding wine to the list of items. Though South Africa is being overly optimistic at this stage, they need to keep it in the wish list, though and keep the pressure. Although South Africa, like Chile, Italy and France has unique value-for-money and terroir driven wines to offer, and many at attractive prices if the duties were lower, one would not recommend the producers to pack the bags to travel to India in the hope of an imminent surge of demand with the opening of the market. India continues to be a wonderful story for the future-Government and God willing!


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