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Delhi Wine Club
Wine and Spirits Delay EU FTA with India

Posted: Monday, 18 July 2011 12:37

Wine and Spirits Delay EU FTA with India

After a barrage of print media giving high hopes for the EU to sign an FTA with India thus reducing duties on imported wines and spirits from EU, it has resigned to the reality that the Free Trade Agreement between the two in the final stage is now being delayed because of the issue of lowering of duties on wines & spirits and cars, with India refusing to lower the tariffs due to a strong domestic lobby.

"We have told them (EU) that we are unable to offer any concessions since we have not included these two sectors in our FTAs," said a government official, according to a report in TOI. The government is also apprehensive of a backlash from similar demands from the other trading partners like South Korea and Japan with which it has already signed agreements without cutting customs duty on these products.

South Korea has just signed an FTA with the EU in which the customs duties on wines have been waived off in lieu of the favourable duties to Korea on their exports. The FTA effective from July 1 has already increased trade between them. According to the Wall Street Journal, trade volume between South Korea and the EU rose 17.4% from July 1 to July 13, while the overall exports were up 14%. Exports from South Korea to the EU countries rose 19%, while the imports increased by 16%, with the EU countries maintaining slight surplus. About 55% of Korean goods shipped to the EU in this period are estimated to have benefited from tariffs that dropped on July 1. Only 13% of the European goods had the similar advantage.

India and the 27-member EU have been negotiating a comprehensive trade and investment agreement comprising goods and services for the last four years. The deal was expected to be signed by June. The current impasse is likely to create a set back for a few months with the likelihood of a knock-kneed EU relenting on the political grounds.

There is a feeling within the government that it might not agree to any immediate tariff reduction. There seem to be bigger hurdles in the automotive area too. One way to deal with the situation is to provide concessions post-2016, but even that would require a go-ahead from top government functionaries, officials said. In case of wines and spirits, which are seen as "sin goods", India has always opposed steep duty cuts and politically it may find it tough to do so in the case of the EU, says the report in TOI .

The current situation is similar to what is happening in the FDI in retail where the foreign retail companies like Walmart, Tesco and Carrefour are not allowed to own a majority though they are allowed to enter the back-end operations or wholesaling like Metro and Carrefour. Due to the political lash-out, the positive decision that the convinced government has taken within itself, there is a regular postponement of the decision.

Interestingly, spirits and automobiles are the major chunk of export items in which the EU is interested. Wine is a very small area and the big lobbies of automobiles and whisky companies are pushing the EU hard. Wine being a small area, in which the domestic lobby is also not too strong- or as strong as the other lobbies in any case, it might be prudent for both sides to come to an agreement on the wine sector with the other two in the following years- say 2016. India could perhaps push the EU in accepting standards on grapes that help us increase the export of grapes to the EU and import wines at lower duties.


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