Alcohol Makers Seek Phased Import Duty Cuts, Strong Safeguards to Prevent EU FTA Misuse

Alcoholic beverage maker's body CIABC has urged the government to adopt a phased reduction in import duties on liquor products under the proposed India-EU free trade agreement (FTA), while calling for strong safeguards to prevent misuse of trade concessions under the pact.

In a submission to the commerce ministry, Confederation of Indian Alcoholic Beverage Companies (CIABC) has proposed slashing the effective customs (or import) duty on bottled products like wines and spirits from the current 150 per cent to 100 per cent immediately and then down to a resting customs duty rate of 50 per cent in 10 years. It has suggested similar cuts for bulk wines also.

For bulk spirits, the industry has recommended an even steeper cut from 150 per cent to 75 per cent right away, reaching 25 per cent in a decade.

However, CIABC warned that any tariff concessions must be tightly linked to measures preventing misuse of the FTA through trans-shipment or under-invoicing, especially between the EU members and countries like the UK.

"There is a porous border between Northern and Southern Ireland (Republic of Ireland) that provides significant scope for unscrupulous elements to import extra neutral alcohol from the UK and transmit it to India as Gin and Vodka after cosmetic value addition," it said.

Additionally, there is no customs duty on alcoholic beverages between the EU and UK, and with transportation cost being low, there is ample scope for alcoholic beverage products manufactured in the UK, both in bottles and bulk, being trans-shipped to India, it added.

"The Republic of Ireland is part of the European Union (EU) while Northern Ireland is an entity of the UK. Since FTAs between the EU and UK shall be distinct, there is a need for safeguards from misuse of concessions offered to the EU," CIABC Director General Anant S Iyer said.

He also pressed for strict rules of origin and minimum import price (MIP) thresholds to protect the domestic industry from cheap imports of wines and spirits.

"Under invoicing of alcoholic beverages is rampant, and the domestic market is already flooded with cheap imported alcoholic beverages being imported at impossibly low CIF (cost, insurance, freight) values of USD 3 or even less per 750 ml bottle. A safeguard against such malpractices is most essential and, therefore, inclusion of the minimum import prices is strongly recommended," Iyer said.

He strongly recommend imposition of an MIP of USD 5 per 750ml bottle of wines (as per trade agreement with Australia) to qualify for any proposed tariff reduction in the free trade pact with the 27-nation bloc on bottled products; and an MIP of USD 6.70 per bulk litre can be imposed for wines imported in bulk to qualify for any proposed tariff reduction.

The director general further called for fair customs valuation and scrutiny at the port of entry.

"We also suggest strict application of transfer pricing rules so as to eliminate the possibility of undervalued import prices," he said, adding that no products should be permitted for concessions under the India-EU FTA if it has been manufactured in a third country.

Iyer said that if an alcoholic product is a GI (Geographical Indications) tagged product, such as Scotch Whisky, Irish Whiskey, Cognac, Champagne, Tequila, then the GI-linked country should be the origin for the purpose of tariff rate, regardless of where the shipment is coming from.

Further, the CIABC urged that the EU should remove the condition of maturation for a minimum of three years for Indian whiskies since it is scientifically established that in warm Indian conditions, whisky ages 3 to 3.5 times faster than in Europe/UK.

Indian whiskies should be allowed to be sold in the EU as whiskies irrespective of whether they are made from malt, grain spirits or molasses-based spirits, and they should accept Indian recipes as India accepts European or British recipes for whisky, he said.

"The domestic industry in turn would have no objection to brand their whiskies as 'Indian Whisky' to provide the consumers an informed choice as is being done in the case of Japanese whisky, Tennessee/Bourbon whiskies from USA, Canadian Whisky and Irish Whiskey," he said, adding that when regulatory authorities in India are flexible in implementing local laws to accommodate entry of imported beverages, there should be reciprocity in according similar flexibility by allowing Indian alcoholic beverages access to EU markets.

The Indian alcoholic beverage industry generates Rs 3,00,000 crore in taxes, employs 20 lakh people and sustains the livelihood of 50 lakh farmers in India, as per the body.