Moneycontrol PRO

Lower tariffs on scotch whiskey re-emerge as pain point in India-UK trade talks

India had earlier offered the UK lower duties on alcohol, but the UK has demanded an immediate and steep reduction of tariffs.

June 29, 2022 / 01:03 PM IST
File image of British Foreign Secretary Liz Truss and External Affairs Minister Subrahmanyam Jaishankar.
 (Image: AP)

File image of British Foreign Secretary Liz Truss and External Affairs Minister Subrahmanyam Jaishankar. (Image: AP)

British demands for lower tariffs on automobiles and Scotch whisky in a proposed free trade agreement (FTA) with India have again emerged as a point of contention, people with knowledge of the development said.

The issue had been considered to be almost closed after the previous ministerial-level meetings.

On June 24, India and the United Kingdom concluded the fourth round of talks for an India-UK Free Trade Agreement (FTA).

As is often the case, one of the main sticking points in the pact continues to be India's hesitation in opening up its market to foreign products and the equally aggressive push by foreign sellers in entering large segments of India's growing market that remain underexplored.

In the case of this pact, this has been true for London's insistence on allowing high-value British goods such as scotch whiskey and automobiles into India at zero or low tariffs.

India had earlier offered the UK lower duties on alcohol after a suggestion to the effect had come from Commerce and Industry Minister Piyush Goyal himself, people aware of the development said.

"But the latest problem pertains to the British demands for an immediate reduction in customs duty on imported spirits, from the current 150 per cent. India has argued for more time to adjust its trade and revenue flows," one of them said.

International liquor trade bodies have argued for tariff cuts to as low as 30 percent over a period of three years. The fifth round of negotiations, due to take place in July 2022 in New Delhi, is expected to focus on this issue, the people said.

The recent free trade agreement India signed with Australia reduced the tariff on imported wine with a minimum import price of $5 per 750 ml bottle from 150 percent to 100 percent. Tariffs are set to be brought down to 50 percent over 10 years.

In the premium wine category, tariffs on wine priced above $15 per 750 ml bottle have been cut to 75 percent, with the target of lowering it to 25 percent over the next 10 years. But unlike wine, the traded volume and levels of consumption of scotch whiskey are much higher in India. As a result, the government is against any connection being drawn with the Australia deal.

State of play

In the latest round of negotiations, officials joined technical talks in a hybrid fashion – with some of the teams meeting in London and the majority of officials attending them virtually.

In this round, a detailed draft treaty text was advanced across the majority of chapters. Technical experts from both sides came together for discussions in 71 separate sessions covering 20 policy areas, the British Department of International Trade said.

As of date, discussions have concluded on four of the 26 chapters of trade rules covering areas such as tariffs, investments, intellectual property rights, customs, rules of origin, standards and technical barriers to trade.

On the tariff front, India has suggested that both sides soon exchange a list of 40-50 items on which they are willing to remove duties.

India’s bilateral merchandise trade with the UK was worth $17.4 billion in 2021-22. This was higher than the previous record of $16.8 billion in 2018-19. Indian exports were $ 10.4 billion, up from the previous highest of $9.6 billion in 2017-18. Imports jumped to $7 billion, but remain lower than the $7.5 billion hit in 2018-19.

Ambitious pact

The trade pact aims to cover 65 percent of traded goods and up to 40 percent of services.

However, British Prime Minister Boris Johnson last week dismissed a notion that visa norms are set to be relaxed for Indian citizens in the proposed FTA, answering a question in the British Parliament.

The outcome of meetings of the UK-India Joint Economic Trade Committee (JETCO) in 2019 is seen as a road map to the focus areas.

The three priority sectors agreed by both governments at JETCO in 2019 were food and beverages, life sciences and health care, and digital and data services.

New Delhi has also put its weight specifically behind the pharma and healthcare industry that operates in the UK, hoping to leverage the growing demand for Indian pharma exports to Britain and the European Union.

Moneycontrol had earlier reported that India has pushed hard for the removal of tough visa regulations restricting hiring by Indian firms in Britain. It had also asked the UK to instil measures to boost outward Foreign Direct Investment flows and dismantle practices limiting drug manufacturing by Indian firms based in Britain, according to people in the know.

Subhayan Chakraborty
Subhayan Chakraborty has been regularly reporting on international trade, diplomacy and foreign policy, for the past 7 years. He has also extensively covered evolving industry issues and government policy. He was earlier with the Business Standard newspaper.
first published: Jun 29, 2022 01:03 pm