Ditton Wine Traders’ fine wine blog
25 January 2012Wine and the India EU Free Trade Agreement
by James Swann
Can we expect a boom in Indian fine wine imports?
A recent FT article discussed wine in India, for which Ditton Wine Traders provided a lot of the research. The interpretation of the potential for significant developments for fine wine in India left us and other trade actors, British or India, who contributed their views and analysis a little underwhelmed. We feel important aspects we’re not covered , so we’ve decided to elaborate further here.
India is developing into an open market economy, though important remnants of the autarkic policies that followed independence remain. For example, fine wine is constrained by a penal import tariff regime of 150%.
This could change as the EU and India are in the final stages of negotiating a Free Trade Agreement (FTA), negotiations for which have started in 2007.
Findings show there is arguably a 50-50 chance of a tariff reduction to be announced at the EU-India Annual Summit, February 10th. It may appear to hang in the balance, but Indian officials indicate they are prepared to make concessions within the framework of the EU. It is the single most significant piece of news ever in relation to India and wine, and the only development that could potentially lead to India fulfilling its potential as a mass importer of wine.
Will the EU-India FTA be signed?
India has FTA’s with some 60 countries, yet that on the table with the EU is both its most ambitious and difficult. The two sides have met some 14 times since initiating talks in 2007 and, it appears, are working towards a significant statement in time for the February summit.
“The potential (for wine) is tremendous, the ingredients are all there; wine is a cultural pursuit, an intellectual pursuit, India is an old culture, an old culture can better assimilate the traditions of another, it can be imbibed by the Indian population. The Middle class has grown up on a surfeit of education, it can reach out to,” affirms Sanjay Menon, owner of pioneering fine wine importers, Sansula.
Annual trade between the EU and India stands at $75 billion (£48 billion) (2009/2010), making the EU India’s most important trading partner. Beyond the trade-off between tariff reduction for EU exports and protection of Indian industries, notably automobiles and India’s fledgling domestic wine market, there are real issues behind the 5-year impasse. India wants access to EU markets through free movement of its professional émigres, highly sensitive for much of the EU. The EU meanwhile demands stronger implementation of Intellectual Property Protection for its transnational pharmaceutical industry.
Yet, the FTA is seen by both parties as too big to fall, negotiations have already reached the highest political levels before diplomats have had a chance to thrash out the details, a diplomatic blunder placing pressure to agree. Still, the fact that they are negotiating shows there are no guarantees.
What would agreement mean for fine wine markets?
There is no hard data on fine wine in India, as the market is beginning and under the radar (see below for upcoming blog pieces on Indian position towards fine wine and wine investment). However, analysis by Peter Wilkinson, Director of International Affairs for the Scotch Whisky Association, is instructive.
“If we look at spirits, member-states would not sign-up on the basis of less than a 50% reduction”, observes Wilkinson. India’s 150,000 9l case market (firm figures remain elusive) in imported wine (compare to China’s 2.5 million case market in Bordeaux alone) is growing at 12% per annum while spirits is around 15%. “A 50% reduction of the current rate might increase growth to about 20%-25% per annum”, he concludes.
However, continues Wilkinson, “the EU may try to secure a fair bit of front-loading as part of the deal, looking for a significant chunk of the total concession to be given over with immediate effect, with the remainder brought in within an agreed timeframe.”
Significantly, for fine wines, both the EU and India have indicated progress in the area of staggered tariffs for different quality-price levels of wine. Leaving the current fiscal position intact for value entry-point wines, while progressively reducing duty on higher-priced ones, the lowest tariff strata would, therefore, be applied to fine wines. This compromise would protect the development of the nascent and successful domestic Indian Wine industry, yet open the way for fine wines to reach India’s burgeoning middle class – the world’s largest.
How would the market respond?
Would we see an explosion in fine wine markets like what occurred with the 2008 decision of the Hong Kong government to reduce tariffs from 50% to 0% overnight?
Not in ways comparable to Hong Kong. Implementation, to be in line with peer-countries in the EU, Brazil, Russia or China to eventually 20%-25%, would likely be at stages over a period of 5 – 10 years. In the immediate-term however, the FTA could reduce the special tariff of 150% to 80%-90% for wines and spirits (the maximum standard excise duty within the bounds of the World Trade Organisation).
Yet, the Hong Kong precedent is in some ways comparable, by way of human behaviour. “The effect of halving the tariff on a society accustomed to 150% would be palpable. The market would react in ways not previously seen”, asserts Rajiv Singhal, Director Fine Publishing India and Ambassador to Champagne trade body, CIVC.
India will not be in a position to support falling prices or take up slack from over-supplied markets. Nevertheless, agreement would radically alter the entire outlook and dynamise the wine trade globally. The moment would be firmly behind India realising its potential as a major actor in the world of wine by entering the global market place. It would be fascinating and mark the continued expansion of fine wine markets to a new and more global clientele.
We will find out more in just a few weeks.
In upcoming blog pieces we examine the nascent Indian fine wine market and, significantly, culture around fine and rare wines and wine investment, in particular in comparison to China. Drawing on the experiences of peers and other trade actors – both Indian and British, pioneering a culture of wine in India.