The Indian Spirits and Wine Association (ISWAI), representing companies such as Diageo and Pernod Ricard, stated that India's decision to exclude large-volume Scotch whisky imports from the reduced tariff system contradicts the terms of the trade agreement between India and the United Kingdom.
According to a letter reviewed by Reuters, India's move to exclude wholesale Scotch supplies from the preferential 75 percent tariff violates provisions agreed upon under the bilateral trade pact between the two countries. Whisky tariffs were one of the complex issues during the lengthy negotiations preceding the agreement's entry into force on July 15. Initially, India agreed to immediately reduce import duties on certain types of Scotch from 150 percent to 75 percent, and subsequently to 40 percent over ten years.
The UK government asserted that 'iconic British products,' including whisky, would benefit from this agreement. However, inspectors from India privately informed the companies that the reduced rate does not apply to bulk Scotch concentrates, marking the first serious dispute regarding the free trade agreement since its commencement.
The Directorate of Revenue Intelligence in India conducted raids at Pernod and Diageo offices and interviewed executives as part of an investigation into whether they incorrectly classified imported goods to obtain the preferential tariff.
Risk of undermining the agreement due to classification issue
In a letter addressed to the Indian Minister of Commerce on Friday, ISWAI indicated that the classification issue 'risks undermining the practical advantage of market access agreed between India and the United Kingdom.' The same letter noted that the 'preferential tariff regime that was agreed... could effectively become unavailable for these imports.'
ISWAI declined to comment on its letter, and the Ministry of Commerce of India did not provide an immediate response. Pernod, for which India is its largest sales market by volume, also refrained from commenting. Diageo did not respond to requests for comment. Both companies had previously told Reuters earlier this week that they are cooperating with Indian authorities in the investigation.
In its initial comment regarding this disagreement, a spokesperson for the UK government stated: 'We are working with the Government of India to resolve this matter to ensure that British businesses can export according to the tariffs agreed in the trade agreement.'
Disputes over customs duties have long been a sensitive point for foreign investors in India, who have in the past faced demands for the payment of large amounts of back taxes. Such disputes have involved companies like Samsung and Volkswagen.
Pernod has faced antitrust cases in India and a demand for a refund of $314 million from Indian authorities, accusing the company of under-declaring the value of some imported goods. The company denies the allegations.
Significant implications for India's beverage sector
The ISWAI letter highlights the turmoil caused by this investigation in India's alcohol market, which is valued at $65 billion. According to Crisil Ratings, the UK accounts for nearly 75 percent of imported alcoholic beverages in India, with Scotch whisky being the main driver.
Indian government inspectors informed the companies that they are not benefiting from the reduced 75 percent tariff on bulk Scotch concentrate imports. These concentrates must be declared under a customs classification that incurs a duty of 150 percent, according to three sources directly familiar with the situation, as reported by Reuters.
Pernod and Diageo import bulk concentrates, blending them with other ingredients to produce popular Indian brands such as Royal Stag, Blenders Pride, and McDowell's. According to three sources, the companies, including Diageo and Pernod, believe that the concentrates imported from the UK should benefit from the new, lower tariff rate. ISWAI stated in its letter that the India-UK agreement explicitly provides for a preferential tariff regime for whisky in the relevant commodity codes.
The letter also stated that an urgent clarification could ensure the realization of the market access benefits agreed by India and Britain, 'avoiding uncertainty and disruption for legitimate industry participants.'
On Saturday, the Scotch Whisky Association of Great Britain told Reuters in a statement that the import of bulk Scotch is crucial for the overall success of whisky in India, and that adherence to the core principles of the bilateral pact is vital. The association, which includes members such as Chivas Brothers from Diageo and Pernod, added that the industry 'is committed to working in partnership with the governments of the UK and India to facilitate the deal' so that its benefits can be activated.
