WTO SAD ruling: India needs to tread with caution

India will have to be careful while imposing special additional duty (SAD) on imported items after a World Trade Organisation (WTO) appellate body’s ruling that this duty is not consistent with world trade norms, say trade experts.

However, the appellate body of the WTO which looked into the issue after on a compliant filed by United States did not recommend what India should do.

The report was in the context of an objection by the US against India’s practice of imposing countervailing duty (CVD) and SAD on alcoholic beverages.

Trade experts said though the trade dispute body ruled in favour of the US, it did not mean much for India as it had withdrawn the CVD on alcoholic spirits in mid-2007. This was after the European Union approached the WTO against the duty.

CVD is charged on some products in lieu of excise duty. Moreover, India imposes an SAD of 4 per cent to balance the incidence of local taxes, VAT and CST.

Objections to these duties were raised because they were imposed in addition to the basic Customs Duty. As a result, the total import duty on wines and spirits came to more than India’s commitments at the WTO. This commitment is known as the bound duty. No country can impose an import duty that is more than the bound duty.

“The US has won the battle but lost the war,” a Delhi-based foreign trade lawyer said. But he warned that the country would have to be careful in imposing SAD. “Other countries may file fresh cases in the WTO if they find evidence that India is imposing SAD on goods which is in excess of CST or VAT or other local taxes,” the expert added.

India is closely monitoring the developments in Geneva as the appellate body is considering if SAD is in conformity with WTO rules. Trade experts said the appellate body report did not recommend to the Dispute Settlement Body(DSB) — the supreme trade dispute settlement body in the WTO — that India should remove SAD.

Had such a recommendation been made, the DSB would have passed a resolution in this regard. As a result, India would have had to remove SAD on items which did not conform to WTO norms, something that would have had revenue implications for the country.