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Brussels closer to drinks trade deal with India

Financial Times | December 10 2010

Brussels closer to drinks trade deal with India

By Joshua Chaffin in Brussels and James Lamont in New Delhi

India, the world’s biggest whisky drinker, could soon be flooded with some of the world’s premier brands after negotiations for a trade agreement with the European Union shifted into high gear.

At a one-day EU-India meeting in Brussels, the two sides agreed to complete the pact – Europe’s biggest ever – in the first half of next year.

“Let us seal the deal in 2011,” said José Manuel Barroso, the European Commission president, after noting that the two sides had settled on the “contours” of the agreement.

Such a deal could represent a milestone for Europe’s spirits industry, which has long thirsted for a share of the world’s biggest whisky market.

Although Indians consumed more than 130m cases of whisky last year, European brands accounted for less than 1 per cent of that, thanks to tariffs of 150 per cent that have relegated them to airport duty-free shops and high-end hotels.

Red tape and high taxes have also frustrated international drinks companies hoping to prize open the Indian market.

“The demand for quality wines and spirits is growing in [India], so if we can achieve significant access to the massive Indian market then Europe’s wines and spirits’ industry would certainly have good reason to raise their glasses,” Karel De Gucht, Europe’s trade commissioner, told the Financial Times.

The negotiations are a reminder of the huge benefits that Europe’s spirits industry has reaped from free trade. In 2009 it raked in €5.7bn ($7.6bn) in foreign sales, making it the export leader among EU foodstuffs.

That figure should grow this year after the bloc signed a trade deal with South Korea, which commits Seoul to eliminating a 20 per cent duty on its spirits imports over three years.

Foreign sales – and the rise of high-priced premium brands – have helped the industry maintain growth despite a 35 per cent fall in domestic consumption since 1980, according to the World Health Organisation.

The industry and its brands seem particularly well placed to benefit from globalisation and the increasing affluence in emerging markets. Be it a hip-hop star or a Seoul businessman, up-and-comers liked to sip Johnnie Walker Black Label or Courvoisier to confirm their arrival, observed Jamie Fortescue, director-general of the European Spirits Organisation.

“These [trade] agreements all have something to offer us,” Mr Fortescue said, “but of all of them, India is the one with the biggest potential.”

In spite of optimism about the negotiations, India has not yet agreed to remove its tariffs, according to people briefed on the talks, and may yet refuse.

The local market is dominated by United Spirits, India’s largest liquor maker, which has a 40 per cent share of the alcoholic drinks market, a formidable distribution network and strong local brands. The group is headed by the Bangalore-based Vijay Mallya which, along with other drinks makers, is a strong lobbyist that has been working to protect its dominance.

Alcohol consumption has plenty of room to expand. Wines and beer trail in a large spirits market.

 source: FT