India may move against EU over drug duties

India is considering retaliatory action against the European Union for imposing a countervailing duty on Indian pharmaceutical products.

The EU imposed the duty on products like broad spectrum antibiotics exported under the advanced licence scheme.

The commerce and industry ministry is mulling imposing retaliatory countervailing duties on EU wines and spirits and some other products that are exported to India.

"The advance licence scheme is completely WTO compatible and does not tantamount to a duty-free benefit. Exporters who import under the scheme have to fulfill a 100 per cent export obligation. Also, since India's pharmaceutical exports account for a mere 1.7 per cent share of the EU market, the countervailing duty will hit these exports," a senior official told Business Standard.

India is considering this action after the EU failed to respond favourably to a request by New Delhi to review the decision.

Officials said Commerce and Industry Minister Kamal Nath had taken up the issue with EU Trade Commissioner Peter Mandelson during the recent mini-ministerial in Kenya and had later written to him, seeking a review of the decision.

"The EU's contention is that if 100 grams of inputs have been imported and 50 grams of output exported, then, if a consignment has 50.1 grams, it tantamounts to a

variation. We have pointed out that since different companies may have different levels of technical expertise, a small amount of variation can happen," an official said.

Advance licences are issued on the basis of input and export items given under the Standard Input Output Norm. They are issued for duty-free import of inputs, subject to actual user condition.

Such licences (other than advance licences for deemed exports) are exempted from payment of basic Customs duty, additional Customs duty, education cess, anti-dumping duty and safeguard duty, if any.

Drugs, pharmaceuticals and fine chemicals are among the top five items of commodity exports from India to other countries.

As per the latest disaggregated data for the period April-December 2004-05, these exports touched $2.50 billion compared with $2.36 billion in the corresponding period in 2003-04.

Officials pointed out that even earlier, the EU used to impose restrictions on bed linen exports from India. "However, every time India threatened to take the EU to the dispute settlement body in the WTO, the EU would back out and withdraw its restrictions only to reimpose the same a few months later.

Due to the restrictions imposed by the EU on bed linen over the last five years, India has nearly lost its share in the EU market in this product," officials added.