STATE TRADING

REPLIES TO Questions^[1] Posed By the European Union on the tamil nadu
state marketing corporation limited (tasmac)

The following communication, dated 21 October 2016, is being circulated at the request of the Delegation of India.

_______________

We thank the EU for the follow up questions posed on Tamil Nadu State Marketing Corporation Limited (TASMAC). The EU had sought questions on TASMAC earlier to which India had responded to on 22 April 2016 in G/STR/Q1/IND/10. The EU has now sought additional clarifications on the status of TASMAC.

****

Questions

The EU would appreciate to receive additional clarifications in order to assess whether TASMAC would meet the criteria for being notified as a STE under the provisions of Article XVII of the GATT and the related understanding and illustrative list.

In this respect, the EU has assessed whether TASMAC fulfils the following criteria: (i) a governmental or non-governmental entity; (ii) the granting to the enterprise of exclusive or special rights or privileges; and (iii) a resulting influence, through the enterprise's purchases or sales, on the level or direction of imports or exports.

(i) A governmental or non-governmental entity

India, in its replies states that TASMAC is not a STE recognised under the Foreign Trade Policy of India. In the EU's view, this is neither relevant nor sufficient in this context.

According to the available information, TASMAC functions under the administrative control of the Prohibition and Excise Department of Tamil Nadu, which is a branch of the Ministry for Electricity, Prohibition and Excise of the Government of Tamil Nadu. In a Notice Inviting offers for registration of Imported Foreign Liquor brands for sale to TASMAC, the Government of Tamil Nadu clearly defines TASMAC as a "Government of Tamil Nadu undertaking" and states that:

"Tamil Nadu State Marketing Corporation Limited is a Company wholly owned by the State of Tamil Nadu having exclusive privilege of conducting wholesale and retail trade in Indian Made Foreign Spirits (IMFS) and Beer in the whole State. It is also dealing in Imported Foreign Liquor (IFL) brands."

Therefore, in the EU's view, TASMAC should be considered as a governmental entity.

EU question No. 1: Considering the above, could India clarify whether it agrees with our conclusion in considering TASMAC a governmental entity? If not, could India submit a detailed reasoning that would contradict our assessment?

(ii) The granting to the enterprise of exclusive or special rights or privileges

In a Policy Note of 2015 from the Prohibition and Excise Department (Demand No. 37) of the Government of Tamil Nadu, point 5, it is stated that:

"TASMAC has been granted the exclusive privilege of Wholesale of Indian Made Foreign Liquor for the whole state of Tamil Nadu (…) and is carrying on the Wholesale distribution of liquor from 23.05.1983. (…) TASMAC has been granted the exclusive privilege of Retail Vending of Indian Made Foreign Liquor and the retail sale of liquor is carried on by TASMAC from 29.11.2003."

Therefore, the EU does believe that TASMAC has been granted special privileges.

EU question No. 2: On the basis of the above explanations, could India clarify whether it agrees with our conclusions that TASMAC has been granted exclusive or special rights or privileges? If not, could India submit a detailed reasoning that would contradict our assessment?

(iii) A resulting influence, through the enterprise's purchases or sales, on the level or direction of imports or exports

In a Policy Note of 2015 from the Prohibition and Excise Department (Demand No. 37) of the Government of Tamil Nadu, point 5, it is stated that:

"TASMAC is also marketing Imported Foreign Liquor, Beer and Wine products. (…) TASMAC has been appointed as the canalising agency from 02.03.2012 onwards, to regulate the import of foreign liquor by collecting a service charge of 3% of the special fee. In addition to the special fee, 58% VAT is also levied on the sale of foreign liquor. (…) Further the imported foreign liquor is also directly purchased and sold through retail outlets like malls for the domestic market by the Tamil Nadu State Marketing Corporation Limited."

Moreover, in the "proceedings of the Commissioner of Prohibition and Excise" dated 02.03.2012, it is stated that "TASMAC is also responsible for the import and sale of Imported Foreign Liquor (IFL^[2]) brands."

Therefore, the EU considers that TASMAC fully fulfils the above criteria as it is marketing imported alcoholic beverages, it is the canalising agency to regulate the import of foreign liquor and it is in charge of the retail of IFL.

EU question No. 3: On the basis of the above explanations, could India clarify whether it agrees with our conclusions that TASMAC has an influence, through its purchases or sales, on the level or direction of imports or exports? If not, could India submit a detailed reasoning that would contradict our assessment?

Importation of items under the HS Chapter 22

In addition, the EU would like to receive further clarifications on the conditions of importation of items under the HS Chapter 22. Indeed, in its reply provided on 25 April 2016 (G/STR/Q1/IND/10), India explained that TASMAC is not a STE recognized under the Foreign Trade Policy (FTP) as all items under chapter 22 (comprising of Beverages, spirits and vinegar) are under 'free' category i.e. their import is allowed without any licensing conditions and, since none of the HS lines under chapter 22 are under STE category, there are no STEs designated for their import. However, the provisions included in the Policy Note of 2015 from the Prohibition and Excise Department (Demand No. 37) of the Government of Tamil Nadu seem to contradict with India's reply.

EU question No. 4: Could India clarify what are the conditions of importation of items under the HS Chapter 22?

Replies

India would firstly like to reiterate its position on TASMAC.

In India's view TASMAC is not a State Trading Enterprise recognised under the Foreign Trade Policy (FTP) of India. India's FTP is available at http://www.dgft.gov.in. Under the FTP, State Trading Enterprises (STEs) are governmental and non-governmental enterprises, including marketing boards, which deal with goods for export and/or import. Any good, import or export of which is governed through exclusive or special privilege granted to STE, may be imported or exported by the concerned STE as per conditions specified in the Indian Trade Classification (Harmonised System). The list of STEs notified by the Director General of Foreign Trade is in Appendix 2 of the FTP. TASMAC is not an STE under this Appendix.

Further, as per the FTP, Exports and Imports shall be 'free' except when regulated by way of 'prohibition', 'restriction' or 'exclusive trading through State Trading Enterprise' as laid down in the ITC (HS) of Exports and Imports. The list of 'prohibited', 'restricted' and 'STE' items can be also be viewed by clicking on downloads on the above mentioned website. Perusal of the item wise import policy, as contained in the ITC (HS) reveals that all items under Chapter 22 (comprising of Beverages, Spirits and Vinegar) are under the 'free' category. None of the HS lines under Chapter 22 are under STE category. Therefore, there are no STEs designated for its import. Regarding the EU question on what are the conditions of importation of items under the HS Chapter 22, the conditions of importation of all items including items under the HS Chapter 22 are found on the website at http://dgft.gov.in/.

The EU in its additional questions has referred to a number of documents and raised the issue of the status of TASMAC. TASMAC is a provincial level entity. We are consulting the relevant entity and different levels of Government, and seeking more information so that we can appropriately respond to the issues raised by the EU. The nature of questions require co-ordination, information gathering and response from different levels of agencies and India would require more time to respond in this regard.

The additional questions that have been sought in September by the EU have been conveyed to Capital. A response is still awaited in this regard.

__________