_page-0001.jpg)
What's the article about?
- It talks about India's recent WTO case concerning tariffs on certain information and communication technology (ICT) items.
Relevance:
- GS3: Effects of Liberalization on the Economy, Changes in Industrial Policy and their Effects on Industrial Growth;
- GS2: Important International Institutions, agencies and fora – their Structure, Mandate;
- Prelims
Context:
- Recently, the World Trade Organization (WTO) has ruled that India violated global trading rules by imposing tariffs on some IT products. A government source told Reuters that India is planning to appeal against the ruling.
- In this article, the writer analyses this ruling from multiple perspectives.
What is the WTO dispute?
- In 2019, the European Union dragged India to the WTO alleging that it had imposed import duties of between 7.5% and 20% on a wide range of IT products, such as mobile phones and components.
- In the same year, Japan and Taiwan filed similar complaints against India.
- It said that New Delhi imposed more tariffs than what it had committed to in its tariff schedule at the WTO.
Background of the dispute:
- Before the WTO was established, there were procedures that required the contracting parties to the General Agreement on Tariffs and Trade 1947 (GATT 1947) to incorporate updated nomenclature into their schedules.
- The duties member countries of the WTO impose are linked to a common system of classifying items across countries, called the Harmonized System (HS). This system uses code numbers to define products.
- The Harmonized System is updated every four to six years by the World Customs Organisation to keep up with new innovations and products.
India’s WTO Schedule – which is a summary of taxes we impose on various goods and services – is linked to this HS. - When the HS is updated, all member countries are provided all the relevant data so they can reconcile the new system with the old.
- Using this information, each member country’s schedule is updated to reflect the new HS nomenclature. This process is called ‘transposition’.
- Usually, if the transposition results in a change in the scope of the concession on products, the member countries can conduct negotiations with the WTO.
- This is exactly where the core dispute has occurred with India. A number of products mentioned in this ruling did not exist when the ITA was signed.
Analysis:
- To justify higher tariff rates, India argued that its binding tariff commitments on ICT products are contained in the WTO Ministerial Declaration on Trade in Information Technology Products (ITA Agreement), which India joined in 1997.
- But the panels held that the ITA cannot override the tariff commitments given in India’s Goods Schedule.
- The panels also denied India’s argument based on Article 48 of the Vienna Convention on Law of Treaties, which, inter alia, declares that an error in a treaty would invalidate a state’s consent.
Appeal and the future course of action:
- Accordingly, the panels have recommended that India reduce its tariff rates and make them compatible with its Goods Schedule, but it is unlikely that India will comply.
- In fact, India, relying on Article 17 of the WTO’s Dispute Settlement Understanding (DSU), is likely to appeal against the panel ruling.
- However, the Appellate Body that hears appeals has ceased to exist since 2019 because the United States has been blocking the appointment of the body’s members.
- Thus, India’s appeal will go into the void. Legally, India will not be required to comply with the panel rulings till the time its appeal is heard.
- Relying on Article 25 of the DSU, the EU and a few other WTO member countries have created an alternative appellate mechanism — the Multi-Party Interim Appeal Arbitration Arrangement (MPIA). However, India is not a party to this and will not use it to resolve this dispute.
Way Forward:
- Compliance would mean dismantling the high protective tariff wall that India has erected hoping it will boost domestic manufacturing of ICT products. Thus, India needs to find an innovative approach to handle this situation.
