By - King Stubb & Kasiva on June 5, 2023
Since the year 2014, India has introduced custom duties of up to 20% on products such as mobile phones, mobile phone accessories, and components, line telephonic handsets, base stations, static converters, or electric wires and cables. It was considered by the European Union that these duties breach the rules of WTO since India is obligated under its WTO commitments to apply a zero-duty rate to such products. The EU initiated this WTO dispute settlement case in 2019.
The European Union requested consultations with India concerning the tariff treatment that India accords to certain goods in the Information and Communications Technology sector. It claimed that measures appear to be inconsistent with Articles II:1(a) and II(b) of the General Agreement on the Tariffs and Trade (GATT) 1994.
In 2020, the European Union requested the WTO Dispute Settlement Body for the establishment of a dispute resolution panel. On 17th April 2023, the Panel issued its report which held that India’s measures were not consistent with its WTO obligations and the same were to be brought into conformity.[1]
The present dispute arose when European Union, Japan, and Taiwan challenged certain tariff measures imposed by India on certain Information and Communications Technology products. The estimate in issue was a few Customs Notifications through which customs duties rates were notified for 15 ICT products. In April 2019, the European Union sought consultations with India concerning customs duties on ICT products, contending that they are violative of India’s agreed bound rates. Thereafter, In May 2019, Japan and Taiwan also sought consultations. The Dispute Settlement Panel was established and published its report on 17th April 2023.
The WTO members concluded the Ministerial Declaration in Trade in Information and Communications Technology products (ITA) in 1996. India joined it on 26th March 1997. The ITA participants agreed among themselves to bind and eliminate the customs duties and other duties and changes of any kind within the meaning of Article II:1(b) of the GATT 1994, concerning certain products. As a result, the respective schedules of countries need to get changed to reflect these in the form of bound rates. The changes to India’s schedule (based on Harmonised System of Nomenclature) were incorporated and certified on 2nd October 1997.[2]
In 2002, according to the latest edition of HSN, all the members of WTO including India, agreed to update their schedule under the GATT. Then in 2007, the members agreed to update their Schedules as per the 2007 edition of HSN. On behalf of India, WTO updated its Schedule and notified India of the changes made. There were no objections raised from India, the revisions to the Schedule were certified and circulated to all the respective members. The 165 ICT products at issue were added to the WTOS schedule of concessions during such revisions in 2007. Thereafter, a nil rate was specified for such products, according to the commitment under ITA.
In 2018, India claimed there is the inclusion of 15 ICT products in its Schedule was a mistake as India did not object to the Schedule unintentionally, under which it was bound to eliminate duties for such products. Thus, India requested that its Schedule be rectified since the 15 products in issue were not part of the ITA originally.
In simple terms, India’s support for the ratification of the transposition process of HS2007 was an “inadvertent error” as it never intended to enhance the scope of the embedded concessions in the schedule of HS2002 expanded because of the evolution of technology. Similarly, the nature of the products agreed to ITA-I was fundamentally different from those which were inserted in the HS2007.
In 2014, India imposed custom duties ranging from 7.5% to 20% on products such as mobile phones, conductors, and other telecommunication products falling under customs headings 8504, 8527, and 8518 through various customs notifications.[3] However, these products were related to the revision to India’s schedule in the year 2007, by the ITA. Accordingly, it was alleged that India breached the bound rates agreed to it. It resulted in the issue being taken up for consideration before the WTO Dispute Settlement Body.
India argued that it was necessary to eliminate duties only on such products which were originally related to ITA in 1997. In 1997 the 15 ICT products in issue is not available and were not part of the ITA, and under ITA also it was not included in India’s commitments. Accordingly, the addition of such products into India’s Schedule of Concessions, by way of revision in 2007, cannot impact India’s commitments under the GATT as those were fixed.
It was also claimed by India that the revision of its Schedule in 2007 should not be considered binding since it was an error on India’s part. It relied on Article 48 of the Vienna Convention on the Law of Treaties, which provides that a member can invalidate its consent to be bound by a treaty by claiming an error of fact or situation assumed by a member.[4]
The Panel agreed that India in its obligations to remove the duties on ICT products was only set out under the ITA and not under its Schedule of Concessions. It resulted that once the commitments were incorporated in the WTO Schedule in 2007, they became binding on India. The Panel held that India’s commitments under the Schedule of Concessions were not static and were subject to modifications.
The Panel held that the requirements of Article 48 of the Vienna Convention were not fulfilled in the present case. However, the Panel contended that the WTO notified India of the revisions being made to its Schedule of Concessions and allowed commenting on the same. India was given prior information and opportunity, but the requirements set out under Article 48(1) and (2) of the Vienna Convention, were not satisfied in the present case.
It was recommended by the Panel that India should bring its customs tariff measures following its commitments under the WTO Schedule of Concessions and Articles II:1(a) and (b) of the GATT. India has an opportunity to approach the WTO Appellate Body to challenge the decision delivered by the Panel. However, Appellate Body is non-functional, so the implementation of the decision of the Panel can be kept on hold. India may also take into consideration using the multi-party interim appeal arbitration arrangement in the alternate. India is not required to eliminate the duties on the products in issue, it has already reduced the duty rates to 0% from February 2022, on headphones and Electric converters.
The recent loss in the WTO dispute settlement case has significant implications for India's trade relations, particularly with the European Union, its third-largest trading partner. The panel's decision highlights the need for India to align its customs tariff measures with its WTO commitments and the GATT. This outcome may impact ongoing free trade agreement negotiations and necessitate a re-evaluation of India's trade policies. As the country explores avenues for challenging the decision, the future of its trade relationships and compliance with international obligations will require careful consideration and strategic decision-making.
India imposed custom duties ranging from 7.5% to 20% on products such as mobile phones, mobile phone accessories, components, line telephonic handsets, base stations, static converters, or electric wires and cables.
The European Union claimed that India's custom duties on certain goods in the Information and Communications Technology sector violated the rules of the WTO. They argued that India was obligated to apply a zero-duty rate to these products under its WTO commitments.
The Panel issued a report stating that India's measures were not consistent with its WTO obligations and needed to be brought into conformity. India was recommended to align its customs tariff measures with its commitments under the WTO Schedule of Concessions and the General Agreement on Tariffs and Trade (GATT).
[1]https://www.wto.org/english/tratop_e/dispu_e/582r_a_e.pdf
[2]https://www.wcoomd.org/-/media/wco/public/global/pdf/topics/nomenclature/activities-and-programmes/30-years-hs/hs-compendium.pdf
[3]https://old.cbic.gov.in/resources//htdocs-cbec/customs/cst2022-310922/G.E.-183.pdf
[4]https://legal.un.org/ilc/texts/instruments/english/conventions/1_1_1969.pdf
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