By Himanshu Varshney
Introduction
Customs duties on merchandise imports are called tariffs. Tariffs give a price advantage to locally-produced products over similar products which are imported, and they raise revenues for governments. India imposed tariffs on electronics products used in Information and Communication Technology (ICT) to curb cheap electronic imports and to promote India’s domestic manufacturing industries.
The Dispute
The European Union (EU), Japan and Chinese Taipei complained the tariff treatment that India accorded to certain ICT products falling under the tariff items of India’s WTO Schedule and claimed that these measures lead, or led to the application of ordinary customs duties in excess of those set forth in India’s Schedule of Concessions, and, therefore, are or were inconsistent with Articles II: 1(a) and (b) of the GATT 1994. Even where India unconditionally exempts certain products from customs duties, India acts inconsistently with Article II:1(a) because India grants those exemptions through customs notifications which are subject to the possibility of repeal at any time, thus creating a lack of foreseeability for traders.
However, India argued that-
(i) its binding tariff commitments are set forth in the Information Technology Agreement (ITA), 1996 and those commitments are static and did not change due to their incorporation into India’s WTO Schedule;
(ii) pursuant to Article 48 of the Vienna Convention on the Law of Treaties (VCLT), aspects of India’s WTO Schedule are invalid as a consequence of an error on the part of India during the transposition of its Schedule from the Harmonized System (HS) 2002 to the HS2007; and
(iii) the errors in India’s WTO Schedule are of a formal nature and were therefore capable of rectification pursuant to the 1980 Decision (Procedure for Modification and Rectification of Schedules of Tariff Concession)
With respect to Japan’s complainant India specifically argued that pursuant to the India-Japan Comprehensive Economic Partnership Agreement (CEPA), and the implementing notification thereof, India exempts from ordinary customs duties the products at issue when originating from Japan, and therefore accords to products of Japan tariff treatment that is consistent with India’s duty-free tariff commitments set forth in its WTO Schedule.
Panels’ Findings
WTO on 17 April, 2023 circulated three panel reports in the cases brought by the European Union in “India — Tariff Treatment on Certain Goods in the Information and Communications Technology Sector” (DS582), Japan in “India — Tariff Treatment on Certain Goods” (DS584) and Chinese Taipei in “India — Tariff Treatment on Certain Goods in the Information and Communications Technology Sector” (DS588).
The Panel rejected India’s (i) defence by saying that the ITA is not a covered agreement within the meaning of the WTO Agreement and the Dispute Settlement Understanding (DSU); and the ITA is not the source of India’s legal obligations in these disputes. The Panel also held that India’s WTO tariff commitments are not static in nature.
With respect to India’s (ii) defence the Panel found that India did not satisfy the requirements of Article 48 of the VCLT and accepted in good faith India’s argument that at the time of the transposition of its HS2002 Schedule into its HS2007 Schedule, India had assumed that the scope of its WTO commitments was limited to the scope of its ITA undertakings and that the scope of those tariff commitments would not be expanded through the HS2007 transposition process and India had failed to demonstrate that this assumption constituted an essential basis of India’s consent to be bound by the certified Schedule. The Panel also found that India was put on notice of the possibility that its WTO tariff commitments in its HS2007 Schedule may have expanded from those set forth in its HS2002 Schedule, and similarly, that its WTO tariff commitments in its HS2007 Schedule may have expanded from those set forth in the ITA. Thus, even if Article 48 applied in WTO dispute settlement the circumstances did not satisfy the requirements of application of Articles 48 of VCLT.
With respect to India’s (iii) defence the Panel declined to make findings on India’s request that the complainant countries violated paragraph 3 of the 1980 Decision by raising objections to India’s requested rectification unfounded in law, and thereby impeded India’s rights to make a formal rectification to its schedule of concessions under the 1980 Decision. The Panel found that India’s requests were claims, not affirmative defences, and therefore fell outside the Panel’s terms of reference. Even if the Panel made findings on this issue, to the extent that there remained objections on record to India’s rectification request, including those by WTO Members who were not parties to this dispute, India’s WTO Schedule would remain unmodified, and the findings requested by India would not modify India’s WTO obligations as set forth in its WTO Schedule.
With respect to India-Japan CEPA Panel found that India failed to establish that the CEPA brings India into compliance with its WTO obligations pursuant to Articles II:1(a) and (b) of the GATT 1994. The Panel found that for products of Japan to access duty free treatment as set forth in India's WTO Schedule, they must satisfy preferential rules of origin which are not set forth in that Schedule, such that this notification does not accord unconditional duty-free treatment to the products at issue, and therefore does not bring India into consistency with its obligations under Articles II: 1(a) and (b) of the GATT 1994.
Panel concluded that India’s tariff treatment of products falling under India’s WTO Schedule is inconsistent with Article II:1(b), first sentence, because: (i) certain such products are subject to ordinary customs duties in excess of those set forth in India’s WTO Schedule; and (ii) certain such products are subject to ordinary customs duties in excess of those set forth in India’s WTO Schedule unless they satisfy certain conditions that are not set forth in that WTO Schedule. India’s tariff treatment of such products is less favourable than that provided in its WTO Schedule, such that India is acting inconsistently with Article II:1(a) of the GATT 1994.
India accords unconditional duty-free treatment to products in accordance with the terms of its WTO Schedule, and is therefore acting consistently with Article II:1(b), first sentence, of the GATT 1994. India by according to the commerce of complainant countries no less favourable than that provided for in its WTO Schedule, India’s tariff treatment of such products is consistent with Article II:1(a) of the GATT 1994.
Panel recommended India to bring alleged measures in conformity with its obligation under the GATT 1994.
Aftermath of the WTO Panel Reports
India is willing to challenge these panel reports in WTO Appellate Body (AB) pending appeal such reports would not be enforceable because the WTO AB is dysfunctional due to non-appointment of AB members or exercising veto in appointment of AB members. The EU has approached India to resolve the dispute through Multi Party Interim Appeal Arbitration Arrangement (MPIA). However, India is not in favour of MPIA and believes in restoration of the WTO AB as affirmed during the 12th WTO Ministerial Conference, 2022 held in Geneva. If EU opt for retaliatory tariffs on Indian goods by invoking the EU Enforcement Regulation which allows it to enforce its rights by imposing customs duties or other restrictions in response to an appeal in to the void it would be a setback to India’s faith over multilateral trading system.
Himanshu Varshney is a Ph.D. candidate at the Centre for International Legal Studies, School of International Studies, Jawaharlal Nehru University, New Delhi
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