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Source: This post is created based on the article “A dispute lost”, published in Business Standard on 20th April 2023.
Syllabus Topic – GS Paper 2 – International Institutions
Context: Recently, WTO has ruled against India’s Tariff rates, on the complaint filed by EU.
World Trade Organization (WTO) has ruled against India in a case brought by several of its trading partners. The issue was high Customs duties imposed by the Indian government on the import of telecommunications equipment, including mobile phone handset.
Initially, India was taken to the dispute resolution panel of the WTO by the European Union (EU). It was later joined by Other major partners and participants in the supply chain, including Japan and Taiwan.
In this case, WTO tribunal determined that the ordinary Customs duties were above those provided in India’s WTO Schedule”.
What are the positive impacts of high tariff rates?
From the view of the nation’s interest, these tariffs have directly led to an increase in investment and the growth of the electronics manufacturing sector.
Mobile phone production and exports have grown in recent years. However, its exports have not outpaced its imports.
What are the issues associated with high tariff policy?
Value addition in the mobile industry in India has been low, barely crossing the 10 per cent level. Therefore, the electronics sector continues to be a major component of India’s trade deficit.
Growth, wage level and job creation in the sector will remain below India’s competitors unless it introduces more open policies that do not rely on tariffs and protectionism.
Tariffs are a tax paid by Indian consumers. They will have to purchase mobile phones and other electronics equipment at a higher price.
In Digital India, imported equipment are also input into basic economic value addition by many Indians.
Tariffs reduce the welfare of the people and make India high-cost and uncompetitive economy.
There are geo-political implications of high tariffs. It can result in alienating its closest economic and geopolitical partners.
What should be done?
Instead of relying on tariffs, Efficiency improvements, and coherent policies should be prioritized.
The electronics sector is not an infant industry in India that must be protected. Instead, it should be given the right competitive pressure and policy environment to become world-class.
The government will definitely appeal against this ruling. However, WTO appellate body has been rendered dysfunctional by the United States’ decision to veto any nominees.
