Outlawing India’s tech tariffs

Source– The post is based on the article “Outlawing India’s tech tariffs” published in “The Hindu” on 3rd May 2023.

Syllabus: GS 3 – Indian Economy – International Trade

News- World Trade Organization dispute settlement panels have found India’s tariffs on certain information and communication technology products such as mobile phones inconsistent with India’s WTO obligations.

What are WTO provisions regarding the imposing of tariffs by countries?

WTO member countries are under a legal obligation not to impose tariff rates more than their maximum tariff rates committed in their Goods Schedule. The Goods Schedules are based on the World Customs Organization’s classification system.

World Customs Organization’s classification system catalogues traded products with specific names and numbers. This is also known as the Harmonized System of Nomenclature (HSN).

Due to the continuous emergence of new products owing to technological innovations, the HSN system is regularly updated to reflect new products. It is known as ‘transposition’.

What is the reasoning by the panel on arguments represented by India in its favour?

First, 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).

The ITA Agreement is an arrangement through which select WTO member countries agree to eliminate duties on IT products.

However, as per the panel, Commitments under the ITA become binding on a country under Articles II of GATT only if they are incorporated in the Goods Schedule. India’s Goods Schedule, not the ITA, is the source of India’s legal obligations on tariffs, including on products covered by the ITA.

Second, India argued that an error was committed during the transposition of its Goods Schedule from the HSN 2002 edition to the HSN 2007 edition. Therefore, an error in a treaty would invalidate a state’s consent, as per Article 48 of the Vienna Convention on Law of Treaties.

However, WTO has also denied accepting this argument based on few technicalities.

What are the options for India?

It is unlikely that India will comply. Compliance would remove the high protective tariff imposed by India to boost domestic manufacturing of ICT products.

India 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.

What are options before the EU?

Under the WTO law, the EU cannot cannot impose sanctions. The WTO law does not allow countries to impose trade sanctions when an appeal is pending. Retaliatory action in the form of trade sanctions can be imposed only after the authorisation of the Dispute Settlement Body.

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.