WTO panel rules against India in ICT tariff dispute with EU, others

The dispute settlement panel of the World Trade Organization (WTO) on Monday ruled that India’s imposition of tariffs on mobile phones and electronic components violates its commitment under the Information Technology (IT) Act under the multilateral trade body.

“We recommend India bring such measures into conformity with its obligations under the General Agreement on Tariffs and Trade 1994,” the panel ruled.

The rulings in three separate but similar disputes raised by the European Union (EU), Chinese Taipei, and Japan will put pressure on India to withdraw the tariffs at a time it is seeking to be a leader in electronics manufacturing through a production-linked incentive scheme.

However, an Indian commerce ministry official said since the appellate body of WTO — its highest adjudicating authority — is dysfunctional due to the absence of judges, the adverse report of the dispute settlement panel will not have any immediate impact.

“India will be appealing against this judgment. Since the appellate body at the WTO is dysfunctional, it will be a void appeal. That is why there will not be any substantial impact on India,” said a government official.

India, which is signatory to the 1996 Information Technology Agreement (ITA), is required to eliminate tariffs on a range of products, including mobile handsets. However, starting 2007-08 Union Budget, India imposed tariffs on a clutch of electronic items to curb cheap electronic imports from China and promote India’s home-grown manufacturing.

Many countries had complained that the imposition of tariffs on IT products by India was against the principles agreed upon under ITA. However, India argued that at the time of signing the ITA, products such as smartphones did not exist and hence, it was not bound to eliminate tariffs on such items. 

The WTO dispute settlement panel said although it accepted “in good faith” India’s argument, the panel found it 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 Harmonized System (HS) 2007 Schedule may have expanded from those outlined in its HS 2002 Schedule, and similarly, that its WTO tariff commitments in its HS 2007 Schedule may have expanded from those outlined in the ITA,” it added.

Ajay Srivastava, founder of think tank Global Trade Research Initiative, said India can rejoice that its decision to increase import tariffs on mobile phones has paid off handsomely.

“It resulted in significant investments, including those from Apple and Foxconn. Our mobile phone exports will soon cross $10 billion a year. Hypothetically, if India agrees to pay the compensation, it will lose minimal money as its imports from the EU, Japan, and Taiwan are low. Third parties like China, which account for significant imports from India, are not allowed to get any compensation under the WTO mechanism,” he added.

“India should apply a zero duty rate on information and communication technology products like mobile phones, according to its WTO commitments. Instead, it has tariffs of up to 20 per cent. That is illegal, a WTO panel has ruled. Respect for the rules-based trading system is vital for a good trade relationship,’ the international trade department of the EU tweeted.

The EU has also approached India to resolve the matter through a multi-party interim appeal arbitration arrangement (MPIA). However, India is against MPIA as a mechanism and is in favour of the restoration of the WTO appellate body, the official quoted earlier said.

MPIA is an alternative system for resolving WTO disputes that are appealed by a member nation in the absence of a functioning WTO appellate body.

CASE FILE

• The EU, Chinese Taipei and Japan dragged India to the WTO dispute in 2019 on imposing tariffs on certain information and communications technology goods
• Products include mobile phones, microphones, transmission apparatus for radio broadcasting, parts used in television cameras, electronic integrated circuits, insulated wire, oscilloscopes and measuring or checking instruments
• India’s high tariffs on such ICT items have led to substantial increase in investments and exports of such items