The European Union yesterday presented a formal request to the World Trade Organisation for urgent consultations on the phaseout of Indias rigid regime of import restrictions under the framework of WTOs dispute settlement mechanism.
The EU move to lob the contentious issue to the WTOs disputes settlement forum follows similar decisions taken earlier this week by the United States, Canada and Australia following the breakdown of multilateral talks at the WTOs balance of payments committee on June 30.
The concerted action by the dominant Western trading partners, who have a vice-like grip over world trade, puts India in a troublesome spot.
The roof is falling down on you and the Indian government is doing nothing about it, said a senior European Commission official, expressing annoyance over the way the Indian side has conducted the negotiations till now.
Its unfortunate that India did not read the signals emanating from the negotiations at Geneva. As far as we are concerned, this has been the most important issue that has seized the EU this year, the EU official said.
The consultations under Article XXII of the General Agreement on Tariffs and Trade (Gatt) will now continue for a mandated 60-day period under a codified procedure for disputes settlement.
If a mutually satisfactory solution is not reached even after that period, a panel could be set up at the request of the aggrieved parties to arbitrate on the issue that has soured relations between India and its major trading partners.
The issue centres on the rollback of protectionist trade barriers in the form of quantitative restrictions on the imports of a range of products that have been institutionalised over the past 40 years. Over time, the restrictions have been whittled to about 2,400 products in key areas like textiles and agriculture.
The US and the EU are now pressing for a complete removal of all restrictions over a period of five years and contend that the argument advanced by India for continuing with the regime of import controls a scare of a balance of payments crisis if it allows free imports has worn thin. India, on the other hand, has stuck to its offer of a seven-year phaseout.
Rapid export growth and capital inflows have helped the turnaround in the Indian external sector and led to a substantial increase in the level of foreign exchange reserves, said a press release issued here by the European Commission.
Its clear that with foreign exchange reserves of over $25 million and five-six month cover for imports which has clearly been endorsed by the International Monetary Fund India can no longer use the fig-leaf provided by a Gatt provision to persist with its slew of import controls, said the EC official.
The Commission official said the EUs patience had been sorely tried by the obdurate stand taken by the Indian negotiators at Geneva where the talks have dragged on for the past six months.
The EC official warned of punitive sanctions against India if it failed to improve on its offer in the fresh round of talks. He said this would be necessary to recover injury costs that the EU would suffer as a result of the loss of trading opportunities in India if the Gujral government maintained the restrictions in violation of the WTO rules. This could be in the nature of doubling of tariffs on textiles exported by India to the EU, he added, which could spark concern in a key export segment.
The official said the EU would now insist on a five-year phaseout with sufficient frontloading of the rollbacks at the talks that will resume shortly.
The EUs Indias main trading partner and absorbs more than a quarter of Indias exports and supplies approximately the same proportion of its imports. Total India-EU trade in 1996 was estimated at 18,438 million Ecu (European currency units 1 Ecu is about $1.25).
