TWN Info Service on WTO and Trade Issues (Apr23/12)
19 April 2023
Third World Network

WTO: EU, Japan, Chinese Taipei win dispute against India on ITA products
Published in SUNS #9767 dated 19 April 2023

Geneva, 18 Apr (D. Ravi Kanth) — The European Union, Japan, and Chinese Taipei on 17 April secured a favourable ruling against India at the World Trade Organization, after a dispute panel ruled against New Delhi on grounds that it failed to implement its scheduled tariff commitments on certain electronic products under the provisions of the General Agreement on Tariffs and Trade (GATT) 1994, said people familiar with the ruling.

In its 145-page ruling, though circulated to the three complainants with some minimal changes depending on the products and the issues raised by them, the three-member panel found that India made some fundamental errors and thereby, failed to properly implement its scheduled commitments.

If India appeals the panel ruling before the Appellate Body (AB), then, the rulings and recommendations of the panel could go into a limbo due to the continued paralysis of the AB created by the US since December 2019.

The three-member panel – comprising Mr Paul O’Connor (chairperson), Ms Samantha Atayde Arellano, and Mr Fabian Villarroel Rios – adjudicated the dispute that was raised by the complainants almost four years ago.

The three complainants held consultations with India but failed to reach an amicable agreement.

Subsequently, they requested the establishment of a panel in mid-February 2020 and a panel was established by the Dispute Settlement Body (DSB) in June 2020.

The panel was asked to examine, in the light of the relevant provisions of the covered agreements cited by the parties to the dispute, and make such findings as will assist the DSB in making rulings and recommendations as provided for in those agreements.

According to the complaints made by the EU, Japan and Chinese Taipei, the underlying theme is that India was applying tariffs on imports of certain Information Technology Agreement (ITA) products in excess of the zero duty as set out in its WTO Schedule.

The complainants argued that India violated core provisions of the scheduling commitments, particularly Articles II:1(a) and II:1(b) of the GATT 1994.

It appears that Japan additionally argued that even where India unconditionally exempts certain products from customs duties, India acted 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.

In its rebuttal, India apparently raised several arguments.

They include:

1. Its tariff-binding commitments are listed out in the Information Technology Agreement (ITA) and those commitments remain unchanged due to their incorporation into India’s WTO Schedule.
2. Pursuant to Article 48 of the Vienna Convention on the Law of Treaties (Vienna Convention), 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 2002 version of the Harmonized System (HS) for tariff classification to the 2007 version.
3. The errors in India’s WTO Schedule are of a formal nature and were therefore capable of rectification pursuant to the GATT Decision of 26 March 1980 on Procedures for Modification and Rectification of Schedules of Tariff Concessions (1980 Decision), such that the complainants’ objection to India’s proposed rectification of its Schedule was inconsistent with the requirements of the 1980 Decision.
4. As regards the points raised by Japan, India also 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, thus according to products “of Japan” tariff treatment that is consistent with India’s duty-free tariff commitments set forth in its WTO Schedule.

Japan, however, disagreed with India’s argument, saying that in order for products “of Japan” to receive duty- free treatment, they must satisfy specific preferential rules of origin, and that requirement constitutes a “condition” for duty-free treatment that is not set forth in India’s WTO Schedule.

Addressing Japan’s additional claim under Article II:1(a) of the GATT 1994, India pointed out that it has discretion as to how to comply with its obligations under the covered agreements.

Tokyo requested the panel to specify the manner in which India must satisfy its obligations under Articles II:1(a) and (b) of the GATT 1994.

The specific provisions of Articles II:1(a) and (b) of the GATT 1994 state that:

“Article II: Schedules of Concessions

1. (a) Each contracting party shall accord to the commerce of the other contracting parties treatment no less favorable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement.

(b) The products described in Part I of the Schedule relating to any contracting party, which are the products of territories of other contracting parties, shall, on their importation into the territory to which the Schedule relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided therein. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with the importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date.”

Given the to-and-fro arguments, the panelists reasoned that “at the time of the Panel’s establishment, although such products were eligible for duty-free treatment subject to conditions, neither of those conditions was inscribed in India’s WTO Schedule.”

The products cited by the three complainants are: (8504.40- ex02) static converters for automatic data processing machines and units thereof, and telecom apparatus; (8517.12) telephones for cellular networks or for other wireless networks; (8517.61) base stations; (8517.62) machines for the reception, conversion and transmission or regeneration of voice, image or other data, including switching and routing apparatus; (8517.70- ex01) parts and accessories of machines of heading 84.71: for populated PCBs; (- ex02) parts and accessories of the machines of heading 84.71: other; (- ex03) other; (8518.30.01) line telephone handsets; (8544.42- ex01) insulated electric conductors fitted with connectors, of a kind used for telecommunications.

According to the panel, “if an imported electric conductor, for a voltage not exceeding 80 V, of a kind used for telecommunications, fitted with connectors, failed to satisfy one of those conditions, it would have been subject to a 7.5% duty rate. In our view, therefore, India’s tariff treatment of such products was inconsistent with its WTO tariff commitments as contained in its WTO Schedule.”

The panel said it considered that, as of 1 February 2022, India brought its tariff treatment of such products into consistency with its WTO tariff commitments concerning those products.

Yet, in its conclusions, the panel maintained that “at the time of the Panel’s establishment, India’s tariff treatment of electric conductors, for a voltage not exceeding 80 V, of a kind used for telecommunications, fitted with connectors, falling within the scope of tariff item 8544.42.00 ex01 of India’s WTO Schedule, was inconsistent with Article II:1(b), first sentence, of the GATT 1994, because such products were subject to ordinary customs duties in excess of those set forth and provided in India’s WTO Schedule unless they satisfied certain conditions not set forth in that WTO Schedule.”

The panelists recalled that “the application of ordinary customs duties in excess of those provided for in a Member’s Schedule, or subject to terms, conditions or qualifications not set forth in the Schedule, inconsistent with the first sentence of Article II:1(b), also constitutes “less favorable” treatment within the meaning of Article II:1(a).”

Consequently, the panelists pointed out that “at the time of the Panel’s establishment, India’s tariff treatment of such products was less favorable than that provided in its WTO Schedule, and India was therefore acting inconsistently with Article II:1(a) of the GATT 1994.”

While recognizing the fact that “as of 1 February 2022, India accords unconditional duty-free treatment to such 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,” the panelists said, “by according to the commerce of the European Union treatment no less favorable 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.”

The panel’s overall conclusions and recommendations are as follows:

1. With respect to India’s assertions concerning its WTO tariff commitments, the panel found that:
   i. The ITA is not a covered agreement within the meaning of the WTO Agreement and the DSU, does not set forth India’s legal obligations at issue in this dispute, and does not otherwise limit the scope of India’s tariff commitments as set forth in its WTO Schedule;
   ii. The circumstances of this case do not satisfy the substantive requirements of Article 48 of the Vienna Convention, and the panel, therefore, declined to read aspects of India’s WTO Schedule as invalid; and
   iii. India’s request for findings that the European Union acted inconsistently with the 1980 Decision is not within its terms of reference, and the panel consequently does not have the legal mandate to make such findings.

b. With respect to the European Union’s claims that India’s tariff treatment of certain products is inconsistent with Articles II:1(a) and (b) of the GATT 1994, the panel found that:

i. India’s tariff treatment of certain products classified under tariff items 8504.40 ex02, 8517.12, 8517.61, 8517.62 and 8517.70 ex01, ex02, and ex03 of India’s WTO Schedule is inconsistent with Articles II:1(a) and (b) of the GATT 1994;

ii. At the time of the Panel’s establishment, India’s tariff treatment of certain products classified under tariff items 8518.30 ex01 and 8544.42.00 ex01 of India’s WTO Schedule was inconsistent with Articles II:1(a) and (b) of the GATT 1994; and

iii. As of 1 February 2022, India’s tariff treatment of certain products classified under tariff items 8518.30 ex01 and 8544.42.00 ex01 of India’s WTO Schedule is consistent with Articles II:1(a) and (b) of the GATT 1994.

iv. In regard to the complaint filed by Japan, the panel rejected Japan’s claim that India’s customs notifications lack foreseeability or predictability, thus affecting conditions of competition for traders. The panel said that Japan failed to demonstrate that India’s customs notifications accord treatment less favorable than that set forth in India’s WTO Schedule.

v. However, in regard to Japan’s complaint, the panel rejected India’s argument that pursuant to its notification implementing the CEPA, India applies a customs duty rate of 0% to the products at issue, and therefore acts consistently with its WTO obligations. 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.

According to its report, the panel maintained that “under Article 3.8 of the DSU, in cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment. We conclude that to the extent that the measures at issue are inconsistent with Articles II:1(a) and (b) of the GATT 1994, they have nullified or impaired benefits accruing to the European Union under that agreement.”

The panel conveyed that “pursuant to Article 19.1 of the DSU, to the extent that India’s tariff treatment of certain products classified under tariff items 8504.40 ex02, 8517.12, 8517.61, 8517.62, 8517.70 ex01, ex02, and ex03 of India’s WTO Schedule continues to be inconsistent with Articles II:1(a) and (b) of the GATT 1994, we recommend that India bring such measures into conformity with its obligations under the GATT 1994.” +