India-EU seek time to resolve ICT dispute

India and the European Union (EU) have jointly urged the World Trade Organisation (WTO) to postpone the implementation of a ruling against India’s import duties on certain Information and Communication Technology (ICT) products until September 19, 2023.

Image Source: WTO

An interesting development has come up pertaining to the WTO panel ruling on April 17, 2023 stating that India had violated global trading rules in a dispute with the EU, Japan and Taiwan. This dispute was pertaining to India’s imposition of import duties on specific IT products. This trade conflict has emerged due to the EU’s concerns about their exports to India and potential violations of international trade agreements.

India and the EU have jointly requested the dispute settlement body of the WTO to defer the adoption of its ruling on tariffs imposed by the former on some IT products till September 19, as they try to reach an agreement on negotiations.

Since 2014, India has gradually implemented customs duties reaching up to 20%, on various products including mobile phones, phone components, accessories, line telephone handsets, base stations, static converters, electric wires, and cables, as it sought to grow its domestic industry. The EU had raised concerns, asserting that these duties violate WTO’s regulations as India is obligated to maintain a zero-duty rate for such products according to its WTO commitments.

EU’s Views on Imposed Tariff

On April 2, 2019, the European Union (EU) challenged India’s imposition of import duties on various Information and Communication Technology (ICT) products. These products included mobile phones, components, base stations, integrated circuits, and optical instruments. The EU argued that these measures seemed to violate specific provisions of the WTO.

Several countries, including Brazil, Canada, China, Indonesia, Korea, Norway, Pakistan, the Russian Federation, Singapore, Thailand, Turkey, Ukraine, and the United States, joined as third parties in these disputes. The complainants alleged that India had imposed duties of up to 20% on certain ICT products, exceeding its bound rate of 0% as specified in its Schedule of Concessions based on HS 2007 tariff lines.

Under WTO regulations, member countries have the right to bring a case before the WTO if they believe that a particular trade measure goes against WTO norms

India’s Perspective

In 2019, the European Union, Japan, and Chinese Taipei lodged complaints against India. They accused India of violating the provisions of the General Agreement on Tariffs and Trade 1994 (GATT 1994) by imposing duties on ICT products. Separate panels were established for each case in the latter half of 2020. On April 17, 2023, the panel issued its final report to all members of the WTO.

In 2022, the European Union accounted for 3.03% of the total imports of contested ICT products into India, estimated at US$ 550 million. Japan and Chinese Taipei held shares of 0.33% (estimated at US$ 24 million) and 2.86% (estimated at US$ 235 million), respectively. Furthermore, India has already reduced duty rates to 0% for two of the disputed products, namely headphones/earphones and electric converters, since February 2022.

India defended its duty imposition by arguing that these products did not fall within the scope of the Information Technology Agreement-1 (ITA-1), to which it is a signatory. It has amended its Schedule of Concessions submitted to the WTO to align with its commitments under ITA-1. WTO member countries are required to update and transpose tariff codes and descriptions in their Schedules of Concessions in response to changes introduced by the World Customs Organization (WCO) in the HS nomenclatures, including those related to tariff quotas and export subsidies.

The HS nomenclatures are updated every five to six years. Due to a transposition error during the HS 2007 process, India inadvertently certified the aforementioned products under its Scope of Concessions, even though it was not obligated as a signatory to ITA-1. To rectify this error, India invoked the 1980s procedure for modifying and rectifying the Schedule of Concessions.

The panel’s report rejected India’s argument regarding ITA-1 and recommended that India should bring the mentioned measures in line with its obligations under GATT 1994. This ruling affects EU exports of up to € 600 million annually, but the impact on European companies is even greater as they also export to India through other countries.

However, the joint request by India and the EU is significant in consideration of ongoing talks between the two trade partners on an FTA. The two are discussing these tariffs among various other issues in the India-European Union Trade and Technology Council (TTC), which held its first meeting in May 2023. Moreover, as reported in Mint citing anonymous source, the two are on a common position with respect to China. Even the EU has a tariff rate quota to protect its steel industry from China’s imports, and parallels can be drawn with India’s approach to ICT products.