New Delhi: The dispute panel of the World Trade Organization (WTO) Monday ruled that India has violated global trade agreements by imposing duties on certain communications and information technology products, and called for India to rectify the situation.
The dispute arose because, back in 2019, the European Union took India to the WTO alleging that it had imposed duties on these products in excess of what had been agreed to at an international level. Taiwan and Japan also soon joined the case against India.
The judgment by the WTO’s panel is 146 pages long and contains significant amounts of technical jargon, but the crux of the matter seems to be a disagreement over what items are included in an international agreement signed in 1996 and to which India became party in 1997.
“The European Union challenges the duties applied by India to imports of certain information communication technology (ICT) products, on the ground that such duties are in excess of the relevant tariff bindings set forth in India’s WTO Schedule,” the WTO’s order said.
ThePrint reached the Ministry of Commerce for a comment on the order and on whether India will appeal it. This report will be updated if and when a response is received.
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Where the problem started
At the centre of the dispute are communications and information technology items that include, among others, telephone, television and recording accessories.
To start with, it’s important to note that the duties member countries of the WTO impose are linked to a common system of classifying items across countries, called the Harmonized System (HS) developed by the World Customs Organization (WCO). As is the case for other countries, India’s WTO Schedule (the compendium of taxes we impose on various goods and services) is linked to this HS.
This Harmonized System is regularly updated by the WCO to keep up with new innovations and products.
“When an updated nomenclature is published, the WCO publishes correlation tables, also referred to as concordance tables, which identify the correlations between the product scope of HS headings and subheadings in the previous version of the nomenclature as compared to the new version,” the WTO’s order reads.
In other words, when the HS is updated, all member countries are provided all the relevant data so they can reconcile the new system with the old.
Using this information, each member country’s schedule is updated to reflect the new HS nomenclature — a process called ‘transposition’.
“Prior to the establishment of the WTO (in 1995), procedures were adopted that required the Contracting Parties to the General Agreement on Tariffs and Trade 1947 (GATT 1947) to incorporate updated nomenclature into their Schedules and, if necessary, conduct negotiations… if the transposition resulted in a change in the scope of the concession,” the order said.
Simply put, it means that the countries incorporating the updated Harmonized Systems should negotiate at the WTO if the update results in a change in their tax structures.
It’s this step that’s at the core of the dispute.
The agreement that caused it all
The order said that on 13 December 1996, several members of the WTO came together and finalised the Ministerial Declaration on Trade in Information Technology Products (ITA).
“India joined the ITA on 26 March 1997. The ITA participants agreed among themselves to bind and eliminate customs duties and other duties and charges of any kind… with respect to certain products,” the order read.
In April 1997, India proposed a modification of its WTO Schedule, which was circulated to all WTO members for their review. These changes to India’s Schedule, based on the 1996 edition of the Harmonized System (HS1996), were certified in October 1997.
Then, the WTO members agreed to update the Harmonized System to 2002 (HS2002), the order said.
“For the transposition to HS2002, additional procedures regarding the transposition process were adopted… but the obligation remained on members to perform the transposition process,” the order said. This, too, passed without incident.
However, problems arose the next time the WTO tried to update members’ schedules. In 2006, when the WTO prepared to update the HS2002 to a 2007 edition, it decided that developed countries would do their own transposition, but the WTO Secretariat would do the transposition for developing countries unless they indicated that they would do it themselves.
“Since India did not indicate that it intended to undertake the transposition of its Schedule from the HS2002 to the HS2007, the WTO Secretariat undertook to prepare India’s transposition,” the order said. “On 8 November 2013, the Secretariat communicated to India via email the draft files for the HS2007 transposition of India’s Schedule.”
It was not immediately clear to which email address the WTO Secretariat sent its email.
India responded to the draft files with its comments, following which the WTO Secretariat communicated a revised file to India for approval.
“A multilateral review session was held in the Committee on Market Access on 23 April 2015, during which the draft files were approved by members in the Committee on Market Access,” the order said.
Amongst other things, the Committee on Market Access also oversees the tariff and import data administered by the WTO.
“The draft modifications to the Schedule were circulated on 12 May 2015 and, since no objections were received within three months of circulation [including from India], on 12 August 2015 the changes to the Schedule were certified,” it added.
The issue, however, didn’t end here. On 25 September 2018 — three years after the changes were certified — India requested the WTO Secretariat to correct “certain errors contained in its HS2007 Schedule”.
Therein lies the rub.
“In its request, India stated that ‘[w]hile transposing the HS2002 schedule to HS2007 schedule on the products concerned, errors occurred, resulting in wrong bound tariff commitments on certain lines which were inadvertently included in the Schedule’,” the order said.
Further, the order said that India’s stand was that “the various tariff subheadings” for which it was seeking “rectification” in its HS2007 Schedule were not covered by the commitments in the ITA, and “[t]he new products became part of the schedule on account of the WCO transposition from HS2002 to HS2007”.
“India considered that the rectification did not alter its commitments ‘either under GATT 1994 or the ITA’, and that ‘[t]he errors in the HS2007 scheduling should be interpreted as an inadvertent oversight by India on binding of products not covered by the ITA at 0 per cent’.
Put simply, India’s contention was that the transposition of the HS2002 to HS2007 by the WTO Secretariat had added some items in the zero tariff category that it felt shouldn’t have been included.
Several WTO members, including Canada, China, the European Union, Japan, Taiwan, Switzerland, and the United States objected to India’s proposed rectification. Due to these objections, India’s rectification request is still pending.
Arguments before the panel
The European Union, according to the order document, alleged that “by applying ordinary customs duties in excess of the tariff bindings set forth in its WTO Schedule, with regard to products falling under the tariff items identified by the European Union, India is acting inconsistently with its obligations under… the GATT 1994”.
The EU further asked the panel to recommend that India “bring its measures into conformity with its WTO obligations”, the order said.
On its part, India had made several arguments before the EU — the foremost being that the products at the centre of contention are not covered under the ITA and the HS2007 Schedule and were “certified in error”.
It further said that since the products being contested are not covered under the ITA, its request for rectification was of a “purely formal character” or a formality, and that the objection raised by the EU to the draft rectification was unfounded and impeded India’s right to rectify its Schedule.
India also argued that it was not imposing duties on some of the products mentioned in the case and so was “therefore acting in line with its commitments under the ITA”. These products included ‘line telephone handsets’ and some others relating to sound recorders, reproducers, television image recorders, and accessories of such products.
Finally, it argued that the definition of an “error” under the Vienna Convention on the Law of Treaties meant that the commitments under the contested subheadings of India’s WTO Schedule are invalid.
What the panel found & what’s next
The WTO panel delved deep into the issue, examining each facet rigorously, and found that India’s tariffs on certain parts of telephone sets and other apparatus for transmission or reception of voice, images, or data, was inconsistent with the GATT 1994.
This was because “certain such products are subject to ordinary customs duties in excess of those set forth and provided in India’s WTO Schedule” and “certain such products are subject to ordinary customs duties in excess of those set forth and provided in India’s WTO Schedule unless they satisfy certain conditions not set forth in that WTO Schedule”, the panel said in the order.
Simply put, the panel found that India was imposing a higher tariff on certain goods than was initially agreed, and that it was imposing conditions relating to tariffs when these should have been unconditionally tariff-free.
If India does appeal the decision, chances are the matter could be stuck in regulatory limbo for some time. This is because the US has been blocking appointments to the WTO’s appeals bench since 2019.
The US ambassador to the WTO reportedly told Reuters in January 2023 that it aims for the WTO appeals body to be functional by the end of 2024.
(Edited by Uttara Ramaswamy)