ICT tariff dispute at WTO: EU softens position on retaliatory measures against India
Trade (ILLUSTRATION: BINAY SINHA)
In a significant shift from its previous position, the European Union (EU) has expressed its preference for reaching a mutually satisfactory solution with India over a dispute over technology products, even though the country has the option to impose retaliatory tariffs on grounds of its domestic regulations, now that New Delhi has appealed a World Trade Organization (WTO) ruling that favored the trading bloc.
“As the WTO Appellate Body is currently not functioning, this is a call 'into the void'. The report (by the WTO Dispute Settlement Panel) is therefore no longer up for approval, but is in limbo and pending before the non-functioning Appellate Body. In such cases, the EU can use the Enforcement Regulation to protect its rights. However, we would prefer to find a mutually satisfactory solution with India,” an EU spokesperson told Business Standard, in response to an email query.
After the Dispute Settlement Body, the second highest court at the WTO, ruled in April that India's imposition of tariffs on information and communications technology (ICT) products violated its zero-tariff obligation under the Information Technology Agreement, enforced by the multilateral trade body India appealed to the dysfunctional Appellate Body – the highest court at the WTO – in its dispute against most parties except the European Union.
An EU spokesperson had told Business Standard in April that if India were to appeal to the non-functioning WTO Appellate Body, the EU has legislation in place that would allow the country to enforce its rights through customs duties or to impose other restrictions in response to appeals to the void, “should the EU decide to do so.”
The Dispute Settlement Body had ruled that India had violated global trade norms for imposing import duties on information technology (IT) and telecom products, including mobile phones. It had also asked New Delhi to remove duties on such products. India's move to appeal the verdict came after New Delhi and Brussels failed to reach a mutually acceptable solution over the past seven months.
The EU spokesperson further said that the WTO dispute settlement body would meet on December 18 and that the panel report in the case was expected to be adopted. “If the report is adopted, India would have to comply with the recommendation of this report, which is to remove all tariffs on ICT products. However, India filed an appeal before the December 18 meeting,” the official added.
Trade ministry officials said a joint solution could not be reached within a certain time – according to WTO standards – because the EU wanted tariff concessions on IT and telecom products, which would not have been possible.
Reducing import duties on these products would have been in conflict with India's existing manufacturing-related incentive program, which aims to boost domestic production of these technology products. In the absence of a free trade agreement, India also cannot offer the EU preferential tariff treatment on certain products.
The EU had earlier approached India to resolve the matter through the Multi-Party Interim Appeal Arbitration Arbitration (MPIA) that it had set up as an alternative mechanism to the defunct appellate body. However, India rejected the offer as it opposes the mechanism and favors the restoration of the WTO Appellate Body.
India recently told the WTO that its long-standing position on the Appellate Body crisis and the implications of interim arbitration arrangements is that such interim arrangements undermine the right of Members to have recourse to a permanent body, which is fundamental importance for the multilateral trading system. “It hopes that the speedy recovery of the Appellate Body will enable correction of the errors in the panel report and early resolution of this dispute,” India added.
–In 2019, the EU, Japan and Chinese Taipei raised three similar but separate disputes at the WTO, claiming that India had violated the provisions of the GATT 1994 by imposing duties on certain tech products such as mobile phones, base stations and integrated circuits
–In April 2023, the WTO's dispute settlement body ruled against India, saying that imposing tariffs on electronic items violates India's obligations under the IT Act
–According to the European Commission, EU exports of such technology affected by India's violations amount to 600 million euros annually, which is significant
First print: December 20, 2023 | 7:30 PM IST