On 17th April, 2023, the WTO Dispute Settlement Body circulated the report of the Panel in dispute concerning customs duties imposed by India on certain Information and Technology products. The European Union, Japan and Taiwan challenged such duties as being violative of India's commitments under the GATT. It was alleged that India imposed duties in excess of its tariff commitments under the WTO Schedule of Concessions. The Panel found that the customs duties notified by India were in violation of its commitments.
The present dispute arose when European Union (EU), Japan and Taiwan challenged certain tariff measures imposed by India on certain Information and Communications Technology (ICT) products. The measures in issue were certain Customs Notifications through which customs duties rates were notified for 15 ICT products. In April 2019, the European Union sought consultations with India concerning such customs duties on ICT products, contending that they were violative of India's agreed bound rates. Thereafter, Japan and Taiwan also sought consultations in May 2019. Following consultations, the Dispute Settlement Panel was established which circulated its report on 17th April 2023.
India's tariff obligations under various International Agreements
Under the General Agreement on Tariffs and Trade, 1994 (GATT), Articles II:1(a) and (b) require all WTO members to undertake certain commitments with regards to tariffs imposed on importation of goods. This includes a commitment to refrain from increasing a duty in excess of an agreed upon rate, referred to as the bound rate. Accordingly, all members are required to commit to a "Schedule of Concessions" and no customs duties must be imposed in excess of the bound rates committed under the Schedule. These Schedules are regularly updated to include any new products that are added to the Harmonised System of Nomenclature (HSN) as issued by the World Customs Organisation.
While the GATT was signed and implemented in 1994, various WTO members concluded the Ministerial Declaration on Trade in Information Technology Products (ITA), in December 1996. By virtue of the said declaration, the members committed to remove any customs duties on ICT products covered under the ITA. Further, members were required to incorporate the commitments made under ITA into their respective Schedules and modify the bound rates undertaken therein. Originally, the ITA covered roughly 200 ICT products. India joined the ITA in March 1997. Subsequently, India modified its WTO Schedule to incorporate the commitments made under the ITA. However, the 15 products at issue were not originally a part of the commitments under ITA.
In 2002, all WTO members including India, agreed to update their Schedules under GATT as per the latest edition of HSN for 2002. Thereafter, in 2007, the members agreed to update their Schedules as per the 2007 edition for HSN. On behalf of India, the WTO updated its Schedule and notified India of the changes. Since no objections were received from India, the revisions to the Schedule were certified and circulated to all members. The 15 ICT products at issue were added to the Schedule of Concessions during such revision in 2007. Further, a nil rate was specified for such products, pursuant to the commitment under ITA. In 2018, India claimed that inclusion of 15 ICT products in its Schedule was an error as India inadvertently did not object to the Schedule, under which it was bound to eliminate duties for such products. India thus, requested that its Schedule be rectified since the 15 products in issue were not part of the ITA originally. However, amidst significant objections from other members, India's Schedule of Concessions was not revised.
Imposition of measures on ICT products by India
Beginning in 2014, India imposed customs duties ranging from 7.5% to 20% on products such as mobile phones, conductors and other telecommunication products falling under customs headings 8504, 8517 and 8518 through various customs notifications. However, these products were part of the revision to India's Schedule in 2007, by virtue of the ITA. Accordingly, it was alleged that India breached the bound rates agreed to by it. This resulted in the issue being taken up for consideration before the WTO Dispute Settlement Body.
Contentions of members before the WTO Panel
Before the Panel, India argued that it was required to eliminate duties only on such products which were originally part of the ITA in 1997. Since the 15 ICT products in issue did not exist in 1997 and were not part of the ITA, the same were not included in India's commitments under the ITA. Accordingly, addition of such products into India's Schedule of Concessions, by way of revision in 2007, cannot impact India's commitments under the GATT as those were fixed and static.
Further, India also claimed that the revision of its Schedule in 2007 should not be considered binding since it was an error on India's part. India relied on Article 48 of the Vienna Convention on the Law of Treaties, which provides that a member can invalidate its consent to be bound by a treaty by claiming an error of fact or situation assumed by the member.
The European Union, Japan and Taiwan challenged the customs duties notified by India on ICT products as being violative of India's commitments under Articles II:1(a) and (b) of the GATT. In addition, Japan also claimed that even if India exempts certain products from customs duties, it would still be violative of Article II:1(a) of GATT since the exemptions would be granted through customs notifications which are subject to the possibility of repeal at any time, thus creating a lack of foreseeability for traders.
Decision of the Panel finding India's customs duties violated its commitments
The Panel did not agree with India that its commitments to eliminate duties on ICT products were only set out under the ITA and not under its Schedule of Concessions. The Panel found that once the commitments were incorporated in the WTO Schedule in 2007, they became binding on India. Further, the Panel held that India's commitments under the Schedule of Concessions were not static and were subject to revisions or modifications.
With regards to India's claim that the revision in 2007 was an error, the Panel held that the requirements of Article 48 of the Vienna Convention were not satisfied in the present case. The Panel agreed in good faith with India's argument that it inadvertently agreed to be bound by nil-rate of duties for 15 ICT products in issue. However, the Panel held that the WTO notified India of the revisions being made to its Schedule of Concessions and gave an opportunity to comment on the same. Since India was given sufficient prior information and opportunity to comment, the requirements set out under Articles 48(1) and (2) of the Vienna Convention, were not satisfied in the present case.
Accordingly, the Panel recommended that India bring its customs tariff measures in conformity with its commitments under the WTO Schedule of Concessions and Articles II:1(a) and (b) of the GATT.
Following the decision of the Panel, India has an opportunity to approach the WTO Appellate Body challenging the decision. However, considering the fact that the Appellate Body is currently non-functional, the implementation of the decision of the Panel can be kept in abeyance. Further, India may also consider using the multi-party interim appeal arbitration arrangement in the alternate. While India is not required to immediately eliminate duties on the products in issue, it has already reduced the duty rates to 0% with effect from February 2022, on Headphones/earphones and Electric Convertors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.