Recently, a panel from the World Trade Organization (WTO) has ruled against India in a dispute over information technology (IT) tariffs with the European Union (EU) and other nations. The crux of the dispute lies in India’s aim to boost domestic IT manufacturing and reduce reliance on imports, a move challenged by EU and several other countries as protectionist and in violation of global trade rules.
Background and Highlights of the Dispute
In 2019, the EU, alongside Japan and Taiwan, objected to India’s imposition of import duties ranging from 7.5% to 20% on a wide assortment of IT products such as mobile phones, integrated circuits, and their components. They claimed these duties surpassed the maximum rate and contravened the Information Technology Agreement (ITA), an international trade agreement aimed at abolishing tariffs on a multitude of IT products. India, being a signatory to the ITA since 1996, was accused of breaching this agreement.
The Ruling and its Implications
The WTO panel determined that India’s tariffs on certain IT goods were indeed infringing international trading rules, spotlighting the necessity for India to align its trade policies with international standards and obligations. This decision brings forth challenges that developing countries like India face while trying to strike a balance between their domestic policy goals and their international trade commitments.
As per the European Commission, the EU is India’s third-largest trading partner, contributing to 10.8% of total Indian trade in 2021. Thus, the ruling can have significant effects on the trade relations between India, the EU, as well as Japan and Taiwan. It could compel India to cut or eliminate the contested import duties, which might then adversely impact its protected domestic manufacturing sector.
India’s Argument and Post-Ruling Options
India contended that at the time of signing the ITA, certain products such as smartphones did not exist. Therefore, it should not be obligated to abolish tariffs on such items. Post-ruling, India can opt to appeal against this decision. However, due to the US’s opposition to judge appointments, the WTO’s top appeals bench is currently non-functional, resulting in what’s termed as a ‘legal purgatory’. This refers to a state of indefinite suspension or limbo for a legal case without any clear path towards resolution, which undermines the efficiency of the WTO’s dispute settlement mechanism.
The World Trade Organization (WTO): An Overview
Established in 1995, the WTO succeeded the General Agreement on Tariffs and Trade (GATT), which was set up post-World War II. The organization’s fundamental objective is to facilitate the smooth, free, and predictable flow of trade. Consisting of 164 member nations, it accounts for 98% of global trade. The WTO’s rules are the result of negotiations between the members, with the current set being largely derived from the 1986-94 Uruguay Round negotiations. The headquarters of WTO’s Secretariat is based in Geneva, Switzerland.
Every two years, the WTO’s top decision-making body, the Ministerial Conference, convenes where all member nations deliberate on issues covered under any multilateral trade agreements. Due to the ongoing US resistance to judge appointments, the uppermost Appeals Officials of the WTO are presently non-functional, leading to difficulties in resolving trade disputes in an increasingly protectionist global context.
UPSC Civil Services, Previous Years Questions (PYQ) About Trade Facilitation Agreement (TFA)
In 2017, the UPSC Civil Services asked, “Which of the statements given above is/are correct?” in reference to three statements regarding India and the Trade Facilitation Agreement (TFA) of the WTO. It was clarified that India had ratified the TFA in 2016, not 2017 as some might mistakenly believe. The TFA holds provisions for expediting the movement, release, and clearance of goods, including those in transit, and encourages effective cooperation between customs and other authorities on trade facilitation and customs compliance issues.