License to lease: How WTO provision became tool for nations to curb imports

On June 12, 2020, India imposed restrictions on imports of pneumatic tires used for cars, buses, lorries, scooters, and motorcycles, per the Agreement on Import Licensing Procedures under the World Trade Organization (WTO).

Three years later, India is again utilising the same multilateral trade rules to limit imports, this time targeting personal computers, laptops, and tablets. The new regulations mandate companies to obtain licenses from the Directorate General of Foreign Trade (DGFT) to import these items.

While India has frequently used this provision to curb imports to encourage domestic manufacturing, it is not alone.

"Trade-Restrictive Measures"

According to the 2023 WTO annual report, the Committee on Import Licensing Procedures received 56 notifications from 16 members on new import licensing procedures or changes in these procedures in 2022.

The Agreement on Import Licensing Procedures establishes disciplines on import licensing systems, ensuring that the procedures applied for granting such licences do not restrict trade. It aims to simplify the administrative requirements necessary to obtain licences and to ensure fair and transparent administration of the procedures.

However, WTO trade monitoring reports have identified import licensing as one of the main trade-restricting measures introduced by governments, with 13 WTO members not submitting any notification on import licensing as of end-2022.

In 2022, members raised several new and recurring specific trade concerns regarding import curbs. The European Union and the United States questioned Angola's import licensing requirements, Egypt's import licensing on certain agricultural and processed products and importation of ceramics, and Indonesia's commodity balancing mechanism.

The European Union also questioned Thailand's import procedures on feed wheat. Japan and the European Union questioned Indonesia's compulsory registration by importers of steel products, its import licensing regime for certain textiles products and its import restriction on air conditioners. The United States questioned China's changes to import licensing for certain recoverable materials.

In India's case, Canada, the European Union and the United States questioned India's import requirements for certain pulses. The European Union, Indonesia, Japan, Chinese Taipei, Thailand and the United States questioned India's import licensing regime for pneumatic tyres.

A trade expert requesting anonymity said import licensing was earlier used as a delaying tactic for agricultural products with strong seasonality but is increasingly used as a protectionist measure for industrial products. "It is not a very efficient tool for protecting domestic industry as it increases administrative burden, encourages corruption through discretionary power and perpetuates inefficiencies in the domestic economy," he added.

Bad in Practice

During India's latest Trade Policy Review in 2020, South Korea complained that the import licensing requirement for pneumatic tyres is causing "serious damage" to some companies doing business in India by importing tyres. "Companies without production facilities in India, in particular, are having difficulties getting import licences, which all prove that this is a non-tariff barrier," it added.

Responding to queries on its positions on the WTO consistency of import licensing measures, India said importing most items is free. "Interventions are required based on various factors, including the cost of production, overall demand-supply situation in the domestic and world market, domestic and international prices, etc. These measures are temporary and are reviewed regularly," it added.

WTO reported that in 2019-2020, 440 tariff lines in India (3.7 per cent of all tariff lines) were subjected to import licensing.

Responding to criticism on import curbs on pneumatic tyres, trade minister Piyush Goyal in August 2020 had defended the move saying India is seeking to ensure fair and reciprocal trade with other trading partners. "How can one country not allow tyres to be exported to them but wants free imports of tyres from that country into India? If other countries are desirous of a 1.3 billion- Indian market opportunity, they will also have to give our country's businesses equal opportunity to engage in their countries. They can't put overarching technical barriers or overarching regulations on our products and then complain if we put any standards in our country," he added.

However, three years after the import curbs, India remains under scanner on this issue from trade partners in various WTO committees.

More recently, during the Committee of Import Licensing meeting in December 2022, the European Union expressed frustration that no progress has been made towards resolving the import license requirement for pneumatic tyres despite the issue being raised at several WTO forums. "Only a limited number of licences had been granted to EU tyre manufacturers, and these had been limited in duration, quantity, and type. After two years, no licences had yet been granted for bus and truck tyres. This was blatant discrimination against EU bus and tyre manufacturers," it said.

Indonesia claimed "discriminatory treatment" in the application of the policy by targeting certain member countries whose producers could potentially compete with India's domestic producers. "Indonesia felt that the implementation of this policy ran contrary to the principle of non-discrimination as set out in the Import Licensing Agreement while potentially creating unnecessary barriers to international trade," it added.

While Japan claimed that the tyre quantity approved by India's authority was less than that of Japanese companies, without any reasons being provided, Chinese Taipei concurred with other countries that members still had considerable doubts about the measure's transparency and specific trade concerns in this regard.

In its response, India requested complaining members to share specific data on applications submitted, holding that the non-automatic licensing requirements for tyres were administered in a manner consistent with the rules of the WTO Agreement on Import Licensing Procedures, including with respect to the time-frames for the granting of import licences. "The licensing procedure was being administered fairly, as was reflected in the fact that several licences had been granted upon the Exim Facilitation Committee's approval," it added.

While a WTO challenge to India's import curbs on laptops, tablets and personal computers may not happen anytime soon, how it implements the notification will be under close scrutiny.