ICT levy dispute at WTO: EU softens stance on retaliating against India

According to the European Commission, EU exports of such technology affected by India's violations is up to €600 million annually, which is significant

In a significant shift from its earlier position, the European Union (EU) has expressed its preference for reaching a mutually satisfactory resolution with India over a dispute on tech products, even though it has the option of imposing retaliatory tariffs under its domestic regulation, following New Delhi’s appeal against a World Trade Organisation (WTO) ruling that favoured the trade bloc.

“Given the WTO Appellate Body is currently not functioning, this is an appeal ‘into the void’. The report (by the WTO’s dispute settlement panel) is therefore not up for adoption anymore but in limbo, pending before the non-functioning Appellate Body. 

In such cases, the EU can make use of the Enforcement Regulation to protect its rights. We would, however, 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 adjudicating authority at the WTO, ruled in April that India’s imposition of tariffs on information and communication technology (ICT) products violated its zero-tariff commitment under the Information Technology Agreement enforced by the multilateral trade body, India appealed to the dysfunctional Appellate Body — the highest adjudicating authority at the WTO  — in its dispute against most parties, except the EU.

An EU spokesperson had told Business Standard in April that in the event India appealed to the non-functioning WTO Appellate Body, the EU has in place legislation that allows it to enforce its rights by imposing customs duties or other restrictions in response to an appeal into the void, “should the EU decide to do so.”

The Dispute Settlement Body had ruled that India violated global trading norms over imposition of import duties on information technology (IT) and telecom products including mobile phones. It also asked New Delhi to eliminate levies on such products. India's move to appeal against the judgement came after New Delhi and Brussels were not able to arrive at a mutually agreeable solution over the last seven months.

The EU spokesperson also said that the WTO dispute settlement body was to meet on December 18 and was expected to adopt the panel report in this case.
 

“In case the report was adopted, India would have to comply with the recommendation of this report, which is to lift all the tariffs on ICT products. However, India lodged an appeal before the meeting of 18 December,” the official added.

Officials at the Department of Commerce said that a mutual solution did not come through within a stipulated time – as per WTO norms – because the EU wanted tariff concessions on IT and telecom products, which wouldn’t have been possible to implement.

Reducing import duties for these products may have gone against India’s existing production-linked incentive scheme that aims to boost domestic manufacturing of these tech products. In the absence of a free trade agreement, India also cannot provide preferential tariff treatment to the EU on specified products.

The EU had earlier approached India to resolve the matter through the Multi-Party Interim Appeal arbitration arrangement (MPIA) that it set up as an alternative mechanism to the defunct Appellate Body. However, India rejected the offer, as it is against the mechanism and favours 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 appeal to a permanent standing body, which is fundamental to the multilateral trading system.

“It hopes that the early restoration of the Appellate Body will enable correction of the errors in the panel report and the expeditious resolution of this dispute,” India added.

The Dispute

–In 2019, EU, Japan and Chinese Taipei raised three similar but separate disputes at the WTO and alleged that India was in violation of provisions of GATT 1994 by imposing duties on some tech products such as mobile phones, base stations, integrated circuits

–In April 2023, WTO’s dispute settlement body ruled against India and said imposition of tariffs on electronic items violates India’s commitment under the IT Act

–According to the European Commission, EU exports of such technology affected by India’s violations are up to €600 million annually, which is significant