WTO panel has found that India’s tariffs on mobile phones and electronic components do not align with the established global norms. In this article, we delve deeper into this development and analyse how this would affect India’s ‘Make in India’ vision. This topic is very important for the IAS exam economy segment of GS Paper III.
WTO Ruling Against India’s Import Tariffs on Electronics
- In an attempt to reduce imports from China, India has imposed import duties on electronic goods in recent years.
- Many countries including the United States, China and Japan have objected to India’s imposition of duties on communication components such as microphones and transmission devices.
- In April 2023, a WTO panel found that India’s tariffs on mobile phones and electronic components do not conform with international norms.
Where’s the dispute headed?
- India will approach the WTO’s appellate body.
- WTO Appellate Body:
- Formed in 1995, this body comprises seven individuals and serves as a permanent institution that reviews appeals arising from reports released by panels in disputes filed by members of the World Trade Organization.
- The Appellate Body has the authority to affirm, amend, or overturn the legal determinations and judgments made by a panel. In the event that all members do not object, the Dispute Settlement Body (DSB) endorses the Appellate Body Reports.
- WTO Appellate body under the dispute settlement mechanism has been non-functional since 2019.
- It has been non-functional, due to the United States’ refusal to appoint members to the Appellate Body, the majority of panel reports are being appealed without being resolved, leaving the dispute in a state of limbo.
- WTO Appellate Body:
India’s stance on the issue:
- India denies these charges:
- India argues that since smartphones were not in existence when the Information Technology Agreement (ITA) was signed, there is no basis for these charges.
- India has decided to go to the WTO’s appellate body against the panel’s verdict.
- As the appellate body is not functional, it will buy India some more time.
Impact of the issue:
- Near-term and immediate impact:
- As the appellate mechanism is non-functional, the final order will take a long time. Hence the panel’s ruling will not have an immediate or near-term impact on the industry.
- Impact on FDI received:
- This ruling might create a small dent on the ‘Make in India’ initiative and foreign investors might become a bit cautious, thus leading to a slowing of FDI received in the information and communication technology sector.
- Impact on current duty structure:
- If the ruling affects India’s current duty structure, it could adversely impact the momentum of local value addition.
- If India loses the appeal in future, it could lead to an even more severe impact.
India’s Decision to Appeal
- India is preparing to counter the verdict by appealing at the WTO which is dysfunctional due to the blocking of the appointment process of new judges by the USA.
- However, the EU wants India to join the alternative system established by some of its members known as the Multi-Party Interim Appeal Arbitration Arrangement (MPIA). But India wants the WTO appellate body to be restored as India believes joining MPIA will be against its principles.
- As a countermeasure EU is planning to use its Trade Enforcement Regulation which is a domestic law to ensure implementation of dispute settlement panel verdicts in the EU’s favour if the EU believes that the other party is not cooperating in dispute settlement.
- EU’s Trade Enforcement Regulation is a domestic law and is not in conformity with WTO rules and if the EU decides to use it India can counter at WTO.
- India can also retaliate by imposing higher duties on products coming from the EU against the quota restrictions put in place by the EU on steel imports from India in 2020.
- Experts opine that any trade retaliation will lead to escalation and can affect FTA negotiations. The EU-India Trade and Technology Council which was set up recently can serve as a forum for talks. India and the EU are in talks to settle disputes amicably.
- India also brought down the import duty to 0% on products that were contested and the WTO ruling will not affect India on a large scale since the EU’s share of total Indian imports of ICT products during the calendar year 2022 was 3.03%.
Information Technology Agreement (ITA)
It is a multilateral trade agreement that was negotiated under the WTO in 1996.
- It aims to promote free trade in information technology products among its signatory countries by eliminating tariffs and other trade barriers on a wide range of technology products, including computers, telecommunications equipment, semiconductors, and software.
- Under the ITA, signatory countries agreed to eliminate tariffs on a wide range of information technology products including advanced semiconductors, GPS navigation systems, and medical equipment.
- The agreement has been successful in promoting the growth of the global technology industry by lowering the cost of technology products and increasing access to technology across the world.
Production Linked Incentive (PLI) Scheme:
- Performance of the scheme:
- It looks like this scheme is working really well for India. Mobile phone export from India has been rising and in FY23, it reached the $10 billion mark.
- Working of the scheme:
- PLI scheme in India works in two ways:
- It incentivizes production, that is, the companies are encouraged to produce more by offering them rewards such as subsidies or tax breaks.
- It provides protection to the industry by imposing higher duties on imports, which makes it more expensive for foreign companies to sell their products in India.
- It is this protection provided to the industry, in the form of higher duty, which has created the new issue and resulted in the ruling against India by the WTO panel.
- PLI scheme in India works in two ways:
- Impact of setback at the appellate body on the PLI scheme: Any potential setback at the appellate tribunal would only affect the protection provided by the duty and not the incentives offered by the government under the PLI scheme.
Read more on the PLI Scheme in the linked article.
About World Trade Organisation (WTO):
- It is an international organization that was established in 1995 to promote free and fair trade between nations.
- The WTO provides a forum for member countries to negotiate and agree on trade rules, settle disputes related to trade, and monitor each other’s trade policies.
- The WTO’s mission is to facilitate international trade by promoting the elimination of barriers to trade, such as tariffs and other trade barriers, and by providing a forum for its members to negotiate trade agreements.
WTO Ruling Against India’s Tariffs on Electronic Imports [UPSC Current Affairs]:- Download PDF Here
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