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WTO’S Dispute Settlement in Context of Tariffs Row with EU

Context: A World Trade Organization (WTO) panel has ruled that India had violated global trading rules in a dispute with the European Union (EU), Japan and Taiwan over import duties on IT products.

World Trade Organization (WTO)

  • The WTO was established on January 1, 1995, to replace GATT and to serve as the international organization responsible for regulating and promoting global trade.
  • It is based on the principles of free trade and non-discrimination among its member countries.
  • The WTO has a dispute settlement mechanism, which allows member countries to resolve disputes related to trade disputes through a formal process.

Background of the Issue

  • In 2019, India imposed import duties on a variety of IT products, ranging from 7.5% to 20%.
  • The products affected by the duties included mobile phones, components, and integrated circuits.
  • The European Union, Japan, and Taiwan filed complaints with the World Trade Organization (WTO) about these duties in 2019.
  • The complainants argued that the duties exceeded the maximum tariff rate allowed under the ITA, (information technology agreement) which is 0%.
  • The EU deemed these duties a direct breach of WTO rules, and argued that India was obliged under the WTO commitments to apply a zero-duty rate to such products.
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Background of the Issue

Decoding WTO Panel’s Ruling

  • In its panel ruling, the WTO upheld all EU claims against India and found that India’s tariffs of up to 20 per cent on certain ICT products, such as mobile phones, were not in line with its WTO commitments, and thus are illegal.
  • India could not invoke the Information and Technology Agreement (ITA) to escape the commitments made in its WTO schedule, nor limit its zero-duty commitment to products that existed at the time of this commitment and exclude more recent technological products falling under the same tariff line.
  • The panel also confirmed that no mistake was committed when determining India’s tariff commitments, including when the tariff lines nomenclatures were updated.
  • It refused to examine India’s request to rectify its tariff commitments.
  • India must bring such measures into conformity with its obligations under the General Agreement on Tariffs and Trade 1994.

Possible Impacts of the Ruling on India

  • Pressure to withdraw the tariffs: The rulings in three separate but similar disputes raised by the European Union (EU), Chinese Taipei, and Japan will put pressure on India to withdraw the tariffs at a time it is seeking to be a leader in electronics manufacturing through a production-linked incentive scheme.
  • Trade relations: The ruling could strain India’s trade relations with the European Union, Japan, and Taiwan, which have filed complaints against India at the WTO.
  • Economic growth: The imposition of import duties was aimed at promoting domestic manufacturing and creating jobs in the country. If the import duties are removed, it could impact India’s efforts to boost its manufacturing sector and reduce its dependence on imports.
  • Revenue loss: The removal of import duties could lead to a loss of revenue for the Indian government, which has been collecting tariffs on IT products.
  • Damage reputation: If the ruling goes against India, it could damage India’s reputation at the WTO and make it more difficult for India to negotiate trade agreements in the future

Understanding the WTO Dispute Resolution Mechanism

  • The WTO dispute resolution mechanism is an essential tool for resolving trade-related disputes between member countries.
  • It allows for the peaceful settlement of disputes and ensures that countries comply with their obligations under WTO agreements.
  • The WTO Dispute Resolution Mechanism:  The WTO dispute resolution mechanism has two main ways to settle a dispute, namely
    • Mutual agreement
    • Adjudication.
  • Filing case: According to WTO rules, a WTO member or members can file a case in the Geneva-based multilateral body if they feel that a particular trade measure is against the norms of the WTO.
  • The process: It involves three stages, namely consultations, adjudication by panels and the Appellate Body, and the implementation of the ruling.
    • Bilateral consultation is the first step to resolve a dispute. If both the sides are not able to resolve the matter through consultation, either of them can approach for the establishment of a dispute settlement panel.
    • If the parties fail to reach a solution, the dispute is referred to a panel. The panel will review the case and issue a report. If either party is not satisfied with the decision, they can appeal to the Appellate Body.
    • The panel’s ruling or report can be challenged at the World Trade Organization’s appellate body.
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structure-of-the-WTO-DSS

WTO:  Dispute Resolution Framework

Dispute Settlement Body (DSB) The DSB deals with disputes between WTO members.

Disputes may arise with respect to any agreement contained in the Final Act of the Uruguay Round that is subject to the DSU.

The DSB has the authority to establish dispute settlement panels, refer matters to arbitration, and the Appellate Body.

The Appellate Body The Appellate Body was established in 1995 and hears appeals from reports issued by panels in disputes brought by WTO members.

It is a standing body of seven persons appointed by the DSB for a four-year term.

The Appellate Body can uphold, modify, or reverse the legal findings and conclusions of a panel, and Appellate Body Reports must be accepted by the parties to the dispute.

The Appellate Body has its seat in Geneva, Switzerland.

 GATT (General Agreement on Tariffs and Trade) In the context of the WTO’s dispute settlement mechanism, the GATT (General Agreement on Tariffs and Trade) is one of the agreements contained in the Final Act of the Uruguay Round that is subject to the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).

When a dispute arises between WTO members regarding their obligations under the GATT, the DSU’s dispute settlement mechanism can be used to resolve the dispute.

Measures to Improve WTO Dispute Resolution Mechanism

  • Reforming the Appellate Body: The Appellate Body has faced several challenges, including a lack of members due to the US opposition to judges’ appointments. The WTO can consider reforming the Appellate Body to ensure its effectiveness and legitimacy.
  • Strengthening the Panel Process: The panel process can be strengthened by reducing the time taken for panel appointments, ensuring the availability of resources and expertise, and improving the transparency of the process.
  • Encouraging Mutual Agreement: The WTO can encourage its members to find a mutually agreed solution during the consultations stage, which can prevent disputes from escalating and save time and resources.
  • Improving Implementation: The implementation stage of the dispute resolution process is crucial in ensuring compliance with the ruling. The WTO can work with its members to improve implementation and ensure that parties comply with their obligations.

Conclusion

  • To conclude, the WTO dispute resolution mechanism is crucial in ensuring the peaceful settlement of disputes and promoting compliance with WTO agreements.
  • The Appellate Body plays a significant role in the process, but its lack of functioning has created issues for countries like India.
  • It is essential that member countries work together to resolve this issue and ensure the smooth functioning of the dispute resolution mechanism.

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