Why WTO Panel's Adverse Ruling On India's Tech Tariffs May Impact FTA Talks

The ruling of a World Trade Organization's panel on Indian communication technology tariffs can serve as a new ground for negotiations as partners of free trade agreements are likely to eye for concessions.

India is also likely to pitch for a relook at globally determined trading norms, according to Sanjay Notani, partner at Economic Laws Practice.

In a report that was released on Monday, the dispute settlement panel upheld claims by the European Union, Japan and Taiwan that India's import duties on certain information and technology products are inconsistent with the global trade norms.

While the move is likely to spur counter appeal from India, the dispute contributes to the country's long-standing assertion to periodically revisit multilateral obligations in light of changing circumstances.

There is a 60-day window to appeal to the WTO appellate body. If no appeal is filed, the panel's decision will become the WTO's final decision on the subject.

However, India may continue to maintain its existing tariffs on these ICT products if the appeal stays pending as the appellate body is presently defunct.

Notani told BQ Prime that the panel's findings would be relevant in tariff negotiations for potential FTAs. He underscored that while the country is likely to continue imposing tariffs on these items pending appeal at the WTO, it is probable that FTA partners might demand concessions on these items.

"FTAs could also potentially provide a forum for India to engage with its trading partners on such issues," Notani said. "The mutual settlement of existing WTO disputes could also be on the cards for FTA negotiations."

Tariffs Changes

In a press release, the European Commission—the executive arm of the EU—said that since 2014, India introduced custom duties of up to 20% gradually on products like mobile phones, mobile phone components and accessories, line telephone handsets, base stations, static converters or electric wires and cables.

Japan and Taiwan also filed parallel cases on similar issues—tariffs on ICT products and almost the same products.

They considered Indian duties to be in "direct breach" of the country's WTO commitments to apply a zero-duty rate to such products.

"The amount of EU exports of such technology affected by India's violations is up to €600 million annually," the commission said. "While this is already significant, the real impact on European companies, which also export from other countries to India, is considerably higher."

Japan said the tariff rate on feature phones, smartphones, base stations for cellular mobile phones and digital microwave communication equipment were raised from 0% to 20%. The rates on printed circuit board assemblies were raised from 0% to 10%; and LCD modules for smartphones were raised from 0% to 15%.

"Japan expects India to agree to adopt the panel report and swiftly correct the measures in accordance with the findings and recommendations in the report," the Ministry of Economy, Trade and Industry said in a joint press release with the Ministry of Foreign Affairs on Tuesday.

Road Ahead

Citing sources, PTI reported that India would appeal against the ruling. It added that the authorities don't expect an adverse impact on the domestic market and look to take up the matter with the WTO appellate body.

Notani said if India chooses to implement the ruling and not appeal, it might hit the domestic manufacturers and the government's efforts to promote domestic manufacturing on ICT products.

"India may, indeed, need to explore alternative means to boost domestic manufacturing that are in line with its WTO commitments," he said. "On the flip side, for users of these items, the elimination of tariffs may be welcomed as these goods will become cheaper."

The panel ruling also raises concerns whether tariffs as an instrument are practically and economically a viable form of protection for the domestic industry, according to Notani.

He said the elimination of tariffs might be leveraged in a manner so as to strengthen domestic users by promoting a manufacturing ecosystem within the country itself.

Notani underlined that schemes like the Production Linked Incentive have an important role to play to boost manufacturing.

India's merchandise import of electronic goods in the 2023 financial year was 10.82% of the country's total imports amounting to $77.26 billion. It ranks second in the top 10 commodities of merchandise imports. The country's export of electronic goods during the same period accounts for 5.27% share of total merchandise exports at $23.57 billion, making it the country's 5th biggest export item.