On 17 April, the WTO circulated three-panel reports on the cases brought by the European Union, Japan, and Chinese Taipei in “India — Tariff Treatment on Certain Goods in the Information and Communications Technology Sector” (DS582), “India — Tariff Treatment on Certain Goods” (DS584) and “India — Tariff Treatment on Certain Goods in the Information and Communications Technology Sector” (DS588) respectively.
In simple words, the panel found that India is imposing customs duties on certain IT goods, which is more than the agreed bound rates. India, on the other hand, has vehemently contested these claims. The purpose of the note is to unlock this dispute in as simple terms as possible, by laying out the history, arguments, and counterarguments — some verbatim, directly from the panel report itself — enabling and helping the readers to draw their own conclusions.
Introduction
WTO provides a platform for its members to negotiate trade deals (concession & commitments) serving their individual interests. The process is consensus-based and has a well-defined system for resolving disputes. Now, Schedule XII (12) sets forth concessions and commitments undertaken by India in relation to trade in goods. This schedule is based on HS nomenclature, which is a multilateral agreed system of classifying goods for customs purposes. The HS nomenclature is administered and managed by WCO (World Customs Organization). WCO regularly amends the HS to update the nomenclature. When an update is published, the WCO publishes correlation tables, also referred to as concordance tables, which identify the correlation between the product scope of the HS heading and subheadings in the previous version of the nomenclature as compared to the newer version (Clause 2.16 of WT/DS582/R, page 26).
In the WTO, the members’ Schedule is regularly updated in order to reflect newer versions of the HS nomenclature. This process of updating is referred to as a transposition.
Background
On 13th Dec 1996, some WTO members concluded the Ministerial Declaration on Trade in Information Technology Products (ITA). India joined the ITA on 26th March 1997. The ITA participants agreed among themselves to bind and eliminate customs duties and other duties and changes of any kind within the meaning of Article II:1(b) of the GATT 1994, with respect to certain products. As a result of this agreement, the respective schedules of countries needed to get modified to reflect these in form of bound rates. The changes to India’s schedule (based on HS1996) were certified and incorporated on 2nd Oct 1997. Subsequently, the WTO Members agreed to update their WTO Schedules to align them with HS Nomenclature 2002 (HS2002). Then later after a few years, the process of transposition from HS2002 to HS2007 started. Under some changed rules, India was given the option of undertaking this activity on its own or by taking the help of the WTO secretariat. India opted for the latter. Hence, on 8th Nov 2013, the WTO Secretariat communicated to India via email the draft files for the HS2007 transposition of India’s Schedule. After some back and forth, the draft modification to the Schedule (HS2007) was circulated on 12th May 2015, which finally got certified on 12th August 2015.
On 25th Sept 2018, India requested that its Schedule be rectified, in accordance with the 1980 Decision(explained below). These were specifically requested with respect to 15 tariff items — seeking them to be brought into the category of “unbound”. According to India, “the various tariff subheadings for which India is seeking rectification to its HS2007 Schedule” were not covered by its commitments in the ITA. India considered that the rectification did not alter its commitments “either under GATT or ITA and that the errors in the HS2007 scheduling should be interpreted as an inadvertent oversight by India on binding products not covered by the ITA at 0% (Clause 2.23 or WT/DS582/R, page 28).
Now, it is important to understand what para 2 of the 1980 decision means. Why? As India’s request for rectification is directly linked to this para see below.
“Changes in the authentic tests of Schedule shall be made when amendments or rearrangements which do not alter the scope of the concession are introduced in the national custom tariffs in respect of bound items. Such changes and other rectifications of a purely formal character shall be made by means of Certifications…..”
Note the phrases market in “bold”. This means the rectification carried out must not change the “scope of concession” agreed upon between parties earlier (underline contract), and must be purely formal in character.
Therefore, the whole dispute rests on putting these two phases to the test by the panel — based on the actions carried out by the party (India) then who is seeking to unwind the alleged errors.
The Dispute
As per India, the heart of the dispute is whether the products identified by the EU are covered under the ITA. India states that it considers itself bound by the obligations under the ITA but argues that these obligations are separate from the commitments under the contested sub-headings that were certified via the HS2007 transposition (Page 41, WT/DS582/R, clause 7.25).
The EU considers that the legal obligations at issue in the present case are Article II:1 of GATT 1994, and India’s Schedules and tariff bindings provided for in those schedules. The EU submits that ITA “is not the source of India’s legal obligations relevant in the present case”. The EU further considers that the ITA is not a covered agreement within the meaning of the DSU (Clause 7.26, Page 41, WT/DS582/R).
On the point of “covered agreement”, India stated that by that token, India’s Schedule (HS2002), which is no longer in currency can equally not be considered a covered agreement.
India considered that the ITA represents a static source of commitments to ICT products. These commitments were negotiated and agreed to the context of HS1996 and then were incorporated into the schedules of concessions of member countries. Therefore, can’t get automatically carried forward to subsequent schedules as a part of the transposition process unless consciously agreed upon by the party (India) whose Schedule is being transposed.
India submits that at the time of the transposition of this WTO Schedule to the HS2007, it had understood that the scope of its tariff concession would not be expanded from the commitment it has undertaken in the ITA. India argues that Article 48 of the Vienna Convention is an applicable rule of law that codifies the principle of customary international law whereby “freedom of consent is an indispensable condition for treaty validity” such that “a State cannot have freely concluded a treaty if, at the time of giving its consent, it was under a misapprehension relating to the subject matter of the treaty”(Clause 7.83, Page 55).
India argued that it never intended to join the [ITA Expansion] and made several pronouncements regarding the same. Hence, because of the explicitly spelled-out intent of not joining the ITA expansion (which included the products of new technologies), the ratification of the transposition of HS2007 was an error and a “fact or a situation” within the meaning of Article 81(1) of the Vienna Convention.
As per the EU, “India’s mistaken ‘assumption’, at the time of the certification of its 2007 GATT Schedule did not expand India’s tariff commitments beyond India’s obligations under the ITA, and hence NOT an error. In simple words, the transposition of the WTO schedule (from HS2002 to HS2007) did not enhance the scope of India’s pre-existing tariff concessions.
Summary of the Dispute
Hence, in simple terms the whole dispute rest on the fact that India’s support for the ratification of the transposition process of HS2007 (formally ratified on 12th Aug 2015) was an “inadvertent error” as it never intended to enhance the scope of the embedded concessions in the schedule of HS2002 which got expanded due to the evolution of technology. In order words, the nature of products that were agreed to in ITA-I was fundamentally different from those that got incorporated in the HS2007.
Panel’s Assessment
As per the Panel (Clause 7.41, page 43) — any undertaking made under the ITA only becomes binding WTO obligations under Articles II1(a) & (b) of the GATT 1994 if they are incorporated into Member’s WTO Schedules. Once incorporated, such concessions shall be treated no differently than any other concessions contained in that schedule. Consequently, it is the WTO Schedule of each ITA participant that sets forth those legal obligations within the broader WTO legal structure — not the ITA.
On the point of “Covered Agreement”, the panel states that a transposition exercise is not the case that a “new” Schedule replaces the “old” Schedule. What gets reflected only certain changes are certified and agreed upon. As per the panel, the 1980 Decision does not set forth procedures for replacing a Member’s Schedule but rather sets forth procedures for “modification” and “rectification” and the adoption of changes.
On the point of ITA is a static source of commitments, the panel concludes — “Without taking a position in whether the scope of India’s concession under ITA is static in nature, we consider that the ITA cannot overwrite the tariff commitments set forth in India’s WTO Schedule (which are non-static in nature). So in other words, the panel focused their recommendation on India’s obligations emanating from the GATT’s rules and regulations than from the ITA.
This means — the whole case should logically rests on the point of proving that character of the HS2007 transposition did not anyway expand India’s agreed contractual commitments which were ratified in the earlier transposition rounds.
Panel’s Observation
Without diving down into the legalities of this case, to me, the Panel’s observation of some actions of India before 2014 might have influenced and helped to counter India’s stance on this dispute.
For example:-
“We also note India’s argument that its understanding and intention with respect to its Schedule were clear from the fact that, as of 2014 prior to the certification of the changes to the Schedule, India had already begun leveling duties on certain products that fall under the contested tariff items. In our view, however, this argument is partially undermined by the fact that prior to 2014 India has indeed been according to duty-free treatment to almost all products at issue in this dispute”
“Moreover, we understand that the majority of products at issue in this dispute continued to receive duty-free treatment until recently as 2017 (and 2018 in the case of some products)”. (Clause 7.113-Page 62).
“We do not wish to speculate on India’s reasons for applying certain duties in 2014, some months before its transposed Schedule would be certified. We are wary, however of accepting a Member’s act potential WTO-inconstancy as evidence that the Member misunderstood the scope of its WTO obligations. To a certain extent, it would be circular if parties invoking Article 48 of the Vienna Convention could rely on their violation of the treaty obligations to demonstrate that they committed an “error” in agreeing to be bound by that treaty. (Clause 7.114-Page 62)
And apart from these observations, the Panel goes into detail individually describing the scope of the items that we included in the Schedule as a part of the ITA agreement.
To quote an example —
“We further note that the WCO amendment of the HS1996 Explanatory Notes, introduced in 1998, unambiguously indicates that cellular and mobile phones were indeed classified under tariff item 8525.20 of HS1996” (Clause 7.151, Page 71).
Conclusion
Now, the above analysis gives an indication of the directions of the line of arguments of both parties involved in this case.
As per India, the transposition exercise got ratified as an inadvertent error, and through which India’s flexibility in levying duties on certain items got curtailed as these items got included in India’s Schedule under the banner of “bound rate”.
On the other hand, the complainant's stance on this case was that India by agreeing to incorporate the ITA-1 items in HS1996 got into a contractual commitment, which is nonstatic in nature. Therefore, these commitments got carried forward with each transposition process in the future, and hence cannot be considered an “inadvertent error”.
The panel in their recommendation has sided with the narrative of the complainant.
(Views expressed are my own and do not reflect that of my employer)
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