By Mukesh Butani and Tarun Jain
In the early 1990s, when the global debate circled around a new international trade architecture—which later emerged as the World Trade Organisation—criticism was aimed at the alleged surrender of sovereignty that would follow for the countries acceding the WTO. The argument was that the rules governing WTO trod upon the sovereign power of nations to address their domestic priorities and welfare agenda. To make such regulations palatable, a unique and differential treatment regime was introduced, extending a time-bound concessional control to developing and least-developed countries.
Ultimately, the view which prevailed—to allow the birth of WTO—was that its accession was not a surrender; instead, it was a pooling of sovereignty in which the nations of the world come together to bring a civilised international trade regime collectively. However, the eluding consensus amongst the WTO members, even on the Doha Development Agenda of 2001, belies the hopes and expectations riding on this giant institution.
As a consequence, the member countries continue to interact basis decades-old rules—which in most cases, owing to the failure to reimagine them, have outlived their utility and, in some cases, have now come to haunt the changed national and geo-economic realities of the times.
On April 17, 2023, the WTO Dispute Panel upheld three grievances raised by the EU (DS582), Japan (DS584) and Taiwan (DS588). It ruled that India violated the rules on certain information technology products by subjecting them to customs duty higher than agreed tariff commitments. Commentators have been quick to write the obituary of the Make-in-India programme and the success story of mobile phone exports. Early in November 2019, the ruling of the WTO Dispute Panel (DS541) faulted India’s export promotion subsidies granted to SEZs.
The consequent omission of incentives from the recently unveiled Foreign Trade Policy has been cited as the continuing trend, resulting in a lack of policy space for India to pursue its economic agenda aligned to public policy—encouraging investments in manufacturing and employment generation.
On the one hand, the panel’s recent ruling strains India’s trade ties with this multilateral forum. On the other hand, ironically, India cannot claim vindication of its rights by invoking further remedies under the WTO dispute settlement mechanism. In both cases, the decision by the Dispute Panel is unenforceable as it is yet to receive the imprimatur of the WTO Appellate; the body continues to be dysfunctional for lack of quorum due to an impasse in decision-making by the United States government. In other words, enforcing WTO rules is a stalemate not just in these cases but across the board. While this immediate position may suit India, the larger question is of a multilateral forum whose dictate is unenforceable. The ability to enforce rules and course-correct deviations was the hallmark of WTO as an international institution, which seems to be a fading hope over time.
At an immediate level, the dispute relates to customs duties levied by India on imports, thereby making them cost-inefficient, apparently to incentivise domestic pro duction of mobile phones. According to the WTO Panel, this violates India’s tariff commitments. However, there is more to the story. Pragmatically, customs duties on information technology products are addressed by WTO’s Information Technology Agreement (ITA), a subsequent development in 1996. In 2015, many other WTO members concluded ITA2 to expand the scope. However, India is neither a party to ITA2 nor appears pleased with the experience of ITA. Simultaneously, India has also declared at the WTO its protest against expanding the moratorium on customs duties on electronic transmission. In short, the India of today does not want to be held back by decades-old rules governing trade in information technology products.
It is therefore evident that the WTO Panel report, seeking to enforce the original rules against India, reflects an impasse, a situation where the WTO as an institution is neither able to move in sync with the changing times nor is willing to let go of the old rules. A dynamically evolving information technology sector is a quintessential illustration. India’s advancement in the digital revolution marching with the world, if not ahead, is a case study in itself. Now an application of rules which have not kept pace with technological evolution is akin to flogging a dead horse without realising that insistence to abide by outdated regulations does more harm to the institutional foundations and legitimacy of WTO. Even though it is a comparatively younger international institution, given the swift tide of geoeconomic shifts, the reform of WTO is excessively overdue.
Writers are respectively, managing partner, and advocate, BMR Legal
Views are personal