The first part analyzed the ITA and ITA-E, highlighting the advantages they offer to member countries. This section will delve deeper into the challenges the ITA presents for India and outline a strategic plan of action for the nation.
I. The Impact of HS Code Transposition: a Tussle for India to Hold Ground
A. Challenges for India with the HS Code Transposition
A significant challenge that India faces within the ITA is the impact of HS code transposition, as the HS code undergoes updates every four to six years, complicating the maintenance of trade agreements like the ITA. Firstly, while transposition aims to maintain overall product coverage, it can lead to structural changes, such as reorganization of subheadings, which complicate classification and compliance. Secondly, without clear relationships between old and new subheadings, inconsistent classifications may arise, creating anomalies that hinder proper implementation. Thirdly, these misclassifications can lead to disputes and increased compliance costs for traders, further exacerbating the issue. Lastly, regulatory authorities may struggle to keep pace with HS updates, leading to classification inconsistencies that affect the overall efficacy of international trade systems and trade agreement commitments. Overall, the complexities of HS transposition can significantly impact trade agreement commitments and the overall efficacy of international trade systems.
B. A Look at India’s Disputes with the HS System: DS582, DS584, AND DS588/R
India’s disputes stem from its commitment to gradually eliminate tariffs on certain technology products as part of the ITA. Following the HS1996 nomenclature, India updated its tariff list in line with HS2002 and later HS2007. This process requires revisions every four to five years. In 2013, India opted for assistance from the WTO for this transposition. The WTO Secretariat provided a draft on November 8, 2013, which was accepted in a multilateral review on April 23, 2015. The adjustments were certified on August 12, 2015, after no objections were raised.
On September 25, 2018, India requested changes to its tariff list, aiming to remove 15 items it claimed were not covered by the ITA agreements. India argued these items had been mistakenly included under 0% tariffs due to oversight during the HS2007 transposition. The central legal question involved whether these products qualified for duty exemption under Article II of GATT 1994.
India acknowledged its ITA obligations but distinguished these from the disputed product categories, asserting that errors during transposition led to unintended tariff commitments. The dispute hinged on whether certain products identified by India were covered by its ITA commitments.
The panel referred to Article 48 of the Vienna Convention on the Law of Treaties (1969), which addresses errors in treaty formation. Under this article, India bore the burden of proof to establish that:
1. It believed its WTO tariff commitments wouldn’t exceed its ITA obligations during the HS2007 transposition.
2. This belief was based on a fact or situation defined in Article 48(1).
3. This belief was crucial to India consenting to the changes.
4. India’s assumption about its commitments was incorrect.
Evidence showed that India had already imposed duties on certain ICT goods by early 2014, indicating a deviation from ITA obligations. India had also expressed reluctance to join the ITA-E in various committee meetings.
The panel noted that India’s assumption regarding tariff commitments did not imply a belief that those commitments would not exceed ITA obligations, and obtaining evidence of such an assumption would be challenging. India claimed that the unintentional broadening of commitments contradicted its stated intention not to expand ITA obligations. The panel, however, ruled that it need not classify the error strictly as legal or a blend of facts and law.
India contended that the WTO Secretariat had overlooked the General Council Decision on HS2007 Transposition Procedures and failed to flag the relevant tariff items clearly. Nonetheless, the panel found that WTO members had a shared understanding of the transposition process and that neither the members nor the Secretariat viewed the ITA as pertinent to the transposition. India’s lack of protest during the transposition process suggested compliance with the approved multilateral procedures.
II. Strategic Directions for India’s Teachade
A. India’s Position in the Global Technology Space
As noted by Honorable Minister for Railways, Communications, and Electronics & IT, Shri Ashwini Vaishnaw, India is evolving from a passive technology consumer to an active leader in the tech space. He has outlined three foundational pillars for this growth: boosting telecom exports, promoting domestic handset production, and advancing semiconductor capabilities. By 2025, India aims to become a key exporter of complex telecom equipment to markets like the U.S. and Europe.
The pandemic and recent geopolitical dynamics offer India a unique chance to reshape its manufacturing landscape. The establishment of competitive manufacturing hubs is expected to drive economic growth and create job opportunities. The government is dedicated to building a robust semiconductor ecosystem that encompasses design, fabrication, assembly, testing, and electronic manufacturing. Significant investments are underway for semiconductor facilities, including a cutting-edge fab in Dholera, Gujarat, which will enhance local chip production and attract global semiconductor firms.
India’s electronics manufacturing sector is set for expansion, fueled by increasing domestic demand and improved export potential. The Production Linked Incentive (PLI) Scheme aims to provide crucial support to this sector. However, industry stakeholders have raised the need for more granular HS codes to facilitate clearer product classification, akin to the 10-digit systems used by the U.S. and U.K.
b. Strategic Options for India
In light of the current geopolitical and trade landscape, the author suggests the following strategic options that India can consider. Firstly, withdrawal from the ITA could protect domestic industries, but it might raise input costs, deter investors, disrupt international relations, and lead to job losses. Secondly, maintaining the current approach could avoid immediate risks, but it may perpetuate trade deficits and limit long-term technology transfers. Thirdly, full participation in the ITA could foster technology transfers and enhance investor confidence, but it may have adverse effects on local manufacturing. Fourthly, adopting the ITA-E could stimulate growth in ICT manufacturing and promote technology transfers, though it risks revenue loss and increased foreign market influence. Lastly, pursuing Free Trade Agreements (FTAs) with significant trade partners could help mitigate challenges from agreements like ITA-1, but this would require substantial administrative effort and could provoke backlash.
Moreover, in its statements, India has emphasized the need to restore the WTO Appellate Body, which has been inactive since December 2019. This demand is important because its restoration is crucial for effective dispute resolution and could enable the resumption of adjudication for disputes DS582, DS584, and DS588.
C. Recommended Interim Actions for India
The author recommends the following interim actions to make the final strategic option their choice. Firstly, India should utilize Non-Tariff Measures (NTMs) to effectively navigate global trade regulations and leverage WTO-compliant NTMs to support its electronics manufacturing sector, particularly in the context of potential tariff-related disputes. Secondly, a comprehensive impact study on ITA-E should be conducted, involving industry representatives and think tanks, to assess the implications of signing ITA-E and develop a phased strategy. Thirdly, India should invest in emerging areas such as semiconductors and electronics manufacturing by collaborating with international leaders and enhancing research initiatives to foster growth. Fourthly, exploring incremental FTAs with key nations can open up new trade opportunities and position India favorably in global supply chains. Fifthly, implementing business reforms by addressing high taxation, streamlining processes, and improving infrastructure is essential for creating a conducive business environment, particularly with the PLI scheme in mind. Lastly, adopting a more detailed HS code system, similar to those of the U.S. and U.K., will help in proper classification and address complexities related to dual-use goods, especially those on the SCOMET list.
III. Conclusion
India’s path forward in the global electronics sector requires a strategic, balanced approach. While engaging with global trade agreements like the ITA and ITA-E offers opportunities for growth, careful consideration of their impact on domestic industries and technology transfers is essential. By adopting interim measures such as leveraging NTMs, investing in emerging sectors, and pursuing incremental FTAs, India can strengthen its position in the global supply chain while addressing domestic challenges. With these efforts, India can unlock significant potential for growth and long-term sustainability in the electronics manufacturing industry. These actions are vital to achieving the goals at the core of India’s aspirations for global ICT leadership, best captured in the words of Sundar Pichai, the CEO of Google:“India will be a global player in the digital economy, and it will be competitive with any country in the world.”
You may access Part I here.
Tejaswini Kaushal is a fourth-year law student at RMLNLU, Lucknow.
Picture Credit: WTO/Shutterstock