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May 2018

Understanding India’s WTO challenge to United States’ additional import tariffs on steel and aluminium articles

by Ankur Sharma

When countries join the WTO, they sign-up to bring transparency, predictability and stability to import tariffs on various goods among many other commitments.  It is felt necessary to agree to tariff bindings.  This means that if a country A agrees to bind its import tariff on a good X at 10%, A will never impose import tariff above 10% on import of X except in certain conditions.  This is the principle of bound tariffs – that member countries shall not impose import tariffs more than what they commit to the WTO membership.  However, in certain situations member countries can impose tariffs beyond their bound tariffs.

A will also ensure that import of X shall get the same treatment (including tariff treatment) whether it is imported from a member country B, country C or from any other WTO member.  This means that A will make sure that import of X shall not face tariff above 10% when it is imported from any other WTO member.  This is called the most-favoured nation principle or the MFN principle.

In certain situations, A could take measures in the interest of public morals, health, environment, etc., if such measures conform to the very high standards of Article XX of the General Agreement on Tariffs and Trade 1994 (GATT). [see End Note 1]

On rare occasions, A could take measures in the interest of its security.  But such measures must conform to the very high standards of Article XXI of the GATT.

Since A also wants to shield its industry from unfair trade, the WTO agreements allow it to impose trade remedy measures, namely, anti-dumping duty on unfairly low priced and injurious imports, countervailing duty on unfairly subsidised and injurious imports, and safeguard duty on imports that are in such increased quantities that could cause or threaten serious injury to the importing country’s industry.

If A derogates from its bound tariffs and violates its MFN commitment, the WTO agreements allow other member countries to challenge such actions/measures.  India has recently challenged certain measures of the United States at the WTO.

On 23 March 2018, the United States brought into effect additional import tariffs of 25% and 10% on imports of steel and aluminium articles, respectively.  In doing so, the United States offered permanent exemptions to steel imports from Argentina, Australia, South Korea and Brazil in exchange of certain concessions.   The United States also offered permanent exemptions to aluminium imports from Australia, Argentina and Brazil in exchange of certain concessions.  Canada, Mexico and the EU have received temporary exemptions until 31 May 2018.  On the other hand, exports of steel and aluminium articles from other countries including India to the United States face 25% and 10% additional duties, respectively.

India has challenged the above import tariffs of the United States at the WTO.  India’s request for consultations with the United States, which is the first formal step in initiating a dispute at the WTO, raises many issues in this regard [see End Note 2].

A summary of the important issues raised by India is as below:

  1. The import tariffs violate the MFN principle under Article I of the GATT, as the United States has failed to grant an advantage, favour, privilege or immunity due to the measures immediately and unconditionally to all members of the WTO.  The United States has done this by exempting certain member countries permanently, while imposing the measures on other member countries including India.
  2. The United States has imposed import tariffs on steel and aluminium articles above its bound tariffs, thus violating Article II:1(a) and Article II:1(b) of the GATT.
  3. The United States has indirectly imposed import quotas on WTO member countries by imposing import tariffs on steel and aluminium articles, as the effect of these measures is to reduce the imports of these items from the levels that existed before the measures.  Import quotas are not allowed under Article XI:1 of the GATT.
  4. The United States has failed to administer its laws, regulations, decisions and rulings in relation to the import tariffs in a uniform, impartial and reasonable manner.  This seems to be a violation of Article X:3(a) of the GATT.
  5. India believes that the United States’ import tariffs are safeguard duties, even though, the United States has rejected this characterisation on record.  India claims that these safeguard duties do not conform to substantive and procedural aspects of Article XIX of the GATT read with the relevant provisions of the Agreement on Safeguards.  A safeguard duty is allowed under Article XIX of the GATT only when it is established that a product is imported in such increased quantities into a territory as a result of unforeseen developments and of the effect of GATT obligations including import tariff related concessions.  Such increased imports cause or threaten serious injury to the domestic industry in that territory.  India claims that the United States has failed to meet its obligations to satisfy Article XIX of the GATT along with several provisions of the Agreement on Safeguards.
  6. India has challenged the legality of Section 232 of the Trade Expansion Act, 1962 and the accompanying reports on imports of steel and aluminium by the US Department of Commerce (USDOC) along with several Presidential proclamations that authorise and give effect to the import tariffs on steel and aluminium.

The United States is expected to defend its measures primarily under Article XXI of the GATT, which deals with security exceptions.  Article XXI has not been tested under WTO dispute settlement mechanism before. This could be the first case where a WTO panel may be required to interpret Article XXI.  The United States may possibly argue that it has taken the measures as there is an emergency in international relations.

To establish its defence, the United States may refer to the reports of the USDOC to justify that steel and aluminium are critical to its essential security interests as both commodities have important defence applications. To cater to defence needs, there should be a viable and thriving domestic industry that not only meets defence needs but also attracts commercial business.  With excess global capacities and increase in imports of steel and aluminium articles to the United States, despite existing trade remedy measures, the United States’ industry’s performance has been declining over the years.

This case will pose many interesting questions and a WTO panel may be required to understand whether the United States’ measures are safeguard duties; the essential security interests of the United States, which it aims to protect by these measures; and whether the United States is facing an emergency in international relations. 

Whether this dispute goes in India’s favour or not, the result will have a significant impact on how member countries approach their security interests vis-à-vis not only their trade interests but also of other WTO members.

[The author is Principal Associate, International Trade Practice, Lakshmikumaran & Sridharan, New Delhi]

 


EndNote:

 

1. GATT is a part of the WTO agreements.

2. US – Certain measures on Steel and Aluminium Products (DS547).  Official information regarding the dispute can be accessed at https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds547_e.htm.

 

 

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