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TIOL-DDT 982 · Friday, 31 October 2008 · story 3 of 5

Complaint by the United States

By Vijay Kumar

On 6th March 2007, the United States requested consultations with India with respect to “additional duties” or “extra additional duties” that India applies to imports from the United States, which include (but are not limited to) wines and distilled products (HS 2204, 2205, 2206 and 2208). The measures include:

  • Sections 2 and 3, and First Schedule, of the Customs Tariff Act, 1975 (“basic customs duty”, “additional duty” and “extra additional duty”;

  • Section 12 of the Customs Act, 1962 (“basic customs duty”);

  • Customs Notification No. 5/2004 (8 January 2004) (“basic customs duty” inter alia on spirits);

  • Customs Notification No. 20/1997 (1 March 1997) (“basic customs duty” inter alia on wine);

  • Customs Notification No. 32/2003 (1 March 2003) (“additional duty” inter alia on wine and spirits);

  • Customs Notification No. 19/2006 (1 March 2006) (“extra additional duty” inter alia on wine and spirits)

as well as any amendments, related measures or implementing measures.

The United States claimed that the measures are inconsistent with Articles II:1(a) and (b), and III:2 and III:4 of the GATT 1994.

On 16th March 2007, the European Communities requested to join the consultations. On 21st March 2007, Australia requested to join the consultations. Subsequently, India informed the DSB that it had accepted the request of the European Communities to join the consultations. On 24th May 2007, the United States requested the establishment of a panel. At its meeting on 4th June 2007, the DSB deferred the establishment of a panel. At its meeting on 20nd June 2007, the DSB established a panel. Australia, Chile, the European Communities, Japan and VietNam reserved their third-party rights. On 3rd July 2007, the panel was composed.

The Panel's report was circulated in June 2008.

Appeal:

Before the Panel, the United States claimed that the Additional Duty and the Extra-Additional Duty are inconsistent with India's obligations under Articles II:1(a) and II:1(b) of the General Agreement on Tariffs and Trade 1994 (the "GATT 1994") because the Additional Duty and the Extra-Additional Duty subject imports to ordinary customs duties ("OCDs") or other duties or charges ("ODCs") in excess of those specified in India's Schedule of Concessions.

In response, India contested the characterization of the Additional Duty and the Extra-Additional Duty as an OCD or an ODC within the meaning of Article II:1(b), arguing instead that the Additional Duty and the Extra-Additional Duty are charges equivalent to internal taxes imposed consistently with Article III:2 of the GATT 1994 in respect of like domestic products and, as such, fall within the scope of Article II:2(a). India further claimed that the Additional Duty is levied in lieu of state excise duties imposed in respect of like alcoholic beverages produced or manufactured in the state imposing the duty, while the Extra-Additional Duty is imposed to counterbalance sales taxes, value-added tax ("VAT") and other local taxes and charges.

Based on its review of the evidence and arguments before it, the Panel concluded that the United States had failed to establish that the Additional Duty and the Extra-Additional Duty were in the nature of OCDs or ODCs. As a result, the Panel found that the United States had failed to establish that the Additional Duty and the Extra-Additional Duty are inconsistent with Articles II:1(a) and II:1(b) of the GATT 1994. In the light of these conclusions, the Panel made no recommendations under Article 19.1 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU"). However, recalling that India had issued new customs notifications making certain changes to the Additional Duty and the Extra-Additional Duty "to address concerns raised by [India's] trading partners", the Panel found it "appropriate" to note that its disposition of the United States' claims did not "necessarily imply that it would be consistent with India's WTO obligations for India to withdraw the relevant new customs notifications or otherwise re establish the status quo ante, i.e., the situation as it existed on the date of establishment of the Panel." The Panel further explained that it did not "wish to suggest that the entry into force of the new customs notifications necessarily implies that the [Additional Duty] on alcoholic liquor, to the extent it still exists, and the [Extra-Additional Duty] are WTO-consistent."

Both the United States and India are in appeal

Findings and Conclusions

The Appellate Body rejected the United States' claim that the Panel limited the scope of the United States' challenge to the Additional Duty as imposed only through Customs Notification 32/2003, and the Extra-Additional Duty as imposed only through Customs Notification 19/2006;

As regards the Panel's findings with respect to the interpretation of Articles II:1(b) and II:2(a), the Appellate Body found that the Panel erred in its interpretation that Article II:1(b) covers only duties or charges that "inherently discriminate against imports.

The Appellate Body

1. found that the Panel erred in interpreting the term "equivalent" in Article II:2(a) as requiring only a qualitative comparison of the relative function of a charge and internal tax, thereby incorrectly excluding quantitative considerations relating to their effect and amount;

2. found that the United States was required to present arguments and evidence that the Additional Duty and the Extra-Additional Duty are not justified under Article II:2(a), and that India, in asserting that those duties are justified, was required to adduce arguments and evidence in support of its assertion;

3. considered the Additional Duty would not be justified under Article II:2(a) of the GATT 1994 insofar as it results in the imposition of charges on imports of alcoholic beverages in excess of the excise duties applied on like domestic products; and, consequently, that this would render the Additional Duty inconsistent with Article II:1(b) to the extent that it results in the imposition of duties in excess of those set forth in India's Schedule of Concessions;

4. considered that the Extra-Additional Duty would not be justified under Article II:2(a) of the GATT 1994 insofar as it results in the imposition of charges on imports in excess of the sales taxes, value-added taxes, and other local taxes or charges that India alleges are equivalent to the Extra-Additional Duty; and, consequently, that this would render the Extra-Additional Duty inconsistent with Article II:1(b) to the extent that it results in the imposition of duties in excess of those set forth in India's Schedule of Concessions;

The Appellate Body made no recommendation, in this case, to the Dispute Settlement Body.

Strictures: The Appellate Body noted that the Panel had to work despite the failure of both the United States and India to provide specific information about the excise duties.

It was noted that:-

1. There was no specific information before the Panel regarding the "excise duties actually levied by different States on alcoholic liquor." Nor was there evidence before the Panel regarding the form and structure of the rates of such duties.

2. There was no evidence in the record to demonstrate that, on the date of establishment of the Panel, there were Indian states permitting the sale of alcoholic beverages that did not levy an excise duty on alcoholic beverages subject to the Additional Duty.

3. There was no evidence in the record to demonstrate that excise duties were, in fact, imposed in the Indian states on imported alcoholic beverages.

4. the Panel noted India's statement that the rates of Additional Duty specified in Customs Notification 32/2003 are the result of a "process of averaging, whereby the Central Government tried to ensure that to the extent possible, the rate was a reasonable representation of the net fiscal burden imposed on like domestic products on account of the excise duty payable on alcoholic liquor".

5. This "could have meant that the rate of [Additional Duty] for alcoholic liquor exceeded the rate of excise duty applicable to like domestic alcoholic liquor in some States and in some price bands." India had not provided "further particulars" regarding the averaging process or the fiscal burden imposed in different states on low and high-priced alcoholic liquor.

Correction of Clerical Mistakes - Complicated Judicial process: If you think, we have a complicated judicial system, see this part of the litigation:

By letter dated 20 August 2008, the United States requested authorization from the Appellate Body Division hearing the appeal to correct certain "clerical errors" in its appellant's submission, pursuant to Rule 18(5) of the Working Procedures. On 22 August 2008, the Division invited all participants and third participants to comment on the United States' request. None of the participants or third participants objected to the United States' request. On 27 August 2008, the Division authorized the United States to correct the "clerical errors" in its appellant's submission.