Geneva: India’s Union budget for 2018-19 has raised a fresh prospect for a major trade dispute with the US, Japan, the European Union, and Taipei among others at the World Trade Organization due to the proposed hikes in customs duties on mobile phones and other IT (information technology)products, according to people familiar with the development.

The increase in customs duties up to 20% from 15% on high-end mobile phones and other items, including the smart watches which will now attract a duty of 20% from 10%, announced by finance minister Arun Jaitley on 1 February are allegedly inconsistent with India’s scheduled commitments in the Information Technology Agreement (ITA) that entered into force on 1 July 1997, said a trade diplomat from a major IT exporting country, who asked not to be named.

Under WTO’s ITA which was concluded in December 1996, and which came into force on 1 July 1997, India is required to eliminate tariffs on a range of IT products, including mobile phones. However, the imposition of tariffs on IT products, including mobile telephones, during the recent Union budgets has come under intense scrutiny at WTO’s committee on trade in goods and the committee on ITA.

During WTO’s committee on market access meeting on 22 September last year, several countries—the EU, Japan, South Korea, and the US—pressed India to clarify why New Delhi is imposing customs duties on smart phones, base stations, printer ink cartridges and other information and communication and technology products. The customs duties on IT products, they said, are inconsistent with the commitments India undertook to eliminate tariffs in the ITA agreement.

At the meeting, the EU said India is bound by a zero percent duty in its GATT (General Agreement on Tariffs and Trade) commitments. It maintained that India’s two additional ICT (information and communication technology) products—digital still video cameras, and other electronic integrated circuits (EICs)—for which India’s applied tariff is not in conformity with its scheduled commitments for zero percent tariff, said a Western trade diplomat who asked not to be identified.

At the same meeting, the US said there are apparent inconsistencies in India’s tariff structure on IT products. Washington sought to know how India can increase import duties on mobile phones against its scheduled binding trade commitments. Japan said India’s justification that the purported items were not covered in the ITA is unsustainable saying India’s measures were inconsistent with tariff classification.

During a meeting of the ITA committee last year, several countries—Canada, Singapore, Norway, Switzerland, Taipei, and Switzerland among others—expressed sharp concern over New Delhi’s tariffs on ITA products. The issue has repeatedly cropped over the past three years with major IT manufacturing countries, except China, accusing India for allegedly violating its commitments.

In response, India had explained that the IT goods in question do not fall under the ITA, according to trade diplomats familiar with the meetings.

New Delhi had maintained that IT and telecom technologies have evolved with new applications and equipment which were neither existent nor even conceived at the time of signing the ITA-I in December 1996, at the WTO’s first trade ministerial meeting in Singapore.

Therefore, India argued, the new IT products including the latest Apple phones and other IT products do not strictly fall under the scope of ITA-I agreement. India maintained it is not undertaking any fresh commitments under ITA-2 agreement that came into force more than two years ago.

It remains to be seen how soon the latest budget tariffs on smart phones and other IT products announced by finance minister Arun Jaitley will become part of a new trade dispute at the WTO, an East Asian trade diplomat said.

India’s budgetary proposal to increase the minimum support price (MSP) for several agricultural crops by 50% could also raise trade-related tensions at WTO.

Already, several countries such as Australia, the US, and other farm exporting countries had raised sharp concern over the issue of increase in MSP during the past several years. But, in all probability, the finance minister’s latest budgetary proposal of 50% hike might not cover all costs incurred by a farmer, said a person familiar with the development.

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