US requests WTO to let it impose an annual fine of $450 mn on India

The US has requested authorisation from the World Trade Organisation ​for slapping a​ retaliation of about $450 million annually on India for harming US trade interests by India’s failure to comply with a WTO ruling within a given time frame.

WTO, at a special meeting of the Dispute Settlement Body (DSB) on 19 July, referred a case by the US against India on import of certain agricultural produce, for arbitration —known as “suspension of concession” in WTO-speak. The case was initiated by the US in March 2012.

For about seven years, India had restricted various US agricultural products, including poultry meat, eggs, and live pigs, to prevent entry of avian influenza into India.

Representational image. Reuters

Representational image. Reuters

This import prohibition was through India’s avian influenza measures maintained through the Indian Livestock Importation Act, 1898.

The US argued that India’s policy towards American poultry imports were discriminatory and violated WTO rules.

The matter, after consultations between parties failed, was brought before the DSB that ruled against India on 14 October, 2014 stating that the import ban was inconsistent with WTO’s Sanitary and Phytosanitary agreement because India’s measures “arbitrarily and unjustifiably discriminate between members where identical or similar conditions prevail and are applied in a manner which constitutes a disguised restriction on international trade”.

“This is a major victory for American farmers,” United States Trade Representative (USTR) Michael Froman announced after the DSB ruling.

India appealed against the ruling in January 2015 arguing that ​it had legal errors in interpretation. The matter was then pushed forward to an appellate body. India, again, lost the case in the appellate ruling.

WTO has now referred the matter for arbitration, which refers to a process of determining whether the amount of $450 million annually as sought by the US in form of retaliation — equivalent to the trade effects caused to the interests of the US by the failure of India to comply — is at an appropriate level. The US has also said that the figure of $450 million will be updated annually.

Under WTO rules, a member can request the right to retaliate within 20 days of the end of the "reasonable period" for compliance by the losing party if no agreement on compensation is reached. In this case, the “reasonable period” of time as agreed upon by the US and India expired on 19 June, 2016 by which time India, according to the appellate board ruling, should have either removed or altered the measures at issue in the dispute. A US request for retaliation was submitted on 7 July.

India declared that new measures were in place on 8 July and, therefore, the US had no legal basis for going forward with the “suspension of concession”. India also objected to the figure of $450 million quoted by the US.

The "arbitrator" comprises the original three-member panel who are required to issue their ruling within 60 days of the end of the “reasonable period”—in this case 18 August.

“What happens now is bit of a grey area. In such a situation (after an appellate board rules), usually the winning country and the losing side enter into a ‘sequencing agreement’ which basically says ‘I will not request for retaliation until there is a subsequent panel proceeding to determine whether I have complied or not’,” Abhijit Das, head of the centre for WTO studies at the Indian Institute of Foreign Trade said.

But, interestingly, the US and India did not conclude such a bilateral agreement common in such cases even though at the 19 July DSB meeting India had said that it sought a compliance panel to be established to look into the matter arguing that this has been the consistent practice in “sequencing agreements” for resolving dispute settlement cases. The US had said at the time that although “sequencing agreements” are not required under WTO rules it, however, was ready to discuss a variety of pending issues pertaining to this dispute, including procedural approaches for efficient resolution of the matter, while protecting US rights.

“Therefore, (after India put in place compliance measures on 8 July) it would have been reasonable to assume that the US would withdraw the retaliation request, but it didn’t,” said Das.

Other members like the European Union said that disagreements over compliance must be resolved through the establishment of a compliance panel and reserved its third party rights to participate in further proceedings. Japan also said that when there was a disagreement on compliance, parties must commit to compliance panel proceedings first, before proceeding towards arbitration.

The dispute has become messy and may have serious impact on other WTO disputes as well, an expert familiar with the global trade body’s dispute procedures said.

India is a big market for the US — one of the world’s largest exporters of chicken meat. India’s chicken consumption is growing at a rate of 12 percent annually with an estimated 92.1 pounds per capita consumption in 2016.

India’s import restriction had “particularly affected” the US poultry industry that directly employs over 3,50,000 workers and consists of nearly 50,000 family farms. According to the office of the USTR, “US exports to India of just poultry meat alone could easily exceed $300 million a year once India’s restrictions are removed – and are likely to grow substantially in the future as India’s demand for high quality protein increases”.

Since the creation of the WTO in 1995, the US has initiated six WTO dispute cases against India while India has initiated nine cases against the US. However, there are only two active US-initiated cases against India — including the solar panel case that India lost in 2015 and plans to appeal against the ruling. Similarly, there are two India-initiated active cases against the US pending at the WTO where India has filed a dispute over non-immigrant temporary working visas and another dispute on the US’ imposition of countervailing duties on imports of certain hot-rolled carbon steel flat products from India.

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Updated Date: Jul 29, 2016 16:25:00 IST

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