I. INTRODUCTION
The recent move by the Indian government to regulate India’s trade with the neighbouring countries has attracted widespread scrutiny. This move, facing a severe backlash from China in particular, has the potential to be violative under the principle of non-discrimination upheld by the World Trade Organisation (“WTO”).[1] While the Indian government cites ‘national security’ as a justification for the move, this might not stand the test of discrimination under the WTO regime which goes beyond the literal text of any measure and focuses on its implications. This paper is an attempt to analyse the validity of the said move and whether it can be justified under the General Agreement on Tariffs and Trade (“GATT”).
The Indian government brought in new restrictions on trade relations with its neighbouring countries by amending the General Financial Rules, which regulate executive orders covering financial institutions, public sector banks, etc.[2] This amendment requires the suppliers from the countries sharing a border with India to register with a ‘competent authority’ to be eligible bidders for procurement of goods and services by the public departments.[3] This competent authority comprises officials from the Department for Promotion of Industry and Internal Trade as well as the Ministry for External and Foreign Affairs.[4] Without clearance from these authorities, the supplier will not be permitted to bid. This move, allegedly, is primarily aimed at restricting Chinese imports, as a retaliatory measure against standoffs at the Indo-China border.[5]
While this measure is not directly aimed against China and is framed in neutral terms, it may be violative under the principle of substantive equality enshrined in the GATT. The scope of this paper is primarily confined to analysing the validity of this move under the principle of non-discrimination upheld by the WTO. Highlighting this contention while keeping Indo-China relations in mind, this paper seeks to assess the validity of the measure through the prism of the GATT, while focusing on the relevance of intention and effect in the equality doctrine under the WTO regime. Part II briefly highlights the doctrine of indirect discrimination under the WTO regime. Part III analyses the exceptions which can be claimed by the Indian government to justify the move. This is followed by Part IV which concludes with the final observations of the authors.
II. INDIRECT DISCRIMINATION UNDER THE GATT
The GATT bars the member-states of the WTO from imposing quantitative restrictions on imports from other member-states and prohibits them from discriminating between its domestic suppliers and foreign suppliers and also between foreign suppliers from different countries.[6] Article XI of the GATT also disallows member-states from taking actions which have the effect of imposing trade restrictions.[7] The effects-based discrimination is based on the notion that even if a measure is facially neutral, it might have a disparate impact on a few select nations due to certain circumstances. Such measures have also been held to be invalid if, among other reasons, the disparate impact was intended by the policy-makers.
In the Canada-Autos case,[8] the Canadian measure under scrutiny exempted car imports from customs duty if inter alia, Canadian products were used in its manufacture or if they were made in Canada. While this measure is neutral on its face, the WTO Panel found it to be discriminatory against imports from other member-states based on the structure of the automobile industry.[9] It looked into the legislative intent of this measure which was to incentivise US based manufacturers to expand their manufacturing bases to Canada.[10] Thus, since the design of the measure was to benefit the importers from a few sources, it was in violation of the GATT principles. Another case that highlights the effects-based discrimination test is Brazil-Tyres.[11] Brazil had adopted a licensing policy that permitted only licensed importers to import tires and licence was provided only for imports from non-Mercosur countries.[12] While imports from such countries were not banned, the operation was such that licenses were not given at all for such imports.[13] Moreover, the WTO panel has frequently termed non-automatic or discretionary licensing requirements to be invalid.[14] Thus, any action which places a limitation on imports or has a potential to affect it adversely, stands the chance of being held to be discriminatory.
In the present situation, the registration requirements have been imposed on all neighbouring countries, thus, making it a neutrally-faced measure. However, two factors act against India in this case. First, the fact that this measure comes with its background of being in the slew of measures constantly being taken by the Indian government against China, might be indicative of a legislative intent of it being targeted against the Chinese. Examples of these measures include banning Chinese applications in India and imposing restrictions on foreign investments from neighbouring countries, the largest investor being China.[15] Second, the amendment does not specify the requirements for obtaining such registration, thus, implying a wide discretion in the hands of the authorities. Thus, India cannot take the claim of the registration requirement being a mere procedural change which does not impose any quantitative restriction on imports from China. Since this measure has an immense potential of being exercised in a discriminatory manner towards China, it can only be saved by claiming one of the exceptions provided under the GATT principles.
III. EXCEPTIONS UNDER THE GATT
Any quantitative restriction that might be invalid under the principles of free trade as envisaged in the GATT, gets nullified if it falls under the exceptions provided under Article XX of the GATT. The relevant provisions with respect to India’s move, however, would fall under Article XXI as they have quoted the reason of ‘national security’ to justify the measure. Article XXI defines the scope of ‘security exceptions’.[17] Specifically, sub-clause (b)(iii) mentions that the GATT cannot prevent any party from taking measures that it deems necessary for the protection of its security in times of emergencies in international relations.[18]
The first interpretation of the exception of national security was laid down by the Dispute Settlement Body (DSB) of the WTO in 2019.[19] This emerged from a dispute between Ukraine and Russia. In this dispute, Russia had imposed a number of successive measures that blocked Ukraine’s access to transit routes over the period of 2014-18. These were taken during a time when the interactions between the two countries had turned hostile. Ukraine argued that this measure was directly in contravention to Article V of the GATT which mandates freedom of transit between countries. However, Russia asserted that such a restriction due to national security is self-judging, i.e., it can be invoked unilaterally. Here, the WTO took a balanced approach that did not entirely agree with both the positions. While it accepted Russia’s defense of ’national security’, it explicitly held that all exceptions would be objectively reviewed by the WTO panel.[20] In other words, while it accepted that member-states have a wide margin of appreciation to exercise discretion in invoking exceptions under the GATT principles, such claims could not escape the objective scrutiny of the Panel.
At the same time, the panel asserted that “essential interests of security” is a narrower exception as compared to “security interests” in general. Essential interests involve the protection of its territory and people from external threats along with the maintenance of law and public order internally. Since these are essential to the functioning of the state, they have been left to be defined according to every member’s perception. These depend on the particular situation and differ on a case-to-case basis.[21] A caveat here is that members are expected to invoke these exceptions in good faith and not use them to circumvent their obligations under the GATT.[22] Reading the two principles together highlights how states are empowered to decide what they consider as essential to their security interests.[23] However, the measures they take in pursuance of these interests will be scrutinised objectively.
In the present case, even if it is considered that this move is discriminatory against China as it aims to restrict China’s entry into the Indian market, it may be justified under the “national security” exception. It has come in the background of the skirmish between India-China border at the Galwan valley.[24] This, however, cannot be seen in isolation. It was followed by a series of subsequent events that led to the escalation of tensions between the two countries.[25] The conflict has reached a level where it poses a threat to the territorial integrity of India.[26] If India feels restrictions of these kinds are justified, then it has the authority to do so.
Additionally, the pandemic has worsened the situation for all nations including India. The national security exception may be claimed, as the provision permits such measures to be taken in case of other emergency in international relations. This usually was meant to be interpreted within the context of a situation of armed conflict.[27] However, unprecedented circumstances have led to many states taking measures to safeguard their economy.[28] It is natural that countries would like to be more cautious with foreign investments and trade during such situations.[29] The response of the WTO to such restrictions will determine the validity and extent of such restrictions. Here, India’s argument that the move applies to all neighboring countries will come into play as well. These measures were introduced when China’s central bank bought a 1.01% stake in HDFC Bank.[30] India wanted to curtail opportunistic takeovers at a time when the economy was already under slowdown in light of the pandemic.[31] However, a restriction entirely on China would not be justified as it would be exclusionary towards one country. Therefore, a move that aims to merely exercise extra discretion when a group of countries make procurement deals in India may be argued to be reasonable.
IV. CONCLUSION
Whether India’s restrictions can be considered valid under the GATT depends on the objective scrutiny of the WTO. The appraisal of the measure’s validity requires looking at the larger context. The considerations that may be reviewed here are the implementation of the measure and if it is carried out in a way that is biased against China in particular. This can be assessed by examining whether the additional discretion by way of the amendment to the General Financial Rules is only used in Chinese bids or neutrally for all neighbouring countries. In these circumstances, India faces a threat to its territorial integrity along with an economic slowdown due to the ongoing pandemic. Thus, it has a wide ambit to exercise discretion in claiming the exception of national security. However, the nexus between imposing restrictions on trade with neighbouring countries and protecting its national security might be difficult to prove. In Russia’s case, access to the transit routes posed a direct threat to its territorial integrity. However, that is not the case between India and China. The link between border skirmishes and trade restrictions cannot be easily justified. However, if the ambit of ‘national security’ is widened to include economic measures such as China’s increasing investments in India, then India might claim that it had the right to protect its economic interests from a powerful country which was increasing its stakes in the Indian economy. If this matter is brought before the WTO, it will be interesting to note their analysis of this facially neutral measure which was taken in the midst of military tensions at the border, increasing Chinese takeovers in the Indian market and the extraneous situation created by the ensuing pandemic.
The authors, Ashika Jain and Aaryan Mithal, are currently law students at the West Bengal National University of Juridical Sciences(WBNUJS), Kolkata.
[1] Annual Report of the World Trade Organisation, 2019.
[2] Order (Public Procurement No. 2), F.NO.6/18.2019-PPD, Ministry of Finance, July 23, 2020.
[3] Id.
[4] Nikunj Ohri, BloombergQuint, India Restricts Neighbouring Nations from Public Procurement Amid China Faceoff, July 24, 2020, available at: https://www.bloombergquint.com/law-and-policy/india-restricts-neighbouring-nations-from-public-procurement-amid-china-faceoff (Last visited on August 10, 2020)
[5] Id.
[6] General Agreement on Tariffs and Trade, April 15, 1994, U.N.T.S. 187, 33 I.L.M. 1153 (1994), Article XI:1; Emily C. Barbour, Issues in International Trade Law: Restricting Exports of Electronic Waste, Congressional Research Service (2012).
[7] Peter Van Den Bossche, The Law and Policy of the World Trade Organisation, 448 (2d ed. 2008); Report of the WTO Panel, Japan-Trade in Semiconductors, GATT B.I.S.D. (35th Supp.) (May 4, 1988).
[8] Report of the WTO Panel, Canada-Certain Measures Affecting the Automotive Industry, WT/DS139/R (February 11, 2000).
[9] Id.
[10] Report of the WTO Panel, Canada-Certain Measures Affecting the Automotive Industry, WT/DS139/R (February 11, 2000).
[11] Report of the WTO Panel, Brazil-Measures Affecting Imports of Retreaded Tyres, WT/DS332/R (June 12, 2007).
[12] Id.
[13] Report of the WTO Panel, Brazil-Measures Affecting Imports of Retreaded Tyres, WT/DS332/R (June 12, 2007).
[14] Report of the WTO Panel, India-Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products, WT/DS90/R (April 6, 1999).
[15] Nikunj Ohri, India Restricts Neighbouring Nations From Public Procurement Amid China Faceoff, July 24, 2020, available at: https://www.bloombergquint.com/law-and-policy/india-restricts-neighbouring-nations-from-public-procurement-amid-china-faceoff (Last visited on, August 10, 2020).
[16] General Agreement on Tariffs and Trade, April 15, 1994, U.N.T.S. 187, 33 I.L.M. 1153 (1994), Article XX.
[17] Id., Article XXI.
[18] Id., Article XXI (b) (iii).
[19] Report of the Panel, Russia-Measures Concerning Traffic in Transit, WT/DS512/R. (April 5, 2019).
[20] Id., ¶7.101.
[21]Id., ¶7.130.
[22] Roger P. Alford, The Self-Judging WTO Security Exception, 2011 (3) Utah Law Rev., 706 (2011).
[23] Michael J. Hahn, Vital Interests and the Law of GATT: An Analysis of GATT’s Security Exception, Michigan 600 Journal of International Law 12(3) (1991).
[24] Al Jazeera, India says three soldiers killed in Ladakh ‘face-off’ with China, 16 June, 2020 available at https://www.aljazeera.com/news/2020/06/india-soldiers-killed-ladakh-face-china-200616072909922.html (Last visited on August 10, 2020).
[25] Anadolu Agency, TIMELINE-Clashes, standoffs between Chinese and Indian armies, June 16, 2020 available at https://www.aa.com.tr/en/asia-pacific/timeline-clashes-standoffs-between-chinese-and-indian-armies/1879115 (Last visited on August 4, 2020).
[26] Al Jazeera, All-out combat’ feared as India, China engage in border standoff, May 29, 2020, available at https://www.aljazeera.com/news/2020/05/tense-india-china-standoff-himalayan-border-escalate-200527120501581.html (Last visited on August 5, 2020).
[27] World Trade Organisation [WTO], WTO Analytical Index GATT 1994- Article XXI (Jurisprudence), available at https://www.wto.org/english/res_e/publications_e/ai17_e/gatt1994_art21_jur.pdf (June 2020).
[28] Organisation for Economic Co-operation and Development [OECD], Covid-19 and international trade: Issues and actions, available at https://www.oecd.org/coronavirus/policy-responses/covid-19-and-international-trade-issues-and-actions-494da2fa/ (June 12,2020).
[29] William Alan Reinsch, Trade Symptoms of the Pandemic, April 3, 2020, available at https://www.csis.org/analysis/trade-symptoms-pandemic (Last visited on August 7, 2020).
[30] The Economic Times, China’s central bank buys 1% stake in HDFC, April 13, 2020, available at https://economictimes.indiatimes.com/markets/stocks/news/chinas-central-bank-holds-1-stake-in-hdfc/articleshow/75104998.cms?from=mdr (Last visited on August 8, 2020).
[31] Bloomberg, Vrishti Beniwal, India Amends Rules to Curb ‘Opportunistic’ Foreign Takeovers, April 18 2020, available at https://www.bloomberg.com/news/articles/2020-04-18/india-amends-fdi-rules-to-curb-opportunistic-takeovers (Last visited on August 8, 2020).
Picture Source : Economic Times
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