Quantitative Restrictions proposed to be introduced in Indian Safeguard Law: Issue and Perspectives

The Foreign Trade (Development and Regulation) Amendment Bill, 2009 brings forth an interesting development in international trade, namely the introduction of the much abused “Quantitative Restriction” provision into the Indian legal system. The relevant extract of the Bill is reproduced below for the reference of the reader wherein it is stated

9A. (1) If the Central Government, after conducting such enquiry as it deems fit, is satisfied that any article is imported into India in such increased quantities and under such conditions as to cause or threaten to cause serious injury to domestic industry, it may, by notification in the Official Gazette, impose such quantitative restrictions on the import of such articles as it may deem fit:

Provided that no such quantitative restrictions shall be imposed on an article originating from a developing country so long as the share of imports of that article from that country does not exceed three per cent. or where that article originates from more than one developing countries, then, so long as the aggregate of the imports from all such countries taken together does not exceed nine per cent. of the total imports of that article into India.

(2) The quantitative restrictions imposed under this section shall, unless revoked earlier, cease to have effect on the expiry of four years from the date of such imposition:

Provided that if the Central Government is of the opinion that the domestic industry has taken measures to adjust to such injury or threat thereof and it is necessary that the quantitative restrictions should continue to be imposed to prevent such injury or threat and to facilitate the adjustments, it may extend the said period beyond four years:

Provided further that in no case the quantitative restrictions shall continue to be imposed beyond a period of ten years from the date on which such restrictions were first imposed.

(3) The Central Government may, by rules provide for the manner in which articles, the import of which shall be subject to quantitative restrictions under this section, may be identified and the manner in which the causes of serious injury or causes of threat of serious injury in relation to such articles may be determined.

(4) For the purposes of this section—

(a) “developing country” means a country notified by the Central Government in the Official Gazette, in this regard;

(b) “domestic industry” means the producers –

(i) as a whole of the like article or a directly competitive article in India; or

(ii) whose collective output of the like articles or a directly competitive article in India constitutes a major share of the total production of the said article in India;

(c) “serious injury” means an injury causing significant overall impairment in the position of a domestic industry;

(d) “threat of serious injury” means a clear and imminent danger of serious injury;’.

It is perhaps quite relevant to note in this regard that as many as 16 cases were initiated by the Indian safeguard authority (Directorate General of Safeguards) in the year 2008 and 2009. Therefore, an assumption that the “Quantitative Restriction” provision would remain a mere enabling provision without being put in use may be quite misplaced. Of course, with recession saying its final good bye, the use of safeguards as a weapon to protect the Domestic Industry is also witnessing a corresponding decline.

Section 8B of the Indian Customs Tariff Act, 1975 and the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 (except in exports from China which is subject to a China specific Safeguard law) provide for the imposition of a safeguard duty in the event increased imports cause or threaten to cause serious injury to the Domestic Industry. While the WTO Safeguards Agreement recognizes the use of quantitative measures to pursue safeguard measures (See Article 5.1), Indian law has hitherto focused on safeguard remedy through the provision of remedial safeguard duty.

Quantitative Restrictions are forbidden by Article XI of GATT, 1994 except in certain limited situations covered by Article XI.2(c). None of these situations apply to safeguard measures taken to protect the Domestic Industry from surged imports. Therefore it is safe to assume that the measures fall foul of Article XI.

Such a measure which is in contravention of GATT, 1994, could be nevertheless WTO consistent, if it is consistent with the WTO Safeguards Agreement, by virtue of the General Interpretative Note to Annexure IA of the Agreement establishing the WTO. The consistency should be understood with due regard to the position of the WTO as stated in Indonesia – Autos that there is a presumption against conflict. The WTO Safeguards Agreement in Article 5 states

A Member shall apply safeguard measures only to the extent necessary to prevent or remedy serious injury and to facilitate adjustment. If a quantitative restriction is used, such a measure shall not reduce the quantity of imports below the level of a recent period which shall be the average of imports in the last three representative years for which statistics are available, unless clear justification is given that a different level is necessary to prevent or remedy serious injury. Members should choose measures most suitable for the achievement of these objectives.

The underlined part of the provision represents the precondition for the imposition of a quantitative restriction. The underlined condition seems conspicuously absent from the Foreign Trade Amendment bill. It is my understanding that since the provisions of the Safeguard Agreement are not satisfied to this extent there is actually no question of a conflict with the provisions of GATT, 1994.

Put in a nutshell, the new Chapter IIIA seems to be a measure in violation of GATT, 1994 and not a permissible measure within the meaning of the WTO Safeguards Agreement.

I shall reserve my position on the policy implications of a measure which would probably in many quarters be classified as highly regressive.

If I missed out something or there is something you would like to take the discussion further please feel free to post your comments or send me an email at sagnik.sinha@gmail.com.