Jaideep Ghosh, Former Partner, KPMG in India
India’s Atmanirbhar Bharat vision is reshaping its industrial landscape, particularly in electronics and telecom. Driven by a strategy to augment domestic manufacturing, the country has progressively levied import duties on certain information and communication technology (ICT) products, including mobile phones and components.
This push has been further amplified by the impactful production-linked incentive (PLI) scheme.
However, this assertive stance on import duties has sparked international contention. In 2019, the European Union (EU), Japan and Chinese Taipei (Taiwan) initiated World Trade Organization (WTO) disputes, asserting that India’s duties violate its commitments under the General Agreement on Tariffs and Trade (GATT), 1994, which mandates zero-duty rates for these products.
A WTO panel ruled in favour of the complainants in April 2023. India, in a strategic move, appealed this ruling in December 2023 to the currently non-functional WTO Appellate Body. This effectively blocks the ruling’s adoption, leading to multiple postponements, most recently with Taiwan until October 2025.
This ongoing dispute results in policy uncertainty and offers temporary reprieve for companies manufacturing in India. Yet, an ultimate loss in the dispute for India could trigger retaliatory tariffs or force a rollback of duties, significantly impacting competitiveness for both domestic and international players. This highlights the trade-off between protectionism and global competitiveness in a geopolitically fluid world.
This article explores how policy, legal manoeuvring and supply chain dynamics intersect in this landmark dispute…
India’s policy framework: Atmanirbhar Bharat and PLI
Atmanirbhar Bharat signifies a strategic shift towards cultivating a robust, globally competitive manufacturing ecosystem within India. The government’s ambition is clear: transform India into a global manufacturing hub for electronics and telecommunication products.
The PLI scheme, launched in 2020 with a substantial outlay of Rs 1.97 trillion, is the cornerstone of this industrial policy. Its core objectives are to incentivise manufacturers, boost production, attract large-scale investments, generate employment and drive technological advancements. Encompassing 14 critical sectors, it includes large-scale electronics manufacturing and telecom and networking products.
The PLI scheme’s impact on the electronics and telecom sectors has been remarkable. For instance, in mobile phones, India has shifted from a net importer to the world’s second largest producer and a net exporter. Similarly, the telecom products segment has seen a significant 60 per cent import substitution.
Apple’s strategic pivot to India vividly illustrates a global leader leveraging this evolving ecosystem. India has emerged as a leading exporter of iPhones to the US, surpassing China for two consecutive months, with shipments surging by 76 per cent year on year as of April 2025. This accelerated shift is strongly driven by renewed US tariffs on Chinese imports, a compelling “push” factor for supply chain diversification away from China. While Apple aims for the majority of US-bound iPhones to be assembled in India, the situation remains fluid, with the US administration now reportedly urging Apple to manufacture domestically.
Ultimately, India’s industrial and trade policies are designed to work in tandem. Duties provide a cost advantage for local production, while PLI schemes offer essential capital and operational support for significant investment. This synergistic combination is far more potent than either policy implemented in isolation.
Genesis of the dispute
India has gradually escalated customs duties on certain ICT products to as much as 20 per cent, reflecting the government’s commitment to nurturing domestic manufacturing. Simultaneously, India has demonstrated policy flexibility and pre-emptive compliance, reducing duty rates to 0 per cent for specific products like headphones, earphones and electric converters since February 2022. This suggests a nuanced approach to tariff policy, potentially in response to industry needs and as a strategic adjustment in anticipation of trade disputes.
The WTO dispute stems from complaints by the EU, Japan and Taiwan. The EU initiated its dispute settlement case on April 2, 2019, formally requesting consultations with India over “excessive import duties”. The EU argued that India is obligated to apply a zero-duty rate to these specified ICT products under its WTO Schedule of Concessions, which is a binding commitment. Consultations on May 21, 2019, failed, prompting the EU to request panel establishment on February 17, 2020. Japan and Taiwan filed similar cases in 2019.
The core of the complainants’ allegations is that India’s imposed duties directly contravene its WTO commitments, specifically breaching GATT 1994, Article II:1 (a) on “no less favourable treatment” and 1(b) on “binding tariff.”
India’s defence and counter-arguments
India countered that its duties on the products in question were legally valid, asserting that these items do not fall under the ambit of the WTO’s Information Technology Agreement-1 (ITA-1), to which India is a signatory. India further argued that an administrative error during the HS2007 process inadvertently certified these ICT products under a zero per cent bound rate, despite India not being obligated to do so as an ITA-1 signatory.
WTO panel ruling and India’s appeal
The WTO panel delivered its final report on April 17, 2023, decisively overruling India’s arguments regarding both ITA-1 and the alleged administrative error. Consequently, the panel recommended that India conform with its GATT 1994 obligations.
In response, India appealed the panel report to the WTO’s Appellate Body on December 8, 2023. This move was made with the full knowledge that the Appellate Body has been non-functional since December 2019 due to the US’s sustained blockage of judicial appointments, leaving the body without the minimum three members required to hear appeals. Hence, any appeal to this body is considered “appealing into the void”, where the dispute is left in legal limbo.
By appealing into this void, India effectively prevented the adverse ruling from becoming legally binding, thereby delaying immediate compliance or retaliatory measures. This prompted Taiwan to pursue a bilateral resolution, which could be faster. Both India and Taiwan have continuously requested the WTO to postpone the ruling’s implementation while they attempt to resolve the issue bilaterally. The latest postponement until October 2025 further extends this period of uncertainty.
Potential outcomes of the WTO dispute
Should India eventually lose the WTO dispute and the ruling becomes legally binding, two primary scenarios could unfold. Firstly, the complainants could receive WTO authorisation to impose retaliatory tariffs on Indian goods, inflicting economic harm on India’s exports. Alternatively, India might be forced to roll back its duties, exposing the domestic industry to increased import competition.
Several potential scenarios emerge, each with distinct implications:
Continued impasse: India’s “appealing into the void” strategy could persist, delaying a binding resolution indefinitely. This offers temporary stability for manufacturers benefiting from India’s current duty regime and PLI incentives, but continues to frustrate complainants.
Resolution and compliance: If the WTO Appellate Body is reformed and functional, or if an alternative appeal mechanism is agreed upon, India might eventually face a binding ruling. Compliance would likely necessitate a rollback of ICT import duties, increasing import competition in the Indian market, but potentially improving access to global supply chains for Indian manufacturers.
Bilateral solutions: Sustained pressure from complainants, coupled with India’s strategic trade interests, could lead to bilateral negotiations outside the formal WTO dispute settlement process. Such negotiations might result in a mutually agreed solution, potentially involving concessions from both sides, as seen in past trade disputes.
These scenarios unfold within the broader context of ongoing tariff uncertainties triggered by the present US administration, which has accelerated efforts by many, including India, to finalise overall bilateral trade deals with the US, the EU and other major trading partners.
Strategic imperatives
Beyond the immediate dispute, this situation underscores the interplay between geopolitics, domestic policy and supply chain re-evaluation in an increasingly inward-looking world.
India’s challenge lies in effectively balancing its ambitious domestic industrial growth objectives with its international trade obligations. A persistent reliance on imports, particularly from China, continues to challenge India’s efforts to localise component manufacturing.
The global imperative for supply chain resilience, driven by geopolitical risks and the desire for diversification, necessitates a deeper focus on upstream manufacturing capabilities. Therefore, India’s long-term strategy for electronics manufacturing must continue to build a robust and globally competitive ecosystem for components and sub assemblies, rather than solely concentrating on final product assembly. While India has made significant strides with new chip manufacturing projects, the path to competing with leading nations is long and arduous.
The WTO dispute highlights the legal complexities of using tariffs as a short-term policy tool. The broader strategic imperative, though, is clear: India needs to future-proof its trade strategies to support long-term tech manufacturing rather than depend on temporary tariff buffers.
(The views expressed in this article are the personal views of the author.)
