Restricting Chinese imports will not be easy
India could revoke the Most Favoured Nation status to Pakistan, but may not be able to do so with China
The rising border tensions between India and China in the Galwan Valley took a bloody turn when 20 brave Indian soldiers lost their lives in a military skirmish with China. As strategic affairs experts try to figure out China’s Achilles heel which India can exploit to tame the dragon, the clamour for an economic boycott of China is growing.
From an international law point of view, can India can impose restrictions on Chinese imports by, say, revoking China’s most favoured nation (MFN) status in the World Trade Organization (WTO)? In the immediate aftermath of the Pulwama terror attack, last year, in which around 40 Central Reserve Police Force soldiers died, India revoked Pakistan’s MFN status in the WTO. So arguably what is sauce for the goose should be sauce for the gander.
Article XXI (b) (iii) of the General Agreement on Tariffs and Trade (GATT) allows a WTO member country to take action “which it considers necessary for the protection of its essential security interests taken in time of war or other emergency in international relations”. The current situation between India and China definitely qualifies as an emergency in international relations. Since this standoff also involves safeguarding India’s territorial sovereignty, there is an “essential security interest” at stake.
The legal challenge for India, in order to make a successful case under Article XXI, will be to demonstrate that the trade-restrictive measure it adopts during this emergency with regard to China is “necessary” to address the current security situation. Contrary to what many believe, the words, “which it considers” in Article XXI (b) (iii) does not make the provision self-judging. Although India will enjoy significant leeway in determining what constitutes “necessary” measures, these shall be subject to a good faith review. There are two cases in which WTO panels dealing with the national security and defence have affirmed this. These are the Russia-Traffic in Transit case involving Russia and Ukraine and the recently decided case between Qatar and Saudi Arabia.
Therefore, in order to show that the measure adopted is “necessary”, India has to prove two things. First, that India genuinely believes that adopting the measure (say reneging on an MFN obligation) is necessary to protect its essential security interests. Second, as the Russia-Transit case demonstrates, the measure meets the minimum requirement of plausibility with regard to the essential security interests in question. In other words, the measure should be connected to the emergency at hand as to make it feasible for the protection of essential security interests.
In Pakistan’s case, India retracted its MFN promise by increasing tariff rates to 200% on all Pakistani imports. Although India’s decision to increase tariffs on Pakistani imports was driven by national security concerns, oddly enough, the notification on this did not even mention national security. This could have been because the decision was taken under Section 8A(1) of the Customs Tariff Act, which gives “emergency power” to the Indian government to increase import duties if the government is satisfied that this is necessary in the given circumstances. But, section 8A(1) does not talk of “national security” as a ground to modify tariff rates; it refers to economic emergencies.
Consequently, it will be difficult to accept under WTO law that India genuinely believed that hiking tariff rates to 200% on all Pakistani imports is necessary to safeguard India’s essential security interests. India got away because Pakistan has not challenged India’s measure before a WTO panel. The reason could be that bilateral trade between the two countries is too small.
But, using Section 8A(1) to impose trade restrictions on China will be tricky. China will, in all probability, challenge this in the WTO, and India will find it difficult to defend its action. If India wants to restrict Chinese imports on national security grounds, it will have to provide a reasonable explanation as to why and how imposing trade restrictions on China are “necessary” to defend India’s essential security interests.
The other constraining factor for India is the high quantum of bilateral trade between the two countries. With bilateral trade at almost $90 billion a year, it is around 45 times more than that with Pakistan. Moreover, numerous Chinese imports are used as intermediary products in Indian industries ranging from pharmaceuticals, automobiles, and electronics. So, curbing imports on these will be tantamount to India losing out too. It is clear from this — when it comes to India’s dealing with Pakistan and China under WTO, what’s sauce for the goose is definitely not sauce for the gander.