Public Notice No. 60 and the MOUs

Public Notice No. 60 and the MOUs

1. 
   On 12 December 1997, the Ministry of Commerce adopted Public Notice No. 60, the auto components licensing policy, issued under the Foreign Trade (Development and Regulation) Act of 1992 (the "FTDR Act").
   
2. 
   The Notice, effective from the date of issue, requires any passenger car manufacturer wishing to import SKD/CKD kits to sign a Memorandum of Understanding (MOU) with the Director General of Foreign Trade ("DGFT") (see Annex Tables 1 and 2). A car manufacturer that does not sign an MOU or does not perform the obligations assumed under an MOU may therefore be denied a license for the importation of SKD/CKD kits. Subparagraphs 3(i) through (iv) of Public Notice No. 60 set out four requirements which an MOU must impose on the manufacturing company:
   
   1. 
      Establishment of actual production facilities for manufacture of cars, and not for mere assembly.
      
   2. 
      A minimum of foreign equity of US$50 million to be brought in by the foreign partner within the first three years of the start of operations, if the firm is a joint venture that involves majority foreign equity ownership.¹⁰
      
   3. 
      Indigenization (i.e. local content) of components up to a minimum level of 50% in the third year or earlier from the date of first import consignment of CKD/SKD kits/components, and 70% in the fifth year or earlier.
      

3. parties' requests for findings and recommendations

   1. US Claims and Requests for Findings

1. 
   The United States contended that the local content and trade balancing requirements in Public Notice No. 60 and the MOUs, together with the Indian domestic legislation under which they had come into force, were inconsistent with the obligations of India under the General Agreement on Tariffs and Trade 1994 ("GATT 1994") and the Agreement on Trade-Related Investment Measures ("TRIMs Agreement"). The United States requested the Panel to find that the measures at issue in this dispute, the indigenization and the trade balancing requirements, imposed by Public Notice No. 60 and the MOUs, were inconsistent with Article III:4 and XI:1 of GATT 1994 and Articles 2.1. and 2.2 of the TRIMs Agreement.¹¹ The United States requested this Panel to make findings to this effect, and to recommend that India bring all such measures into conformity with its obligations.
   
2. 
   The United States considered it would be appropriate for the Panel to rule on Public Notice No. 60 given that the requirements were still in place through the MOUs. The United States said it was not requesting the Panel to make findings on Public Notice No. 60 that were separate from its findings on the MOUs executed thereunder. The United States was, however, requesting that the Panel's findings encompass both Public Notice No. 60 and the individual MOUs. A comprehensive ruling by the Panel would apply to both Public Notice No. 60 (the source of the WTO-inconsistent requirements) and the MOUs (by which individual companies were bound to those WTO-inconsistent requirements), especially since Public Notice No. 60 was, as all the parties to this dispute agreed, in force at the time this Panel was established. However, the Panel need not analyze Public Notice No. 60 separately from the MOUs in order to make its findings.¹²
   

1. EC Claims and Requests for Findings

   1. 
      The European Communities said that its complaint was directed primarily against the indigenization and balancing requirements contained in the MOUs concluded under Public Notice No. 60.¹³
      

• 
  The European Communities claimed that the indigenization requirement violated Article III:4. It had not claimed that this requirement violates also Article XI:1.
  

• 
  The European Communities claimed that the balancing requirement was inconsistent with both Article XI:1 and Article III:4 because the signatories were required to balance the value of the automotive products which they import themselves, as well as the value of any imported automotive products which they purchase from vendors within India¹⁴.
  

• 
  To the extent that the balancing requirements required the signatories to balance the value of the imported products which they purchase within India they were inconsistent with Article III:4.
  

• 
  To the extent that the balancing requirements required the signatories to balance the value of the automotive products which they imported themselves, they restricted the importation of such products, thereby violating Article XI:1.
  

1. 
   It also requested the Panel to make an express factual finding regarding the product scope of the trade balancing requirement.
   
2. 
   The European Communities reiterated its request to the Panel to find that the trade balancing and indigenization requirements contained in Public Notice No. 60 and in the MOUs concluded thereunder were inconsistent with Articles III:4 and XI:1 of the GATT and Article 2.1 of the TRIMs Agreement as of the date of establishment of this Panel and had remained so after 1 April 2001. Furthermore, the European Communities requested the Panel to find that, at the time when the Panel was established, Public Notice No. 60 was inconsistent with Article XI:1 and III:4 of GATT and Article 2.1 of the TRIMs Agreement. It clarified that the measures applied after 1 April 2001 continued to be inconsistent with the GATT and the TRIMs Agreement because they were the same as the measures applied before that date.¹⁵
   
1. 
   
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