Japan has raised concerns at the WTO over India’s import prohibition on air conditioners with refrigerants arguing that New Delhi’s citing of the Montreal Protocol in justification of its action was not fully valid as the ban also applied on types of refrigerants not covered under the international environment protection treaty.
“Japan is highly concerned that this measure unfairly pressured companies to reconstruct their supply chains, and is inconsistent with... GATT 1994 and...the TRIMS Agreement,” Japan said in a representation at the WTO Committee on Trade Related Investment Measures (TRIMS).
If New Delhi is not able to resolve the issue amicably with Tokyo through satisfactory answering of questions or subsequent discussions, the latter could ultimately escalate the matter to a full scale dispute at the multilateral forum.
India banned the import of completely built units of air-conditioners with refrigerants in October last year as part of its Atmanirbhar Bharat drive to promote manufacturing within the country. As per orders, ACs with refrigerants cannot be imported without licences issued by the government.
The decision was cheered by local manufacturers that have been finding it difficult to beat competition from China, Japan, Thailand and Vietnam, especially as several brands import at low or zero duties from countries using Free Trade Agreements like the India-ASEAN FTA.
In its complaint, Japan emphasised that India had repeatedly described that the import prohibition is consistent with its obligation under the Montreal Protocol but there were many lapses in the explanation.
Montreal Protocol is an international agreement reached in 1987 designed to stop the production and import of ozone depleting substances and reduce their concentration in the atmosphere to help protect the earth’s ozone layer.
“This import prohibition measure does not distinguish the types of refrigerants, and prohibits any air conditioners with any refrigerants, including the ones with refrigerants that are not subject to India’s obligation to phase out under the Montreal Protocol or under India’s domestic regulations,” Japan’s submission pointed out.
It asked India to explain why India considers that the measure can be justified despite such excessiveness.
Tokyo’s objections
A number of Japanese companies, led by Daikin, Panasonic, Mitsubishi and Hitachi, are present in the AC space in India. In fact, some Japanese companies had also approached the Commerce & Industry Ministry earlier this year asking for removal of import restrictions.
Tokyo’s objections were particularly with regard to HCFC (hydrochlorofluorocarbons) refrigerants. It said that according to its understanding, India does not yet need to totally phase-out the production and consumption HCFC under its relevant domestic Regulation--the Ozone Depleting Substances (Regulation and Control) Amendment Rules, 2014.
“Moreover, with regard to HFC (hydrofluorocarbon), India’s obligation under the Montreal Protocol does not cover HFC and Japan understands that there are no particular laws and regulations in India that regulate production and consumption of HFC,” the submission stated.
Japan asked the country to identify specific laws and regulations in India that regulated production and consumption of HFC, if any. It said that India should describe the rationale for putting in place prohibitions only for imports.
As per industry estimates, before the import restrictions were put in place on air conditioners with refrigerants last year, completely built units of imported ACs accounted for about 28-30 per cent of the air-conditioners segment. The total annual market size of air-conditioners sold in India is estimated at over 65 lakh units.