India has recently levied its first-ever Quantitative Restriction (QR) safeguard measures on imports of Isopropyl Alcohol (IPA) using one of the trade remedial measures available under the WTO regime incorporated under the Indian regulation. 

This measure is in the form of tariffs or quantitative restrictions (similar to import quotas) and is a temporary remedy. Until now, India’s reliance on trade remedial measures has been predominantly on anti-dumping and countervailing measures. Even within the lesser-used safeguard toolkit, India has historically deployed only tariff safeguard measures. However, the newly imposed quantitative restrictions on IPA imports are not only the first of their kind in India, they also bring with them various nuances, some of which are illustrated below. 

Before dwelling into the nuances, as background, “quantitative restrictions” are unique as they impose quotas on the quantities that may be imported from a particular country, based on historical imports from the relevant country. It is worth noting that safeguard measures are temporary measures, often imposed for a period of 2-3 years, intended to restrict imports in case of a surge in imports that have caused or threatened to cause serious injury to domestic industry, as opposed to other trade remedial measures, such as anti-dumping and countervailing duties, which are often imposed for a period of 5 years.

In order to continue importing IPA after the implementation of these measures, an importer of the product is required to obtain a valid registration certificate from the Directorate General of Foreign Trade (DGFT) – the licensing authority – in the prescribed form and manner. Imports of quantities in excess of the designated quota will not be allowed unless the DGFT allows for additional quotas. 

Why Quantitative Restrictions?

It is interesting to note that there is an anticipation of an increase in the use of QR Safeguard investigations. In India, all trade remedial measures (except the QR measures) are implemented through two separate authorities/branches of the Government of India: the Directorate General of Trade Remedies (DGTR) under the Ministry of Commerce and the Department of Revenue under the Ministry of Finance. While the DGTR is responsible for determining and recommending trade remedial measures, the Ministry of Finance imposes/enforces the recommendations by issuing customs notifications.

However, in recent times, there have been instances of differing positions taken by the Ministry of Commerce and the Ministry of Finance in imposing trade remedial measures to protect Domestic Industry. The DGTR’s recommendation is not binding on the Ministry of Finance as per the law, i.e., they can choose not to impose the trade remedial measures recommended by the DGTR. For example, in the year 2022, the DGTR issued 35 final findings recommending positive trade remedial duties in anti-dumping or countervailing duty investigations, but the Ministry of Finance enforced measures only in 15 of these recommendations. This led to a scenario of uncertainty and inconsistency on the outcome of investigations being investigated by the DGTR. This change in the practice traditionally followed by the MOF has resulted in several appellate proceedings which have subsequently also been taken to the higher courts – the outcome of these cases could take considerable time but would eventually impact the approach ultimately taken by the Ministry of Finance. 

Quantitative Restriction safeguard measures have a unique distinction in this regard - while the DGTR is similarly responsible for the recommendation of these measures, the power to implement these measures lies with the DGFT housed within the same ministry, i.e. Ministry of Commerce and Industry, thus avoiding any intervention of the MOF. As a result, it is anticipated that the aggrieved Domestic Industry across sectors would use the QR Safeguard instrument in the coming period. 

Practical Challenges in Implementation

As previously mentioned, any Indian importer seeking to import IPA (now under QR measures)  is required to obtain a valid registration certificate from the DGFT. However, the current process for obtaining a registration certificate from the DGFT for importers has raised concerns among the importer community.

The notification issued by the DGFT requires the importer to make an application for the entire year along with detailed information about quantities, country of origin, details of suppliers, and its prices in the application form. This approach may adversely affect importers as various key data points, such as the price of the commodity for the year, purchase contracts, and quantities for the year, may not be available for the entire year.  Except in certain cases, should the contract be an annual or long term contract, most of the transactions rely on prices being determined on a spot market basis - in other words, immediate transacting of a product based on terms of trade such as volume, price, origin and market situation as its exists during the relevant period of time. 

Thus, from a purely commercial perspective, the current system requires the importers to disclose their expected business dealings for the year to secure the import quota for the year. However, the disclosure requirement can put importers in a legally risky and burdensome position when doing business. While the notification does create room for amendments to the quotas allocated as part of the licenses granted by the DGFT, the practical implementation of the amendment mechanism could lead to unnecessary delay and losses, if they are not addressed adequately and appropriately in time. 

Moreover, the DGFT has not provided any transparency in its methodology or manner in which it would select the granting of quotas, including for specific quantities against the applications made by the importers. With every passing case and procedural hurdle along the way, it is expected that the process would be required to be spelt out which provides a balanced and sound methodology - addressing the issue of commercial realities applied differently to products in various sectors.

The efforts of the Government to promote exports and avoid economic slowdown in the domestic market would be well supported by robust legal standards and fair and consistent procedural aspects of the QR Safeguards on a case to case basis so as to avoid making the instrument prone to litigious procedures.