WORLD TRADE
ORGANIZATIONWT/DS146/AB/R
WT/DS175/AB/R
19 March 2002
(02-1417)
Original:  English
INDIA – MEASURES AFFECTING THE AUTOMOTIVE SECTOR
AB-2002-1
Report of the Appellate BodyWT/DS146/AB/R
WT/DS175/AB/R
Page 1
WORLD TRADE ORGANIZATION
APPELLATE BODY
India – Measures Affecting the Automotive
Sector
India – Appellant
European Communities – Appellee
United States – Appellee
Korea – Third ParticipantAB-2002-1
Present:Ganesan, Presiding Member
Sacerdoti, Member
Taniguchi, Member
1. This appeal concerns the Panel Report,  India – Measures Affecting the Automotive Sector
(the "Panel Report").  1  The Panel was established to consider complaints by the United States and the
European Communities relating to certain aspects of India's automotive components licensing policyas set forth in India's Public Notice No. 60
 2 and the Memoranda of Understanding signed pursuant
thereto.  Public Notice No. 60 required each passenger car manufacturer in India to sign a
Memorandum of Understanding ("MOU") with the Director General of Foreign Trade, and specified a
number of conditions to be included in such MOUs.  3
2. This dispute concerns two of the conditions stipulated by Public Notice No. 60 and included
in each MOU, namely:  (i) an "indigenization" requirement, whereby each car manufacturer wasobliged to achieve indigenization, or local content, of a minimum level of 50 percent by the third yearfrom the date of its first import of cars in the form of completely and semi-knocked down kits("CKD/SKD kits"), or certain automobile components, and 70 percent by the fifth year from that date;and (ii) a "trade balancing requirement", whereby each car manufacturer was obliged to balance, overthe period of the MOU, the value of its imports of CKD/SKD kits and components with the value of
its exports of cars and components.
 4  At the time Public Notice No. 60 was issued, India maintained
import restrictions and a discretionary import licensing scheme for,  inter alia ,  automobile CKD/SKD
kits and components.  A manufacturer that failed to comply with the conditions set forth in PublicNotice No. 60 and the MOUs could be denied a licence to import CKD/SKD kits and components.                                                     
1WT/DS146/R, WT/DS175/R, 21 December 2001.
2Public Notice No. 60 was issued on 12 December 1997 by the Government of India's Ministry of
Commerce, acting pursuant to the Foreign Trade (Development and Regulation) Act of 1992. (Panel Report,
para. 2.4)
3Panel Report, paras. 2.4 and 2.5 and Annex Tables 1 and 2.
4Ibid.WT/DS146/AB/R
WT/DS175/AB/R
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India abolished its import restrictions and related discretionary import licensing scheme, including
the restrictions and licensing requirements applicable to CKD/SKD kits and components, on1 April 2001.  This occurred during the course of the Panel proceedings.  The relevant factual aspectsof this dispute are set out in greater detail in paragraphs 2.1 through 2.5 of the Panel Report.
3. On 15 May 2000, the United States requested the establishment of a panel to examine the
consistency of the measures at issue with Articles III:4 and XI:1 of the  General Agreement on Tariffs
and Trade 1994  (the "GATT 1994"), and Articles 2.1 and 2.2 of the  Agreement on Trade-Related
Investment Measures   (the " TRIMS Agreement ").
 5  On 12 October 2000, the European Communities
requested the establishment of a panel to examine the consistency of the measures at issue with
Articles III:4 and XI:1 of the GATT 1994, and Article 2.1 of the  TRIMS Agreement . 6  The European
Communities also specifically requested the Panel to find that the measures at issue were inconsistentwith these provisions of the covered agreements as of the date of establishment of the Panel, and thatthey had remained so after 1 April 2001.
 7  Pursuant to Article 10.2 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes  (the "DSU"), Korea and Japan reserved their third
party rights in the dispute.  8
4. In its Report, circulated on 21 December 2001, the Panel found that:
(a) India acted inconsistently with its obligations under
Article III:4 of the GATT 1994 by imposing on automotivemanufacturers, under the terms of Public Notice No. 60 and
the MOUs signed thereunder, an obligation to use a certain
proportion of local parts and components in the manufacture
of cars and automotive vehicles ("indigenization" condition);
(b) India acted inconsistently with its obligations under
Article XI of the GATT 1994 by imposing on automotive
manufacturers, under the terms of Public Notice No. 60 andthe MOUs signed thereunder, an obligation to balance any
importation of certain kits and components with exports of
equivalent value ("trade balancing" condition);  [and]
                                                     
5WT/DS175/4.
6WT/DS146/4.  At its meeting on 17 November  2000, the Disput e Settlement Body agreed, in
accordance with Article 9.1 of the  Understanding on Rules and Procedur es Governing the Settlement of
Disputes , that the Panel established on 27 July 2000 to examine the complaint by the United States should also
examine the complaint by the European Communities. (Panel Report, para. 1.4;  WT/DSB/M/92)
7Panel Report, para. 3.5.
8Ibid., para. 1.6.WT/DS146/AB/R
WT/DS175/AB/R
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(c) India acted inconsistently with its obligations under
Article III:4 of the GATT 1994 by imposing, in the context
of the trade balancing condition under the terms of Public
Notice No. 60 and the MOUs signed thereunder, anobligation to offset the amount of any purchases of
previously imported restricted kits and components on the
Indian market, by exports of equivalent value.
 9
5. In the light of its findings that the measures at issue were inconsistent with Articles III:4
and XI:1 of the GATT 1994, the Panel was of the view that it was not necessary to address the claims
made by the European Communities and the United States under the  TRIMS Agreement . 10
6. The Panel then went on to give "separate consideration" to:
… whether the events which took place subsequently, including on or
after 1 April 2001, might have affected the existence of any
violations identified and … whether those events affect the nature orrange of any recommendations [the Panel] may make to the DSB in
accordance with Article 19.1 of the DSU.
 11
7. More specifically, the Panel:
… felt that it would not be making an "objective assessment of the
matter before it", or assisting the DSB in discharging its
responsibilities under the DSU in accordance with Article 11 of the
DSU, had it chosen not to address the impact of events having taken
place in the course of the proceedings, in assessing theappropriateness of making a recommendation under Article 19.1 of
the DSU.
 12
8. Having considered the events that took place during the Panel proceedings, the Panel found
that:
… the indigenization conditions contained in Public Notice No. 60
and in the MOUs, as they have continued to exist and apply after
1 April 2001, have remained in violation of the relevant GATT
provisions.  13
…
                                                     
9Panel Report, para. 8.1.
10Ibid., para. 7.324.
11Ibid., para. 8.3.
12Ibid., para. 8.28.
13Ibid., para. 8.47.WT/DS146/AB/R
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… the trade balancing conditions contained in Public Notice No. 60
and in the MOUs, as they have continued to exist and apply after
1 April 2001, have remained in violation of the relevant GATT
provisions.  14
9. The Panel consequently recommended that the Dispute Settlement Body (the "DSB") request
India to bring its measures into conformity with its obligations under the  Marrakesh Agreement
Establishing the World Trade Organization  (the " WTO Agreement ").  15
10. On 31 January 2002, India notified the DSB of its decision to appeal certain issues of law
covered in the Panel Report and certain legal interpretations developed by the Panel, pursuant toparagraph 4 of Article 16 of the DSU, and filed a Notice of Appeal with the Appellate Body pursuantto Rule 20 of the  Working Procedures for Appellate Review  (the " Working Procedures ").  In this
Notice of Appeal, India stated that:
India seeks review by the Appellate Body of the Panel's conclusion
that Articles 11 and 19.1 of the DSU required it to address the
question of whether the measures found [to] be inconsistent with
Articles III:4 and XI:1 of the General Agreement on Tariffs and
Trade 1994 ("GATT") had been brought into conformity with theGATT as a result of measures taken by India during the course of the
proceedings.
India further seeks review by the Appellate Body of the Panel's
conclusion that the enforcement of the export obligations that
automobile manufacturers incurred until 1 April 2001 under India'sformer import licensing scheme is inconsistent with Articles III:4
and XI:1 of the GATT.
India considers these conclusions of the Panel to be in error and
based upon erroneous findings on issues of law and related legal
interpretations.
 16
11. On 11 February 2002, India filed an appellant's submission.  17  The European Communities
and the United States each filed an appellee's submission on 25 February 2002.  18  On the same day,
Korea filed a third participant's submission.  19
                                                     
14Panel Report, para. 8.61.
15Ibid., para. 8.65.
16WT/DS146/8, WT/DS175/8, 31 January 2002.
17Pursuant to Rule 21(1) of the Working Procedures .
18Pursuant to Rule 22(1) of the Working Procedures .
19Pursuant to Rule 24 of the  Working Procedures .WT/DS146/AB/R
WT/DS175/AB/R
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12. On 25 February 2002, the Appellate Body received a letter from Japan indicating that Japan
would not be filing a written submission in this appeal, but that Japan wished to attend the oralhearing.
 20  By letter dated 27 February 2002, the Appellate Body Secretariat informed Japan, the
participants and the third participant that the Division hearing this appeal was "inclined to allow Japanto attend the oral hearing as a passive observer, if none of the participants or third participants object."On 1 March 2002 and 4 March 2002, respectively, the Appellate Body received written responsesfrom the European Communities and the United States.
13. Taking account of the views expressed by the European Communities and the United States,
the Division on 5 March 2002 informed Japan, the participants, and the third participant, that although
Japan had not filed a written submission as a third participant, Japan would be allowed to attend the
oral hearing as a passive observer, that is, to attend the oral hearing and hear the oral statements andresponses to questioning by the participants and the third participant in this appeal.
14. In accordance with the Working Schedule for Appeal communicated to the parties and the
third parties on 1 February 2002, the oral hearing in the appeal was scheduled to be held on15 March 2002.
 21
15. On 14 March 2002, the Appellate Body received a letter from India, in which India stated
that:
Pursuant to Rule 30(1) of the  Working Procedures for Appellate
Review , this is to inform the Appellate Body that India is
withdrawing the above-mentioned a ppeal;  oral hearing on this is
scheduled for 15 March 2002.  Inconvenience caused to theAppellate Body, Secretariat, the other parties and the third
participants is deeply regretted.
16. Rule 30(1) of the  Working Procedures   provides that:
At any time during an appeal, the appellant may withdraw its appeal
by notifying the Appellate Body, which shall forthwith notify the
DSB.
17. Upon receipt of India's letter of 14 March 2002, the Appellate Body on the same day notified
the DSB, pursuant to Rule 30(1) of the Working Procedures , that India "has notified the Appellate
Body that India is withdrawing its appeal" in this dispute
 22, and simultaneously informed India, the
                                                     
20 Japan had reserved its rights to participate as a th ird party in the proceedings before the Panel;  Panel
Report, para. 1.6.
21Pursuant to Rule 27 of the Working Procedures .
22WT/DS146/9, WT/DS175/9, 14 March 2002.WT/DS146/AB/R
WT/DS175/AB/R
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European Communities, the United States, Korea and Japan that the oral hearing in this appeal was
cancelled.
18. In view of India's withdrawal of the appeal by its letter of 14 March 2002, the Appellate Body
hereby completes its work in this appeal.
Signed in the original at Geneva this 15th day of March 2002 by:
_________________________
A.V. Ganesan
Presiding Member
_________________________ _________________________
Giorgio Sacerdoti Yasuhei Taniguchi
Member Member