Introduction

This study addresses the disputes brought to the World Trade Organization (WTO) by the European Communities and the United States concerning certain Indian measures affecting the importation of automobiles and components in the form of “completely knocked down” (CKD) and “semi-knocked down” (SKD) kits. The measures in question originated during a time when India employed extensive import licensing requirements, ostensibly for balance of payments purposes. India's broad licensing regime was challenged in 1997 by the European Communities and the United States, resulting in a settlement with the European Communities and a ruling in favor of the United States pursuant to which India agreed to abolish its import licensing system. Some restrictions in the automotive sector remained, however, which became the subject of this proceeding.

The automotive restrictions resulted from a law known as Public Notice 60 (PN60), enacted in 1997, which provided that companies desiring to obtain import licenses for CKD or SKD kits must enter a contract with the government known as a “Memorandum of Understanding” (MOU). These MOUs, among other things, required companies to achieve stated local content percentages (“indigenization requirements”) in their manufacturing operations, and to ensure that the value of their exports was equal to the value of their imports (“trade balancing requirements”). The contractual commitments to the government through the MOUs remained binding and enforceable even after the import licensing regime that had given rise to them was abolished.