WTO rules against India’s export subsidies: All you need to know

The WTO’s dispute settlement panel ruled that India’s export subsidy schemes, including the provision for special economic zones, violated core provisions of global trade norms. 

The WTO dispute settlement panel has asked India to withdraw the concerned export subsidy schemes within a time period of 90 days from the adoption of the report. (Photo: Reuters/Representational image)

HIGHLIGHTS

  • WTO upheld claims made by US in the trade dispute case
  • India has been asked to withdraw some export subsidy programmes
  • It ruled that India’s export subsidy schemes violate global trade norms

At a time when India is going through a period of slowdown, it faces another setback as the World Trade Organisation (WTO) ruled the country’s domestic export subsidy programmes as illegal.

The WTO’s dispute settlement panel ruled that India’s export subsidy schemes, including the provision for special economic zones, violated core provisions of global trade norms.

WTO RULING EXPLAINED

Upholding US’s complaints in the case, the three-member dispute settlement panel comprising Jose Antonio S. Buencamino, Leora Blumberg, and Serge Pannatier rejected India’s claims that it was exempted from prohibition on export subsidies under the special and differential treatment provisions of the WTO’s Agreement on Subsidies & Countervailing Measures (SCM).

Some of the schemes that will be affected by the WTO’s ruling include Merchandise Exports from India Scheme (MEIS), export oriented units (EOU) scheme and sector-specific schemes, including Electronics Hardware Technology Parks (EHTP) scheme and Bio-Technology Parks (BTP) scheme, Export Promotion Capital Goods (EPCG) scheme; and duty-free imports for Exporters Scheme.

The panel further ruled that India is not entitled to provide subsidies depending on export performance and said its per capita gross national product crossed $1,000 per annum.

It is worth noting that under Article 3.1 of the WTO’s SCM agreement, all developing countries with gross per capita of $1,000 per annum for three consecutive years are required to stop all export incentives.

The US had earlier accused India of giving prohibited subsidies to Indian steel producers, pharmaceuticals, chemicals, information technology, textiles and apparel.

While the panel ruled in favour of US and urged India to withdraw the subsidies without delay.

“Accordingly, we recommend that India withdraw, without delay, the subsidies we have found to be inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement,” the panel said.

“We conclude that, to the extent the measures at issue are inconsistent with the SCM Agreement, India has nullified or impaired benefits accruing to the US under this agreement,” it added.

While the panel upheld most of the claims made by the US, it rejected some points pertaining to subset of exemptions from customs duties and an exemption from excise duties.

WHAT NEXT?

The WTO dispute settlement panel has asked India to withdraw the concerned export subsidy schemes within a time period of 90 days from the adoption of the report.

It also asked India to withdraw prohibited subsidies under the EOU/EHTP/BTP schemes, EPCG and MEIS, within a period of 120 days and SEZ scheme within 180 days.

However, India has the right to challenge the ruling before the appellate body of the WTO dispute settlement mechanism with regards to export subsidy schemes. New Delhi has a month to appeal against the WTO’s order.

On the other hand, India could rework the export incentives to comply with the WTO ruling, but experts indicate that any change to the export subsidies will impact traders and the government will have to immediately look at working out alternatives.

Under the various schemes, domestic companies are currently receiving billions in subsidies on an annual basis. Withdrawing the subsidies may have a significant effect on the performance of such companies.

US-INDIA TRADE DISPUTE RECAP

Last year, the US had taken India to the WTO’s over the issue of export subsidy schemes, claiming that they were hurting American companies. The US alleged that some subsidy programmes run by the Indian government were giving undue advantage to Indian businesses.

The Donald Trump administration filed a case against India citing a violation of the SCM Agreement as India’s gross national product per capita was over $1,000.

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