A World Trade Organisation (WTO) panel recently ruled against India in a trade dispute over its subsidies to exporters under various schemes. If the panel’s ruling is adopted, the decision is expected to put at risk export subsidies claimed to be worth over $7 billion.

Why was India taken to the dispute settlement panel?

The US in March 2018 challenged export subsidies provided by India under five sets of schemes — Export-Oriented Units, Electronics Hardware Technology Park and Bio-Technology Park (EOU/EHTP/BTP) Schemes; Export Promotion Capital Goods (EPCG) Scheme; Special Economic Zones (SEZ) Scheme; Duty-Free Imports for Exporters Scheme (DFIS); and Merchandise Exports from India Scheme (MEIS).

The US had alleged these schemes violated certain provisions of WTO’s Subsidies and Countervailing Measures (SCM) Agreement that prohibit subsidies that are contingent upon export performance. According to the agreement, India was only exempt from this provision until its Gross National Product per capita per annum reached $1,000.

The export subsidies under most of the challenged schemes, except for MEIS, consist of exemptions and deductions from customs duties and other taxes. The subsidies under MEIS consist of government-issued notes (“scrips”) that can be used to pay for certain liabilities vis-à-vis the government and are freely transferable, according to the WTO dispute settlement panel.

The US argued these subsidies were a detriment to American workers and manufacturers. When consultations with India did not work out, the US in May 2018 requested that a dispute settlement panel be set up.

What was India’s defence?

India argued that certain provisions under the SCM Agreement, allowing for special and differential treatment of certain developing countries, excluded it from the provisions prohibiting export subsidies. It also argued that all the challenged schemes, except the SEZ scheme, adhered to a provision of the SCM Agreement that carves out exemptions from or remission of duties or taxes on an exported product under certain conditions.

On what grounds did the panel rule against India?

The panel found the US had “demonstrated the existence of prohibited export subsidies” that were inconsistent with provisions of the SCM Agreement. It recommended that India withdraw certain “prohibited subsidies” under the DFIS scheme within 90 days; under the EOU/EHTP/BTP, EPCG and MEIS schemes within 120 days and under the SEZ scheme within 180 days from the adoption of its report.

Source: The Indian Express