The Agreement on Subsidies and Countervailing Measures (SCM) divides subsidies into three categories-prohibited, actionable, and non-actionable. Export subsidies and subsidies for use of domestic goods over imported goods are prohibited. Non-actionable subsidies, which attract no penalties, are of three kinds-for R&D, for regional development, and for adapting to new environmental requirements. Actionable subsidies cover all other subsidies, which, although not prohibited, cause injury to WTO members.

Developing countries like India with a per capita income of less than $1,000 per annum, and least developed countries have special treatment under Article 27 of the SCM.

Under the provisions of this Article, the prohibition on export subsidies does not apply. Countries like India had five years (till January 1, 2000) to phase out import substitution subsidies. If a country like India attains export competitiveness (defined as existing if a country's exports of a product reaches a share of 3.25 per cent of world trade for that product for two consecutive years) then it will get eight years to phase out export subsidies on such products. Countries affected will also have to prove that serious prejudice exists through imports from developing countries-there will not be the usual presumption of serious prejudice if subsidies greater than 5 per cent ad valorem are granted.

Why do we need special and differential treatment for developing countries? Simply put, to ensure a level playing field. In a country like India, for example, power costs for industry are very high, the cost of credit is high, infrastructure is poor, and technology is often second-hand. In many cases, subsidies merely level the playing field for exporters.

Prima facie, it would seem that the Uruguay Round has recognised the handicaps from which developing countries suffer, and have made amends by way of special and differential treatment. But the Round made the rules on subsidies more stringent, and developing countries were persuaded to come on board only by holding out the hope that their concerns would be addressed.

That has not happened, and in fact, in India's case, its DEPB, Section HHC and export-financing rates of interest have been proved to be WTO incompatible. In any case, although export subsidies are not prohibited for India, they can be subjected to countervailing duty. This negates the effect of the concession.

Consider, by way of contrast, the subsidy given on R&D. After Clinton's election in 1992, his administration advocated a partnership with industry in order to develop strategic technologies. Subsidies for R&D were therefore made non-actionable. This is what UNCTAD has to say about it, "a high degree of flexibility is given to governments as regards subsidies for research and technology development, such that governments that can afford it are free to enhance their international competitiveness in exports that depend on technological advances. The results are then protected through the Agreement on Trade-related Intellectual Property Rights (TRIPS) and become the basis for market-penetration by the country concerned - either directly through trade or through foreign direct investment. More generally, WTO members whose firms are on the "cutting edge" of technology are quick to take advantage of the system to "lock in" their competitive edge by ensuring that markets remain open to the products of thosetechnologies."

So what's the remedy? The Millennium Round offers an opportunity for developing countries, including India, to put forward their case for fair trade.

The first priority should be to expand the list of non-actionable subsidies. We should try and include measures such as the provision of cheap finance, subsidy for diversification of the market, subsidies for market development. Alternatively, we can demand the inclusion of a clause which says that new inventions that are the product of non-actionable R&D subsidies should be made freely available to all countries.

An effort should be made to make exports from export processing zones and free trade zones outside the purview of the SCM. Subsidies for import substitution should be made non-actionable. Concessional credit for exports should not be seen as a subsidy so long as it is at rates above LIBOR. Subsidies which are allowed under the provisions of Article 27 providing special and differential treatment for developing countries should be made non-countervailable.

To garner support among developing countries, India may take the stand that the absolute limit of per capita income of $1,000 per annum be replaced by a measure which is a proportion of the average per capita income of the developed countries. This would underline the fact that the level of development is a relative concept.

The de minimis level below which countervailing duties may not be imposed on developing countries is currently 4 per cent. That means that the volume of subsidised imports can be up to 4 per cent of the total imports of the product, provided imports from developing countries as a whole are cumulatively not more than 9 per cent of total imports of the product. The de minimis level needs to be raised to 7 per cent, irrespective of the cumulative amount imported from developing countries.

Developing countries should be allowed to offset the effect of domestic taxes on export products. In order to discourage frivolous complaints. compensation should be paid to a developing country against whom countervailing action or a dispute has been wrongfully initiated. And lastly, in order to ensure fair access to legal redress, developing countries should be provided with legal help, information and advice by the WTO secretariat to enable them to effectively defend their positions. That is a long enough wish-list to arm ourselves with for the Seattle summit.