Setback at WTO: India to rework export schemes after losing dispute to US

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Updated: October 1, 2019 7:05:20 AM

In that case, the fate of any appeal by India against a verdict in favour of the US remains uncertain.

In that case, the fate of any appeal by India against a verdict in favour of the US remains uncertain.

With India losing a key trade dispute with the US at the World Trade Organization (WTO) on export subsidies, it will likely expedite a process to replace or restructure various WTO-incompatible export schemes in the coming months, a source told FE.

A WTO dispute settlement panel is learnt to have ruled in favour of the US that had claim-ed that New Delhi offered illegal export subsidies and “thousands of Indian companies are receiving benefits totaling over $7 billion annually from these programmes”. These export subsidies were in violation of the WTO’s subsidies and countervailing measures (SCM) pact, the US had alleged. India is awaiting the final report of the panel and its precise findings, which is exp-ected soon, said another source, indicating that a detailed impa-ct assessment would be done once the report was received.

Analysts say what comes as a blessing in disguise for India is the US move to block judges to the appellate tribunal, which will be crippled with just one judge left after December 11. In that case, the fate of any appeal by India against a verdict in favour of the US remains uncertain. Unless a decision is made by the tribunal on the appeal, the findings of the WTO’s dispute panel can’t be binding on India, they have added.

In a business-as-usual scenario, though, once the dispute panel’s final report is made public, India would be required to challenge the ruling before an appellate body within a month. If the appellate body upholds the panel’s ruling, India will have to discontinue the export promotion schemes within a mutually-agreed-upon (with the US, in this case) time frame, which is often a year. Here, too, India will have time to comply if it starts the restructuring of controversial programmes early.

In March last year, the US had challenged various Indian export subsidy programmes, including Merchandise Exports from India Scheme (MEIS); Export Oriented Units Scheme; sector-specific schemes, including Electronics Hardware Technology Parks Scheme; special economic zones; Export Promotion Capital Goods Scheme; and duty free imports for re-exports.

Government officials said the process of ending export subsidy programmes that were incompatible with the WTO norms had already started with the announcement earlier this month to replace the MEIS, the biggest of these schemes, with a Rs 50,000-crore one, called Remission of Duties and Taxes on Export Product. Some other programmes will be appropriately restructured. The revenue forgone under the MEIS is around Rs 40,000-45,000 crore year. Although government officials believe the new remission scheme is in sync with the WTO norms, experts such as Biswajit Dhar have stated that it’s still vulnerable to challenges at the WTO.

Commenting on the latest development, Dhar, professor at the Centre for Economic Studies and Planning of JNU, said the US could now use the dispute panel’s findings to put moral pressure on India to extract greater market access in ICT products (including high-end smart phones), medical equipment, agriculture and other sectors under a bilateral trade deal that is being negotiated.

Interestingly, the US recently challenged a ruling given by the WTO’s dispute settlement panel on renewable energy or the solar sector in favour of India. In June, a WTO dispute resolution panel had ruled in favour of India in a case against the US, holding that America’s domestic content requirements and subsidies provided by eight of its states in the renewable energy sector were inconsistent with global trade norms.

According to the special and differential provisions in the WTO’s Agreement on Subsidies and Countervailing Measures, when a member’s per capita gross national income (GNI) exceeds $1,000 per annum (at the 1990 exchange rate) for a third straight year, it has to withdraw its export subsidies. According to a WTO notification in 2017, India crossed the per-capita GNI threshold for three straight years through 2015 — to $1,178 in 2015 from $1,051 in 2013. However, India has been arguing that just like some others who were granted eight years to scrap export subsidies, it, too, deserves such a time frame to do so.

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