India loses export incentive case filed by US at WTO, to appeal against the ruling

NEW DELHI: India suffered a setback at the World Trade Organization (WTO) in a dispute against the US that had challenged its key export subsidy schemes including the one for special economic zones. The WTO has ruled that these export subsidy programmes violated provisions of the trade body’s norms. New Delhi is likely to appeal the ruling before the organisation’s Appellate Body, officials said.

A dispute panel in the WTO ruled that these export subsidy programmes provided by the Indian government violated provisions of the trade body’s norms.

“The dispute panel rejected India’s claim that it was exempted from the prohibition on export subsidies under the special and differential treatment provisions of the WTO’s Agreement on Subsidies and Countervailing Measures (SCM),” the panel said in its ruling.

The other affected schemes are – Merchandise Exports from India Scheme (MEIS), Export Oriented Units Scheme and sector specific schemes, including Electronics Hardware Technology Parks Scheme and Bio-Technology Parks Scheme; Export Promotion Capital Goods Scheme; and Duty-Free Imports for Exporters Scheme.

“According to the Indian Government, thousands of Indian companies are receiving subsidies totaling over $7 billion annually from these programs, and India has increased the size and scope of these programmes,” office of US Trade Representative said in a statement.

It said India gives prohibited subsidies to producers of steel products, pharmaceuticals, chemicals, information technology products, textiles, and apparel.

Last year, the US challenged India’s export programmes at the WTO claiming them to harm American workers citing the agreement that envisages the eventual phasing out of export subsidies.

The agreement provides a period of eight years for graduating countries (least developed and developing) which cross the $1,000-mark at 1990 exchange rate to phase out export subsidies.

However, such countries need to stop all export incentives if per capita GNI of such a country crosses $1,000 for three consecutive years.

The panel determined that India had “graduated” from the exemption it was originally entitled to and was not eligible for any further transition period.

In its ruling, the global trade watchdog said that India was granting prohibited export subsidies in the form of exemptions from customs duties and the integrated Goods and Services Tax, deductions from taxable income, and the issuance of notes or scrips that firms can use to pay off certain debts to the government.

However, other US claims regarding a subset of exemptions from customs duties and an exemption from excise duties were rejected by the panel.

While the panel has recommended withdrawal of the export-contingent subsidies within 90-180 days, dated from the formal adoption of the ruling, India is likely to appeal the ruling in the Appellate Body, officials said.

India has a month to challenge the ruling before an appellate body, the highest court for global trade disputes.

New Delhi has already set the ball rolling to replace the MEIS and has proposed the Remission of Duties or Taxes on Export Product (RoDTEP) scheme which would come into force from January 1, 2020.