India goes to WTO against US dubbing export schemes as subsidies

India has moved the World Trade Organisation (WTO) over a recent US decision to categorise 50-odd export promotion schemes as subsidies.

Washington's decision will come into effect from next year on all Indian exports as notified by the United States to WTO, government sources said on Thursday.

"Before that," informed a commerce ministry official, "the government has sought consultations with the US under the framework of trade diplomacy of WTO. Therein, we would discuss the issues for clarification," he told Business Standard.

American's move, he said, was "absurd". For, it has dubbed every export scheme as subsidy. "This can attract double duty -- of anti-dumping (AD) as well as CVD (countervailing duty)," he pointed out.

Another official explained that such a move could have a "devastating impact" on the Indian trade with the US. The recessionary trend in Europe has already pulled exports down. US is an important trade partner of India. So, even if the government extends market-focused schemes for Indian exporters to tap new markets in Africa and Asia.

India is the 12th largest goods-trading partner of the US. The goods trade was worth $48.8 billion (two ways) last year. America's goods-trade deficit with India was $10.3 billion in 2010, with goods exports at $19.2 billion and goods imports at $29.5 billion. In 2009, the trade in services with India (exports and imports) totalled $22.3 billion.

Officials say the problem lies with the US government's "extremely broad" definition of CVD. It includes all export incentives given by the central or any state governments under any scheme, the Special Economic Zones Act and any rule on procurement from public sector units or loans from public sector banks.

For negotiations, the government is banking heavily on the judgement of the WTO Appellate Body (WAB) issued early this year.

It favoured China in a case where the US had imposed CVD on certain exports to that East Asian nation, on the ground that direct loans from state-owned commercial banks and organisations implied controlled pricing.

The WAB judgement stated that a government control on pricing could be assumed only if the entity was vested with necessary governmental authority; it isn't sufficient to be merely owned or controlled by government.

Similarly, the US had aggressively used CVD on Indian steel some time ago. In addition to the AD, a 21.95 per cent CVD was put on Essar Steel's products since 2008. Then, in January this year, after a review of US steel imports from India, a whopping 586.43 per cent CVD was put on exports of Tata Steel.

In this case, commerce ministry officials argued that NMDC was an independent entity, where the government had no role in fixing the price.

The imposition of CVD and AD would “substantially accelerate” the costs for the American importer of Indian goods in his country, the ministry official said.

CVD is primarily used to counter the impact of subsidies given by exporting countries to their exporters.

It is permissible for use, as protection under WTO rules, as is the imposition of AD, used by a country to counter the impact of imports on domestic producers of a particular commodity. Dumping is selling in its own home market a commodity at a price higher than that of its import.