The World Trade Organization (WTO) has ruled against India in a crucial trade dispute with the US, ordering all export promotion schemes to be stopped within the next four months. The WTO also said the SEZ Scheme should be closed within the next six months.
“We recommend that India withdraw the prohibited subsidies under the export oriented units (EOU), electronics hardware technology park (EOT), bio-technology parks (BTP) scheme, Export Promotion for Capital Goods (EPCG) scheme, and the Merchandise Exports from India Scheme (MEIS), within 120 days from adoption of the report,” the WTO’s dispute settlement body ruled on Thursday.
Before the ruling, India had already said it would replace the MEIS by December with another called the Remission of Duties or Taxes on Export Products (RoDTEP). But sources told Business Standard that this deadline may be extended till March 31, when the updated Foreign Trade Policy (FTP) 2020-2025 will go live.
Outbound trade fell 6.57 per cent in September, a 3-month low, with the trade decline plaguing major foreign exchange earners like processed crude oil, and gems and jewellery.
The WTO has taken note of India’s deliberations on the FTP, and played hardball. “We also consider, however, that the possible need to lay the amendments to the FTP before Parliament for 30 days requires that we include these 30 days in the time period within which the prohibited subsidies must be withdrawn,” it said.
The US has also cornered India at the multilateral platform, stating WTO rules prohibit middle-income nations from providing market distorting export subsidies at all. A limited exception to this rule is for specified developing countries that may continue to provide export subsidies temporarily until they reach a defined economic benchmark. India was initially within this group, but was informed by the WTO secretariat in 2017 that it had crossed the threshold back in 2015.
Initially, India had fought back against the US charge by citing that the Agreement on Subsidies and Countervailing Measures (ASCM) allows it a window of eight years to phase out these subsidies. The ASCM aims to gradually lower and finally prohibit export subsidies provided by nations but allow those countries with less than $1,000 per capita income, so that global trade becomes equitable.
The US had said India knowingly bent the rules to bulk up its exports by continuously expanding the schemes despite crossing the threshold. “When the agreement came into force, developing countries that were above the threshold were provided with a period of eight years in order to bring down their export subsidies. We had assumed the same period is available to countries as and when they cross the threshold,” a person in the know said.
The US Trade Representative on Thursday said according to India’s own calculations, subsidies totaling over $7 billion annually flow under these schemes. It said that exports under the EOU scheme increased by over 160 per cent from 2000 to 2016 while exports under the SEZ increased over 6,000 per cent from 2000 to 2017, accounting for over $82 billion in exports or 30 per cent of India’s export volume.
Senior government officials refused to comment on the US figures. “The US is playing a far larger game whereby it is on one hand petitioning the dispute settlement body while also single-handedly and consistently blocking the appointment of judges to the seven-member panel. Currently, three members have retired and a fourth is set to retire,” India’s former ambassador to the WTO Jayanta Dasgupta had said earlier.