Upholding a complaint brought by the United States, a World Trade Organization (WTO) panel ruled on Thursday that India’s export subsidies were illegal and should be removed.
The panel largely agreed with US claims challenging export subsidies granted in the form of exemptions from customs duties and a national tax, while rejecting some US arguments. It called on India to withdraw the export-contingent subsidies within periods varying from 90 to 180 days.
The US Trade Representative's Office, in a statement, said that the panel had agreed that India provided prohibited subsidies to Indian exporters worth more than $7 billion (5.4 billion pounds) annually, including to producers of steel products, pharmaceuticals, chemicals, IT products and textiles.
India will now have to re-work these incentive schemes to comply with the WTO ruling. However, it can file appeal against it at an appellate body of the WTO through a dispute-settlement mechanism.
On March 14 last year, the US had taken India to WTO's dispute-settlement mechanism over New Delhi's export-incentive schemes, including the Merchandise Exports from India Scheme (MEIS); Export Oriented Units (EOUs) and Export Promotion Capital Goods (EPCG) scheme; and duty-free imports scheme.
The US had alleged that these schemes were harming American companies.
The dispute panel in its report has concluded that most of these schemes like EOU, Electronics Hardware Technology Parks Scheme, EPCG, and MEIS are inconsistent with certain provisions of WTO's Agreement on Subsidies and Countervailing Measures.
The dispute panel has recommended that India withdraw the prohibited subsidies under DFIS within 90 days from adoption of the report.
It should also withdraw the prohibited subsidies under the EOU/EHTP/BTP schemes, EPCG, and MEIS, within 120 days and SEZ scheme within 180 days.
The exemptions from customs duties on importation under the EOU/EHTP/BTP (Bio-Technology Parks) schemes were subsidies contingent upon export performance inconsistent with certain articles of the agreement, the ruling said.
"The duty credit scrips awarded under MEIS are subsidies contingent upon export performance, inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement," it added.
According to the procedure established by the WTO, the first step to resolve a trade dispute is engaging for consultation process. If two trading partners having dispute could not resolve at that level, one of them can ask for settlement of dispute panel for hearing. The panel's report or ruling can be challenged at the appellate body.
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