WTO Dispute Settlement Panel Finds Leading Export Promotion Schemes Incompatible with its Rules on Prohibition of Export Subsidies

· Four Schemes viz. MEIS, EPCG, SEZ/ EOU and DFIA shot down.

· Only Advance Authorisation (Import before Export) and Duty Drawback remain, along with specific subsidies for particular industries (Transport and Market Assistance for Agro export).

· 120 days’ time granted for withdrawal, 180 days for SEZ.

· India may appeal; but Appellate body dysfunctional from December 2019.

· India’s refusal to implement can result in countervailing duty in importing countries. 12 other countries including China, Korea, European Union etc. join disputes as third parties.

World Trade Organization (WTO) has published report regarding India-Export Related Measures and press release published by United States Trade Representative (USTR) regarding United States Wins WTO Challenge to Indian Export Subsidies.

[Source: USTR Press Release dated 31.10.2019]

A World Trade Organization (WTO) dispute panel agreed with the United States that India provides prohibited export subsidies to Indian exporters worth over $7 billion annually. According to the panel, India gives prohibited subsidies to producers of steel products, pharmaceuticals, chemicals, information technology products, textiles, and apparel, to the detriment of American workers and manufacturers.

“This is a resounding victory for the United States,” said U.S. Trade Representative Robert Lighthizer. “Under the leadership of President Trump, the United States is using every available tool, including WTO enforcement actions, to ensure American workers are able to compete on a level playing field.”

The Indian programs found in violation of WTO rules are: the Merchandise Exports from India Scheme (MEIS); Export Oriented Units Scheme and related sector specific schemes (EOU); Special Economic Zones (SEZ); Export Promotion Capital Goods Scheme (EPCG); and a duty free imports for exporters program (DFIS). The panel gave India six months to withdraw these prohibited subsidies.

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 programs. For example, India has rapidly expanded the MEIS to include more than 8,000 eligible products, nearly double the number of products covered since its introduction in 2015. Exports under the SEZ have increased over 6,000 percent from 2000 to 2017 and in 2016 accounted for over $82 billion in exports, or 30 percent of India’s export volume. Exports from the EOU increased by over 160 percent from 2000 to 2016.

Background

Export subsidies provide an unfair competitive advantage to recipients, and WTO rules expressly prohibit them. 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 it surpassed the benchmark in 2015. India’s exemption has expired, but India has not withdrawn its export subsidies.

Today’s panel report rejects India’s assertion that it is entitled to additional time to provide export subsidies even after hitting the defined economic benchmark. The panel report concludes that each program is an export subsidy inconsistent with India’s WTO obligations.

The withdrawal of these prohibited subsidies will result in American workers and manufacturers competing on a fairer basis with their Indian competitors.