US Files WTO Challenge Over India Export Subsidy Schemes

The US filed a request for consultations at the WTO last week, claiming that India has exempted many of its exporters from paying certain taxes, fees, and duties in a way that violates global trade rules.

Washington says that those measures provide producers of steel products, pharmaceuticals, chemicals, information technology products, textiles, and apparel with benefits to the tune of around US$7 billion per year, enabling India exporters to “sell their goods more cheaply to the detriment of American workers and manufacturers.”

This dispute comes at a time when India is in the middle of implementing its ambitious five-year export promotion plan. New Delhi officials have said that they aim to “raise the share of manufacturing from the current level of about 15 percent to 25 per cent of GDP by 2025.”

Prohibited export subsidies

In its consultations request, the US listed 27 examples of Indian laws and regulations that it claimed are WTO-prohibited export subsidies. Under the global trade club’s subsidy rules, its members are prohibited from using state aid to support exports that are “contingent… upon export performance,” and outlines examples of what would fall under this category.

The WTO also allows developing and least developed countries (LDCs) to be exempted from this ban subject to certain conditions. India was one of the 20 developing countries listed as qualifying for this exemption for the reason of having less than US$1000 gross national product (GNP) per capita when the WTO opened its doors in the 1990s, based on World Bank data at the time.

In 2001, WTO members agreed in a Ministerial Decision on Implementation-Related Issues and Concerns that those developing countries on that list can only graduate from this special and differential (S&D) treatment when their GNP per capita hits US$1000 for three consecutive years.

Other developing countries are meant to phase out their export subsidies within eight years from when the WTO was established in 1995, though members later agreed to extend this deadline to 31 December 2015 given “the particular situation of certain developing country members.”

Since 2011, India has been one of the members on the exemption list arguing for a change to WTO subsidy rules for more “clarity”, suggesting that they should have a similar eight-year phase-out period when they reach the US$1000 graduation criteria. They have also called for the option of prolonging this phase-out period. This proposal, however, has not advanced under the WTO’s Doha Round of trade talks.

Based on the latest calculations by the WTO secretariat, which were released this past July, India’s GNP per capita in 2013, 2014, and 2015 has exceeded the graduation threshold. This data is provided on a yearly basis for the WTO’s Committee on Subsidies and Countervailing Measures.

At a committee meeting last October, the US argued that those figures indicate that India has graduated from the exemption, and that New Delhi should therefore “end all of its export subsidies in all sectors of its economy.” Meanwhile, India claimed that those subsidies should be removed gradually, referring again to its eight-year transition period proposal.

Last week when filing the WTO dispute, Washington said that India’s exemption has expired, and claimed that New Delhi’s export subsidy programmes have actually grown instead of being cancelled.

Export competitiveness

Another facet of WTO subsidy rules that has come into play in previous US-India discussions on export subsidies involves the issue of “export competitiveness.” Under these terms, a developing country that qualifies for an exemption from the prohibited subsidy rules would still need to eliminate its export subsidies within eight years for products that have reached “export competitiveness.” This threshold involves that country having “a share of at least 3.25 percent in world trade of that product for two consecutive calendar years.”

In 2010, the US had asked the WTO secretariat to calculate the export competitiveness of Indian textile and apparel products. “A computation undertaken by the secretariat at the request of any member” is one of the approaches provided by WTO rules to determine whether export competitiveness exists.

While the secretariat’s data found that Indian textile and apparel products were “export competitive,” India argued that most of its measures were “refund duties on inputs used in exported goods,” and are therefore not export subsidies. In some cases, New Delhi said that the alleged state aid had already been terminated through other trade policy measures. In any event, India said that it has until December 2018 to remove the alleged export subsidies, since it received the data on these products being “export competitive” only in 2010.

The US has also challenged this set of Indian rules and regulations in its consultations request.