Several nations support US charges against Indian export subsidies at WTO

India is set to have a tough time defending its export promotion schemes at the World Trade Organisation (WTO), with 11 major economies now supporting the US' charge that the schemes violate fair trade law.

Back in March, the Trump administration in the US had challenged India's export promotion schemes, arguing that it has been misusing export subsidies. India promised to contest the charges. But now, Brazil, Canada, China, Egypt, the European Union, Japan, Kazakhstan, Korea, the Russian Federation, Sri Lanka, Taiwan and Thailand have supported the US claim, according to WTO documents posted on its website.

The US had requested dispute settlement consultations with India at the WTO over Merchandise Exports from India Scheme and Export Oriented Units Scheme, among others. A similar action has been initiated over sectoral schemes, including Electronics Hardware Technology Parks Scheme, special economic zones and the Export Promotion Capital Goods Scheme.

"These subsidies provide benefits to Indian exporters that allow them to sell their goods more cheaply to the detriment of American workers and manufacturers," the United States Trade Representative had said. However, a senior Commerce Department official hinted that India will continue to argue that the law invoked by the US — the Agreement on Subsidies and Countervailing Measures (ASCM) — allows it a window of eight years to phase out these subsidies.

The crux of the matter

Developed nations, including the US, have long argued that export subsidies provide an unfair competitive advantage to recipients, pointing out that WTO rules prohibit them. The ASCM aims to gradually lower and finally prohibit export subsidies provided by nations so that global trade becomes equitable.

However, 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 of a $1000 per capita income. India was initially within this group, but was informed last year by the WTO Secretariat in a report that it had crossed the threshold back in 2015.

The US now points to this fact to allege India was knowingly bending the rules to bulk up its exports by continuously expanding export promotion schemes.

"The article 27 of the agreement also provides for special and differential treatment. At the time the agreement came into force, developing countries who were above the threshold were provided with a period of eight years in order to bring down their export subsidies," previous Commerce Secretary Rita Teaotia had told Business Standard back then. 

"We had clearly assumed that the same period of eight years is available to countries, as and when they cross the threshold. India has submitted a paper to the negotiating group on rules to this effect every year since then," another Commerce Department official added on Monday.

Way forward

The government's Economic Survey had suggested that phasing out some export promotion schemes is a wise idea. Recognized exporters of manufactured goods receive credit incentives, generally in the form of duty drawbacks, in various forms. 

The three major sector-specific ones are the Advance Authorisation Scheme, Export Promotion Capital Goods Scheme and the Deemed Exports Scheme, accounting for Rs 350 billion in government payouts. Apart from this, traders also earn duty credits in the form of scrips under the Merchandise Exports from India Scheme apart from Services Exports from India Scheme and the Incremental Export Incentivisation Scheme.

However, exporters expressed grave dissatisfaction with such an idea.