TWN Info Service on WTO and Trade Issues (Oct19/01)
2 October 2019
Third World Network

US expected to win against Indian subsidies for export-promotion

Published in SUNS #8987 dated 1 October 2019

Geneva, 30 Sep (D. Ravi Kanth) – The United States is expected to win a trade dispute against India at the World Trade Organization, after a dispute settlement panel is understood to have upheld Washington’s complaint that India’s subsidies programs for export promotion are inconsistent with the provisions of the Subsidies and Countervailing Measures (SCM) Agreement, said several persons familiar with the ruling.

A WTO dispute settlement panel has ruled against Indian export-promotion schemes on grounds that India is not entitled to provide them as its gross per capita national product has crossed $1000 per annum.

The panel has reportedly ruled that India’s subsidies contingent upon exports for several schemes are inconsistent with the core provisions of the WTO’s SCM Agreement.

The schemes that could be affected due to the ruling include (1) export-oriented units scheme and sector specific schemes, including Electronics Hardware Technology Parks Scheme and Bio-Technology Parks Scheme, (2) the Merchandise Exports from India Scheme, (3) the Export Promotion Capital Goods Scheme, (4) Special Economic Zones, and (5) duty-free imports for exporters programs.

In 2018, the US had maintained that India’s various export-related programs – such as Export Oriented Units Scheme and sector specific schemes, including Electronics Hardware Technology Parks Scheme, and Bio-Technology Parks Scheme, Merchandise Exports from India Scheme, Export Promotion Capital Goods Scheme (EPCG), Special Economic Zones, and Duty-free Imports from Exports Scheme among others – violated Article 3.1(a) of the WTO’s SCM Agreement.

Under Article 3.1 of the SCM Agreement, only developing countries with gross per capita of up to $1000 per annum are entitled to provide export subsidies that are contingent upon export performance.

“India appears to have acted inconsistently with Article 3.2 of the SCM Agreement,” the US argued, insisting that India, after having attained gross national product per capita of $1000 per annum, is not entitled to provide “subsidies contingent upon export performance.”

In response to the US claims, India has maintained that the government has already announced in 2015 that it would discontinue the export subsidies soon.

Subsequently, the government made another announcement in 2017 that it would end the export subsidies to its various export-oriented units.

Early last year, the US, which is specifically targeting various export-promotion schemes and programs in India, had launched the current trade dispute, according to a legal analyst, who asked not to be quoted.

After the panel’s final report is made public around 10 October, India will have a month to appeal the ruling before the Appellate Body (AB).

If the Appellate Body upholds the panel’s ruling, then, India will be required to discontinue the existing export-oriented schemes within a reasonable period of time.

With the Appellate Body set to become dysfunctional from 11 December 2019 because of the US decision to block the selection process for filling six vacancies at the Appellate Body, it remains to be seen how India’s appeal against the panel ruling will be adjudicated when India appeals after the final ruling, said another legal analyst, who asked not to be quoted.

And the moment India notifies the Dispute Settlement Body of its appeal, the panel ruling will be in abeyance and cannot be adopted, until the AB hands down its ruling on the appeal.

“We are now entering a dark phase of adjudication of trade disputes at the WTO in the absence of the Appellate Body,” the legal analyst said.

Even though the US has scored a significant victory against India’s export-oriented schemes, Washington has not yet implemented the Appellate Body’s ruling in favour of India against the US countervailing measures for carbon steel products until now.

A compliance panel is expected to issue its report on whether the US fully implemented the findings of the Appellate Body in the case launched by India against the US.

Further, the US continues to provide a range of subsidies, including insidious subsidies, through its federal and state programs for units in strategic sectors, including aviation and electronics, a WTO dispute panel had ruled in a trade dispute launched by the European Union against subsidies granted to the American civil aviation company Boeing.

The US is also continuing several agricultural domestic subsidies, such as on cotton, that the WTO’s Appellate Body had found to be illegal.

In the past, the US lost a major export-subsidy dispute with the European Union on the special tax treatment given to its “Foreign Sales Corporations” (FSC).

The Appellate Body had upheld that the FSC measure constituted a prohibited subsidy under Article 3.1(a) of the SCM Agreement and the US took almost eight years to repeal the special tax provisions, the analyst said.

Recently, India won a major trade dispute against the US in which a dispute settlement panel pronounced that mandatory local content requirements and subsidies instituted by eight American states breached global trade rules.

The ruling provided India much-needed strategic leverage open to WTO members in tit-for-tat trade disputes.