TWN Info Service on WTO and Trade Issues (Nov19/09)
14 November 2019
Third World Network

US wins on India's export subsidy schemes
Published in SUNS #9011 dated 4 November 2019

Geneva, 1 Nov (D. Ravi Kanth) - The United States won a trade dispute against India at the World Trade Organization on Thursday (31 October), with a dispute panel having upheld the US complaint against several of India's export subsidy schemes on grounds for violating the core provisions of the WTO's Agreement on Subsidies and Countervailing Measures (SCM).

In a 113-page ruling issued on 31 October, the panel of three members, comprising Jose Antonio S. Buencamino, Leora Blumberg, and Serge Pannatier, pronounced that India's export-promotion schemes are illegal as they constituted prohibited subsidies under the WTO's SCM Agreement. (See SUNS #8987 dated 1 October 2019).

Last year, the US had raised the trade dispute against India at the WTO.

The US claimed in the dispute that India is required to comply with the obligations of Article 3.1(a) of the SCM Agreement because India's gross national product per capita has reached $1,000 per annum.

The US alleged that India's export-promotion schemes amounted to "prohibited subsidies."

The panel, in its interim review (page 38), ruled that India is not entitled to provide subsidies contingent upon export performance due to its per capita gross national product having crossed $1,000 per annum.

"Having found that Article 27 of the SCM Agreement no longer excludes the challenged measures from the application of Articles 3.1 (a) and 4 of the SCM Agreement, and that the United States' statement of available evidence met the requirements of Article 4.2 of the SCM Agreement, we proceed to examine the United States' claims of inconsistency with Article 3.1(a) and 3.2 of the SCM Agreement," it said.

As part of "the measures at issue", the panel examined the following five export-promotion schemes administered by the Indian government.

The schemes include (1) export-oriented units scheme, 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) a duty-free imports for exporters program.

The panel concluded that the five schemes that provided "exemptions from customs duties on importation" are "subsidies contingent upon export performance, inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement."

The panel, however, rejected the US claims that "the exemption from central excise duty on domestically procured goods under the EOU/EHTP/BTP Schemes and the exemptions from customs duties on importation under Conditions 28, 32, 33, and 101 of DFIS are subsidies contingent upon export performance, inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement."

Under Article 3.8 of the Dispute Settlement Understanding (DSU), the panel stated that "in cases where there is an infringement of the obligations assumed under a covered agreement, the action is considered prima facie to constitute a case of nullification or impairment of benefits."

The panel concluded that "to the extent the measures at issue are inconsistent with the SCM Agreement, India has nullified or impaired benefits accruing to the United States under this agreement."

Stating that it is required to provide recommendations under Article 4.7 of the SCM agreement as the "measures in question are found to be prohibited subsidies," the panel said that India must "withdraw the subsid[ies] without delay."

The panel then said India must withdraw the subsidies within 90-180 days after the ruling is adopted by the Dispute Settlement Body within one month.

India can appeal the panel's ruling before the WTO's Appellate Body within one month.

But, the Appellate Body is 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.

Consequently, it remains to be seen how India's challenge against the panel ruling will be adjudicated, said a legal analyst, who asked not to be quoted.

Although the US has scored a significant victory against India, Washington has so far not implemented the Appellate Body's ruling (adopted on 19 December 2014) in favour of India against US countervailing measures on carbon steel products.

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

Notwithstanding the US victory in the current subsidy dispute against India, the US continues to provide insidious subsidies, through its federal and state programs for units in strategic sectors, including aviation and electronics, said a trade envoy, who asked not to be quoted.

Also, the US has lost many trade disputes due to the subsidies it has provided in various sectors, including agriculture. Several rulings against the US subsidy schemes are yet to be implemented, the trade envoy pointed out.

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.

The US Trade Representative Ambassador Robert Lighthizer welcomed the dispute settlement ruling against India's export-promotion schemes, saying they amounted to provide prohibited subsidies to the tune of $7 billion by the Indian government.