wto-ruling-against-indian-subsidies

Context: India suffered a setback at the World Trade Organization (WTO) in a dispute against the US that had challenged its key export subsidy schemes including the one for special economic zones. 

Background:

  • Last year, the US challenged India’s export programmes at the WTO claiming them to harm American workers citing the agreement that envisages the eventual phasing out of export subsidies.
  • The other affected schemes are - Merchandise Exports from India Scheme (MEIS), Export Oriented Units Scheme and sector specific schemes, including Electronics Hardware Technology Parks Scheme and Bio-Technology Parks Scheme; Export Promotion Capital Goods Scheme; and Duty-Free Imports for Exporters Scheme.
  • The dispute panel rejected India's claim that it was exempted from the prohibition on export subsidies under the special and differential treatment provisions of the WTO's Agreement on Subsidies & Countervailing Measures (SCM).
  • The panel determined that India had "graduated" from the exemption it was originally entitled to and was not eligible for any further transition period.
  • In its ruling, the global trade watchdog said that India was granting prohibited export subsidies in the form of exemptions from customs duties and the integrated Goods and Services Tax, deductions from taxable income, and the issuance of notes or scrips that firms can use to pay off certain debts to the government.

About WTO's Agreement on Subsidies & Countervailing Measures (SCM).

  • The agreement provides a period of eight years for graduating countries (least developed and developing) which cross the $1,000-mark at 1990 exchange rate to phase out export subsidies.
  • The agreement provides a period of eight years for graduating countries (least developed and developing) which cross the $1,000-mark at 1990 exchange rate to phase out export subsidies.
  • However, such countries need to stop all export incentives if the per capita GNI of such a country crosses $1,000 for three consecutive years.

Organizational Structure of WTO 

  • The WTO is run by its member governments. Decisions are normally taken by consensus.

Highest authority: the Ministerial Conference

  • The countries make their decisions through various councils and committees, whose membership consists of all WTO members. 
  • Topmost is the ministerial conference which has to meet at least once every two years. The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements.

Second level: General Council in three guises

Day-to-day work in between the ministerial conferences is handled by three bodies:

  •  The General Council
  •  The Dispute Settlement Body
  •  The Trade Policy Review Body

The Agreement Establishing the WTO states they are all the General Council, although they meet under different terms of reference. 

  • Again, all three consist of all WTO members. They report to the Ministerial Conference.
  • The General Council acts on behalf of the Ministerial Conference on all WTO affairs. It meets as the Dispute Settlement Body and the Trade Policy Review Body to oversee procedures for settling disputes between members and to analyse members’ trade policies.

Third level: councils for each broad area of trade, and more

Three more councils, each handling a different broad area of trade, report to the General Council:

  •  The Council for Trade in Goods (Goods Council)
  •  The Council for Trade in Services (Services Council)
  •  The Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council)

As their names indicate, the three are responsible for the workings of the WTO agreements dealing with their respective areas of trade. Again they consist of all WTO members.

What Are Export Incentives?

  • Governments also regulate trade by providing various kinds of support for export producers. Export subsidies come in a variety of forms, but they share the trait in benefitting from government funds. 
  • These funds enable them to offer their products or services to other countries at lower prices. The objective of this support is to enable domestic producers to “win” sales by undercutting the prices charged by producers in foreign countries. 


Impact on India 

  • It will affect trade worth more than $7 billion annually, including to producers of steel products, pharmaceuticals, chemicals, IT products and textiles.

Way Forward

  • India will appeal against the ruling, which may prevent the adoption and implementation of the panel’s decision. 
  • India has three pending appeals before the Appellate Body. In two of them, India challenged panel rulings involving the US that sought the termination of export subsidy schemes in India, and Japan, which won a case against New Delhi’s safeguard measures against Japanese steel products.

The Appellate Body 

  • It was established in 1995 under Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). 
  • It is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO Members. 
  • The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel, and Appellate Body Reports, once adopted by the Dispute Settlement Body (DSB), must be accepted by the parties to the dispute. 
  • The Appellate Body has its seat in Geneva, Switzerland.